I'm the author. It's actually kind of hard to say at this stage, and the judge suggested amicus briefing to help the Court figure out what to make of all this.

The article says “All they had to do was become the owners of a patent assertion entity, and accept the "liabilities" that come along with that.”

Can you say more what this means? What were the risks these people were (I would guess unknowingly) accepting in return for their 5-10% if things went ‘well’?

They seemed unsure at the hearing of what exactly they had signed up for.

Certainly, their LLCs could be subject to attorneys fees if the Court awards fees (which it generally only does in exceptional cases) or for sanctions based on attorney behavior.

However, normally, only their LLCs would be liable rather than the owners personally--unless they fail to observe the corporate formalities.

> They seemed unsure at the hearing of what exactly they had signed up for.

One even had no idea what the name of the patent "he" owned was, or what it was for.

> However, normally, only their LLCs would be liable rather than the owners personally--unless they fail to observe the corporate formalities.

Failing to observe which formalities in particular would expose them personally to such liability?

Commingling assets, undercapitalization

Once they own the patent, could they not break with MAVEXAR and keep 100% of what they would get from the litigation? In theory, I'm aware they probably had neither the know-how nor the funding.

It sounds like a trade. I give you a patent, aka cause of action, and in return you cut me in on your winnings. But if you lose you're on your own.

It spreads downside risk directly. It also makes unraveling the real interests harder.

It's a clever, evil hack of the justice system. It's very cool this judge uncovered it. I hope they get nailed and I hope we close these loopholes.

Fingers crossed that the court just says "this reeks too much like a scam to me" and summons the real owner of these patents instead of the mailbox / shell companies, under threat of dissolving the shell companies.

I still don't understand what the scam would be in this case.

IANAL, I wouldn't think "this seems sus" to be a sufficient justification for a court to compel discovery without a clear relevance to the issues before it.

The hook for compelling discovery is probably standing. That is, if you’re not the “real” patent owner (for whatever definition of “real” the judge likes) then you might lack constitutional standing to bring suit for infringement.

The substantive issue the judge is interested in is whether they made false statements in their court filings. The attorneys seem to be misleading the court about the true owner of the patents, and who the attorneys actually represent.

Well presumably if there is a significant penalty for making a false patent assertion, then placing the assertion in the hands of a very small company would simply bankrupt that company in the case of the penalty coming due, and the real owner wouldn't be liable.

So essentially the scam removes liability from the (dubious) patent owner - it removes the downside to (allegedly) abusing the law, and subverts the intent of the legislation.

I suspect it's something like this: Company A owns some patents that it wants to troll with. They get entities B through Z to buy the patents and troll, with the contract saying that A gets a chunk of the winnings if they win. If they lose, B through Z are on the hook for expenses. So A gets to hide, first of all, and second gets insulated against financial losses, and third doesn't get tainted by a bunch of adverse legal rulings. (That is, think about how Prenda Law got tainted. If they came after you, you weren't going to settle, because you knew it was garbage. Well, in this setup, if B through F have been shown to be bogus, and G is suing you, you may settle rather than fight, because you don't realize it's all part of the same bogus collection of junk.)

As I said, that's what I suspect. The actual scam may be different.