Surprise Plaintiff in Nintendo Patent Litigation is Altitude Capital Partners

I reported here and here that Nintendo, along with others, was sued in the ED of Texas for infringement US Patent Nos. 5,592,555; 5,771,394; 5,502,689; and 5,247,621. The plaintiff was purportedly Saxon Innovations LLC, a new patent licensing company. Well, according to Patent Troll Tracker, the true plaintiff (i.e., beneficial owner of the claims in litigation) is Altitude Capital Partners. From their web site:

"Altitude Capital Partners is a leading private investment firm focused on investing $250 million of capital in businesses which own compelling intellectual property assets. We seek to invest in portfolio companies that have valuable patents, trademarks/brands, copyrights, royalty streams, trade secrets, and other intangible assets which will create a competitive advantage in creating value."

ACP doesn't meet the strict definition of "patent troll." It is more of an investment bank, having a business model focused on investment in IP, or investment in companies developing IP.

But when "portfolio companies" have no other business but enforcement of IP through licensing and litigation, the model moves away from pure investment, and into funding litigation in exchange for a piece of the action. This sounds a little like the old common law doctrine of champerty. This doctrine is in a state of flux right now. To date, I have not heard of champerty being asserted against those who fund patent litigation. The issue appears to have been raised by Peter Zura's 271 Patent Blog in September of last year in connection with a post regarding a patent suit against Toyota, alleging that hybrid technology in the Toyota Prius and Toyota Highlander gasoline-electric hybrids infringes on US Patent 5,067,932. The plaintiff in that case was apparently funded by Oliver Street Finance, LLC, who apparently agreed to pay "all legal fees and expenses in exchange for a portion of any recovery Solomon receives in the litigation equal to the greater of 40% of the recovery or the actual amount of legal fees and expenses."

According to Peter Zura, the law of Champerty is still very much in effect in the state of New York, albeit in limited situations where there is an agreement whose "sole or primary purpose" is the prosecution of litigation. The key words, of course, are "sole purpose." This would seem to exclude most, if not all, artfully drafted agreements to fund patent litigation. Cases cited in support of this proposition are Refac Int'l, Ltd. v. Lotus Dev. Corp. 131 F.R.D. 56 (S.D.N.Y. 1990) (finding assignment champertous where a five-percent interest in the patent was contracted in exchange for Refac's obligation to sue at least two alleged infringers within one month. The patent was subsequently invalidated for inequitable conduct by the Federal Circuit, but no opinion was given on appeal with regard to the agreement itself). Another case is American Optical Co. v. Curtiss, 56 F.R.D. 26 (S.D.N.Y. 1971) (finding assignment of certain IP that was expressly conditioned on the assignee bringing suit was champertous, and therefore void).

With today's raging debate over patent reform, it would make sense to start seeing champerty raised as a defense to patent litigation funded by investment banks like ACP. A brief look at the law of champerty in the state of Washington reveals case law explaining (at least in dictum) that the doctrine "has never obtained a foothold" here. Weed v. Foster, 58 Wash. 675, 678, 109 P.2d 123, 124 (1910). Later cases specifically hold "that maintenance and champerty is abrogated in the state of Washington pursuant to RCW 9.12.010." Giambattista v. National Bank of Commerce, 21 Wn. App. 723, 748 (D. I. 1978 (Dore, J., dissenting in part). Even if the doctrine of champerty were in effect, Washington cases seem to limit the doctrine to providing a defense to enforcement of allegedly champertous assignments. Id. Thus, it would not seem to provide any sort of defense to patent litigation funded pursuant to an allegedly champertous agreement. Other Washington cases addressing the doctrine of champerty include Harrison Mem. Hospital v. Ross, Case No. 25538-3-II, 2001 Wash. App. lexis 1485 (Div. II July 10, 2001) and Jordon v. Welch, 61 Wash. 569, 571, 112 P. 656, 657 (1911).

Champerty defenses aside, this suit raises real issues regarding the effectiveness of FRCP 7.1, which is supposed to require disclosure of the real parties in interest to litigation. Arguably, ACP is the real plaintiff in interest in the current litigation over US Patent Nos. 5,592,555; 5,771,394; 5,502,689; and 5,247,621, but the litigants (especially the Court) have no way of knowing this through normal operation of Rule 7.1.

For a very interesting article on emerging business models in IP, have look at this article from Raymond Millien and Ron Laurie, "Established and Emerging IP Business Models."

Established2007.pdf