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Riot and Valve Win in the Federal Circuit
Riot Games and Valve win a patent dispute against a patent owner who successfully extracted licenses from a number of video game companies.
Paltalk began a series of lawsuits against video game companies on September 12, 2006 when it filed a patent infringement suit against Microsoft in the Eastern District of Texas. Paltalk asserted that Microsoft infringed two related patents, U.S. Patent Nos. 5,822,523 and 6,226,686.
The two patents relate to messaging over a network. In particular, the Paltalk patents related to using a messaging server to aggregate separate messages from participants and distribute the aggregated message to the group.
The Microsoft case proceeded all the way to trial with the parties reaching settlement mid-trial for an undisclosed sum in March 2009. Presumably funded by the Microsoft settlement, six months later on September 14, 2009, Paltalk sued Sony Computer Entertainment, Activision Blizzard, NCsoft, Turbine, and Jagex again in the Eastern District of Texas. The defendants filed for reexamination of the patents with the U.S. Patent and Trademark Office. The USPTO confirmed patentability of both patents and by September 2011, Sony, Activision Blizzard, and NCsoft had also settled with Paltalk and licensed the patents (Turbine was dismissed and Jagex prevailed on non-infringement after a review of its source code).
On December 16, 2016, Paltalk continued its patent suit campaign by suing Riot Games and Valve in the District of Delaware (Valve later transferred its case to the Western District of Washington). Riot filed for inter partes review of the two patents, which Valve joined. The Patent Trial and Appeal Board found the patents invalid as obvious. Paltalk appealed the decisions to the Federal Circuit.
In a non-precedential opinion, the Federal Circuit found that there was substantial evidence backing the Patent Trial and Appeals Board's decisions and that there was no legal error.
Ultimately, these patents were determined to be invalid. Between all the defendants, millions of dollars were likely spent in settlements/unnecessary licenses, legal fees, and lost productivity. Due to the uncertainty of litigation, especially in the Eastern District of Texas, a number of game companies were forced into "licenses" on invalid patents. The TC Heartland decision making it harder for plaintiffs to sue defendants in the Eastern District of Texas may help matters somewhat, but more change is needed.
I was involved in the district court litigation for this case and thought it might be useful to explain some of the process around what happens as in-house counsel dealing with a patent lawsuit. Law firms have alerts set to inform them as soon as a case is filed either by subject matter or by party. Firms that have an interest in patent litigation will get a notification as soon as any patent case is filed (e.g., from a service like Docket Navigator). As soon a patent suit is filed, in-house counsel start getting emails both externally and internally. For a matter like the Paltalk case, outside counsel will use any contact they have to pitch their services (including random senior employees). Within a few days of a filing like Paltalk's, you could expect at least a couple dozen emails pitching outside counsel services, both from firms you have relationships with and cold calls.
My process would be to winnow down the firms to approximately five firms I wanted to interview. This would be based on reputation, my experience with the firms, recommendations, and pitch deck information (many firms will provide pitch decks with their initial emails). Generally, pitch decks include some background on the firm, the proposed team members with billing rates, and a brief analysis of the patents/plaintiff (many a weekend was probably spent by junior associates creating these pitch decks for partners). Oftentimes, a pitch deck will include a generalized strategy, where you can gauge the firm's general thoughts on the case. Some firms will talk about their ability to obtain favorable quick settlements and others will talk about an aggressive trial strategy. Based on that information, I would talk to the remaining five-ish firms to get a better feel of the lead partners. I would always want to know the attorney/firm's familiarity with the patents, the technology, the plaintiff, the plaintiff's firm, and the judge and ultimately make my selection.
In this case, I already had a very strong familiarity with one of the firms, Sidley Austin, where I was an associate in the patent litigation group before joining Riot. They represented Microsoft in the first Paltalk case on the same patents. Not only that, but I worked closely with a few members of the Paltalk v. Microsoft team: Rick Cederoth (a great partner to work for both for his knowledge and temperament); John McBride (an associate when I was at Sidley who had fast-tracked to partner by the time of the Paltalk filing); and Ted Chandler (who also welcomed me to Los Angeles). Even though the Microsoft case ended in a mid-trial settlement, I still chose Sidley because their familiarity with the patents meant that they could narrow in on the relevant issues and not spend time and expense getting up to speed.
Early on, Sidley proposed that we file for inter partes review of the patents. Filing an IPR is one of the first main decision points in defending a patent suit. As with anything, there are benefits and risks to filing IPRs. One of the main risks is that if you lose the IPRs, you are estopped from raising, "any ground that the petitioner raised or reasonably could have raised" in the litigation. For the Paltalk case, IPRs were even riskier because the patents had already gone through reexamination at the PTO and come out unscathed. They had also been heavily litigated in the two other cases. Ultimately, we moved forward with the IPRs based on the strength of the prior art and the great work by the Sidley team. Thankfully, the IPRs were successful and the PTAB decisions were upheld by the Federal Circuit (Dan oversaw the Federal Circuit filings with Sidley representing Riot there as well).
Thanks to Docket Navigator for access to the relevant dockets.