Wow! Today, in the Mavexar cases, Chief Judge Connolly issued a huge, 102-page opinion referring plaintiffs' counsel to the Texas Supreme Court's Unauthorized Practice of Law Committee, the PTO, and the Department of Justice to determine whether counsel violated various rules—or federal laws:
As it appears that [three Mavexar employees] engaged in the unauthorized practice of law, I will refer them to the Texas Supreme Court's Unauthorized Practice of Law Committee.
* * *
I believe it appropriate to bring these matters to the attention of the PTO and the Department of Justice to allow them to conduct further inquiry into whether the PTO's rules or [18 U.S.C.] § 1001 were violated. The Department may also deem it appropriate to investigate whether the strategy employed by IP Edge to hide from the defendants in these cases and the Court real parties in interest, including France Brevets, violated any federal laws.
Nimitz Technologies LLC, v. CNET Media, Inc., C.A. No. 21-1247-CFC, D.I. 34 at 98, 100 (D. Del. Nov. 27, 2023).
If you're not familiar with them, Mavexar appears to be an entity that recruits people to serve as the sole members of shell LLCs that assert patents. The recruited individuals may not fully understand what is going on, and may get something like 5-10% of the proceeds of the patent infringement suits in exchange for accepting all of the risk. It looks like Mavexar sets up the entities, hires the attorneys, and does the work of selecting targets and even drafting claim charts.
The opinion goes through exactly what these entities and attorneys did—at least, as far as the Court can tell from the factual record and their production, which was apparently full of holes.
In short, the attorneys acted as if they were attorneys for Mavexar and IP edge rather than their nominal clients (the LLCs asserting the patents). They generally didn't communicate with their clients until Chief Judge Connolly started pressing them, which was months after they had been asserting and settling these cases.
Instead, the Court describes how they worked almost exclusively with Mavexar / IP Edge employees. Given that Mavexar faced no risks of liability for asserting the patents and no downsides, its interests differed significantly from those of the LLCs who held and nominally asserted the patents and bore all of the risks, in exchange for a "tiny fraction" of the litigation gains.
The whole opinion is fascinating and full of downright shocking details, largely pulled from communications between the attorneys, Mavexar, and the LLCs. I was on the edge of my seat. The whole opinion (attached below) is very much worth reading—I'd go so far as to say every attorney who reads this blog would benefit from reading it. It goes fast.
There is way too much fascinating material to summarize in detail, but I'll hit a few of the highlights here.
Delaware Attorneys Caught Up in This—Because They Were Acting as Lead Counsel
The opinion spends significant time recounting the actions of two well-known Delaware attorneys who have represented NPEs who file serial suits.
The Court faulted the attorneys for filing, and settling, lawsuits without ever having talked to their nominal clients (the LLCs), instead taking direction from Mavexar / IP Edge, who had divergent interests.
The Court didn't focus on the attorneys' actions as Delaware counsel, though. Each of them acted as lead counsel for these entities—directly suing and settling these cases. But the Court found that they acted partially in the interests of Mavexar / IP Edge, rather than their clients.
Delaware Counsel Safe
I know from last time we posted on these issues that many Delaware attorneys' first thought will be "but outside counsel hire us all of the time! Does this opinion make that impromper?"
No, not that I see. Nothing in the opinion made me concerned about Delaware counsel who deal with outside attorneys for their clients. The problem here stemmed from the fact that Mavexar / IP Edge was its own entity with its own independent interests, rather than attorneys with ethical duties to a client.
One of the Real Parties in Interest Was . . . Owned by France??
The non-public documents that the Court received, and described, showed that the patents were previously assigned to France Brevets, a sovereign state fund owned by France—and that they received a share of the proceeds of litigation:
In February 2013, Nokia assigned the #328 patent, seven other U.S. patents, and certain patent applications and foreign patents to France Brevets, a so-called "sovereign state fund" owned by the French govemment.[] France Brevets recorded the Nokia/France Brevets assignment of the #328 patent application with the PTO in July 2013.
* * *
[P]aragraph 4 of the France Brevets/Burley Patent Assignment Agreement, titled "Consideration," expressly states that Burley "shall pay [France Brevets] thirty-five percent (35%) of all Gross Revenue actually received by [Burley] as a result of monetizing and enforcement of' the patents and patent applications covered by the Patent Assignment.
* * *
Thus, under the terms of the Burley/Nimitz Patent Assignment Agreement—and in contrast with the terms of Patent Assignment filed under Nimitz's name with the PTO on August 26, 2021—France Brevets appears to have a reversionary ownership interest in the #328 patent and the right to 35% of the income generated from the monetization and enforcement of the #328 patent and to preclude Nimitz from assigning or transferring the #328 patent through March 21, 2023.
Id. at 9-10, 12, 22.
Never, Ever, Ever, Say Bad Things About Your Judge In Writing
The opinion does not focus on this at all, and it's easy to miss. But there is a fascinating exchange in the unprivileged communications between Mavexar and one of the LLC members.
The LLC member seemed to have regrets about ever signing up, and didn't want to show for the hearing. The Mavexar employee tried to tell her why she needed to show—by offering her thoughts on Judge Connolly:
[Mavexar employee]: Hey [LLC member] have you talked to your doctor yet? It does not look like we can get out of the 11/4 date. [Someone] said- "This judge isn't going to rest until [LLC member] appears in his courtroom in Delaware. [A]nd if she doesn't appear on 11/4, a date she requested, there's probably going to be sanctions."
Sanction means fees that you will be charged to pay (I mentioned that to you last night). Unfortunately the judge is a prick and there is not telling how much fees there could be. We['v]e paid fees before and I promise you it's a lot. Don't want to scare you but you need to be fully aware.
Id. at 76 (italics in original).
Yeah, when she wrote "[u]nfortunately the judge is a prick," I don't think she was considering the possibility that the judge could see that message, or that it might be immortalized in a court opinion—especially not in an opinion referring her company to the DOJ.
The District of Delaware is fortunate to have incredible judges. But even positive things can be taken out of context. That is why, when co-counsel e-mails "What are your thoughts on judge X," the answer is always "call me." Call. Never write those thoughts out!
Many, Many Other Interesting Things
There are so many interesting things in this opinion, we could get three or four posts out of it! But, really, it's worth reading in full.
Here is a preview of some of the other fascinating tidbits:
- Counsel's (varying) contingency fee rates for litigating these cases.
- Descriptions of some Mavexar settlement negotiations, including dollar figures.
- The Court's confirmation (again) that "[r]elevance . . . is not a proper ground for redaction" of discovery materials. Id., at 45.
- The story of the seemingly hapless owner of the Lamplight LLC, who apparently very much regretted ever getting involved.
- Language from the attorneys' engagement letters, and the Court's view on why it is insufficient under the circumstances.
- A description of what ellipses actually mean in a transcript (this was news to me and may warrant its own post).
- . . . and much more.
Enjoy!
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