Battling Patent Trolls: Leveraging New Executive Orders ...

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

[email protected]

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


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


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


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


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


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


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


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


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


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


The In House Patent Prosecutor

Perspective Scott Marks, Sr. Counsel – Intellectual Property

[email protected]

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


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


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

[email protected]

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


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



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



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


Current Proposed Legislation

The Future of the AIA, NPEs,

and Post-Grant Proceedings


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



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



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


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.


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.


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


Battling Patent Trolls: Leveraging New Executive Orders ...

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