Litigation Webinar Presentation 2011

To Sue or Not to Sue: Evaluating a Patent Suit

2011

Michael A. O’SheaDavid A. Kelly

Joshua M. Kalb

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Before pursuing patent litigation it’s essential to determine your goals and weigh your chances of success. This program will help you:

• Evaluate the strength of your case;

• Determine the nature and likelihood of available remedies (damages, injunction, exclusion order);

• Estimate the costs and length of litigation;

• Synthesize these considerations and make a well-informed choice of whether to pursue a patent infringement action.

Program Overview

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Do You Have A Case?

The first step is evaluating the strength of your case:

• What’s your theory of infringement?

• What patent claims do you intend to assert?

• How are your claims likely to be construed?

• What are your “bad facts”?

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Theories of Infringement

1. Direct Infringement

• Defendant made, used, sold, offered for sale, or imported the claimed invention.

• Two types:

• Literal – The accused product is identical to the claims.

• Doctrine of equivalents – The accused product performs substantially the same function in the substantially the same way to achieve substantially same results.

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• Indirect (Contributory) Infringement

• Defendant sold, offered for sale, or imported a material component of a patented invention knowing it was especially made or adapted for use in the infringing product.

• An exception is made for the sale of “staple” products, i.e., those that have a substantial non-infringing use.

Theories of Infringement

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• Indirect (Induced) Infringement

• Defendant actively encouraged another to directly infringe the patent.

• Examples of inducement can include:

• Marketing an infringing use;• Helping implement an infringing use; or • Providing support for an infringing use.

Theories of Infringement

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Evaluating Infringement

Direct vs. Indirect Infringement

• Proving direct infringement is a prerequisite to proving indirect infringement.

• Indirect infringement requires proof that the defendant knew of, or willfully blinded itself to, the infringing activities.

• Consider the implications of the added complexity (more discovery, more possible defenses, etc.) before pressing a claim of indirect infringement.

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Evaluating Claim Construction

Litigation success typically turns on how the court construes your patent claims:

• Before deciding liability, courts use a “Markman” hearing to construe disputed terms in the patent claims.

• Courts look to the intrinsic record, i.e., the claim language, the specification, and the prosecution history.

• In some cases, courts may also consider extrinsic evidence (expert testimony, industry publications, other patents, etc.).

• Because the outcome of the case often turns on the claim construction, think carefully about your proposed construction – it should be amply supported by the intrinsic record.

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Evaluating Claim Construction

• Study the intrinsic record – Choose a claim construction most consistent with the intrinsic record that is still valid yet covers the defendant’s product.

• Stick with the ordinary meaning – What is the ordinary and customary meaning of the term? Try to avoid using a non-dictionary definition unless the intrinsic record supports you.

• Think like a defendant – Think about how the defendant is likely to try to construe the claim – narrowly, to avoid infringement, or overly broad, in order to invalidate.

• Consult with an expert – Make sure your technical expert agrees wholeheartedly with your proposed construction. An expert with reservations can spell disaster in deposition.

Remember to:

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Evaluating Infringement

• Compare the accused product to the claims – TEST THE PRODUCT! Don’t just rely on casual observation. Research the accused product, take it apart, give it to an expert for analysis.

• Prepare claim charts – For each element of your claims, try to find publically available information on the accused product proving that element’s presence.

• Choose an infringement theory – Does the accused product itself infringe, or is it part of another product that infringes? Where is the sale, importation, or offer for sale in the U.S.?

• Consult an expert – If a consulting expert doesn’t see the infringement, go back to the drawing board. Make sure your expert is willing to sign off on an infringement opinion.

Before filing suit, be sure you’ve satisfied Rule 11:

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Anticipating Defenses

Consider the defenses you’re likely to encounter:

1. Invalidity

• Anticipation / Obviousness

• Insufficient Written Description/Non-Enablement

• Indefiniteness

• Others

2. Inequitable Conduct

3. Laches/Estoppel

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An invention must be new, non-obvious, and protected subject matter under the statute. A patent is invalid if it is:

• Anticipated – The same invention was first made by another or was known or used by others or described in a printed publication before the invention date;

• Obvious – The invention was obvious to “one of ordinary skill in the art” at the time of the invention; or

• Non-statutory – The invention is directed to a law of nature, a physical phenomenon, or an abstract idea.

Evaluating Invalidity

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Statutory Bars:

• Public Use Bar – The invention was used in public or disclosed to a third party without a requirement that the information be kept confidential.

• On-Sale Bar – The invention was sold or offered for sale. It need not have been reduced to practice, just ready for patenting. Offers to license and licenses typically do not qualify.

Evaluating Invalidity

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A patent is also invalid if its claims are:

• Indefinite – Claims are overly vague or ambiguous, and cannot be construed.

• Inadequately Described – Specification fails to show that the inventor “possessed” the invention at the time he/she filed the patent.

• Non-Enabled – Specification fails to describe the invention well enough to enable a person of ordinary skill in the art to make and use it without undue experimentation.

Evaluating Invalidity

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Evaluating Other Defenses

Other defenses the defendant might assert include:

• Inequitable Conduct – Patentee failed to disclose and/or misrepresented “material” information with the specific intent of deceiving the PTO. Harder to prove under Therasense.

• Laches – Patentee unreasonably delayed bringing the lawsuit, thereby materially prejudicing the infringer. Bars pre-suit damages only.

• Equitable Estoppel – Patentee misled the infringer into reasonably believing it would not be sued, and the infringer relied on that misleading conduct to its detriment.

• Reexamination – Although not technically a defense, filing a suit invites a reexamination proceeding. If granted, the court could stay the litigation until the reexamination is complete.

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Before filing suit, be sure to consider any potential invalidity defenses:

• Run a prior art search – The defendant will. Why wait until discovery to know what your defendant will find? Remember, it doesn’t take a silver bullet to kill your patent. Any reference teaching a key claim element is a potential problem.

• Research the invention – How and when was the invention conceived? Was it sold or disclosed publically before the application was filed?

• Interview the inventors – Where they aware of any prior art that they didn’t disclose? If so why?

• Review the file history – Did the patent examiner properly consider the prior art? Was there a glaring error in the examiner’s analysis? Do any amendments or arguments contradict your claim construction?

Evaluating Invalidity

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Continued…

• Review the prosecuting attorney’s files – Any smoking gun prior art documents that were not disclosed? If so, find out why.

• Pay attention to dates – When did the patent issue? When was the accused product first sold? When did you learn about the accused product? If the accused product has been around for more than 6 years with no suit, watch out for laches.

• Review prior art – Is there any material art that was not considered by the examiner? Does it contradict anything argued in the prosecution history? Ask yourself if this raises an issue that might support reexamination.

• Talk to your expert – Your expert will know the state of the art at the time of the invention. He or she will also be able to weigh in on prior art, written description, enablement, and definiteness issues.

Evaluating Invalidity

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While invalidity defenses are inevitable, remember:

• Patents are presumed valid.

• Defendant bears the burden of proving invalidity must be proven by “clear and convincing evidence.”

• Judges and juries hold the Patent Office in high regard and are often reluctant to second-guess the Office.

Evaluating Invalidity

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Evaluating Remedies

1. Preliminary Injunction

• In some circumstances, you can obtain a pre-trial injunction. Factors include: (1) the likelihood that the patentee will win at trial; (2) relative rights and hardships on the parties, (3) possibility of irreparable harm; and (4) the public interest.

• PI’s require a detailed factual hearing – essentially a mini-trial. These hearings can be a way to abbreviate the case because many of the issues are litigated early, but they also increase the initial cost of a suit.

• If you win a PI, you must post a bond to protect defendant against an improper injunction. This can be expensive.

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Evaluating Remedies

2. Permanent Injunction

• Patentee who prevails at trial may obtain a court order enjoining the defendant from further infringement during the life of the patent.

• Permanent injunctions are not automatic, but likely if:

1) Defendant is a competitor.

2) The inventions is ground-breaking, rather than an incremental improvement.

3) You can prove lost market share and/or price erosion.

4) There is no history of licensing.

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Evaluating Remedies

3. Money Damages

• Reasonable Royalty – Calculation of how much patentee would have received from the defendant in a hypothetical negotiation. Amount depends upon royalties the patentee charges others, going-rate of similar licenses, defendant’s expected profit, etc.

• Lost Profits – Profits patentee would have made but for the infringement. Patentee must show: (1) no acceptable non-infringing substitutes, (2) product demand, (3) capacity to meet that demand, and (4) detailed calculation of lost profits.

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Evaluating Remedies

4. Other Damages

• Enhanced Damages – Court may order the infringer to pay up to three times the money damages if patentee proves that its infringement was “willful.” Factors include deliberate copying, failure to obtain clearance opinion, litigation misconduct, any remedial actions taken, etc.

• Attorneys’ Fees – May be granted where the patentee prevails and the defendant has willfully infringed the patent

and/or litigated in bad faith.

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Limitation On Damages

Marking:

• To recover money damages, a patentee that makes patented products must mark those products, e.g., with the patent number or a web site that gives notice to the public.

• Failure to mark will limit damages for the time period after the defendant is notified. Marking does not apply to method patents.

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When weighing what relief to seek:

• Consider your harm – Has your price been eroded? Are you losing market share? Is your harm “irreparable?”

• Evaluate your market position – Do you compete with the defendant? How confident are you in ultimately prevailing? Do you NEED the infringement to stop now?

• Get defendant’s financial information – Look at public filings, online news sources, industry journals, etc. Does the defendant make money, and if so, how much? Can you attribute those profits to the infringement?

Evaluating Remedies

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Continued…

• Research your own profits – How much money do you make on the invention? How many more sales could you have made if the defendant wasn’t in the market?

• Check royalty rates – Do you license your patent? If so, what’s the rate? Check royalty gathering services to find comparable rates on similar technologies.

• Consider your financial status – Can you afford a long litigation? Can you afford an injunction bond?

Evaluating Remedies

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Now What?

So you think you have a case, and you know what you want to accomplish…

What do you do now?

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Evaluating Lawsuit Costs

But what drives the cost, and how can it be predicted?

“An average patent case will cost between $3 million and $10 million, and take two to three years to litigate.”

Sylvia Hsieh, “More patent cases are being taken on contingency fee basis,” Lawyers USA, August 14, 2006

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Evaluating Cost

How complex is your case?

• Multiple patents – Are you asserting multiple patents? More patents means more discovery and higher costs.

• Multiple claims – More claims mean more time time, discovery, and money. This is especially true if the claims are of different scope and types (e.g., product, method of making, method of using, etc.), or are unusually complex (i.e., requiring numerous claim constructions).

• Multiple defendants – Every additional defendant means more discovery, more defenses, and more theories of infringement.

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Evaluating Cost

Continued…

• International Defendants – International defendants make discovery harder, implicate complicated international law issues, create thorny theories of infringement, and raise injunction jurisdiction issues.

• Third party involvement – If third parties manufacture or supply the accused product (or components of the product) for the defendant, extensive third party discovery is likely.

• Highly complex technology – Technology not easily comprehended by laymen means more expert time, and more time and money spent preparing detailed expert reports and developing demonstrative exhibits.

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Evaluating Cost

How long will your case last?

• Research your forum – Some forums are notoriously fast moving (E.D.Va and the ITC for example). Others are much slower (D. N.J., S.D.N.Y.). Average case pendency times can be found online. Keep in mind, a fast case is not necessarily a cheap case. If just as much work is done in a fast forum, you’ll just have to pay for it sooner.

• Consider moving for a PI – Because PI hearings are like mini trials, the court’s ruling on the PI often serves as a reality check for the losing party.

• Consider settlement – If you’re unwilling to compromise, or your only goal is to completely remove the defendant from the market, be prepared for a long case. If you just want to extract reasonable value from your patent, think about settling.

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Evaluating Cost

Other things to remember when estimating costs:

• Patent cases are expert heavy – Many patent cases feature 3-4 experts per side: technical expert(s), a patent procedure expert, and a damages expert). Expert costs add up fast.

• Demonstrative exhibits – A good demonstrative explaining a technology to a judge or jury can be the single best piece of evidence in your case, but it can also be one of the most expensive. Be sure to budget for a graphics vendor.

• Your patents may be at risk – If facing a counterclaim of invalidity, keep in mind that you could lose your patents all together if things go poorly.

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Evaluating Cost

Continued…

• Customer perception – Consider how your customers will react to a patent lawsuit. Are they also potentially indirect infringers or third parties because they sell the accused product? If so, they might not be happy about the suit.

• Cost of inaction – What do you lose by not suing? How badly is your business being hurt?

• Appeal – Don’t forget, cases as important as patent cases rarely really end with trial. A patent appeal can easily cost another million dollars.

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Putting It All Together

Now that you’ve considered all the issues, how do you decide?

The following decision tree should help.

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INSERT DECISION TREE/FLOW CHART HERE.

Decision Tree

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The End