Costs of Patent Litgation: Effects of America Invents Act
Seattle Intellectual Property Inn of CourtGroup 3 Presentation:
Costs of LitigationJanuary 16, 2014
Introduction (Kevin Zeck)
Overview and Effect of pertinent new provisions of AIA (Isabella
Fu)
Overview and Effect of various recently issued Local Patent
Rules and Model Orders (Ben Byer)
Proposed changes to Federal Rules of Civil Procedure (Parker
Folse)
Proposed Patent Reform Legislation (Dario Machleidt/Jeffrey
Cox)
Questions and Answers
The Patent Litigation System:
Costs of Litigation & Reform of the System
Group 3Presenters: Ben Byer, Jeff Cox, Parker Folse, Isabella
Fu, Dario Machliedt, and Kevin ZeckCosts of Patent
LitigationPresenter: Kevin ZeckTypes of Costs: OverviewCosts to
Patentee/InventorCosts to Obtain/Maintain Patent ProtectionLost
ProfitsPrice erosionFailure to monetize (loss of expected
royalties)Litigation Fees and CostsAttorneys FeesIndirect Costs
(diverting resources from R&D, marketing, manufacturing,
etc.)
Costs to Alleged InfringerLitigation Fees and CostsAttorneys
FeesSettlement Value & Damages AwardsIndirect Costs (diverting
resources from R&D, marketing, manufacturing, etc.)Types of
Costs:Costs to Third Parties Involved in LitigationCosts to respond
to subpoenas and informal requests for
informationExternalities:Costs of enforcement borne by public
(e.g., judicial resources consumed in effort to enforce patent,
reduction in availability of alternative goods, etc.)Costs to
reform system perceived to be broken
Are Costs Good or Bad?Depends on evaluative model
If deontological, costs are good (or at least justified) if
necessary to secure the rights of inventors.
If utilitarian or consequentialist, then the patent system
functions to incentivize progress (through invention)Costs are
theoretically good up to point where marginal increase in progress
is equal to marginal increase in cost to achieve progress
Litigation CostsTypes of Litigation Costs:Attorneys FeesDocument
Retention/Production
CostsDepositionsConsultantsExpertsAlternative-Dispute-Resolution
Related CostsMock Trials and HearingsCourt Fees and CostsAppeal
Related CostsSettlement Value/Damages Awards
Litigation CostsLittle high-quality, publicly-available,
quantitative information existsLitigation CostsBest Source on
Quantitative Litigation Costs Available is AIPLA: Report of the
Economic Survey
Conducted by AIPLA every two years since 1989Drawbacks:
Self-Reporting, Small Sample Size (usu. a couple thousand
responses, equaling roughly a 20% response rate), failure to catch
many types of costs (e.g., judicial resources, indirect costs of
litigation, etc.)
Other resources: PriceWaterhouseCoopers (focuses on damages),
RPX (focuses on NPEs does not publicly provide all data), other
private studies (Bessen and Meurer)
AIPLA Results: Sample Size and Response RateAIPLA SurveyQuestion
Posed:Two part question (at least as far back as 1995) that asks,
for different levels of value at risk:
What is your estimate of the total cost of a patent infringement
suit through the end of discovery?
What is your estimate of the total cost of a patent infringement
suit inclusive of discovery, motions, pretrial, trial, post-trial,
and appeal?AIPLA Results: Median Costs1995 DataAIPLA Results: By
Percentile1995 DataAIPLA Results: Median CostsLess than 1 million
at RiskAIPLA Results: Median Costs Between 1 and 25 million at
RiskAIPLA Results: Median Costs More than 25 million at RiskAIPLA
Results: Median Costs Between 1 and 25 million at Risk Other IP
LitigationGDP United States 1995 to 2013
Inflation Rate United States1995 to 2013Number of Suits
From PriceWaterhouseCoopers, 2013 Patent Litigation Study: Big
Cases make headlines, while patent cases proliferate 6 (2013),
available at
http://www.pwc.com/en_US/us/forensic-services/publications/assets/2013-patent-litigation-study.pdfNumber
of SuitsFactors:Economic ExpansionThe Information AgeNon-practicing
Entities (RPX thinks this is a significant driver in the number of
suits)Success stories (e.g., large verdicts)
Number of Suits per year has more than tripled since 1995, which
would drive up demand for patent litigation legal servicesAggregate
Economic Impact?Little research has been doneDrivers of
Costs?Increased Suits/Demand for ServicesE-Discovery (Information
Age)Markman v. Westview (mid-1990s)Promulgation of Local Patent
RulesN.D. Cal. was first in 2000Increasingly Complex
TechnologiesHigher-Stakes Litigation (Smart Phone Wars)Economic
Expansion (general price increases)Looking ForwardPatent
Applications, Issued Patents, and Patent Infringement Suits Appear
to be Increasing at Record Paces
Technologies will continue to become more sophisticated
Recent case law (e.g., Apple v. Samsung Posner) suggests damages
theories will need to be developed more rigorouslyLooking
ForwardIncreased costs, however, are not necessarily bad
If marginal gains from patent protection exceed marginal costs
to obtain/enforce, then cost levels are acceptable
Little real-world data exists comparing gains to costsBecause of
this, some theorize that patent protection is unnecessary (Boldrin
and Levine, 2013)Quality of life has substantially increased since
1995 (the Internet, smart phones, etc.) but whether this is the
result of patent protection is unknown Comments/QuestionsCosts of
Patent Litigation:Effects of America Invents ActIsabella
FuMicrosoft CorporationAmerica Invents Act Relevant
ProvisionsBeginning September 16, 2012, alleged infringers may
challenge validity of patents through new inter partes,
litigation-like proceedings in US Patent OfficeInter Partes Review
(IPR) -- generally available if patent was issued over 9 months
ago, and petitioner files request within 1 year of being sued for
patent infringementCovered Business Method (CBM) Review --
available for patents claiming a method or corresponding apparatus
for performing data processing or other operations used in the
practice, administration, or management of a financial product or
service; not for patent for technological inventionsA technological
invention is one where the claimed subject matter as a whole
recites a technological feature that is novel and unobvious over
the prior art; and solves a technical problem using a technical
solutionPost Grant Review (PGR) available for patents filed after
March 16, 2013 (subject to first to file rule), and within 9 months
of issuanceLots of useful information, including statistics at PTO
website:http://www.uspto.gov/aia_implementation/index.jsp
Costs and TimelineIPR:5-6 months after petition is filed, PTO
decides whether to institute trialPTO gives an indication of its
reasoning and claim construction PTO aims for decision within 12
months of institutionTotal: 18 months to appealable decision, in
theoryDistrict court litigation (other than ):Typically 9-12 months
to get Markman rulingTotal: 24 months or longer to trial, and
additional time for post-trial motions Cost of IPR -
http://www.uspto.gov/web/offices/ac/qs/ope/fee031913.htmFiling
fees: About $23,000 plus additional feels for claims over 15PTO:
the Office estimates that the cost of preparing a petition for
inter partes review would be $46,000. the Office estimates that the
average inter partes review will have 6 motions, oppositions, and
replies after institution.Very little discovery typically just
depositions of expertsEffectively patent litigation minus fact
discovery, damages discovery, and trialCost of district court
litigationDiscovery infringement, validity, and damagesMarkman
briefing, SJ briefing, discovery motionsInfringement, validity, and
damages expertsTrial
Considerations IPR v. LitigationFor IPR, estoppel will apply for
any type of prior art that could have been raised in an IPR
(patents and printed publications)Need strong documentary evidence,
without need for extensive discovery, to invalidateAlleged
infringer can still raise subject matter (Section 101) and Section
112 defenses, as well as 102/103 arguments based on public
useConsider whether the arguments will play better before PTO or
judge/juryConsider whether broad claim language may be affected by
PTO proceedingsConsider whether patent owner is prepared to expend
significant sums early on in proceedings
Statistics Petitions and Litigation StaysFilings from September
16, 2012 through November 2013Over 500 IPR PetitionsOver 80 CBM
Petitions1 PGR Petition (accidentally filed)About 80% of petitions
result in institution, but only on minority of groundsHowever,
challenges are instituted on most claims More likely to institute
on anticipation than obviousnessOver 70% of motions to stay
district court proceedings are ultimately successful Effect of
Local Rules and ESI Orders on Costs of Patent LitigationBen
ByerResearch conducted by Yeu-Yan Perng
dwt.com32Background: Local RulesLife without local patent rules
chaos?Define needed contentionsOrganize selection of claim
termsSchedule Markman briefing
33dwt.comAll:P infringementD prior art invaliditySome: D
non-infringement 112 invalidity
33Background: Local Rules3429 District Courts
LocalPatentRules.comW.D. Wash.E.D. Tex.N.D. Cal.
dwt.comBackground: E-Discovery OrdersTiming:Stage email v.
non-emailCustodian Limit:5/10Search Term Limit:5/10Volume Limit:250
MBsDefine Claw BackDefine Inaccessible Info
35dwt.comBackground: E-Discovery Orders - OriginFed. Cir.
Advisory Committee releasesSome district courts adoptW.D. Wash.E.D.
Tex.Others
36
I ESI
dwt.comWDNY, ND Ill.36Effect on Costs of Patent
Litigation37dwt.comLocal Patent Rules Reduce Costs?ProsOrganize
litigationConsOne size fits allHarder for early SJResultsStudy:
Save 2.5 monthsNot sole solutionRocket Dockets dont use them
38
dwt.comModel ESI Orders Applicable CasesTwo types: (1) all case
and (2) patent cases onlyAre they needed in all patent cases?NPE
suitsimbalanced costsCompetitor suitspage-by-page reviewN.D. Cal.
says yes
39
dwt.comPotentially save costs in all cases39Model ESI Orders
Staging EmailLiability typical does not depend on emailAfter
spending time and energy on non-emailLess needLess appetite
40
dwt.comModel ESI Orders Custodian LimitHelpful to the extent it
reduced volumeVolume key!Limited value if still need to search for
non-email ESICauses issues with 30(b)(6) and trial witness
41
dwt.comLimited value if still need to search for non-email
ESIDoesnt truly reduce custodiansStill has some benefit because
email more costly to review because of priv issues
41Model ESI Orders Search Term LimitLimited number of terms
means courser searchEach term broaderTailored search may require
many narrow termsDoes not lower costs without volume limits
42dwt.comModel ESI Orders Search Volume LimitStorage SizeW.D. of
Wash.Document CountNone?
43
dwt.comPotentially unfair to requesting partyIf term hits on
PPT, may only get a few emails43Model ESI Orders SummaryKeys to
Cost ReductionNegotiate with opposing counselReduce
volumeStaging
44
dwt.comNPE?Goal is pain not info?
44Proposed Changes to the Federal Rules of Civil Procedure
Parker FolseSUSMAN GODFREY, LLPCurrent Rule 37(e)(e) Failure to
Provide Electronically Stored Information. Absent exceptional
circumstances, a court may not impose sanctions under these rules
on a party for failing to provide electronically stored information
lost as a result of the routine, good-faith operation of an
electronic information system.
Proposed Rule 37(e)(e) Failure to Preserve Discoverable
Information.(1) Curative measures; sanctions. If a party failed to
preserve discoverable information that should have been preserved
in the anticipation or conduct of litigation, the court may:
(A) permit additional discovery, order curative measures, or
order the party to pay the reasonable expenses, including attorneys
fees, caused by the failure; and
(B) impose any sanction listed in Rule 37(b)(2)(A) or give an
adverse-inference jury instruction, but only if the court finds
that the partys actions:
(i) caused substantial prejudice in the litigation and were
willful or in bad faith; or
(ii) irreparably deprived a party of any meaningful opportunity
to present or defend against the claims in the litigation.(2)
Factors to be considered in assessing a partys conduct. The court
should consider all relevant factors in determining whether a party
failed to preserve discoverable information that should have been
preserved in the anticipation or conduct of litigation, and whether
the failure was willful or in bad faith. The factors include:
(A) the extent to which the party was on notice that litigation
was likely and that the information would be discoverable;(B) the
reasonableness of the partys efforts to preserve the
information;
(C) whether the party received a request to preserve
information, whether the request was clear and reasonable, and
whether the person who made it and the party consulted in good
faith about the scope of preservation; (D) the proportionality of
the preservation efforts to any anticipated or ongoing litigation;
and
(E) whether the party timely sought the courts guidance on any
unresolved disputes about preserving discoverable information.Other
Proposed Changes to the Rules of Civil ProcedureShorten time for
service of complaint and case management conferenceAdditional
subjects for case management conference (preservation of ESI, Rule
502, discovery conferences)Earlier Rule 34 requests
Other Proposed ChangesNew presumptive limits:5 depositions per
side6 hours per deposition15 interrogatories25 requests for
admission (other than document authenticity)Rule 34 responses:
state objections with specificity, state whether documents
withheld, state reasonable date for productionOther Proposed
ChangesRule 26(b)(1):Parties may obtain discovery regarding any
nonprivileged matter that is relevant to any partys claim or
defense and proportional to the needs of the case, considering the
amount in controversy, the importance of the issues at stake in the
action, the parties resources, the importance of the discovery in
resolving the issues, and whether the burden or expense of the
proposed discovery outweighs its likely benefit. Information within
this scope of discovery need not be admissible in evidence to be
discoverable.
Public CommentsProposals available at www.uscourts.govFederal
RulemakingProposed Amendments Published for Public CommentComments
due by February 15, 2014Three hearings Washington, D.C. (Nov 7,
2013), Phoenix (Jan 9, 2014), Dallas (Feb 7, 2014)After the public
comment period, the Advisory Committees will decide whether to
submit the proposed amendments to the Committee on Rules of
Practice and Procedure. At this time, the Committee on Rules of
Practice and Procedure has not approved these proposed amendments,
except to authorize their publication for comment. The proposed
amendments have not been submitted to or considered by the Judicial
Conference or the Supreme Court.
The proposed amendments would become effective on December 1,
2015, if they are approved, with or without revision, by the
relevant Advisory Committee, the Committee on Rules of Practice and
Procedure, the Judicial Conference, and the Supreme Court, and if
Congress does not act to defer, modify, or reject them. Pending
Federal Legislation Dario Machleidt, Jeffrey Cox Status of Pending
LegislationDec. 5, 2013House passed H.R. 3309 (Innovation Act), R.
Goodlatte. 325 for to 91 against.Dec. 17, 2013Senate Committee on
the Judiciary hearings entitled Protecting Small Business and
Promoting Innovation by Limiting Patent Troll Abuse. Senate Bills
referred to committeeS. 1720 (Patent Transparency and Improvements
Act). Sen. Leahy (D-VT)S. 1013 (Patent Abuse Reduction Act). Sen.
Cornyn (R-TX).S. 1612 (Patent Litigation Integrity Act). Sen. Hatch
(R-UT). S. 866 (Patent Quality Improvement Act). Sen. Schumer
(D-NY)The Innovation Act (H.R. 3309)Provisions Directed to Reducing
the Costs of Patent LitigationFee shiftingHeightened pleading
requirementsLimited discoveryCorporate disclosure
requirementsEnd-user protectionAIA amendmentsSummary of Senate
BillsS. 1720-Patent Transparency and Improvements ActCustomer stay
provision; regulation of bad faith demand letters; transparency
measures S. 1013-Patent Abuse Reduction Actfee shifting (no bond
req.), heightened pleading requirements, discovery limitations,
interested party joinderS. 1612-Patent Litigation Integrity ActFee
shifting with bond requirementS. 866-Patent Quality Improvement
ActExpansion of AIA Covered Business Method provision
Comparison of billsBillFee shiftingHeightened pleading
standardsHeightened corporate disclosuresDiscovery
limitationsEnd-user protections (Joinder, stays)AIA
amendmentsRegulation of bad faith demand lettersHR 3309XXXXXXS.
1720XXXS. 1013XXXXS. 1612XS. 866XLooking ForwardNext StepsHearings
by Senate Judiciary CommitteeResourcesBillsHR 3309Innovation Act:
https://www.govtrack.us/congress/bills/113/hr3309/textS. 1720Patent
Transparency and Improvements Act:
http://www.leahy.senate.gov/download/patent-transparency-and-improvements-act-of-2013S.
1612Patent Litigation Integrity Act:
http://www.hatch.senate.gov/public/_cache/files/8d6b7549-fe32-47cb-952f-b59ab110d97c/ALB13851.pdfS.
1013-Patent Abuse Reduction Act :
http://www.cornyn.senate.gov/public/?a=Files.Serve&File_id=2d0600bf-6c00-4d9d-ad6e-d58130937c26S.
866-Patent Quality Improvement Act:
http://www.gpo.gov/fdsys/pkg/BILLS-113s866is/pdf/BILLS-113s866is.pdfStatus
informationhttp://www.judiciary.senate.gov/https://www.govtrack.us/congress/bills/