In 2012, non-practicing entities (NPEs) filed the majority of the patent infringement lawsuits in the U.S. RPX Corporation, which acquires patents on behalf of its members and then licenses them to all members, reported that 62% of all patent litigation—amounting to 2,921 of the 4,701 suits in 2012—were filed by NPEs. Once perceived as limited to technology industries, NPEs have become prevalent across a wide span of non-technology based industries, including the dietary supplement industry. Over the past year, for example, several new NPEs, all represented by the same counsel, have emerged and filed more than 100 patent infringement lawsuits against supplement companies.

Tawnsaura: In August 2012, The Tawnsaura Group began filing suits in the Central District of California, alleging infringement of two patents concerning uses for L-citrulline. These filings have continued into April 2013, bringing the total number of companies sued to 87.

The two patents at issue were filed by an individual, Dr. William Waugh. Dr. Waugh passed away in the summer of 2012, and in August his estate sold the patents to Tawnsaura, an entity with no products on the market, which was formed solely to assert the patents for commercial gain. Five days after Tawnsaura acquired the patents, it began filing infringement suits.

The number of cases filed by Tawnsaura attracted the attention of the court, which assigned them all to a single judge and coordinated them for pretrial purposes. The court then immediately stayed the cases and ordered Tawnsaura to amend its complaints to make specific allegations as to each defendant and each accused product. The court ordered that Tawnsaura could not rely on the typical “upon information and belief” language used by many NPEs to circumvent the testing that would be required to allege infringement of patent claims and particularly claims directed at supplements. Once the complaints were amended, the court, on its own initiative, dismissed certain claims and narrowed the scope of available damages. This level of involvement by the court in the early stages of a case is rare, and may be an indication that the court was concerned by the large number of suits filed.

Thermolife: In October 2012, the same counsel who represents Tawnsaura filed a patent infringement suit in the Central District of California on behalf of Thermolife International against 19 supplement manufacturers and distributors. Thermolife is an uncommon NPE because it has a limited number of sports nutrition products for sale on its website. Nevertheless, it has taken on the NPE business model by purchasing the rights to allegedly broad based patents and then leveraging them for licensing and royalty payments by filing patent infringement lawsuits across the entire supplement industry.

This suit involves a patent for testosterone booster D-Aspartic Acid. As originally filed, Thermolife lumped all of the 19 defendants together in one lawsuit. Filing one case against unrelated defendants, however, is in violation of the new patent statute, commonly referred to as the America Invents Act (35 U.S.C. § 299(b)). The statute forces NPEs to break unrelated defendants out in multiple cases and was intended to curb NPE cases. It has not had a significant effect, however. On Feb. 14, the court dismissed all of Thermolife’s claims except those against the first named defendant and ordered that Thermolife re-file separate suits. On Feb. 21, Thermolife re-filed separate lawsuits against the originally named companies and added some new defendants. Like in the Tawnsaura suits, these suits have been consolidated before one judge.

Thermolife II: Beginning in March 2013, Thermolife began filing a second round of cases against various supplement companies in the Southern District of California. These claims concern a family of patents directed primarily to the use of L-arginine to increase nitric oxide production. In February, the patents were licensed by Thermolife from Stanford University, and the suits began a month later. Thus far, 25 suits have been filed.

Harcol: Also in March 2013, the same attorneys who filed the Tawnsaura and Thermolife actions began filing patent infringement suits on behalf of Harcol Research in the Eastern District of Texas. Thus far, 10 of these suits have been filed by Harcol, which is a true NPE with no known products on the market. Its claims are based on a patent directed to beverages “containing alpha-ketoglutaric acid.”

NPE-filed suits require the companies sued to incur significant expenses, even in cases involving weak patents in which the patents are likely invalid and/or there is no infringement. A typical budget for a patent case through trial is more than $1 million. Knowing this, it is not uncommon for initial settlement demands from an NPE to be excessive compared to sales of a product. Thus, a defendant’s only choice, at least initially, is to fight the litigation or overpay to settle the claims.

Defense Against NPEs
There are ways defendants seek to defend against meritless claims and efficiently manage the cost of litigation. In some cases, defendants hire joint or shared counsel and then divide the fees across the jointly represented companies. This arrangement results in drastically lower expenses and fees for any one defendant and a cohesive defense strategy, both of which favor defendants in a litigation.

Even if defendants are not jointly represented they nonetheless often form joint defense groups. The defendants in a joint defense group are not jointly represented by one counsel or firm; rather, the various attorneys coordinate activities and work together to share the burden of litigation and costs. As is typical with group efforts, there are often freeloaders who reap the benefits of the joint strategy without incurring any expense. To offset this effect, some large joint defense groups require parties to buy into the group with an upfront payment. Other joint defense groups have required members to buy into particular events. For instance, if parties want to join in a motion to dismiss, then every party who wants to join in the motion must pay its fair share.

Joint representation and joint defense groups help offset the expense of litigation, but do little to prevent the larger problem: NPE litigation generally. For years, a variety of industries have grappled with how to protect against NPE litigation. Companies in certain industries have banded together to fund companies that purchase and license patents, thereby creating competition for NPEs in the market for patents. Others have taken an aggressive approach to NPE litigation either by refusing to settle any cases with NPEs or by asserting strong counterclaims against NPEs. Other aggressive approaches include filing early motions to dismiss and/or seeking sanctions under Rule 11 of the Federal Rules of Civil Procedure on grounds plaintiff’s counsel failed to conduct proper due diligence before filing suits involving clearly invalid patents.

While many debate the validity of patent infringement claims brought by NPEs because NPEs have no products on the market, it is unlikely that the industry will see a resolution to the issue in the near future. Unfortunately, it is more likely that the industry will continue to see a rise in NPE litigation and related expenses, as is the case in many other industries across the country.  

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Todd Harrison is partner with Venable, which is located in Washington, D.C. He advises food and drug companies on a variety of FDA and FTC matters, with an emphasis on dietary supplement, functional food, biotech, legislative, adulteration, labeling and advertising issues. He can be reached at 575 7th St. NW, Washington, D.C. 20004, Tel: 202-344-4724; E-mail: taharrison@venable.com.