Sarah Guske, Baker Botts partner. (Photo: Jason Doiy/ALM)

Patent assertion entities seem so 2012. Businesses that acquire patents and then enforce them—sometimes criticized as “patent trolls”—have largely dropped out of the headlines since the America Invents Act (AIA) and the Supreme Court's Alice decision simplified the process of challenging patent validity in many cases.

But PAEs, as they're also known, haven't disappeared from the litigation radar altogether. Some have been attracting big new investment while others have reorganized and started reviving litigation campaigns. This comes as the Patent Trial and Appeal Board has become slightly less willing, statistically, to cancel patents in AIA proceedings, and the U.S. Court of Appeals for the Federal Circuit has added more gloss to the Alice v. CLS Bank International decision.

We caught up with Baker Botts IP partner Sarah Guske last week to take a quick check of where PAE litigation stands and the kinds of defensive steps companies targeted by them should consider. Guske will be moderating a discussion of the subject May 7 at IP Counsel Cafe's Palo Alto conference.

So PAEs are still a force to be reckoned with?

People were expecting the death of patent assertion entities when the AIA came in, and all of that. Some of those activities sorted themselves out, but the patent assertion entities live on.

And it feels like maybe starting to make a comeback?

Yes, I think so. I mean, you've got the Unilocs of the world that continue to file large campaigns, RealTime [Data LLC] and others, you see quite a bit of activity that keeps going. There might be some assertion entities that have been sitting on portfolios for a while, that have now been seemingly emboldened by shifting statistics at the PTAB, and differing treatment of Section 101 than what we've seen since Alice came out [due to] Berkheimer [v. HP] and Aatrix [Software v. Green Shades Software]. District courts have been slower to grant early 101 motions. So the pendulum is swinging back in the other direction and the activity is kicking up a little bit.

How have PAEs changed over the last five years?

It's more polarized into two camps than it used to be back in the heyday. You've got the big, well-funded, more sophisticated campaigns, and then on the other end, you've got the quicker-to-settle campaigns. But you don't have much of the middle anymore, where you might litigate for awhile, get through discovery and then settle. It's either something that settles before you get to an answer, or it's going to be something like Intellectual Ventures or Uniloc where they're going to fight for a long time.

Does that mean different strategies depending on which type you're dealing with?

I think so. There are some entities, they're kind of notorious, you know just by name what camp they're going to fall into. But you definitely do a quick bit of homework when you see a complaint or a letter come in [from less well-known entities], and you can get a pretty good feel right away based on how many times the patents have been asserted and how quickly they've gone away. Even something as simple as what counsel is representing them [might indicate] OK, you'll probably be able to work out a resolution quickly if that's what you want to do, as an accused infringer. Or OK, we're going to need to hunker down, this is something we're going to need to fight for a long period of time on.

Has anything changed in terms of the demand letters you see now versus what you saw five years ago? There've been congressional hearings, there's been state legislation, the PTO director just mentioned it as a potential problem earlier this month.

One of the bigger impacts on what kind of letter you're getting and whether the entity is going to be sending a letter is a byproduct of Halo [Electronics v. Pulse Electronics, the Supreme Court's 2016 decision on enhanced damages for willful infringement].

If you're a patent assertion entity that's going to go through the steps of sending out some sort of demand letter, to get yourself where you want to be [for enhanced damages], the letter's going to have be something more than “Hey, we've got this portfolio.” There's going to need to be some more detail.

It feels a little less boilerplate than it was for a period of time, where you'd get the assertion entity that would send out the same packet to everybody, it would list 40 patents, and then leave the recipient completely in the dark as to what was going to happen next or what their exposure was.

How else has the playing field changed?

I think [the Supreme Court venue decision] TC Heartland [v. Kraft Foods Group Brands] has changed the game quite a bit the last couple of years too. It's put patent assertion entities in a position where they're going to have to be a little bit more selective and strategic about how they file, because gone are the days you can file [multiple cases] simultaneously in Texas, for instance, and be pretty comfortable that you'll be there, your cases will be coordinated, you'll have the same judge ruling on pretrial motions and claim construction.

Now that's been broken up quite a bit, so patent assertion entities are either needing to stage their campaigns, and be careful that they don't get their cases into a jurisdiction where they might be more prone to get kicked out early on a 101 motion, which will then have impacts on cases pending in other venues.

On the defense side, you can sort of take advantage of that. If you've got a couple of clusters of cases that are in different courts, you might be able to leverage joint defense groups to strategize about who takes shots where, in certain courts.

So the PAEs have to choose a venue they're not likely to get transferred out of, because if they get transferred out they could wind up somewhere they really don't want to be.

That's right. So some patent assertion entities, what they'll do is maybe they'll stage a campaign where they pick a few targets where they feel pretty comfortable they can stay in the court where they want to stay, and maybe they'll work those cases through to a certain point, whether it's to fund subsequent litigation or get favorable precedent on claim construction, or an early 101 motion that might help them later on, even in a different court. They'll play that out before maybe moving on to the next round of targets.

You do get some bolder patent entities that say, OK, we're going to sue this group in ED-Texas, and two weeks later we're going to turn around and we're going to sue some more in the Western District of Texas, and then some more in the Central District of California. If you do get cases that are pending simultaneously in overlapping courts, you can try to get some rulings—a 101 motion is a good example. Some courts won't grant them early, some will.

Are you seeing a lot of cases filed in the Central District of California?

Even before TC Heartland it was a hot docket for patent cases, but I would say since TC Heartland I've seen quite a big increase in the Central District of California. A lot of that's a function of that's where the defendants actually have proper venue. It's a big region and a big court. I would also speculate that there might be a little bit of hope on patent assertion entities' part that the Central District is a little better for them than the Northern District. I don't know that that's actually statistically true. But I could see that being the logic.

What changes are you seeing in the bar that represents PAEs?

We're seeing firms that feel like they're almost specialists in the patent assertion area. You've got firms that are probably more experienced and well funded that are handling the bigger campaigns, and the campaigns that are more likely to go to trial. On the polar opposite end with the companies that are more prone to want to settle out early, you've got some really small firms that don't appear to have a ton of patent litigation experience.

You don't get the firms that do quite a bit of defense work in Big Law venturing into that space at all on the enforcement side. You get firms like Susman [Godfrey] and Russ August & Kabat and all those folks that appear quite a bit for the bigger enforcement entities.

Any tips you have for clients when they're encountering a PAE for the first time?

The best thing they can do at that point—and this isn't to promote outside law firms—but I think it makes sense to sit down with attorneys that have seen these before, and can help make the evaluation: OK, is this going to be the kind of suit that we need to look at opportunities for early resolution because that's going to be a possibility, or are we dealing with an assertion entity that has demonstrated a willingness to go the distance and fight and drag a lot of people through?

Yes, you're upset, you've been sued by a company you've never heard of, and are now going to have to deal with it and spend money. But is it the best business and defense strategy decision to go in guns blazing, and go to the PTAB, and file early motions, or does it make more sense to look at this as, “OK, we may not like it, but let's talk about what the better business resolution is versus spending money on people like me for a long period of time.”

Are there still many established companies that take the position that, “We're just not going to settle, regardless how little the cost, if we think the claim doesn't have merit?”

I think there are still some of those, but I think there probably has been a shift in the last 10 years to start thinking about OK, can we do this for every case we get threatened with or that gets filed? It's maybe not practical from an internal resource perspective and the time that it takes to do that. I think you've still got both, but I think some of the companies that were originally taking hard lines may have re-evaluated the hard stance in all scenarios and positions that they may have had 10 years ago.