combating patent trolls: third-party solutions and defense...

Combating Patent Trolls: Third-Party Solutions and Defense Strategies in Post-Grant and Litigation Leveraging Counterclaim, Summary Judgment and Other Tactics; Utilizing Legislative, Insurance and Third-Party Tools

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THURSDAY, JANUARY 29, 2015

Presenting a live 90-minute webinar with interactive Q&A

Kevin Jakel, CEO, Unified Patents, Los Altos, Calif.

Michael L. Kiklis, Partner, Oblon Spivak McClelland Maier & Neustadt, Alexandria, Va.

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Defending Against Patent Trolls

Kevin Jakel [email protected]

The NPE Problem

The Costs

2014 Patent Litigation Filings, the third highest count ever.

61% of all cases in 2014 were NPE-related.

63% of 2014 patent litigation was High-Tech related.

82% of all 2014 NPE cases were filed by Patent Assertion Entities (PAEs).

83% of all High-Tech sector litigation in 2014 was NPE related vs. 18% in Medical and 27% in Other.

29% of all 2014 patent litigation cases were filed in E.D. Tex., and 94% of those were NPE-related.

. eDekka was 2014’s largest individual NPE filer

PTAB, Busiest Venue for Patent Disputes in 2014

2014 Patent Disputes Reach 2nd Highest Level Ever

PTAB Petitions Reached 45% for Q4 2014 Litigation

High-Tech Dominates 2014 Litigation and PTAB

NPE Activity Focused on High-Tech in 2014

PAEs Dominated NPE Activity in 2014

Challenges in Dealing with NPEs

• Lack of cooperation

–Notice problem for cooperation

• Ineffective joint defense groups

• Slow response times

• Free-rider problem

• Cost of defense/Cost of settlement

Third-Party Solutions

• Defensive Patent Aggregators

• RPX and AST

• Deterrence Solutions

• Unified Patents

Legislation

• AIA – A Success?

• More Legislative Initiatives

• Will It Work?

Legislation: AIA Success?

• PTAB, busiest jurisdiction in the country

– CBM

– IPR

• Joinder – ?

– Increased litigation

– Decrease in defendants – potentially temporary

– Increased costs to both sides

Legislation: More Legislative Initiatives

• Loser Pays

• Sanctions

• CBM expansion/clarification

• Heightened Pleading Requirements

• Early Markman….delay discovery

• Stay Customer Suits…let manufacturers fight

• State AG Unfair Competition Laws

• Estoppel/Claim Construction Changes to PTAB

Legislation Initiatives, Will They Work?

• Loser Pays – Would definitely change NPE ecosystem

• Would likely shift additional risk to inventors or patent owners

– Defendants must be willing to fight

• Sanctions – Already happening – See Kilopass Technology v.

Sidense Corp.

• CBM expansion/clarification – Expansion of CBM would be very effective against NPE

activity

Legislation Initiatives, Will They Work?

• Heightened Pleading Requirements – Increased costs on NPE – Reduction in number of NPE defendants

• Early Markman….delay discovery – Potential savings, but most companies will still settle

before claim construction

• Stay Customer Suits…let manufacturers fight • State AG Unfair Competition Laws

– Limited reach

• Estoppel/Claim Construction Changes to PTAB – Expanded use of PTAB will deter NPEs

Thank You

Contact information:

Kevin Jakel, CEO [email protected]

Shawn Ambwani, COO [email protected]

mailto:[email protected]

mailto:[email protected]

Copyright © 2015 Oblon, McClelland, Maier & Neustadt, LLP

Defending Against

Patent Trolls

Michael L. Kiklis [email protected]


Background NPE Defensive Strategies 35 U.S.C. § 285 and Rule 11 Existing Laws

• The America Invents Act • Federal Legislation • State Laws

The Courts • The Federal Circuit • The District Courts • The ITC • The FTC

Executive Actions & USPTO Response

Agenda

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What is an NPE?

Understand the game

Understand the dynamics involved

• NPE

• Patent Licensing Company

• Law firm(s)

• Investor(s)

Background

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Early case assessment

Raise costs on NPE • Early summary judgment options

• Post-grant options – stay case, kill patent

Conduct of case • Discovery

• Specificity

• Stay

• Transfer

Strategies

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Defenses

• Non-infringement

• Invalidity • § 101 – Alice and Ultramercial

• Unenforceability

• Ownership

• Champerty Can’t purchase the right of another to sue

Primary purpose of the agreement has to be the instigation of litigation

Strategies (cont’d)

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Copyright © 2015 Oblon, McClelland, Maier & Neustadt, LLP 35

Champerty

Definition: “[A]n agreement between an officious intermeddler in a lawsuit and a litigant by which the intermeddler helps pursue the litigant's claim as consideration for receiving part of any judgment proceeds." Black's Law Dictionary (9th ed. 2009).

Refac Int'l, Ltd. v. Lotus Dev. Corp. 131 F.R.D. 56 (S.D.N.Y. 1990) – Plaintiff was assigned a 5% interest in the patent in suit in exchange

for an obligation to sue at least two alleged infringers in federal court within the month. Defendants moved to dismiss pursuant to Rule 12(b)(7) for failure to join the 95% patent owner.

– The court granted the motion “[b]ecause [plaintiff] is a 5% owner of the patent in question simply for the purpose of pursuing litigation on [patent owners]'s behalf[;] [plaintiff]‘s agreement with [the patent owner] is nothing but a hunting license -- which is to say, it is champertous and therefore void.


Offer of Judgment

• “If the judgment that the offeree finally obtains is not more favorable than the unaccepted offer, the offeree must pay the costs incurred after the offer was made.” Fed. R. Civ. P. 68(d).


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Work toward maximum pressure point

Know when to settle

Create disincentive for other NPEs

Understand players, relationships, and use this to your advantage


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Defining a “Patent Troll” – “It's someone lying under a bridge they didn't build, demanding

payment from anybody who passed.”

Peter Detkin, MP at Intellectual Ventures

35 USCS § 285 gives the court “power to throw burden of unnecessary and vexatious litigation on shoulders of those responsible for it.”

Rule 11 “requires litigants to ‘stop-and-think’ before initially making legal or factual contentions.”

35 U.S.C. § 285 and Rule 11

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Under U.S. law, each party responsible for own attorneys’ fees and costs

35 U.S.C. § 285

• “The court in exceptional cases may award reasonable attorney fees to the prevailing party.”

Rule 11

• Gives courts the ability to sanction litigants for frivolous court filings.

35 U.S.C. § 285 and Rule 11 (cont’d)

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§ 285: Octane Fitness v. ICON Health & Fitness

(S. Ct. 2014)

Facts Patent owner alleged that the manufacturer infringed a patent for an

elliptical exercise machine.

District court found that the manufacturer's machines did not infringe the patent, but declined to award attorney's fees under § 285.

CAFC affirmed.

District Court applied the Brooks Furniture standard (Fed. Cir. 2005): a case may be deemed exceptional under § 285 only in two limited circumstances:

(1) when there has been some material inappropriate conduct, or

(2) when the litigation is both brought in subjective bad faith and objectively baseless.

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§ 285: Octane Fitness v. ICON Health & Fitness

(S. Ct. 2014)

Issue: Standard for whether a case is “exceptional” under § 285

Holding: Rejects Brooks Furniture as “overly rigid” Rather than having to show that the litigation was both “brought in

subjective bad faith” and is “objectively baseless,” one merely has to show that the case “stands out from others with respect to the substantive strength of a party’s litigating position . . . or the unreasonable manner in which the case was litigated.”

District courts “may determine whether a case is ‘exceptional’ in the case-by-case exercise of their discretion, considering the totality of the circumstances.”

Lowered the evidentiary burden of proving entitlement to fees, from clear-and-convincing evidence to preponderance of the evidence.

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Facts • Highmark files DJ action against AllCare; AllCare

counterclaims for infringement Patent regarding health care insurance review system;

infringement based on survey of health care systems; required preamble to be non-limiting

• Summary judgment of non-infringement granted. CAFC affirmed.

• District court awards Highmark $5.3M in fees and expenses under Section 285.

§ 285: HighMark v. AllCare (S. Ct. 2014)

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Fed. Cir. Holding (2012) • No plausible argument that accused method met

preamble limitation Case was objectively baseless

• Patentee failed to show how survey supported claim construction/infringement positions Case brought in subjective bad faith

• CAFC affirms exceptional case attorneys’ fees award under § 285 for one claim but reverses on another.

• Reviewed the objective-baselessness determinations on appeal “de novo” and “without deference.”


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Supreme Court (2014) • Cert. granted to determine whether an appellate court

should accord deference to a district court’s determination that litigation is “objectively baseless.”

• Applied Octane Fitness

• Held that on appeal, a district court's § 285 determination should be reviewed for “abuse of discretion”

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Facts • NPE Raylon sued manufacturers of police ticket-writing

devices for infringement Asserted claims require:

o Printer within a housing

o Display “pivotally mounted” on housing

• Defendants moved for Rule 11 sanctions

• District court rejected Raylon’s claim constructions Granted summary judgment of non-infringement

Denied Rule 11 sanctions

NPEs constructions “stretch the bounds of reasonableness” but “do not cross the line”

Rule 11: Raylon v. Complus (Fed. Cir. 2012)

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Holding • CAFC reverses district court • Rule 11 requires litigants to “stop and think” before

making legal/factual contentions • NPE Raylon’s positions regarding “pivotally mounted”

limitation objectively unreasonable and frivolous • NPE Raylon’s contentions as to printer assembly

“mounted in said interior of said housing” even more unreasonable since one accused product lacked printer entirely

• Remanded cases for determination of appropriate sanctions under Rule 11 and Section 285

Rule 11: Raylon v. Complus (Fed. Cir. 2012)

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Rule 11: Source Vagabond Sys. v. Hydrapak, Inc.

(Fed. Cir. 2014)

Facts: – Source asserted infringement, literal or under the doctrine of

equivalents, of a claim describing a “sealable flexible liquid container system.”

– District court:

• “Source had an obligation to demonstrate exactly why it believed before filing the claim that it had a reasonable chance of proving infringement.’”

• Source’s claim interpretation “violate[d] all the relevant canons of claim construction”

• Granted summary judgment and imposed Rule 11 sanctions on Source’s attorney.


Holding: Affirmed Rule 11 sanctions

– CAFC applied the regional circuit’s (2nd Cir.) law: “[L]iability for Rule 11 violations ‘requires only a showing of objective unreasonableness on the part of the attorney or client signing the papers.’”

– Source was required to “perform an objective evaluation of the claim terms” to satisfy its obligation to conduct a reasonable pre-suit evaluation.

– Source failed to meet this standard by ignoring the canons of claim construction.

Rule 11: Source Vagabond Sys. v. Hydrapak, Inc.

(Fed. Cir. 2014)


America Invents Act– created new tools for combating NPEs

• Took effect 9/16/2012

• Very popular - success

• Fast, inexpensive, and lethal

• Inter Partes Review

• Covered Business Method Patent Review

• Post Grant Review

• Joinder

The AIA

49


AIA Progress (as of 01/08/15)

Number of AIA Petitions

AIA Petition Technology Breakdown (FY15)

50


AIA Progress (as of 01/08/15)

Number of Patent Owner Preliminary Responses

AIA Trials Instituted/Disposals

* Final written decisions on the merits. ** Judgments based on Request for Adverse Judgment. *** Incl. terminations due to dismissal. + 95 cases joined to 59 base trials.

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IPRs and CBMs

• Fast – 12 months from institution to final written decision

• Inexpensive – costs a fraction of a patent litigation

• Lethal

The AIA (cont’d)

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IPRs and CBMs

• Easier to kill patent Broad claim constructions (early in case)

Lower standard for proving invalidity

• Make a record

The AIA (cont’d)

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Inter Partes Review

• Limited to patents and printed publications

• Restrictions Cannot have been sued > 1 year

Cannot have challenged invalidity in DJ

• Standard – reasonable likelihood that petitioner would prevail with respect to at least one claim challenged

The AIA (cont’d)

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Covered Business Method Patent Review

• All statutory defenses allowed: 101, 112, 102, 103

• Virtual automatic stay

• Limited to Covered Business Method Patents – financial product or service, but does not include technological invention

• Must have been sued or charged with infringement

• Standard – more likely than not that at least one claim is unpatentable

The AIA (cont’d)

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The AIA (cont’d)

Post Grant Review

• First-to-file Patents (March 16, 2013)

• Must be filed within 9 months of issuance

• All statutory defenses allowed

• Prior DJ invalidity challenges preclude PGR

• Standard – more likely than not that at least one claim

is unpatentable

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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

The AIA (cont’d)

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Good year for Trolls – Comprehensive and Troll-targeted patent legislation failed:

Innovation Act (H.R. 3309) - Required greater specificity from parties alleging infringement

Trade Protection Not Troll Protection Act (H.R. 4763)

– Limited patent assertions at ITC to entities with “a vested interest in the patent, including development of the product described.”

– Allowed ITC to consider the public interest when it decides on exclusion orders

– Allowed the "public interest determination" to take place at the beginning of the review process

Pending bills:

TROL (Targeting Rogue & Opaque Letters) Act of 2014 (passed by Subcommittee, 7/10/14)

– Makes the act of sending a patent demand letter "in bad faith" punishable as an "unfair or deceptive act" under the FTC Act.

– Requires greater identifying information from parties alleging infringement.

– May preempt some state initiatives on patent demand letters but excludes state laws concerning “state consumer protection,” “fraud or deception,“ and “trespass, contract, or tort[s].” §4(a).

– Gives state AG authority to bring civil actions in U.S. District Courts, but FTC may intervene. §4(b).

Federal Legislation

58


State Laws

18 states now have laws against bad faith patent infringement assertions.

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SOURCE: Patent Progress’s Guide to State Patent Legislation, http://www.patentprogress.org/patent-progress-legislation-guides/patent-progresss-guide-state-patent-legislation/ (Jan. 14, 2015)


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 filed a complaint against MPHJ Technology Investments under this clause.

State Laws (cont’d)

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PREEMPTION: Vermont v. MPHJ Tech. Invs., LLC, No. 2:13-cv-00170-wks (D. Vt. Apr. 14, 2014)

– FACTS: • State alleged that MPHJ sent numerous “unfair and deceptive” letters, in violation of

the Vermont Consumer Protection Act to Vermont businesses, claiming patent infringement and threatening to sue if the businesses did not pay licensing fees.

• MPHJ removed to federal court and argued that “federal jurisdiction is established because the State seeks remedies that could be preempted by federal patent law.”

– HOLDING: Remand to State Court • Distinguishes state’s anti-troll legislation from federal patent law: “[T]he State is

targeting bad faith conduct irrespective of whether the letter recipients were patent infringers . . . .”

• Federal preemption is a defense and cannot alone merit removal to a federal court.

– TAKE-AWAY: • Federal preemption might not be a great concern for now because many state anti-

troll laws go after “bad faith conduct,” which the courts may distinguish from federal patent law.


In Nebraska, Attorney General Bruning ordered Farney Daniels PC not to file any patent suits or send demand letters while he investigated the firm’s representation of patent trolls • Activision TV sued Bruning claiming the ban violated its

right to select representation • The District Court sided with Activision TV and granted a

preliminary injunction preventing enforcement of cease-and-desist letter

• Ruling based on constitutional right to hire counsel, because the federal government has preempted the area of patent law, and because no showing of bad faith


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On Jan. 14, 2014, a federal judge ruled that Bruning cannot prevent Farney Daniels PC from representing a company Bruning is investigating as a patent troll • The judge granted MPHJ Technology Investments LLC a

preliminary injunction that prevents Bruning from enforcing a cease-and-desist letter issued in July using same reasoning applied in Activision TV

On Jan. 8, 2014, the Nebraska Patent Abuse Prevention Act was proposed in the state Legislature - would make it a crime to allege patent infringement in bad faith


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Illinois amended its Consumer Fraud & Deceptive Business Practices Act, effective in 2015, prohibiting patent demand letters that: – (1) falsely threaten litigation; – (2) falsely claim litigation has been filed; – (3) make assertions that lack a reasonable basis in fact or law

because the asserting party does not have the right to license or enforce the patent, or the patent has been held invalid or has expired;

– (4) fail to include sufficient information regarding the patent owner, the patent purportedly infringed, and the accused products’ features covered by the claims in the patent.



New York’s AG investigated MPHJ’s infringement communication tactics. A settlement was reached in January 2014, requiring MPHJ to repay licensing fees.

Settlement requirements for MPHJ also provide “guidelines” for NPE behavior: – Diligence and good faith when contacting potential

infringers. – Providing material information for an accused infringer

can evaluate the claim. – No misleading statements about a license fee. – Transparency of the true identity of the patent holder.

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Virginia’s Approach – Empowering the AG

• Funding for staff in the Office of Attorney General to handle allegations of patent trolling • The Attorney General may bring a civil action against “Patent Trolls” in certain instances,

regardless of whether damages can be proved or the NPE is located in Virginia.

– Establish criteria to identify when an infringement claim is being made in bad faith • 1. No identification of the patent infringed or patent owner • 2. No statement of how the patent claims have been infringed • 3. Failure to identify how the products, services, and technology have infringed • 4. Unreasonable license offers • 5. Asserting party would know or reasonably should know that such assertion is baseless • 6. Deceptive assertion, or the legal action threatened cannot or is not intended to be

taken. • 7. A court found the assertion to be objectively baseless or imposed sanctions for the

assertion. • 8. The patent was not in force or previously had been held invalid.


At least 31 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

The District Courts

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Local patent rule provisions (cont’d):

• Mandatory settlement discussions e.g., S.D. Cal. requires an Early Neutral Evaluation conference to

discuss settlement before a magistrate judge within 60 days of a defendant’s first appearance; W.D. Tenn. requires that a person with settlement authority attend the scheduling conference.

• Requiring patent plaintiffs to produce all documents indicating ownership of the asserted patents. N.D. Cal., D. Idaho, N.D. Ill., Nevada, D.N.H., D.N.J., N.D.N.Y., E.D.N.C.,

N.D. Ohio, and W.D. Tenn.

The District Courts (cont’d)

68


Local patent rule provisions (cont’d):

• Allowing for early claim construction and/or summary judgment e.g., D. Utah requires parties to brief dispositive summary judgment

motions as part of claim construction.

• 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


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Local patent rule provisions (cont’d): • Limiting the number of claims

e.g., E.D. Tex. recently adopted a model order with two phases aimed at reducing the costs of patent litigation o Phase 1- No more than 10 claims per patent and not more

than a total of 32 o Phase 2 –No more than 5 claims per patent and not more

than a total of 16 claims

• Limiting the number of prior art references e.g., E.D. Tex. model order also limits the number of prior art references

o Phase 1 - No more than 12 references per patent and not more than a total of 40 references

o Phase 2 –No more than 6 references per patent and not more than a total of 20 references


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District Court

Patent Pilot Program

Fourteen federal district courts selected to participate in a 10-year pilot project designed to enhance expertise in patent cases among U.S. district judges.

Courts had to be among the 15 district courts in which the largest number of patent and plant variety protections cases were filed in 2010, or be courts that adopted/certified to the Director of the Admin. Office of the U.S. Courts (AOUSC) the intention to adopt local rules for patent and plant variety protection cases.

Participating Courts: E.D.N.Y., S.D.N.Y., W.D. Pa, D.N.J., D. Md., N.D. Ill., S.D. Fla., D. Nev., E.D. Tx., N.D. Tx., W.D. Tenn., C.D. Cal., N.D. Cal., S.D. Cal.

Patent cases filed in participating district courts are initially randomly assigned to all district judges, regardless of whether they have been designated to hear such cases. A judge who is randomly assigned a patent case and is not among the designated judges may decline to accept the case. That case is then randomly assigned to one of the district judges designated to hear patent cases.

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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

• Certain Computer & Computer Peripheral Devices & Components Thereof & Products Containing the Same (1/9/14) • Held that to use licensing activities to satisfy the domestic industry

requirement for suing at the ITC, NPE must prove that there are products that practice the patent.

• Previously held that licensing alone could satisfy the requirement.

The ITC

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The FTC

Federal Trade Commission • In 2013, FTC voted to seek public comments on a proposal to gather

information from ~25 companies in the business of buying and asserting patents known as Patent Assertion Entities (PAEs). FTC received over 70 comments, most expressing support for the study. In May 2014, FTC sought OMBC clearance and solicited additional public comments, for which it has received over 30 responses so far, including such groups as Microsoft, Intellectual Ventures, and American University.

• FTC has the ability to collect nonpublic information such as licensing agreements, patent acquisition information, and cost and revenue data.

• In May 2014, FTC testified before Congress stating it believes that the agency’s authority under Section 5 of the FTC Act can and should be brought to bear with respect to PAE demand letters. FTC is seeking legislation that would grant it civil penalty authority in this area.

• In November 2014, FTC settled its first consumer-protection lawsuit against a PAE, MPHJ Technology Investments, for using deceptive sales claims and phony legal threats. The 2014 settlement provided for a $16,000 fine per letter that MPHJ or its attorneys would send.

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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.

1/28/2014 - State of the Union address called for “a patent

reform bill that allows our businesses to stay focused on innovation, not costly and needless litigation.”

Executive Actions

74


Executive Actions (cont’d)

Under the 2013 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

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USPTO Response

In response to the 2013 Executive Actions, the USPTO: – Proposed rules to require that the attributable owner, including the

ultimate parent entity, be identified during the pendency of a patent application and at specified times during the life of a patent (i.e., at the time of issue fee payments, maintenance fee payments, supplemental examination, ex parte reexamination, or PTAB proceeding). 79 Fed. Reg. 4105-4121 (Jan. 24, 2014).

– Created a website to guide recipients of a demand letter, http://www.uspto.gov/patents/litigation/

– Better patents = Less frivolous litigation? • Initiated a “Glossary Pilot” for use by examiners to improve functional

claim clarity. • Formally engaged key stakeholders in private sector and academia (i.e.

Thomas Alva Edison Visiting Scholars Program) for policy input.


The Supreme Court on Patent Law

“In this well organized, readily accessible and highly readable treatise, Michael Kiklis analyzes the serial interventions by the Supreme Court that keep altering the purely statutory patent law as interpreted by the Federal Circuit and understood by patent practitioners. Because these alterations are continuing and even accelerating, practitioners need to anticipate where the Court is headed next if they are to serve their clients well. By stressing trends and explaining dicta for what it may portend, Kiklis provides an invaluable chart for navigating shifting seas." – Paul Michel, former Chief Judge, United States Court of Appeals for the Federal Circuit “In this one volume, Michael Kiklis has filled in a critical gap in our understanding of modern American patent law. Every person interested in the field must study the current Supreme Court’s take on patents, and there is no better source than this treatise.” – Tom Goldstein, Publisher, Scotusblog.com

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