Why Should Investors Care About Apple's Lawsuit Against Koss?

Gaston Kroub

As patent litigators, one of the more interesting aspects of our work involves evaluating the litigation strategy of our counter-party. Likewise, when evaluating the moves of litigants in patent cases of interest to investors, it is important to consider why a party may be taking a certain step at any given moment in time. Of particular interest are situations where a well-heeled patent defendant decides to escalate a legal situation involving a smaller challenger. Apple’s recent declaratory judgment filing against Koss hits those notes — in spades.

Some background. On July 22, headphone maker Koss launched what it called its “Second Phase of Intellectual Property Enforcement Program” — a series of patent lawsuits against rival headphone/earbud makers. One of Koss’ targets was Apple, makers of the ever-popular Airpods. That case was filed in the Western District of Texas, the venue of choice for patent plaintiffs nowadays. There is no doubt that success against Apple would be a boon for both Koss and its investors, making the patent assertion effort by the company a high-stakes endeavor — even as the very filing of the cases has helped to cement Koss’ reputation as a technology innovator and player in the crowded headphone/earbud market.

It has not taken long for Apple to respond, however, which is a proven tell that it takes the risk posed by Koss seriously. On August 7, Apple filed its declaratory judgment complaint against Koss, in an obvious effort to blunt the impact of Koss’ own filing in Texas. Apple argues that by filing suit Koss has breached an existing NDA between the companies. As a consequence, it asks the Court for an order “enjoining Koss from using the substance or existence of any Communications subject to Paragraph 5 of the Confidentiality Agreement in any litigation, patent office proceeding, or any other court or administrative proceeding for any purpose.” In addition, Apple seeks a declaratory judgment that it doesn’t infringe any of the asserted Koss patents.

At bottom, Apple’s filing is a likely prelude to a motion to transfer the case from Texas to California. Since the importance of venue to the ultimate resolution of patent cases can’t be overstated, it would be well worth the effort for Apple to at least try. Further, Apple’s attempt to restrict Koss’ ability to use any information it gained under the NDA is a low-risk, high-reward move to the extent it hampers Koss’ ability to prosecute its patent infringement claims against Apple. For now, it is clear that these are just the opening salvos in what — absent settlement — is shaping up as a major patent war between two well-regarded names in the headphone/earbud space. Both Apple and Koss investors would do well to monitor developments in the two Apple/Koss cases, as well as any other cases involving Koss’ patents.