A November 2023 order from the U.S. District Court for the District of Delaware could change the future of some patent lawsuits for what are known as nonpracticing entities (NPE). 

Three plaintiffs – Nimitz Technologies LLC, Mellaconic IP LLC, and Lamplight Licensing LLC, – were admonished for their questionable patent lawsuit history by Chief Judge Colm Connolly after he performed an inquiry into their companies and patents. Judge Connolly issued an opinion that spanned over 100 pages, in which he heavily reprimanded the companies and their attorneys. 

Chief Judge Colm Connolly’s Memorandum Opinion

The three companies discussed in Judge Connolly’s opinion were shells for IP Edge LLC, a patent monetization company, and were created in an effort to prevent IP Edge from facing legal liabilities. It was Judge Connolly’s suspicion that the plaintiff companies made false statements in their Court filings, that their attorneys violated the Rules of Professional Conduct, and that the real parties, who had been hidden and shielded from litigation, had committed fraud. 

This was not the plaintiff’s first time in front of Judge Connolly, as he had previously required them to provide additional information, such as their bank statements and information regarding their purported business address. Concerns were based on a few factors that raised red flags about the LLCs’ operations, including the number of patent infringement cases each company had filed and their lack of a physical business location. 

• Between the three plaintiffs, a total of 61 patent infringement claims had been filed.
• Each of these claims used addresses that were drop boxes instead of physical addresses.

Further inquiry into the LLCs and their business operations revealed additional details that suggested the companies were NPEs and fraudulent activity was likely. 

What is an NPE – Nonpracticing Entity?

A nonpracticing entity, often referred to as a patent troll, is a company that owns patents simply to file infringement claims and lawsuits in an attempt to make money in settlements. Patent lawsuits are most often settled out of court, and NPEs use this to their advantage by acquiring patents in order to collect licensing fees from defendants who are unlikely to take the cases to court. 

Patent trolls do not develop, invent, or manufacture any of the items related to their patents. Their claim to financial gain is the threat of costly litigation that most often leads other companies to pay smaller settlement amounts in the interest of saving time and money.  

How Do Patent Trolls Affect Business?

Patents are meant to protect the innovations and creations of businesses and individuals while allowing them to be shared with others. Patent trolls are harmful to this process. As many as 40% of patents issued by the U.S. Patent and Trademark Office (USPTO) are low-quality patents, many of which result in patent trolls taking advantage of the system. 

Because the USPTO receives hundreds of thousands of applications every year, their examiners have limited time to review and process each one. This means that it’s only a matter of time before low-quality patent applications slip through the cracks. Patent trolls cost companies billions of dollars in litigation costs every year. They are also a threat to research and development efforts as well as startup investment funds. 

The Outcome of Judge Connolly’s Opinion

Judge Connolly determined that the three LLCs in question were, in fact, formed by IP Edge as empty vessels with no assets for the purpose of assigning certain patents to them. While he made no claims about whether IP Edge’s patent filings violated any rules, he did notify the USPTO and the Department of Justice about the company’s conduct. 

He referred the LLCs’ attorneys to their state bars for disciplinary review based on his belief that they violated the Rules of Professional Conduct. Judge Connolly also felt that attorneys for IP Edge and its affiliate, Mavexar LLC, were guilty of the unauthorized practice of law and referred them to the Texas Supreme Court. 

The Impact of this Opinion on Future Patent Cases 

While the court opinion was a biting reprimand for the behaviors of the three named plaintiffs and their attorneys, will it have any impact on other patent trolls or the practice of frivolous patent litigation? Only time will tell, but it is expected that Judge Connolly’s decision to publicly and harshly reprimand this behavior is going to set the tone for future cases. 

Not only is this opinion likely to become a cautionary tale for other patent trolls, but other courts may also adopt the same approach, further diminishing the prevalence of this type of behavior from NPEs.