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    Litigation Strategies

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    Hedge funds and private equity firms are financing patent lawsuits by investing in companies involved in patent infringement cases. One such firm, Altitude Capital Partners, invested $8 million in DeepNines, a software company suing McAfee for patent infringement. Other funds like Coller Capital and Rembrandt IP Management have also raised hundreds of millions to invest in patent lawsuits. However, some argue this amounts to patent trolling, while the funds insist they are asserting legitimate patent claims.

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    Litigation Strategies

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    Hedge funds and private equity firms are financing patent lawsuits by investing in companies involved in patent infringement cases. One such firm, Altitude Capital Partners, invested $8 million in DeepNines, a software company suing McAfee for patent infringement. Other funds like Coller Capital and Rembrandt IP Management have also raised hundreds of millions to invest in patent lawsuits. However, some argue this amounts to patent trolling, while the funds insist they are asserting legitimate patent claims.

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    An article on a type of hedge fund strategy using litigation suits.

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    Hedge funds and private equity firms are financing patent lawsuits by investing in companies involved in patent infringement cases. One such firm, Altitude Capital Partners, invested $8 million in DeepNines, a software company suing McAfee for patent infringement. Other funds like Coller Capital and Rembrandt IP Management have also raised hundreds of millions to invest in patent lawsuits. However, some argue this amounts to patent trolling, while the funds insist they are asserting legitimate patent claims.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    129 views2 pages

    Litigation Strategies

    Uploaded by

    sgdividends
    Hedge funds and private equity firms are financing patent lawsuits by investing in companies involved in patent infringement cases. One such firm, Altitude Capital Partners, invested $8 million in DeepNines, a software company suing McAfee for patent infringement. Other funds like Coller Capital and Rembrandt IP Management have also raised hundreds of millions to invest in patent lawsuits. However, some argue this amounts to patent trolling, while the funds insist they are asserting legitimate patent claims.

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    of 2

    Forbes.

    com - Magazine Article Page 1 of 2

    OutFront
    Patent Pirates
    Nathan Vardi 05.07.07

    Hedge funds and institutional investors are financing the latest wave of IP lawsuits.

    DeepNines is a tiny Dallas software maker that protects corporate computer networks from hackers and other threats.
    But in August it became an attacker, filing a lawsuit against McAfee. The suit alleges that the security-software giant
    infringed on a DeepNines patent, one that combines an intrusion detection and prevention system with a firewall, in a
    single device. McAfee denies the charge, saying the patent relies on previously known technology, and is gearing up
    for a long and costly fight.

    But DeepNines has found a way to fund its burgeoning legal bills. In January it sold an $8 million zero coupon note to
    Altitude Capital Partners, a New York City private equity firm, promising in return a cut of any winnings stemming
    from the lawsuit. The payout is based on a formula that grants Altitude a percentage that decreases with a bigger
    award.

    This deal was dreamed up by Robert Kramer, who founded Altitude in 2005, raising $250 million from hedge funds
    and others to invest in intellectual property. So far Kramer has put $100 million to work in nine investments. He's got
    plenty of company in this new game. Coller Capital, a London private equity firm with a $2.6 billion fund, quietly
    formed Coller IP Capital with an eye toward investing $200 million a year. Rembrandt IP Management, a Bala
    Cynwyd, Pa. firm, has raised $150 million, and Northwater Capital, a $9 billion Toronto manager of funds of hedge
    funds, put together NW Patent Funding last year. Both exist solely to exploit patent lawsuits in the U.S.

    Sounds a lot like patent trolling, a much-vilified practice in which contingency lawyers or small companies with no
    operations sue businesses to extort money. But funds like Altitude insist they're asserting legitimate claims. "I don't
    get emotional about this issue," says Kramer, who used to be a managing director at a Fortress Investment Group
    hedge fund. "I am a financial investor."

    It's not easy to make a buck. Last year the Supreme Court limited the ability of small outfits in patent cases to get
    injunctions against large companies. Meantime, there's a proposal by Democrats in Congress for patent reform
    legislation, backed by the likes of Intel and Microsoft, that would put an end to triple-infringement damages. But the
    new funds are still tempted by huge verdicts such as Alcatel-Lucent's $1.5 billion patent victory over Microsoft in
    February and NTP's $612 million settlement with Research in Motion. Says Daniel McCurdy, a patent consultant in
    Warren, N.J., "They are the arms merchants in the new patent wars."

    The threat of war is having an impact. Ebay subpoenaed Altitude in federal court in Virginia to figure out what Kramer
    is up to with one of his investments, MercExchange, whose main asset is a $25 million patent infringement verdict
    against the online auctioneer. The six-year-old suit claims Ebay's "Buy It Now" feature infringes on MercExchange's
    patents. Last year the case produced the Supreme Court decision that made it more difficult to get injunctions.

    Kramer is also shaking up the world of wireless. In January he invested $35 million in Visto, a Redwood City, Calif.
    maker of software for wireless e-mail that has sued Microsoft, Research in Motion and a unit of Motorola in federal
    court in Marshall, Tex., a jurisdiction known for big patent paydays. The tech companies all deny infringing on the

    http://www.forbes.com/forbes/2007/0507/044_print.html 4/30/2009
    Forbes.com - Magazine Article Page 2 of 2

    patents. But moneylosing Visto won $7.6 million in damages in its first victory, in December, against Seven Networks,
    a small competitor. "The precedent set with the Seven case will replay itself with anybody else who chooses to see
    this through litigation," warns Visto Chief Brian Bogosian.

    Paul Schneck has a more audacious plan, buying up patents and launching suits from scratch. A computer scientist
    who once worked for the National Security Agency, the U.S. Navy and NASA, Schneck heads up Rembrandt IP
    Management. His $150 million war chest has helped him pick up 200 patents; he is currently suing 15 companies and
    plans to go after more. "We are focused on obtaining jury verdicts," he says. "That's why we put our own money at
    risk, all the way from acquisition through appeal."

    First target: the cable industry. In 2004 Rembrandt spent $1 million for a patent portfolio from Paradyne, once a unit
    of Lucent Technologies, in order to challenge the most fundamental part of the cable business: how cable companies
    and TV networks receive and transmit digital broadcast signals. It has sued Comcast, Time Warner, Walt Disney's
    ABC and others, all of which deny any infringement. Some defendants claim the technology was set by a group that
    included AT&T, which agreed in the early 1990s not to assert any patents and to license them for a reasonable fee.
    "The patent system is designed to allow people to protect the fruits of their invention," says Daralyn Durie, a lawyer
    for Comcast. "But this seems to be a perversion of what the system was designed to accomplish."

    Schneck is also going after the vision business, laying claim to the treatment of contact lens surfaces, which
    determines the gas permeability of soft contacts. He bought the patents from inventor Sing- Hsiung Chang and last
    year sued Bausch & Lomb and Novartis' Ciba Vision unit. Both companies say that Chang didn't invent the
    technology. But Schneck has them seeing double--and tied up in court for years.

    Sidebar:
    The Little Airplane That Could

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    http://www.forbes.com/forbes/2007/0507/044_print.html 4/30/2009

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