Patent trolls & damages Speakers: James Nurton, managing editor, Managing IP (moderator) Eric E. Bensen, intellectual property author and independent consultant Bryan W. Butler, IP Counsel, IBM Charles R. Macedo, Partner, Amster, Rothstein & Ebenstein
48
Embed
Dec 17 Managing IP & LexisNexis Webinar: Patent trolls & damages
These are the presentation slides used in the Dec 17, 2013 Webinar, "Patent Trolls & Damages" presented by Managing IP and sponsored by LexisNexis. Speakers: James Nurton, Managing Editor, Managing IP, Moderator Eric Bensen, Author & Consultant, www.ericbensen.com and Of Counsel, Vandenburg & Feliu LLP, NY Bryan Butler, IP Counsel, IBM Charles Macedo, Partner, Amster, Rothstein & Ebenstein LLP, www.arelaw.com
Recently, there has been a rise in allegations that the high costs of the patent litigation system in the US are being exploited to reach settlements even on low-value patents. This has led to concerns from technology companies as well as end-users that the patent system is impeding business development and innovation. Key to this debate is the question of damages in litigation: How are they awarded? What is proportionate? Are any changes in the law needed? In this webinar, our panellists will look at the issues raised by the troll debate, what strategies plaintiffs and defendants can adopt and what changes, if any, are needed.
Welcome message from author
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
Patent trolls & damages
Speakers:James Nurton, managing editor, Managing IP (moderator)Eric E. Bensen, intellectual property author and independent consultantBryan W. Butler, IP Counsel, IBMCharles R. Macedo, Partner, Amster, Rothstein & Ebenstein
Back to Basics: Using Existing Law to Constrain “Trolls”
Eric E. BensenAuthor & Consultant, www.ericbensen.com
Of Counsel, Vandenburg & Feliu LLP, NY, www.vanfeliu.com
Overview
1. Introductiona) “Trolls”: Who are We Talking About?b) “Trolls”: What Problem Do We Seek to Address?
2. Existing Law & “Trolls”a) Current State of the Lawb) Supreme Court Precedent – Apportionment
Introduction“Trolls” – What Problem Do We Seek to Address?
Question:
If every patent suit involved: (i) valuable patents (ii) being asserted with a good faith basis to believe infringement has occurred …
… would we be talking about Trolls?
Introduction“Trolls” – What Problem Do We Seek to Address?
The “Troll Problem”: Excessive number of suits where:
1. Trivial (or worthless) patents are asserted.2. Claims are brought in bad faith.3. Both.
Introduction“Trolls” – What Problem Do We Seek to Address?
The “Troll Problem”: Excessive number of suits where:
1. Trivial (or worthless) patents are asserted.2. Suits are brought in bad faith.3. Both.
Introduction“Trolls” – What Problem Do We Seek to Address?
The “Troll Problem”: Excessive number of suits where:
1. Trivial (or worthless) patents are asserted.2. Suits are brought in bad faith.3. Both.
Why do trivial/worthless patents wreak such havoc on industry?
Introduction“Trolls” – What Problem Do We Seek to Address?
Damages awards are too often out of proportion to the value of the patent:
Key Facts Reasonable Royalty
Some infringing units sold for as little as $97i4i Ltd. P’ship v. Microsoft, Corp., 598 F.3d 831, 853 (Fed. Cir. 2009)
$96/unit
“Technology Fee” was $5/unitMonsanto Co. v. Ralph, 383 F.3d 1374, 1384 (Fed. Cir. 2004)
$50/unit
Anticipated profit was $8.00/unitGolight, Inc. v. Wal-Mart Stores, Inc., 355 F.3d 1327, 1338 (Fed. Cir. 2004)
$31.80/unit
Competitor sold infringing units for $1,295/unitPowell v. Home Depot U.S.A., Inc., 663 F.3d 1221, 1228 (Fed. Cir. 2011)
$7,736/unit
Existing Law & “Trolls”Current State of the Law
Today, there are substantial inconsistencies in patent law. E.g.:
1. Smallest Saleable Unit:
Is the smallest saleable unit containing the patented feature a proper base for a royalty award (Laserdynamics) or not (Lucent)?
2. Total Revenues:
Can a patentee “always” use the the total revenues from a product as royalty base as long as the rate is low enough (Lucent) or not (Uniloc)?
Existing Law & “Trolls”Current State of the Law
Today, there are substantial inconsistencies in patent law. E.g.:
3. Arbitrary Profit Splitting:
If the 25% Rule is unacceptable because it require an arbitrary division of profits (Uniloc), why is the analytical method acceptable (Lucent)?
4. Profit Requirement:
Must an infringer be left with an anticipated profit (Lindemann, Innovatio*) or not (Monsanto)?
Existing Law & “Trolls”Illustration
Question: Does it make economic sense to bring suit for infringement of a patent that claims a trivial feature of a smart phone?
Before the right court or panel:
• The phone, i.e., “smallest saleable unit,” can be the base for a royalty award.• Total revenues can be presented to the jury.• Expert can advocate an arbitrary split of the profits on the phone.• No infringer profit required.
Existing Law & “Trolls”Supreme Court Precedent - Apportionment
Between 1854 and 1915 the Supreme Court decided more than 30 patent damages cases: Apportionment was required every time.
Basic Rule:
“The patentee . . . must in every case give evidence tending to separate or apportion the defendant’s profits and the patentee’s damages between the patented feature and the unpatented features, and such evidence must be reliable and tangible, and not conjectural or speculative ….”
Garretson v. Clark, 111 U.S. 120, 121 (1884)
Existing Law & “Trolls”Supreme Court Precedent - Apportionment
Specific Rules:
1. Patent Claims an Entire Marketable Article:
No apportionment.Elizabeth v. Pavement Co., 97 U.S. 126, 141-42 (1878)
2. Patent Claims an Entire Marketable Article, defendant adds an improvement:
Burden initially on defendant to show that improvement had value.Westinghouse Elec. & Mfr. Co. v. Wagner Elec. & Mfg. Co., 225 U.S. 604, 617 (1912)
3. Patent claims an improvement or component:
Burden on patentee to show the value contributed by the claimed invention.Seymour v. McCormick, 57 U.S. 480, 491 (1854)
Existing Law & “Trolls”Supreme Court Precedent - Apportionment
Specific Rules – Entire Market Value Rule:
“If the improvement is required to adapt the machine to a particular use, and there is no other way open to the public of supplying the demand for that use, then it is clear the infringer has by his infringement secured the advantage of a market he would not otherwise have had, and that the fruits of this advantage are the entire profits he has made in that market.”
Manufacturing Co. v. Cowing, 105 U.S. 253, 255-56 (1881)
Existing Law & “Trolls”Supreme Court Precedent - Apportionment
Specific Rules – Reasonable Royalties:
A reasonable royalty is an approximation of market price for a license to the patent.
“[A]s the patent had been kept a close monopoly, there was no established royalty. In that situation it was permissible to show the value by proving what would have been a reasonable royalty, considering the nature of the invention, its utility and advantages, and the extent of the use involved ”
Dowagiac Mfg. Co. v. Minn. Moline Plow Co., 235 U.S. 641, 648 (1915) See also Suffolk Co. v. Hayden, 70 U.S. 315, 320 (1866)
(A proper reasonable royalty calculation necessarily satisfies the apportionment requirement.)
Existing Law & “Trolls”Supreme Court Precedent - Apportionment
In sum:
1. A patentee’s recovery must be based on the value of the invention.
a) A patentee’s recovery may be based on the value of the entire article only where the entire market value rule is satisfied.
2. Reasonable royalties:
a) Real world licenses for the patent are the best evidence.
b) Otherwise:
Base = Profit attributable to the invention (the apportioned value) Royalty = Portion of base that a reasonable licensee would pay for a
licenseRembrandt Social Media, L.P. v. Facebook, Inc., 2013 U.S. Dist. LEXIS 171127, **23-24 (E.D. Va. Dec. 3, 2013)
Existing Law & “Trolls”Supreme Court Precedent - Apportionment
Question: Does it make economic sense to bring suit for infringement of a patent that claims a trivial feature of a smart phone?
Smart Phone Federal Circuit Supreme Court
Royalty Base: Phone Patented Feature
Total Revenues: Admissible Not Admissible
Arbitrary Profit Split: Permitted Not Permitted
Infringer Expected Profit: Not Required Required
Conclusion
Consistent application of existing Supreme Court law:
1. Would reduce the incentive to sue on trivial patent: Trivial Inventions = Trivial Recovery
Conclusion
Consistent application of existing Supreme Court law:
1. Would reduce the incentive to sue on trivial patent: Trivial Inventions = Trivial Recovery
2. But, without reducing innovation: Substantial Invention = Substantial Recovery
What are “trolls” and what is wrong with them?
Charles R. Macedo Partner
Amster, Rothstein & Ebenstein LLP, www.arelaw.com
What are “trolls” and what is wrong with them?
• Non practicing entities; • Asserting patents of dubious
quality and suspect validity; and
• Extracting nuisance payments based on high cost of litigation
Is our patent system failing and if so how?
• Efficiency – Patent Litigation Costs Too Much
0 1 2 3 4
Less than $1 million at risk
$1‐$10 million at risk
$10‐$25 million at risk
More than $25 million at risk
End of discoveryInclusive, all costs
Source: AIPLA Report of the Economic Survey 2013
Median cost in millions
Median Cost of Defending Patent Infringement Claims by NPE
Is our patent system failing and if so how?
• Predictability – No one knows what the law is, or will be
Obviousness – Changed by KSRPatent Eligibility ‐‐ Bilski, Mayo, Myriad and now AliceMulti Party Actors – Akamai…..
Is our patent system failing and if so how?
• Reliable – Courts and PTABs keep coming up with different decisions
Courts PTO
Fresenius:Jury awarded over $14 millionFederal Circuit affirmed
Fresenius:Reexam found claims invalid
Versata:Jury awarded $345 million
Versata:PTAB found not patent‐eligible
Is our patent system failing and if so how?
• Acceptable – News media and special interests
• Vermont and Nebraska Attorneys General called in to action in their respective states because of public reaction to seemingly inappropriate notice letters.
• Vermont passed legislation including a requirement that senders of “demand letters” post a bond if it is likely that the patent assertion is being made in bad faith
• Etc.
Is our patent system failing and if so how?
• Fair – Many perceived new AIA Post-Issuance Proceedings as anti-patent owner
Source: USPTO Presentation
Proposed Anti-Troll Legislation (HR 3309, the Goodlatte Bill)
• Heightened pleading requirement - Requiring "detailed specificity" as to "how the terms in each [asserted] claim … correspond to the functionality of [each] accused instrumentality."
• Attorney-fees - will be awarded to a prevailing party. The new provision would require an award of fees "unless the court finds that the position of the nonprevailing party . . . was substantially justified or that special circumstances make an award unjust."
• Discovery - limited until after a ruling on claim construction.
• Transparency of Ownership - the patentee in an infringement litigation must disclose anyone with a financial interest and "ultimate parent entity" of the patentee.
Proposed Anti-Troll Legislation (HR 3309, the Goodlatte Bill) (cont.)
• Stay for Customer Suits - customer suits would be stayed so long as the customer agrees to be bound by the results of that case.
• IP in Bankruptcy - when a foreign company goes bankrupt, its trustee would no longer have the power to cancel licenses associated with US patent rights.
• Shrinking Post-Grant-Review Estoppel- changes estoppel against the petitioner from "any ground that the petitioner raised or reasonably could have raised during that post-grant review" to only grounds actually raised.
Proposed Anti-Troll Legislation (Other legislation)• Manufacturing Innovation in America Act of 2013 (H.R. 2605) Tax
deduction carryover for patent development expenditures where profit is made years later.
• Patent Abuse Reduction Act of 2013 (S. 1013) (Senators Cornyn and Grassley) Smaller version of Goodlatte's Innovation Act that would focus on (1) raising pleading requirements (2) limiting discovery costs (especially pre-claim-construction); and (3) awarding attorney fees for the prevailing party.
• End Anonymous Patents Act (H.R. 2024) Requirement that the patent owner regularly update ownership information in the public record, including the "ultimate parent entity."
• Patent Litigation and Innovation Act of 2013 (H.R. 2639) Includes many provisions in parallel to the Goodlatte Innovation Act, but also includes a "sanction for abusive litigation" with mandatory review of each case by the court to ensure that no Rule 11(b) violations occurred.
Use Facts to Categorize the Infringement TheoryType of Infringement
Statute Liability and Requirements
Classic Scenario
Direct Infringement
(a) . . .whoever without authority makes, uses, offers to sell, or sells any patented invention, within the United States or imports into the United States any patented invention during the term of the patent therefor, infringes the patent.
Strict LiabilityNo Mens Rea
Infringer performs all steps of a method or sells product with all elements
Joint Direct Infringement
Same 271(a) Strict Liability One party contracts another
Induced Infringement(Expect Post-Akamai Uptick)
(b) Whoever actively induces infringement of a patent shall be liable as an infringer.
Knowledge requirement Infringer sells product used to perform a method
Contributory Infringement
(c) Whoever . . .a component of a patented [thing or method], constituting a material part of the invention, knowing the same to be especially made or especially adapted for use in an infringement of such patent, and not a staple article or commodity of commerce suitable for substantial noninfringing use, . . .
Mitigate Exposure by Limiting the Damages Period Marking / Notice
– Start• 35 USC §286 gives: 6 Year reach-back from litigation start• 35 USC §287 takes away: Marking/Notice requirement for damages recovery• No duty to mark if method claim being asserted BUT see indirect infringement
– Stop• Damages period ends with patent expiration (expired patent cannot be infringed)
– NPE Vulnerability points– Prior owner failure to mark– Licensee failure to mark– Indirect infringement starts/stop with direct but mens rea still required
Standards Bodies / License– Look for prior owners membership in standards bodies– Licenses for “necessary patents” burden successive owners
Mitigate Exposure by Limiting the Geographic Damages Base
271(f)• Induced infringement outside U.S. is infringing act• Requirements
• Is accused infringer “supplying”• Is what is shipped outside the U.S. a “component”
– Answer: Copying outside U.S. is not “supplying” • Microsoft v. AT&T
“Border-straddling infringement”• One or more claim element is practiced outside U.S. – NPE asserting WW damages• Result depends on if claim is method or apparatus
• Method claims only infringed if each step of a process is performed in the U.S. • System claims are infringed if all elements are controlled from within the U.S. (“control
“Gatekeeper” Cases Show Increased Rigour Expert testimony excluded under FRE 702 / Daubert for failure to connect GP factors to
conclusion– “. . . mere reference to the Georgia-Pacific factors, cannot change the sow's ear of rank speculation
into a silk purse of reliable expert opinion.” – Bowling v. Hasbro, Inc., 2008 U.S. Dist. LEXIS 30043, (D.R.I. Mar. 17, 2008)
Expert opinion testimony "must be shown to be based on more than the subjective belief or unsupported speculation of the expert." – Hartford Ins. Co. v. Gen. Elec. Co., 526 F. Supp. 2d 250, 252 (D.R.I. 2007).
Expert testimony excluded which failed to show “sound economic connection between argued royalty and value of “claimed invention”– Cornell University v. Hewlett-Packard Co., 2008 U.S. Dist. LEXIS 41848 (N.D.N.Y May 27, 2008)(Rader, J. sitting by
designation)– IP Innovation L.L.C. & Tech. Licensing Corp. v. Red Hat, 2010 U.S. Dist. LEXIS 28372, 7-8 (E.D. Tex. Mar. 2,
2010)(Rader, J.)
Award vacated and remanded for trial court’s failure to document rationale for award in the record– “in this case we cannot review the court's methodology because the court did not provide an explanation of
how it arrived at the damages award that it entered. As we have explained, "To enable appellate review, a district court is obligated to explain the basis for the award." • Heeling Sports, Ltd. v. US Furong Int'l, Inc., 2009 U.S. App. LEXIS 7182 (Fed. Cir. Apr. 3, 2009) citing Read
Corp. v. Portec, Inc., 970 F.2d 816, 828 (Fed. Cir. 1992). Lucent Award remanded for failure to:
– Present evidence of how/why “comparable” licenses for GP#1 were comparable– Present evidence showing infringing feature was basis of customer demand for EMVR
• Lucent Technologies, Inc. v. Gateway, Inc. --- F.3d ----, 2009 WL 2902044 Fed. Cir. Sept. 11, 2009 “25% Rule of Thumb” rejected in Uniloc Watch out for mis-applications of Lost Profits theories to Hypothetical Negotiation
ITC Scrutinizing NPE Jurisdiction Coaxial Cable case opened the door Pendulum swinging away from licensing as domestic industry
– Litigation expenses alone, absent successful licensing activity do not satisfy the requirement.• John Mezzalingua Assocs. v. ITC, 660 F.3d 1322, 1324-1325 (Fed. Cir. 2011)
– For licensing to be domestic industry• First, three threshold factors
– Investment in licensing relates to exploitation of asserted patent– Investment relates to licensing– Investment occurs in U.S.
• Next, investment not substantial if: – Attenuated nexus to asserted patents– Licensing efforts directed to entire portfolio– No evidence of licensing related to exploiting specific asserted patent – Broad patent portfolio with no congruent fit
> In re Certain Multimedia Display and Navigation Devices Inv. No. 337-TA-694 (2011) (“Pioneer”)
Speakers:James Nurton, managing editor, Managing IP (moderator)Eric E. Bensen, intellectual property author and independent consultantBryan W. Butler, IP Counsel, IBMCharles R. Macedo, Partner, Amster, Rothstein & Ebenstein