Brian Yates, the founder and CEO of iPEL, Inc., the self-described “Ethical Non-Practicing Entity,” asserts that it’s unfair for alleged infringers to describe him as a troll when it’s the infringers themselves who exhibit the real troll behavior.
During the first decade of his legal career, Yates says it was common for him to be tasked with helping larger operating companies respond to licensing requests from small companies and individual inventors. Those experiences left a bad taste in his mouth.
“When responding to friendly letters from patent owners who wanted to explore potential licensing, the instructions to me and every other defense lawyer I’ve talked to were the same: prepare a detailed and aggressive letter explaining why the client does not infringe, why the patents are invalid, and why it would be appropriate to seek attorney’s fees if the patent owner filed a lawsuit. I cannot think of a single example of an operating company wanting to consider a license, regardless of the likelihood of infringement. The whole thing made me feel dirty. That’s why I believe that operating companies who describe all NPEs as ‘patent trolls’ are sanctimonious frauds.”
“It’s actually comical to say that I’m ‘picking on’ anyone. iPEL is offering free licenses to startups and small companies and plans to litigate against the richest companies in the world. I don’t expect everyone to ‘like’ me, but it’s completely unfair to ‘hate’ me. I’m complying with the law and furthering the purpose of our patent system. It’s truly unfair and incorrect to paint me as this terrible guy.”
According to data from RPX Corp., Yates is the third-ranked NPE plaintiff by both total number of cases filed since Jan. 1, 2010 and the number of defendants sued since Jan. 1, 2010. IP Edge and Acacia Research Corp. (ACTG) are the top two ranks by either measure.
RPX said Yates' cases were filed between 2011 and 2017, with none filed in 2018. He is therefore not in the top NPE plaintiffs year to date in 2018. Yates currently has 10 open cases, and is not in the top 20 NPE plaintiffs by count of open cases.
“I’m certainly not a newcomer to this business. There are very few people who have more patent enforcement and licensing experience than me. Over the last seven years, I’ve initiated and resolved nearly one thousand patent lawsuits.”
On the topic of people being skeptical of Yates and iPEL, Yates says “People don’t realize that I have completed deals and have ongoing relationships with many of the largest and most respected companies in the world. I have never been sued for breach of contract or any other type of wrongdoing. This is why I am trusted by the companies and investors that know me.”
Yates, 43, graduated with honors from Loyola Law School in Los Angeles in 2000. He graduated with a degree in chemistry in 1997, from Whittier College, the Quaker institution where President Richard Nixon went to school.
After law school, he worked for six years from 2000 to 2006 as an attorney for Christie Parker & Hale LLP.
Then he spent four years from 2007 to 2011 as an attorney for Hennigan Dorman LLP, which merged with McKool Smith LLP around the time Yates left.
After that, he founded and ran Prognosis IP, which he used as a platform for acquiring patents. From 2011 to 2017, Yates created several dozen NPEs, which became the plaintiffs of nearly one thousand lawsuits. He estimates that settlements/licenses were reached in 95% of the cases and declines to comment on any of the amounts, due to confidentiality obligations.
In May 2017, Yates quietly founded iPEL, Inc., with one of his litigation counsel, Rasheed McWilliams, who was chairing the litigation group at Cotman IP Law Group LLP at that time. iPEL secured $100 million in capital from a funding source. Yates would not disclose any details concerning the identity of the funding source or the structure of the deal for securing the capital.
Public records suggest that the funding source is Direct Lending Investments LLC, an investment manager that focuses on private debt. Officials from DLI declined to comment.
Although Yates has an impressive track record, it is not perfect. In one case in particular, Yates suffered an embarrassing defeat, where he was required to personally pay over $500,000 to a defendant.
The defeat came in an enforcement action by Iris Connex, LLC (one of Yates’ entities) against 19 smartphone and tablet manufacturers, alleging infringement of U.S. Patent No. 6,177,950, which is entitled “Multifunction portable telephone.”
Iris Connex originally filed actions against Dell Computer, Acer America Corp., Alcatel-Lucent USA Inc., Apple Inc., Asus Computer International, Blackberry Corp., Fujitsu America Inc., Hewlett-Packard Co., HTC America Inc., Huawei Device USA Inc., Lenovo (United States) Inc., Motorola Mobility LLC, LG Electronics U.S.A. Inc., Microsoft Corp., Panasonic Corp. of North America, Samsung Electronics America Inc., Sharp Electronics Corp., Sony Mobile Communications (USA) Inc., and Toshiba America Information Systems Inc.
Judge Rodney Gilstrap, of the U.S. District Court in the Eastern District of Texas, ruled in favor of the defendants on claim construction and granted summary judgment of non-infringement. Judge Gilstrap then invited the defendants to conduct discovery into the real party in interest behind Iris Connex (without any defendant requesting it or ever raising any such questions).
Judge Gilstrap ultimately awarded Dell $507,000 in exceptional case fees from Yates personally. Judge Gilstrap seemed especially irritated by Yates’ efforts to shield himself and his entities from any potential economic liability through various corporate and procedural strategies. In the end, Judge Gilstrap concluded that all entities and actions were controlled solely by Yates and, therefore, it was appropriate to hold Yates personally liable.
Dell was the only company to seek exceptional case fees. Under joint stipulations with Iris Connex, the other former defendants were dismissed with prejudice, and each agreed to forego all claims against Iris Connex for attorney fees, expenses, sanctions, and costs.
Yates said that he decided not to appeal the exceptional case decision because it would have been expensive and an ongoing distraction.
“Although I believe that several aspects of Judge Gilstrap’s decision were clearly erroneous and contrary to established law, I had to decide how I wanted to spend my time and money. Emotionally, I wanted to appeal and prove that I had been wronged. But, from a business standpoint, it was more prudent to simply pay the judgment and move on.”
Although Yates continues to believe Judge Gilstrap was wrong, he admits that mistakes were made in the case. “The entire case hinged on claim construction. It is now clear that our proposed construction could have been better. But, that does not mean that the Court’s construction was correct, or that ours was frivolous. Nonetheless, there are things that could have been handled better, and I learned a lot from the whole experience.”
As it turns out, the unraveling of Iris Connex taught Yates some important lessons and became the impetus for the founding of iPEL, Inc.
“I had always wondered about the possibility of seeking outside funding, but I had never tried and didn’t know much about it. When Judge Gilstrap gave the defendants an unsolicited invitation to go after me personally, it became clear to me that being a ‘one man show’ is incredibly dangerous. As a result, I decided to pursue outside capital, which would allow me to grow and modify the business model, while also protecting myself and other stakeholders from personal liability.”
Yates says his funding source was aware of all of this history when it decided to invest. “These are intelligent and sophisticated investors, who turned every rock and had complete visibility into every aspect of my business. One bad outcome was not going to deter them from investing in an extremely successful business model.”
To be sure, after pivoting from his previous business model to found iPEL in May 2017, Yates had to pivot again in the wake of several controversial decisions by the U.S. Supreme Court, including TC Heartland v. Kraft Foods, which set new guidelines for venue.
“After TC Heartland, and a bunch of absurd decisions from the PTAB and various district courts, we recognized that the market for U.S. patent litigation would be collapsing. Rather than hoping that we were wrong, or that things would improve soon, we decided to shift our focus to a better investment opportunity - - Chinese patents.”
China has some advantages that the U.S. Patent System doesn’t have, such as automatically awarding permanent injunctions against infringers and getting to trial in less than one year.
In 2006, the U.S. Supreme Court in eBay v. MercExchange, established a four-part test for when injunctions can be applied in patent cases, which have made them a rarity ever since, and impossible for an NPE. In China, however, an NPE is treated the same as every other patent owner and is entitled to an injunction after a finding of infringement. For companies that manufacture their products in China, an injunction preventing them from exporting their products could be extremely costly.
During the last year, Yates says that iPEL has been winding down its U.S. enforcement activity and currently only has a couple of pending legacy matters, which existed prior to iPEL. And, iPEL has also been building a large Chinese patent portfolio.
“We have been fortunate to acquire more than 1,000 high-quality Chinese patents, which cover an extremely diverse range of technologies. Our patents are being used by nearly every company that manufactures products in China or sells products in China,” says Yates.
Yates explained that identifying and acquiring that many Chinese patents was not easy or cheap. But, he would not share any pricing details or how the deals came about. He did say that most of the Chinese patents originated with Chinese technology giants Huawei and ZTE.
Yates believes that iPEL’s efforts in China will further increase the demand for Chinese patents and inspire more investors to find opportunities to invest in Chinese patents as an asset class.
“I truly believe that a Chinese patent is already worth more than a U.S. patent having the same specification and claims. I know that some people will call me crazy, especially those whose survival depends on U.S. patents being perceived as strong and superior to those of other countries. But, every time there is a bubble forming, regardless of the market segment, most people don’t want to admit it. And, even after the bubble pops, a lot of people remain in denial.”
He says iPEL is currently involved in early stage discussions about a possible license with several companies. “I’m hopeful that at least one will lead to a deal.” Asked about the timing of a deal, he declines to provide any guidance, saying only that iPEL is in it for the long haul, and because of its capital reserves, can afford to wait.
“I know that buying a prelitigation license from iPEL goes against what everybody has grown accustomed to. Currently, most companies have no desire to voluntarily purchase a patent license and have decided that it’s more cost effective to require patent owners to sue them. We are trying to show that buying a prelitigation license for a reasonable price is a better business decision. But, if companies refuse our licensing offers, then we will be left no choice but to sue them and prove that they should have bought a license.”
Yates concedes that what iPEL is offering is not cheap, but he believes it is far less expensive than what he can achieve through litigation. The price for an iPEL license is calculated based on the company’s total annual revenue and has defined minimum and maximum rates. For example, for a company with annual revenue above $2 billion, a license to all of iPEL’s patents plus any that it acquires for a 1-year period is $8 million. For $12 million, those companies can get a license to all of iPEL’s patents and any it acquires for a 5-year period.
Asked how this approach jibes with iPEL’s vow to be an “Ethical NPE” he emphasizes that iPEL is offering free licenses to small companies and reasonably priced licenses to everyone else. If companies refuse to buy a license when they are infringing someone’s patents, then of course they should expect to be sued.
In response to critics who have ridiculed the “Ethical NPE” claim as laughable on its face and as unfairly critical of other NPEs who believe they are just as ethical, Yates says, “We certainly are not calling anyone else unethical. We are just defining a set of actions that show that a patent owner is ethical and acting in good faith. First and foremost, we are trying to make it abundantly clear that we are not bad actors.”
He also addresses the critics of iPEL’s free licensing program who suggest that startups who take a free license will be identifying themselves as targets of future licensing efforts and make themselves less attractive to acquirers.
“I do not see how it can possibly be a negative to have the right to use a large patent portfolio for free. Does it make any sense that a company would be more desirable to an acquirer if that company might get sued for patent infringement by iPEL?”
Despite any criticisms, Yates says that several startups are interested in iPEL’s free license, and they expect to have some executed soon.
Overall, Yates concedes that it’s possible that iPEL will “go over to China and lose every single case. But, those are not odds that I would take as a defendant. Because the Chinese courts are fair, I am very confident that our wins will greatly outnumber our losses. And people will quickly realize the value of an injunction. It simply makes no business sense for a company to voluntarily subject itself to extremely risky litigation, when it can achieve certainty for a reasonable price.”
—To reach the reporter responsible for this story please contact Dan Lonkevich at 707 318-7899 or at email@example.com