Navigating the torrent of patent litigation over streaming technologies

A recent trend in patent litigation strikes at two of California’s signature industries: entertainment and computer technology.

Specifically, the past several years have seen a surge in patent lawsuits aimed at media streaming. Data from Docket Navigator suggests that in 2021, there were 267 federal court cases involving patents on streaming-related technologies—up from 27 in 2008. Between 2017 and 2021, there were an average of 165 new patent cases per year involving some aspect of streaming—and that excludes proceedings in the Patent and Trademark Office and International Trade Commission. Streaming patent litigation is on the rise and here to stay.

The nature of the asserted streaming technologies, and the targeted products and services, varies. For example, in November 2021, Google’s YouTube platform was hit with a $29.5 million jury verdict for infringing a patent relating to the formatting and selection of video streams that include advertisements. Amazon’s music streaming service was sued under a patent concerning methods for targeting advertisements. GoPro was ensnared in a lawsuit involving its cameras’ creation, transmission and storage of high and low resolution video streams. Even Lululemon has not escaped patent litigation, as its Fitness Mirror is the subject of proceedings concerning improvements in streaming quality. The list goes on.

What explains this increase in streaming technology litigation? Part of the answer is obvious: media streaming is a lucrative and growing industry. Businessofapps.com estimates that video streaming revenue in the United States grew from $7.1 billion in 2015 to 24.1 billion in 2020, while music streaming revenue increased from $1 billion in 2012 to $18.9 billion in 2020. That amount of money incentivizes plaintiffs to bring patent lawsuits.

Simultaneously, there has been a rise in third-party investments in patent litigation. Patent owners increasingly partner with litigation financiers to fund patent litigation campaigns. A report from businesswire. com suggests that between June 2019 and June 2020, third-party investments in commercial litigation grew to $11.3 billion—roughly 18% of which (over $2 billion) was devoted to patent litigation. Parties involved in litigation funding are experiencing increased business since the Covid pandemic began, suggesting it is a popular investment in difficult economic times.

Relatedly, non-practicing entities (NPEs) and moderately practicing entities (MPEs)—i.e., companies for which patent assertion is the exclusive or primary business, respectively—have become more sophisticated and well-funded. Traditional “patent troll” NPEs would file many suits with the goal of profiting through a high volume of quick, low value settlements. While that business model still exists, the influx of third-party funding encourages a different brand of NPE that litigates further and aims for high value outcomes. This strategy is facilitated by a growing number of reputable law firms that will partner with the NPEs and litigation funders by taking partial contingencies or other alternative fee arrangements— thus spreading the risks and costs of large-scale patent assertion campaigns. Consequently, there was a 19.8% increase in NPE lawsuits between 2020 and 2021 according to RPX, and this trend is likely to continue.

NPEs are further sustained by the multitude of streaming patents available for them to acquire. Streaming involves a wide array of hardware and software technologies that are developed by a variety of companies. Unsuccessful start-ups often need to liquidate their assets, the most valuable of which can be their patent portfolios. Established companies frequently reduce costs by selling patents on “non-core” technologies. As a result, the industry of valuing and brokering the sale of streaming patents is thriving.

One reason why streaming companies are so susceptible to funded litigation campaigns is that patent litigation is particularly expensive and burdensome—even when the defenses are strong. Data from the American Intellectual Property Law Association (AIPLA) suggests that, for cases where there is $25 million or more at risk, a litigant will spend at least $4 million through trial. Even small cases can be disproportionately expensive according to the AIPLA, as it tends to cost a litigant $700,000 to defend a patent case where $1 million or less is at risk. The expense is attributable to the fact that patent cases are complex, involving many stages and specialized knowledge, and can take years to reach a jury trial. This creates pressure for defendants to settle, which commonly occurs.

While settlement can be a rational choice, it also has drawbacks. Patent defendants are rarely hit with just one lawsuit, and a company that offers quick settlements may only attract more patentees and more lawsuits—and, ultimately, higher legal costs. Today’s settlements can fund tomorrow’s lawsuits, so the cycle continues.

What, then, is a streaming company to do? A company that has been sued should work with litigators who have deep experience with these issues. For example, experienced litigators will know that there is an upswing in decisions finding streaming patents to be invalid because they are “abstract” and claim unpatentable subject matter under 35 U.S.C. § 101. In appropriate cases, a “101 argument” may be a defendant’s best chance for an early judgment. Experienced litigators can also help to assess whether to initiate inter partes review or other proceedings in the Patent Office, which can be a cost-effective alternative to litigating questions of patent validity in district court.

Streaming technology companies and their attorneys should focus early on financial and damages issues, rather than treating them as an afterthought once the technical matters have been addressed. Whether to litigate or settle is, ultimately, a business decision based on an assessment of risks and benefits—and it behooves companies to work with litigators who view patent disputes through that prism. Moreover, not all streaming patents are equally valuable. Two of the hottest issues in patent litigation concern valuing a particular patent for purposes of damages when it is: (i) one of many technologies in the accused products, or (ii) allegedly essential to a technology standard that requires the patentee to provide licenses on “Fair Reasonable and Non- Discriminatory” terms. Attorneys with mastery of these issues can dramatically reduce a company’s exposure.

Streaming companies should also consider building their own patent portfolios. A robust portfolio can deter lawsuits brought by competitors, who may wish to avoid “mutually assured destruction.” At minimum, the additional patents can bolster arguments that the defendant is in the business of innovating (not copying), and the patents may become prior art with the potential to invalidate the next wave of patents being asserted by NPEs.

Finally, companies considering transactions or investments in the streaming space should work with counsel to analyze the risk of, and amount of exposure to, patent lawsuits. Experienced attorneys can help to set reserves, value the risk and otherwise counsel buyers, sellers and investors regarding potential patent litigation.

In sum, companies that create, sell or utilize streaming technologies will continue to face patent lawsuits in the foreseeable future. However, the costs and risks associated with this surge in streaming-related patent litigation can be managed and mitigated through effective strategies developed in coordination with experienced counsel.