Battling Patent Trolls: Leveraging New
Executive Orders, AIA and Other Tools
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WEDNESDAY, JULY 31, 2013
Presenting a live 90-minute webinar with interactive Q&A
Michael L. Kiklis, Partner, Oblon Spivak McClelland Maier & Neustadt, Alexandria, Va.
Scott Marks, Senior Intellectual Property Counsel, St. Jude Medical, St. Paul, Minn.
Scott A. McKeown, Partner, Oblon Spivak McClelland Maier & Neustadt, Alexandria, Va.
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© Copyright 2013 Oblon, Spivak, McClelland, Maier & Neustadt L.L.P.
The Changing NPE Landscape:
Legislative Impact
Michael L. Kiklis
Background
What is an NPE?
Understand the dynamics involved
NPE
Patent Licensing Company
Law firm(s)
Investor(s)
1940 Duke Street, Alexandria, VA 22314, 703.413.3000, Fax 703.413.2220, www.oblon.com 6
Existing Laws for
Combatting NPEs
Federal Laws
3/16/2013 America Invents Act increased requirements for joinder
Parties may only be joined as defendants if:
1) “relief is asserted against the parties jointly, severally, or in the alternative with respect to or arising out of the same transaction, occurrence, or series of transactions or occurrences” related to the infringing acts and
2) there are questions of fact common to all defendants or counterclaims defendants that will arise in the action.
Helps to keep trolls from cheaply filing one large multi-defendant suit
1940 Duke Street, Alexandria, VA 22314, 703.413.3000, Fax 703.413.2220, www.oblon.com 7
Existing Laws for
Combatting NPEs State Laws
In May 2013, Vermont became the first state to take action against Trolls when 9 V.S.A. 4195-99 were signed by the governor
These laws, effective July 1, 2013 made it a state action to send demand letters alleging patent infringement in “bad faith”
Potential remedies for violation: (1) equitable relief, (2) damages, (3) costs and fees (including attorney’s fees), and (4) exemplary damages up to $50k OR three times the total damages, costs, and fees, whichever is greater
The VT Attorney General has already filed a complaint against MPHJ Technology Investments under this clause
1940 Duke Street, Alexandria, VA 22314, 703.413.3000, Fax 703.413.2220, www.oblon.com 8
Action Taken by the Federal
Circuit
11/2011 Federal Circuit Advisory Council created model rules for patent cases
Rules attempt to limit discovery costs, especially e-discovery
Chief Judge Rader has been very outspoken about combatting trolls
Defines a troll as “anybody who asserts a patent for far beyond the value of its contribution to the art”
Recently authored an article encouraging courts to use Rule 11 and Section 285 to sanction trolls
1940 Duke Street, Alexandria, VA 22314, 703.413.3000, Fax 703.413.2220, www.oblon.com 9
Actions by the District
Courts At least 27 District Courts have local rules and/or model scheduling orders specific to patent cases
Recognizing the exorbitant cost of NPE litigation, many have included specific provisions to cut costs and/or allow for early resolution:
Early infringement contentions e.g., E.D. Tex. requires infringement contentions 10 days before the 26(f) conference and W.D. Tenn. requires infringement contentions within 7 days of the answer
1940 Duke Street, Alexandria, VA 22314, 703.413.3000, Fax 703.413.2220, www.oblon.com 10
Actions by the District Courts
(cont’d)
Local patent rule provisions (cont’d): Mandatory settlement discussions
e.g., S.D. Cal. requires an Early Neutral Evaluation conference to discuss settlement within 60 days of a defendant’s first appearance; W.D. Tenn. requires that a person with settlement authority attend the scheduling conference to discuss settlement
Limiting e-discovery e.g., E.D. Tex, N.D. Ill., N.D. Ca., and D. Del. have all adopted some form of limitation similar to that described in the Federal Circuit Model Rules
1940 Duke Street, Alexandria, VA 22314, 703.413.3000, Fax 703.413.2220, www.oblon.com 11
Actions by the District Courts
(cont’d)
Local patent rule provisions (cont’d): Allowing for early claim construction and/or summary judgment
e.g., N.D. Ill. local rules state that early claim construction and early summary judgment may be appropriate; N.D. Ca. local rules allow for a separate and early claim construction discovery to resolve dispositive construction issues
Limiting the number of claim construction terms
e.g, N.D. Ill. and N.D.N.Y. limit the parties to 10 terms for construction
1940 Duke Street, Alexandria, VA 22314, 703.413.3000, Fax 703.413.2220, www.oblon.com 12
Actions by the ITC
NPEs have recently attempted to use past licensing to satisfy the ITC’s domestic industry requirement
Domestic industry is typically evaluated toward the end of the investigation
In order to avoid unnecessary cost and time, the ITC launched a pilot program where investigations “likely to present a potentially dispositive issue” like domestic industry are identified and such issues are determined early
1940 Duke Street, Alexandria, VA 22314, 703.413.3000, Fax 703.413.2220, www.oblon.com 13
Executive Actions
6/4/2013 - the White House Council of
Economic Advisors issued a report on
the issue of trolls, and proposed
measures to combat them
6/24/2013 President Obama issued 5
executive actions and 7 legislative
recommendations
1940 Duke Street, Alexandria, VA 22314, 703.413.3000, Fax 703.413.2220, www.oblon.com 14
Executive Actions (cont’d)
Under the executive actions:
PTO will Require regular updates of patent ownership info
PTO will provide examiner training on functional claiming and claim clarity to avoid overly broad claims
PTO will publish educational and outreach materials for small retailers, consumers, and other end users facing demands from a possible troll
White House will expand outreach efforts to develop new ideas and consensus around updates to patent laws and policies
US IP Enforcement Coordinator will launch interagency review of the ITC and CBP to evaluate exclusion orders
1940 Duke Street, Alexandria, VA 22314, 703.413.3000, Fax 703.413.2220, www.oblon.com 15
Other Potential Movements
Federal Trade Commission
December 2012, FTC held a workshop with the DoJ on abuse by trolls
Since that time, numerous companies (including Google, RedHat, and Blackberry) and members of Congress expressed concern to the FTC
FTC announced it would begin investigation into abuse of patent system by trolls this summer
FTC may issue subpoenas, conduct studies, and report findings to Congress
1940 Duke Street, Alexandria, VA 22314, 703.413.3000, Fax 703.413.2220, www.oblon.com 16
The In House Patent Prosecutor
Perspective Scott Marks, Sr. Counsel – Intellectual Property
Receive the Complaint or Other Communication
The first notification of potential infringement can come to light
in a variety of ways
Warning letter received from a third party with a demand for a
license
Patent infringement lawsuit filed
Personal notification
At a conference or trade show
A personal telephone call
Other
When dealing with an NPE, the first notification is normally a
letter or the filing of an infringement suit
18
Notify the Required People
Notify the requisite stake holders of the situation and form a
team to analyze the situation
Intellectual property counsel
Litigation counsel
Product manager or expert
Outside counsel
Notify senior leadership of the situation and report that an
analysis is forthcoming
Depending on the size of the threat and the company, senior
leadership notification may include general counsel, chief
executive, business unit president, etc.
Make sure a litigation hold is put into place if a credible probability
of litigation is present and consult outside counsel, if necessary
19
Analyze the Patent and Relevant Facts
Analyze the patent, file history, prior art, the accused
device and other relevant information
What are the claims and do they arguably cover the accused
product?
Was the patent previously known?
Have proactive steps already been taken?
Has the patent been previously litigated?
Has the patent been previously licensed?
What is the actual exposure?
Damages
Injunction
Reputation
20
Analyze the Patent and Relevant Facts
Get to know your adversary
Is the plaintiff a rational actor?
Is the letter or complaint cut and paste or well researched?
Is ownership clear?
Is the patent held by an NPE, a competitor, or a third
party who is not a competitor?
NPE and non-competitor third party may have similar
interests - money
A competitor may be interested in a license but may want
you out of the business even more
21
Review Strategies and Potential Action
Recommendations are highly dependent on:
The type of notification
Whether the patent is held by an NPE (and the type of NPE),
non-competitor third party or an actual competitor
The claim analysis
The defenses available (non-infringement, anticipation,
obviousness, 112 etc.)
Possible damages or injunction
Single defendant or multiple
Forum
22
Review Strategies and Potential Action
If an Infringement suit is filed
Litigation counsel and a response is required
Consider whether to join a joint defense group
Consider additional concurrent strategies (below) in
conjunction with required response
Other possible actions
Present knock out prior art, if available
Negotiate a license
Buy the patent
Go to the Patent Office
Declaratory judgment action
Ignore
23
Review Strategies and Potential Action
If it is an NPE, consider asking them to do work
Ask the NPE to identify products, provide a claim analysis, or
propose specific license terms
Creates delays during which you can continue your analysis
Depending on the adversary, it might not have the resources
to follow up
Do you get an opinion?
Seek a non-disclosure agreement to protect early
negotiations, if any
Form a primary recommendation, a back up
recommendation, and a back up to the back up
24
Brief Stakeholders
Make sure the decision makers are all in the same room or on
the same call
Serial briefings to different groups is not as effective
Be cognizant of decision makers’ different levels of familiarity with
IP, both terminology and how the system works
Be familiar with decision makers’ attitudes towards IP
Do not be wed to one solution!
Have each of the likely recommendations game planned
Who will it involve?
How long will it take?
What will it cost?
What are the possible/likely results?
25
Brief Stakeholders
The business must decide what is best for its present situation
and for its future
Does making a payment open it to more suits?
Does making a payment allow peace of mind worth the asking
price?
Sometimes making a payment or agreeing to a license is the best
decision in view of time and costs
It is a business decision based on legal input
The final plan will probably include several levels of try A, then
B, and then C
26
Take action
Taking action is not always as easy as doing the analysis or
making the decision
The first action may be followed by changing circumstances
A hard push to litigation may result in settlement
License negotiations may break down
Keep stakeholders in the loop as the situation changes
Be ready to adapt
27
© Copyright 2013 Oblon, Spivak, McClelland, Maier & Neustadt L.L.P.
The Changing NPE
Landscape: Legislative Impact Scott McKeown
AIA is Working
New administrative trials successfully resolve or fast-track the
resolution of patent disputes
PTAB is the busiest patent court in the country
More popular than inter partes reexamination
EDTX antidote
IPR and CBM Proceedings
422 Petitions filed
133 Petitions granted (95% grant rate)
34 PTAB proceedings settled
(15 disputes settled before petitions granted)
Need for further reform?...why?
29 1940 Duke Street, Alexandria, VA 22314, 703.413.3000, Fax 703.413.2220, www.oblon.com
PTAB Killing Contingency
NPE Model New PTAB trials (inter partes review, post grant review, and
CBM proceedings) have been very popular
Viewed as first true alternative to litigation
Technical judges rather than district court judges
Provides quicker resolution than district court at far less cost
0
10
20
30
40
50
60
70
80
90
Sep. Oct. Nov. Dec. Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec.
IPR and CBM Filings
30 1940 Duke Street, Alexandria, VA 22314, 703.413.3000, Fax 703.413.2220, www.oblon.com
Current Success of AIA
Early Claim Construction
Cost….
Lack of PTAB expertise
Disrupt war chest
Stay
Speed!!
CBM is lethal!!
Stay virtually guaranteed
Additional factor
Interlocutory review
Limited estoppel
Fast Track 101 Court
31 1940 Duke Street, Alexandria, VA 22314, 703.413.3000, Fax 703.413.2220, www.oblon.com
Current Success of AIA
First CBM proceeding complete – SAP v. Versata, CBM2012-00001 (PTAB 2013) Claims were directed to methods for determining price (included “computer-implemented” method
and “computer-readable storage media” claims) and an apparatus including computer program
instructions for determining price
PTAB found claims unpatentable under 35 U.S.C. § 101
Failed to incorporate sufficient meaningful limitations to ensure claims were more than an
abstract idea. Claims recited insignificant, conventional and routine steps that were implicit in
the abstract idea.
This was not changed by the recitation of computer implementation or of generic general
purpose computer hardware (processor, memory, storage)
Computer-readable storage media claims treated as equivalent to method claims because they
merely include “computer instructions to implement the methods of” other method claims
Apparatus claim treated as equivalent to method claims because while the claim was “directed
to an ‘apparatus’ for determining a price, the apparatus include[d] computer program
instructions capable of performing the same method steps” recited in other method claims
32 1940 Duke Street, Alexandria, VA 22314, 703.413.3000, Fax 703.413.2220, www.oblon.com
Current Success of AIA
Administrative trials have become an especially successful tool for manufacturing
entities wishing to quickly and cheaply resolve issues with NPEs
When patents are challenged at the PTO, there has typically been a 89% success rate
for the challenger
In court, trolls have historically had an 80% win rate, this is only 11% at PTAB
Small troll cases are no longer viable investments especially for e-commerce/business methods
Mega trolls and large portfolios, while formidable, can be substantially damaged by patentee
estoppel or forced to amend claims
The threat of this often results in favorable settlements for the accused infringer
Courts are increasingly more willing to stay patent litigations pending the outcome of
PTO proceedings (the earlier the PTO challenge is filed, the more likely the stay)
The speed of these administrative trials compared to the speed of district court actions (with a
typical time-to-trial of 2+ yrs) should only increase this willingness
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Current Proposed Legislation
The Future of the AIA, NPEs,
and Post-Grant Proceedings
34 1940 Duke Street, Alexandria, VA 22314, 703.413.3000, Fax 703.413.2220, www.oblon.com
Proposed Legislation Targeting
NPEs H.R. 2639 — Patent Litigation and Innovation Act of 2013 To amend title 35, United States
Code, to add procedural requirements for patent infringement suits, and for other purposes.
(Rep. Jeffries, D-NY; introduced 7/10/2013; referred to House Judiciary Committee).
Enhances pleading and identification of ownership requirements
Allows for stay of “secondary party” (parties who do not manufacture but use, distribute, resell, etc.)
actions
Requires court to stay bulk of discovery until it has ruled on pending motions to dismiss/transfer or
construed required terms and include specific Rule 11 findings in ruling on pleadings and motions
H.R. __ — Untitled Discussion Draft To amend title 35, United States Code, and the Leahy-
Smith America Invents Act to make improvements and technical corrections, and for other
purposes. (Rep. Goodlatte R-VA and Sen. Leahy D-VT; yet to be introduced, drafted
5/23/2013).
Encourages settlement and allows for enhanced opportunities for attorneys fees
Requires greater “real party in interest” and ownership disclosure
Allows customer suits to be stayed pending the resolution of manufacturer suits
35 1940 Duke Street, Alexandria, VA 22314, 703.413.3000, Fax 703.413.2220, www.oblon.com
Proposed Legislation Targeting
Trolls S. 1013 — Patent Abuse Reduction Act of 2013 A bill to amend title 35, United States Code,
to add procedural requirements for patent infringement suits. (Sen. Cornyn, R-TX;
introduced 5/22/2013; referred to Senate Judiciary Committee)
Enhances pleading requirements for patent infringement actions
Sets limits to discovery prior to claim construction
Allows for costs and expenses including attorneys fees to be awarded to the prevailing party unless
the non-prevailing party’s position was “objectively reasonable and substantially justified” or
“exceptional circumstances make such an award unjust”
If non-prevailing party cannot pay, costs and expenses may be recoverable from any interested party (includes
owners, co-owners, assignees, exclusive licensees, and/or persons with direct financial interest in the outcome
of the action – does not include attorneys)
H.R. 2024 — End Anonymous Patents Act of 2013 A bill to amend title 35, United States
Code, to require disclosure of ownership and transfers of ownership of patents. (Rep.
Deutch, D-FL; introduced 5/16/2013; referred to the Committee on the Judiciary).
Designed to require patent owners to disclose real party-in- interest where the patent is held by shell
holding companies
Limits availability of damages for failure to comply
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Proposed Legislation Targeting
Trolls S. 866 — Patent Quality Improvement Act of 2013 A bill to make improvements to the
transitional program for covered business method patents, and for other
purposes. (Sen. Schumer, D-NY; introduced 05/06/13; read twice and referred to the
Committee on the Judiciary).
Makes the AIA Section 18 Covered Business Method Patent Transitional Program
permanent
Expands program to include more than just financial products and services, to essentially all
business method patents so that they may all be petitioned for review
H.R. 845 — SHIELD (Saving High-tech Innovators from Egregious Legal Disputes)
Act of 2013 A bill to amend chapter 29 of title 35, United States Code, to provide for
the recovery of patent litigation costs, and for other purposes. (Rep. DeFazio, D-OR;
introduced 02/27/2013; referred to the Committee on the Judiciary).
Would add a UK-style “loser pays” provision in patent litigation to discourage NPE litigation
37 1940 Duke Street, Alexandria, VA 22314, 703.413.3000, Fax 703.413.2220, www.oblon.com
Proposed Legislation
Impacting CBM Proceedings S. 866 — Patent Quality Improvement Act (discussed previously)
Would make transitional program permanent rather than temporary.
Would expand transitional program to include more than just financial products and services
(essentially includes all business method patents so that they may be petitioned for review)
H.R. 2766 – Stopping Offensive Use of Patents Act A bill to make improvements to the
transitional program for covered business method patents, and for other purposes. (Rep.
Issa; R-CA; introduced 7/22/2013; referred to the Committee on the Judiciary).
Would remove limitation in CBM to financial services patents
H.R. __ — Untitled Discussion Draft (discussed previously)
Would amend AIA Section 18 regarding CBM transitional program, to ensure that this section is
construed consistently with SAP v. Versata,CBM2012–00001
Transitional program would not be limited to patents involving the financial services industry or
that recite the terms financial products or services. Rather, it would be clear that “financial” is
merely an adjective and includes patents relating to “money matters,” including those that claim
activities “incidental” and “complementary” to financial activities.
38 1940 Duke Street, Alexandria, VA 22314, 703.413.3000, Fax 703.413.2220, www.oblon.com
Proposed Legislation Impacting
Inter Partes and Post-Grant
Review H.R. __ — Untitled Discussion Draft (discussed previously)
Would strike “or reasonably could have raised” from 35 U.S.C. 325 relating to the
estoppel created by PGR. Thus, petitioners would only be estopped from asserting
those grounds actually raised.
Would amend 35 U.S.C. 316 such that, in IPR and PGR proceedings, the proper claim
construction standard would no longer be the broadest reasonable interpretation. It
would instead mirror that of civil litigation.
39 1940 Duke Street, Alexandria, VA 22314, 703.413.3000, Fax 703.413.2220, www.oblon.com
Other Proposed Legislation
Relevant to Patent Reform H.R. 2582 — Patents and Trademarks Encourage New Technology Jobs Act
A bill to end the application of sequestration to the United States Patent and Trademark
Office, and for other purposes. (Rep. Honda; D-CA; introduced 6/28/2013; referred to
the Committee on the Budget).
The most immediate funding challenge facing the USPTO is the $85 billion
“sequestration” of 2013 U.S. government funds that took effect on Friday, March 1.
The USPTO faces significant spending reductions for the rest of fiscal year 2013 as a
result of sequestration and has taken several measures to limit all expenditures,
including but not restricted to hiring new patent examiners, travel, training, and IT
modernization projects. It is believed that about $121 million in user fees is at stake.
If enacted it may first apply to prevent sequestration of 2014 USPTO funds beginning
October 1, 2013
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