Patent fund handed damaging ruling in lawsuit against investor

SAN FRANCISCO, April 17 Thu Apr 17, 2014 4:31pm EDT

SAN FRANCISCO, April 17 (Reuters) - Patent owner Intellectual Ventures cannot present key damages evidence in a lawsuit against chipmaker Xilinx, a U.S. judge has ruled, which could force an end to the bitter case between IV and one of its investors shortly before trial.

The ruling against IV comes in the midst of a heated debate over whether it is too easy for patent owners to extract large royalty payments, and whether patent buying firms spur or stifle innovation.

Created in 2000, Intellectual Ventures has raised about $6 billion and acquired 70,000 patents and other intellectual property assets. IV is assembling a new patent acquisition fund with investors including Microsoft Corp and Sony Corp , while Apple Inc and Intel Corp declined to participate.

Advocates for patent reform point to the Xilinx litigation as a crucial source of information about the way patent aggregators like IV operate. For instance, the case forced IV in 2011 to disclose its full investor list, which fueled examination of its business model and public discussion, said Robin Feldman, a University of California Hastings College of the Law professor who has studied IV.

"If you were to ask me to pick a key moment in the patent reform debate, that would be on my list," Feldman said.

Xilinx invested in two IV funds and licensed a portion of IV's patents, court filings show. However, Xilinx refused IV's entreaties to license more patents, and the chipmaker eventually asked a California federal judge to declare those IV patents invalid.

IV countersued in Delaware, accusing Xilinx of infringement. Three other chipmakers have settled patent lawsuits with IV on undisclosed terms, but trial in the Xilinx case is scheduled to begin in Delaware next month.

In a redacted ruling made public on Thursday, U.S. District Judge Leonard Stark excluded IV's damages theory from trial. IV's expert witness on damages did not weigh how IV's investment agreements with Xilinx factored into proposed royalties, Stark wrote, making his opinions "unreliable and irrelevant."

Representatives for IV and Xilinx declined to comment on the ruling.

In a joint filing on Thursday, IV asked that trial against Xilinx proceed, and that IV be allowed to submit another damages report to address the judge's concerns. However, Xilinx says Stark's ruling on damages should end the case.

The judge on Thursday refused to allow IV to submit more damages evidence, according to the court docket. Stark ruled the current trial schedule should be kept for now, but added that he has not made a final decision on Xilinx's request to end the case.

Over the years IV and other firms like it have faced criticism from some in the technology industry, who argue that firms like IV, which do not primarily make products, exploit the patent system by demanding royalties and threatening litigation.

IV argues that by buying patents from inventors, it creates a mechanism for them to capitalize on their ideas. Several large tech companies previously invested in IV, which gave them low-cost licenses to IV's vast patent portfolios as well as a portion of royalties IV collected.

The case in Delaware is Intellectual Ventures I LLC et al vs. Xilinx Inc., 10-1065. (Additional reporting by Tom Hals in Delaware; editing by Andrew Hay)

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