Cloud Computing Patent Litigation Trends – Competitor Cases, Open Source Targets, Cloud Customers | Shook, Hardy & Bacon L.L.P.

Cloud Computing Patent Litigation Trends – Competitor Cases, Open Source Targets, Cloud Customers | Shook, Hardy & Bacon L.L.P.

Since launching Cloud IPQ last year, we have focused on the intersection of cloud computing and intellectual property with a particular emphasis on the increasing number of patent lawsuits filed against cloud computing companies and their customers.  In our first post – Introducing Cloud IPQ: Enhancing Your Cloud IP IQ – we highlighted the increase in cloud patent lawsuits filed by NPEs/Patent Trolls, and the trend of high-volume plaintiffs filing multiple lawsuits against customers of cloud providers.  That has certainly proven true, and frankly we expected that the majority of our coverage would center on such Patent Troll lawsuits.  However, we have witnessed some relatively surprising trends beyond just Patent Troll litigation, namely, an increase in competitor-based lawsuits as well as more focus and assertion against open source software by patent trolls and operating companies alike.  Other legal dynamics have also emerged that arguably increase the IP risk profile in the cloud, including court decisions and administrative actions that are now restoring patent power after many years of decline in the strength and certainty of U.S. patent rights.

Cloud Competitor Cases

With regard to competitor cases, cloud security is a hot space currently.  Our first post on a competitor patent case involved Cloud Security Firm Zscaler and the two lawsuits filed against it by industry incumbent Symantec.  We then reported on another cloud security lawsuit where Symantec’s Blue Coat Systems unit found itself on the receiving end of an infringement complaint filed by Finjan, a prolific patent plaintiff in the security technology space.  While the Symantec v. Zscaler cases are ongoing, Finjan settled with Symantec for $65 Million with $45 Million more possible if Symantec acquires “certain entities” over the next four years.  Although it seemed that Blue Coat/Symantec had the momentum after successfully appealing and knocking down a large jury verdict in Finjan’s favor, such a large settlement is seen as a blockbuster in the current patent climate.

Cloud competitor cases have run the gamut from established players going after newer entrants, newer entrants going after industry giants, and mid-tier cloud companies fighting it out with their patent rights.  BMC Software’s patent strike against Cherwell Software’s cloud services and Citrix’s infringement and unfair competition complaint against Avi Network’s cloud application delivery platform are current examples of established cloud players using their patents to ward off emerging competition.  And both cases involve executive ship-jumping and have a strikingly similar fact pattern in that the CEO of the smaller competitor was a former executive of the larger company.  On the flip side, relative newcomer Centripetal Networks filed a patent lawsuit against networking solutions giant Cisco and in so doing put virtually its entire patent portfolio on the line by alleging infringement of 10 patents (out of its total portfolio of 14 patents).  In the mid-tier cloud player space, Ribbon Communications filed two more lawsuits against Metaswitch in a seeming relentless pursuit to land a knockout blow in the cloud communications space.  Ribbon filed those two lawsuits even after winning an $8.8 Million damages award against Metaswitch in earlier litigation.  This is real money for a company of any size, and makes Ribbon’s ongoing patent campaign against Metaswitch all the more interesting given Ribbon’s annual revenues of $330 million and net loss of $35 million in its FY17.

Cloud Cases Targeting Open Source Software

Open Source Software is also in the cross-hairs of numerous cloud patent lawsuits.  It’s no surprise that patent trolls would target open source, such as Sound View’s lawsuit against Fidelity directed at multiple OSS components, including jQuery, OpenStack Object Storage (Swift), Apache HBase, and Apache Storm.  Sound View also filed earlier lawsuits against open source software usage of major cloud service providers such as Hulu, Facebook, Twitter and LinkedIn.  What did come as a surprise were the patent infringement allegations that Citrix leveled against Avi Networks’ cloud application delivery platform for OpenStack, mentioned above in the context of cloud competitor lawsuits.

Cloud Customer Patent Lawsuits

In an example of a cloud services customer-targeted patent litigation campaign that also implicates open source software, a wave of lawsuits filed this year by PersonalWeb alleged infringement by over 50 could-based companies for the use of Ruby on Rails open source software implementing the HTTP web protocol as well as Amazon Simple Storage Service (“S3”).  Essentially, these are lawsuits targeting Amazon customers including Airbnb, Square, Reddit, Venmo, and Kickstarter, just to name a few. Amazon filed a declaratory judgment action against PersonalWeb in February 2018 in response to this flood of customer suits.  Other examples of cloud customer patent campaigns include GEMSA’s patent onslaught against AWS customers such as Airbnb, Netflix, Spotify, Uber and Zillow (among many others), and Uniloc’s patent complaints against cloud computing users such as health service providers, gaming companies, and financial services companies.

Overall Number of NPE Patent Lawsuits Dips Below Non-NPE Lawsuits

Overall, patent litigation filings in 2018 are on par, if somewhat below, the number of filings in 2017.  However, in a fascinating development, the number of Non-NPE patent lawsuits exceeds the number of NPE lawsuits for the first time in years, according to Unified Patents Q1 2018: Patent Dispute Report.

While the consensus view is that the last several years (particularly post-Alice) have been tough going for NPEs, that trend seems to be changing.  Both the Federal Circuit and the USPTO have taken recent positions on software patent eligibility that may make it harder to challenge software patents under Section 101 early in litigation and reject software applications during prosecution.  And the USPTO also just announced an administrative ruling that is viewed as favorable to patent owners in Inter Partes Review proceedings.  On the other hand, the change in patent venue law and subsequent decline of the Eastern District of Texas as the hotbed of patent litigation ushered in by TC Heartland will require NPEs to continue evolving their litigation tactics.  On balance, however, these actions collectively may increase the strength and certainty of U.S. patents after a decade of what many see as an assault on patent value by the Supreme Court in particular.  If that trend holds, and patents become more powerful (and valuable), cloud patent lawsuits will certainly be on the rise in the coming years.




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