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On September 30, 2024, IBM filed a complaint against Take-Two Interactive Software Inc., claiming that Take-Two’s games, including NBA 2K Mobile Basketball, Grand Theft Auto Online, and Red Dead Redemption 2, infringed IBM’s patents.[1] The complaint was filed less than a month after IBM obtained a $45 million verdict against game-developing company Zynga over patents related to online advertisements.[2] Now, IBM seeks to sue Take-Two, Zynga’s parent company, in Delaware federal court over three related patents, including one of the same patents Zynga was found to infringe.[3]
In its complaint against Take-Two, IBM claims patent infringement under 35 U.S.C. § 271,[4] and alleges that Take-Two directly and contributorily infringes upon three of its patents: the ‘849, the ‘704, and the ‘209 patents.[5] The technology under these patents relates to targeted online advertising,[6] user access authorization,[7] and virtual world systems,[8] respectively. IBM claims that they “invited Take-Two to engage in meaningful discussions towards a licensing resolution,” yet Take-Two instead “chose to continue its willful infringement” of IBM’s patented technology.[9]
Under patent law, direct infringement occurs when a party deliberately uses, sells, manufactures, or offers for sale a patented invention.[10] Contributory infringement, a form of indirect infringement, occurs when a party supplies components of a patented invention knowing that the components will be used to infringe a patent.[11] Regardless of the type of infringement alleged, the patent holder must prove its claim by a preponderance of the evidence.[12] Therefore, for IBM to prevail on its claims, it must prove it is “more likely true than not”[13] that Take-Two infringed its patents.
Take-Two Interactive, is a New York-based American video game holding company.[14] With an estimated market cap of $25.88 billion, it is one of the top ten publicly traded game companies in the Americas and Europe.[15] Take-Two owns several major publishing labels, including Rockstar Games and 2K,[16] and it recently purchased Zynga in 2022 for $12.7 billion.[17] Take-Two’s combined portfolio includes notable franchises such as Grand Theft Auto, Red Dead Redemption, and NBA 2K, among others.[18]
The complainant, IBM, is a New York-based American information technology company credited with several technological innovations, including the development of ATMs and the hard disk drive.[19] However, the company is best known among consumers for producing personal computers.[20] As a result, IBM’s microprocessors and operating systems have become the leading industry standard worldwide.[21] Due to its efficiency, IBM’s Power microprocessors were designed into many console gaming systems, including Microsoft’s Xbox 360 console,[22] on which games like Grand Theft Auto and Red Dead Redemption can be played. In 2008, IBM became the first company to generate over 4,000 patents in one year.[23] It now holds more than 40,000 active patents, which generate considerable income for the company from royalties.[24]
By collecting thousands of patents, IBM creates what is known as a “patent thicket,” a dense web of overlapping intellectual property rights on a single product.[25] This occurs when “a large company owns so many patents that it becomes impossible to innovate without infringing numerous patents.”[26] As a result, there is an increase in costs, legal risks, and barriers to market entry, particularly for new innovators.[27] Packet thickets are especially prevalent in industries such as telecommunications and computing[28] because these industries require various patent-protected technologies to manufacture a single product.[29] For example, smartphones rely on several technologies—including the LCD screen, processors, and batteries—to be manufactured as a final product.[30] Innovators, in turn, must obtain licensing deals for multiple patents to commercialize new technology.[31] However, the situation in itself is complex. Where many licenses are required, it is difficult to identify the correct entity to enter into a licensing agreement.[32] As a result, new products will inadvertently infringe on multiple patents, leading to lawsuits.[33]
Throughout the years, IBM has targeted several companies with infringement lawsuits over its patented technology. In 2018, IBM and Groupon settled for $57 million following an $83 million jury verdict in IBM’s favor.[34] Preceding IBM’s suit against Take-Two, a jury determined that several Zynga games, including the Farmville series, infringed two IBM patents related to web-based communications.[35]
In the present case, Take-Two can settle with IBM and enter into a licensing agreement concerning the patents at issue. However, if it chooses to litigate the issue, the company can either (1) argue that the patents are invalid or (2) argue noninfringement.[36] Several companies have been successful in making these arguments against IBM’s infringement claims. For example, in IBM’s 2022 suit against Zillow, the Federal Circuit held that IBM’s ‘789 and ‘389 patents were invalid.[37] Additionally, in a lawsuit against Chewy, the Federal Circuit found that IBM’s ‘443 patent was invalid and that Chewy did not infringe on all of the claims listed in IBM’s ‘849 patent.[38]
Although Take-Two has yet to file a response to IBM’s complaint, the company will likely not settle. “We believe these claims are without merit, and we will defend ourselves vigorously,” wrote Take-Two spokesman Alan Lewis to Law360 regarding the latest lawsuit.[39] The company is also seeking to appeal the decision of the Zynga lawsuit, although post-trial briefing in that case has not begun.[40] Lewis told Law360 that the company believes it will prevail on that appeal.[41]
It is evident that IBM does not take the enforcement of its patents lightly. The company will likely continue to police its patented technology using its ample legal resources. And, given the substantial quality problem of the patent system, IBM will also likely contribute to its patent thicket. As Professor Roger Allan Ford states, “It is both too easy to get a patent and too cheap to do so.”[42] However, a growing acknowledgment exists to improve the system by protecting patent quality and strengthening the examination process.[43]
In recent years, Congress has considered potential new laws for patent reform. On July 10, 2024, the Affordable Prescriptions for Patients Act of 2023 passed the Senate unanimously.[44] The bill seeks to lower drug costs by eliminating patent thickets in the drug industry.[45] Although it affects patents on biologic or branded drugs, this proposal may begin a trend towards improving the patent system by expanding to patents of other industries. In the meantime, invalidating one of IBM’s many patents in Take-Two’s suit may be a start to dismantling the dense web of patent thickets in the technology industry.
[1] Complaint for Patent Infringement, International Business Machines Corp. v. Take-Two Interactive Software, Inc., No. 1:24-cv-01087-UNA (D. Del. filed Sept. 30, 2024).
[2] Andrew Karpan, IBM Targets Take-Two in IP Suit After $45M Win Against Zynga, LAW360 (Oct. 1, 2024, 9:19 PM), https://www.law360.com/articles/1884716.
[3] Id.
[4] Complaint for Patent Infringement, supra note 1, at 6.
[5] Id.
[6] U.S. Patent No. 7,072,849B1 (issued Jul. 4, 2006).
[7] U.S. Patent No. 7,356,704B2 (issued Apr. 8, 2008).
[8] U.S. Patent No. 8,458,209B2 (issued June 4, 2013).
[9] Complaint for Patent Infringement, supra note 1, at 5.
[10] Catherine Rajwani, Types of Patent Infringement, HABOR LAW GROUP, https://www.harborlaw.com/massachusetts-intellectual-property-law-attorneys/types-of-patent-infringement/ (last visited Oct. 19, 2024).
[11] Ted Polasek, The Complete Guide: Types of Patent Infringement, THE POLASEK LAW FIRM (July 24, 2021), https://polaseklaw.com/the-complete-guide-types-of-patent-infringement/.
[12] Christopher J. Harnett, Statutory Provisions Governing Patent Infringement – A Practical Analysis, MAYNARD COOPER GALE, https://www.aipla.org/docs/default-source/committee-documents/bcp-files/2022/03-2022-0329–harnett—bcp-infringement.pdf?sfvrsn=5a614e39_2 (last visited Oct. 19, 2024).
[13] Legal Information Institute, preponderance of the evidence, CORNELL LAW SCHOOL, https://www.law.cornell.edu/wex/preponderance_of_the_evidence (last visited Oct. 19, 2024).
[14] T2 Home Page, Take-Two Interactive Software, https://www.take2games.com/ir (last visited Oct. 19, 2024).
[15] Companies Market Cap, Largest video game companies by market cap, https://companiesmarketcap.com/video-games/largest-video-game-companies-by-market-cap/ (last visited Oct. 19, 2024).
[16] T2, supra note 14.
[17] Karpan, supra note 2.
[18] T2, supra note 14.
[19] IBM, Wikipedia, https://en.wikipedia.org/wiki/IBM (last updated Oct. 17, 2024).
[20] The Editors of Encyclopaedia Britannica, IBM, https://www.britannica.com/money/International-Business-Machines-Corporation (last updated Oct. 15, 2024).
[21] The Editors of Encyclopaedia Britannica, personal computer, https://www.britannica.com/technology/personal-computer (last updated Sept. 26, 2024).
[22] IBM Designed Power-based Chip for Microsoft Xbox 360, Phys Org (Oct. 25, 2005), https://phys.org/news/2005-10-ibm-power-based-chip-microsoft-xbox.html.
[23] Wikipedia, supra note 19.
[24] Wikipedia, supra note 19.
[25] Patent thicket, Wikipedia, https://en.wikipedia.org/wiki/Patent_thicket (last updated Apr. 14, 2024).
[26] Timothy B. Lee, Large patent holders hate this reform proposal. That’s a good sign., THE WASHINGTON POST (Sept. 24, 2013, 1:45 PM), https://www.washingtonpost.com/news/the-switch/wp/2013/09/24/large-patent-holders-hate-this-reform-proposal-thats-a-good-sign/.
[27] Untangling Patent Thickets: The Hidden Barriers Stifling Innovation, TTCONSULTANTS (June 26, 2024), https://ttconsultants.com/untangling-patent-thickets-the-hidden-barriers-stifling-innovation/.
[28] Carl Shapiro, Navigating the Patent Thicket: Cross Licenses, Patent Pools, and Standard Setting, UNIVERSITY OF CALIFORNIA AT BERKELY, https://faculty.haas.berkeley.edu/shapiro/thicket.pdf (last visited Oct. 19, 2024).
[29] https://insights.som.yale.edu/insights/are-patent-thickets-smothering-innovation.
[30] Stefan Wagner, Are ‘Patent Thickets’ Smothering Innovation?, YALE INSIGHTS (Apr. 22, 2015), https://insights.som.yale.edu/insights/are-patent-thickets-smothering-innovation.
[31] Wikipedia, supra note 25.
[32] Wagner, supra note 30.
[33] Shapiro, supra note 28.
[34] Blake Brittain, IBM sues Taken-Two for patent infringement over internet technology, THOMSON REUTERS WESTLAW TODAY (Sept. 30, 2024, 9:19 PM), https://today.westlaw.com/Document/I79d455a07f7311efa8e494d4a81acc6a/View/FullText.html?transitionType=CategoryPageItem&contextData=(sc.Default)&firstPage=true&bhcp=1.
[35] Karpan, supra note 2.
[36] Enforcement of Patent Rights Under Federal Law, JUSTIA, https://www.justia.com/intellectual-property/patents/enforcement/ (last updated Oct. 2024).
[37] IBM v. Zillow Grp., Inc., 50 F4th 1371, 1383 (Fed. Cir. 2022).
[38] Chewy, Inc. v. IBM, 94 F.4th 1354, 1367 (Fed. Cir. 2024).
[39] Karpan, supra note 2.
[40] Id.
[41] Id.
[42] Roger Allan Ford, The Patent Spiral, 164 U. Pa. L. Rev. 827, 831 (2016).
[43] Id.
[44] Lawson Mansell, Reforms targeting “patent thickets” would speed up the arrival of lower-cost drugs, NISKANEN CENTER (July 18, 2024), https://www.niskanencenter.org/reforms-targeting-patent-thickets-would-speed-up-the-arrival-of-lower-cost-drugs/.
[45] Id.