Patent Lawsuits Are a National-Security Threat

"Third parties are increasingly funding patent litigation in the U.S. in exchange for some of the proceeds. 

This practice was nearly nonexistent as recently as 2010 but now appears to account for about 30% of the country's patent infringement lawsuits. The government doesn't know who pays for or controls these suits. That could allow foreign adversaries to profit from our legal system and threaten U.S. national security.

In 2019 VLSI Technology alleged that some of the tech in Intel's microprocessors infringed on its patents. In at least two lawsuits VLSI has been awarded some $3 billion in damages, some since reversed and remanded. Thanks to what's known as the NHK-Fintiv rule -- under which the U.S. Patent and Trademark Office refuses petitions for review if the relevant patents and parties are already involved in litigation -- the agency hasn't taken up Intel's challenges.

When OpenSky, another party, challenged the same patents in 2021, the office's review confirmed what Intel alleged: VLSI's patents were invalid because they claimed features of semiconductor design that were obvious.

The VLSI litigation has done serious harm to Intel and to the U.S. The proceedings have distracted the company and its engineers, and the company could still pay billions for some highly questionable patents -- money that Intel could invest in building chip fabs and designing the next generation of microprocessors.

It's difficult to overstate how important computer chips are to the nation's economy and security. Washington is granting Intel several billion dollars to expand domestic production of military-purpose computer chips. Intel is the nation's only designer and maker of leading-edge microprocessors. Fast and reliable semiconductors are critical to the amplifiers and signal-processing parts of radars used in air defenses, to the targeting and guidance systems of missiles, and to the secure networks that allow military forces to communicate. An enemy that can produce faster microprocessors than the U.S. would have a tremendous battlefield advantage.

If a foreign adversary wanted to weaken the U.S., it could hardly do better than wage the type of legal warfare that VLSI has brought against Intel. As former Attorney General Michael Mukasey has noted in these pages, this practice is a direct threat to America's security.

What is VLSI and are foreign governments involved in its campaign against Intel? We don't know. VLSI Technologies Inc., a semiconductor manufacturer in the 1980s and '90s, has been defunct for more than two decades. The current VLSI makes no products and has no relation to the old VLSI. It appears to have appropriated the name to obscure itself, a common tactic among nonpracticing patent-litigation entities.

VLSI's parent company is Fortress Investment Group, a hedge fund owned in large part by interests in Abu Dhabi. The group is also a member of the International Legal Finance Association, an organization that lobbies against litigation-finance disclosure. VLSI has resisted revealing the identities of the investors in its litigation against Intel. When Colm F. Connolly, chief judge of the U.S. District Court for Delaware, ordered VLSI to disclose who was funding its litigation in August 2022, the company agreed to dismiss its case with prejudice. (Fortress didn't respond to a request for comment.)

This was an extraordinary act. VLSI had pursued its lawsuit against Intel for several years. Nearly 1,000 filings had been entered in the case, and the company must have spent millions on the proceedings. Yet it seemingly preferred to walk away, pledging never to sue Intel or its customers on the patents.

VLSI has continued to sue Intel on other patents in other jurisdictions, particularly where courts don't require disclosure of third-party funding. The company has also revealed that its investors include "sovereign wealth funds" -- i.e., foreign governments. China, for example, operates such a sovereign wealth fund, the China Investment Corp. Beijing also files patent lawsuits in the U.S. through entities such as PurpleVine IP, which doesn't disclose in court who controls it unless it's forced to.

It's reasonably likely that foreign powers are funding the VLSI litigation. That wouldn't be surprising; some of our foreign adversaries are already engaged in widespread industrial espionage and technology expropriation against U.S. companies. What's troubling is that we would allow this to happen without requiring sufficient disclosure.

Americans are a trusting people, who allow broad access to our judicial system. Yet as Judge D. Michael Fisher of the Third U.S. Circuit Court of Appeals wrote in 2011: "One of the essential qualities of a Court of Justice is that its proceedings should be public." This means, as another judge wrote, that "the people have a right to know who is using their courts."

With hundreds of patent lawsuits filed every year that receive financing from third parties, it's past time for the U.S. to require disclosure of third-party litigation funding.

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Mr. Matal, a patent lawyer, served as acting director of the U.S. Patent and Trademark Office, 2017-18." [1]

1. Patent Lawsuits Are a National-Security Threat. Matal, Joseph.  Wall Street Journal, Eastern edition; New York, N.Y.. 21 Mar 2024: A.17.