Oh the Tangled Web Patent Investment Companies Weave
- Marta Beckwith
- Jun 17
- 8 min read
A few days ago, Intel Corporation (“Intel”) won a jury verdict against a patent licensing entity called VLSI Technology LLC (“VLSI”). The jury found that VLSI was controlled by a patent investment company called Fortress Investment Group (“Fortress”). The jury also found that Fortress controlled another patent licensing entity known as Finjan Inc. ("Finjan"). The net net of this is that Finjan and VLSI have now been found to be “Affiliates” of each other within the meaning of Intel’s patent license agreement with Finjan.[1]
Although the Finjan patents are not alleged to be standard essential, this is a significant development that illuminates the shadowy world of patent acquisition and litigation investment entities and so is useful our understanding of SEP licensing. The history is very tangled but bear with me since it is necessary to understand the decision.
The Tangled Web – Finjan
In 1997, a former Intel executive started a company named Finjan Software Ltd. (“Finjan Software”). At first, Finjan Software was a practicing entity developing technology to protect Java-based apps from cyber-threats. In Finjan Software’s early days, a number of Silicon Valley companies invested in the company.[2] In 2009, most of Finjan Software was sold off to another company, M86
Security.[3] In turn this became Finjan (which continued to claim to be a practicing entity but which others have called a non-practicing entity). Nearly immediately, Finjan began suing other companies in the network and cyber-security spaces.
Over the course of several years, Finjan sued (among others):
· Blue Coat Systems, Inc
· FireEye, Inc.
· McAfee, Inc. – which is important to our story
· Palo Alto Networks
· Sophos, Inc.
· Webroot Software, Inc.
· Websense, Inc.
· And eventually one of Finjan Software’s original investors, Cisco Systems, Inc.
The Tangled Web – McAfee, Intel and the Finjan Settlement
Finjan’s lawsuit against McAfee was filed in 2010 (case no. 1:10cv593, Dist. of Delaware). At that time, Intel was trying to diversify its business. So, in 2011, in the middle of the Finjan lawsuit, Intel purchased McAfee, Inc. According to some, this was a “bold move into cybersecurity, aimed at integrating security features directly into hardware.”[4] Be that as it may, the Intel McAfee acquisition is critical to the rest of our story. The Finjan/McAfee lawsuit settled in 2012 via a Confidential Settlement, Release and Patent License Agreement between McAfee, its parent Intel, Finjan Software and Finjan (“License Agreement”).
While the License Agreement remains confidential, some aspects of it were publicly discussed in a Delaware Court of Chancery (and other) decisions.[5] The License Agreement contained a broad, but very typical, patent license grant from Finjan and Finjan Sofware (“Finjan Signatories”) to Intel:
1. The license gave Intel (and I assume its Affiliates although not discussed in the Delaware decision) a “worldwide, paid-up, non-exclusive, perpetual, irrevocable license under Finjan’s Patents.”
2. The license flowed from the Finjan Signatories and their Affiliates to Intel (and I assume its Affiliates).
3. The license included all patents owned or controlled at any time after November 6, 2012 that have a filing or priority date on or before November 20, 2022.
4. The License Agreement defined “Affiliates” as:
[I]n relation to a specified Person (i) any Person that, now or hereafter, directly or indirectly through one or more entities, controls or is controlled by, or is under common control with, such specified Person, or (ii) any other Person, now or hereafter, that is deemed to be an affiliate of such specified Person under interpretations of the Exchange Act. As used in this Section 1.2, “controls”, “control” and “controlled” means the possession, direct or indirect, of the power to direct the management and policies of a Person, whether through the ownership of any percentage of voting interests of such Person, through contract or otherwise.
The Tangled History – Fortress Investment Group
In 2020, Finjan was acquired by a patent and litigation investment company, Fortress Investment Group, LLC (“Fortress”). Fortress bills itself as “one of the pioneers of private credit . . . Our experience extends across all our investment groups, creating valuable cross-class expertise.” Fortress “is a leading, highly diversified global investment manager” that has invested in many things over the years – failing companies, startups and it is one of the largest investors in intellectual property assets and IP (and other) litigation.[6]
Fortress invests directly in litigation and also acquires patents through its subsidiaries on which those subsidiaries sues practicing entities for patent infringement. Fortress also has loaned money to law firms to bring mass tort and patent lawsuits. “What started as $5 million to $10 million investments in single commercial cases has grown into loans exceeding $100 million to law firms for their entire caseloads.” As Fortress’ head of IP said: “I do believe we pioneered the patent lending business.”[7]
On July 24, 2020, when Fortress acquired Finjan, Fortress was majority owned by SoftBank, a Japanese investment group with large stakes in a number of technology companies.[8] But in May, 2024, Softbank sold its shares in Fortress, and Fortress became owned, by Mubadala Investment Company through its subsidiary Mubadala Capital. Mubadala Capital “is the wholly owned asset management subsidiary of Mubadala Investment Company, a leading global sovereign investor headquartered in Abu Dhabi, United Arab Emirates.[9] In other words, Fortress is now essentially owned by the government of the UAE.
The Tangled History - VLSI
Similar to Finjan, VLSI Technology, Inc. (“VLSI Inc.”) began as a Silicon Valley based practicing entity. VLSI Inc. once made semiconductor chips so the original company was in a business similar to Intel’s. Intel primarily makes microprocessors which are a type of semiconductor chip. In semiconductor lingo, VLSI stands for very-large scale integration and refers to the process of creating integrated circuits by combining millions of MOS transistors into a single semiconductor chip which is what VLSI Inc. started out by doing. In 1999, VLSI Inc. was acquired by Phillips Electronics. Phillips then spun out the VLSI Inc. assets as part of its spin out of NXP Semiconductors N.V. (“NXP”), a Netherlands based semiconductor company.
In 2016 and again in 2017, NXP transferred a bunch of the VLSI Inc. originated patents to the confusingly named VLSI LLC, a non-practicing entity with no connection to the original VLSI Inc. entity other than the patents.[7] Starting in 2017, VLSI LLC began suing semiconductor industry participants, including filing numerous lawsuits against Intel alleging infringement of some of the VLSI Inc. originated patents.[10] I have not been able to find information about when Fortress acquired VLSI LLC (or whether VLSI LLC was a Fortress entity from the beginning).
The License Defense and the Northern District of California Decision
Shortly after Fortress acquired Finjan, Intel began asserting a license defense to the VLSI LLC lawsuits based on Fortress’ ownership of both entities. A “month after the Acquisition, Intel sent a letter dated August 17, 2020 to the Defendants asserting, ‘As a result of Fortress’s acquisition of Finjan, Intel holds a worldwide, fully paid-up, perpetual, irrevocable license to Fortress entities’ patents, including all patents presently asserted by VLSI Technology LLC in California, Delaware, Texas, and China.’” See the Delaware Decision at p7-8. Intel requested that VLSI LLC drop all of its many lawsuits and invoked the dispute resolution provision in the License Agreement. VLSI LLC and Fortress did not agree to participate in dispute resolution under the License Agreement.
Intel then tried to allege a license defense in the then pending lawsuits in the Western District of Texas. Intel also filed a lawsuit in the Court of Chancery of the State of Delaware seeking a declaration that the license in the License Agreement extended to VLSI LLC because it was an “Affiliate” of Finjan’s. At first, this license defense did not go well for Intel. The Chancery Court decided that, as a court of “limited jurisdiction,” it was not an appropriate forum for making that type of decision. The Court in Texas did not allow Intel to assert the license defense at trial, instead allowing the claims of infringement to go to the jury in several cases. In two of those cases, juries decided that certain of Intel’s semiconductor chips infringed some of the VLSI Inc.-originated patents and awarded VLSI LLC $1.5 billion and $948.8 million respectively in
damages.[11] Intel appealed those decisions and parts of them were overturned on appeal. Importantly, the Federal Circuit also decided that Intel should have been allowed to argue its license defense.[12]
So finally—and very recently—after almost five years of trying, Intel was allowed to present its license defense to a trier of fact. And it won! A jury in the Western District of Texas agreed that Intel was indeed licensed to the VLSI LLC patents because of Fortress’ dual ownership of VLSI LLC and Finjan.[13]
Conclusion
I will note that (other than the ten year capture period which is a less common provision), this type of license grant and this type of Affiliate definition is very common in patent license (and other) agreements. I have personally used some variant of the license/Affiliate language found in the Finjan License Agreement in many of the license agreements I have drafted or negotiated, including those involving SEPs. I am aware that many others have too. That is one of the reasons why this decision is of such universal importance.
This decision also is important because it shows the lengths to which some patent licensing entities will go to avoid admitting to their relationship to other patent licensing entities. VLSI LLC argued for close to five years that that the License Agreement did not apply to it because VLSI LLC had nothing to do with Finjan. VLSI LLC stated in a court filing that it was “Wholly unrelated to Finjan” and “Simply put, VLSI has nothing to do with Finjan.”[14]
But VLSI LLC’s assertion has now been rejected by the jury. I have no doubt, however, that VLSI LLC’s repeated denial of relatedness cost Intel millions in dollars in legal fees fighting infringement claims for patents to which Intel was already licensed. The secrecy of the License Agreement and the obfuscation of the relationship between Fortress, VLSI LLC and Finjan, made it very difficult for Intel to show this relatedness. But it has now finally managed to do so.
[5] See this decision by the Delaware Court of Chancery discussing the allegations: Download.aspx (“Delaware Decision”). See also, Plaintiff VLSI Technology LLC’s Motion for Summary Judgement on Intel’s License Defense and of No Invalidity Based on IPR Estoppel filed in Case 5:17-cv-05671-BLF (N.D.CA) as docket no. 586 (“VLSI LLC’s MSJ”) for some of the background according to VLSI.
[8] EX-99.1
[10] Here are at least some of the cases that VLSI filed against Intel:
· 5:17-cv-5671 (N.D.Cal.) filed 10/2/2017
· 1:18-cv-966 (D.Del.) filed 6/28/2018
· 1:19-cv-426 (D.Del.) filed 3/1/2019
· 1:19-cv-977 (W.D. Tx) filed 4/11/2019
· 6:19-cv-254 (W.D. Tx) filed 4/11/2019
· 6:19-cv-255 (W.D. Tx) filed 4/11/2019
· 6:19-cv-256 (W.D. Tx) filed 4/11/2019
· 6:21-cv-57 (W.D. Tx) filed 4/11/2019
· 6:21-cv-299 (W.D. Tx) filed 4/11/2019
· At least one case in Shanghai, China
· At least one case in Shenzhen, China
Intel in turn filed an antitrust action against Fortress (case no. 5:19-cv-6856 (N.D.Cal)) on 10/21/2019 and also filed numerous IPRs on the VLSI patents.
[14] See VLSI LLC’s MSJ at 3.
