Patent Trolls: How To Avoid Being Gobbled Up

Renee L. Jackson The Dolan Company Vice President and General Counsel Minneapolis, Minnesota

Paul B. Klaas Dorsey & Whitney LLP (612) 340-2817 44 (0)20 7826 4567 klaas.paul@dorsey.com London, England and Minneapolis, Minnesota

Peter M. Lancaster Dorsey & Whitney LLP (612) 340-7811 lancaster.peter@dorsey.com Minneapolis, Minnesota

J. Thomas Vitt Dorsey & Whitney LLP (612) 340-5675 vitt.thomas@dorsey.com Minneapolis, Minnesota

Contents

(available on www.dorsey.com)

1. PowerPoint

1

Patent Trolls:How To Avoid Being Gobbled Up

Renee L. JacksonVice President and General Counsel, The Dolan Company

Paul B. KlaasPeter M. Lancaster

J. Thomas VittDorsey & Whitney LLP

2

Who’s a Troll?

3

Who’s a Troll? The Obvious Ones:

• Jerome Lemelson– The pioneer of trolls– 550 patents on bar codes and related technology– Over $1 billion in licensing fees

• Acacia Technologies– Over 200 cases filed since 2005

• Ronald A. Katz Technology Licensing– Over 100 cases filed since 2005

4

Who’s a Troll? The Not-So-Obvious Ones:

• Thomas Edison– Over 1000 patents, many never practiced– Sold many patents to NPEs

• The Wright Brothers– Licensed inventions because they couldn’t commercialize them

• The inventor of xerography– Licensed invention because he couldn’t commercialize it

5

Who’s a Troll? Maybe, Maybe Not:

• Corporate collector of patents for litigation

• Sole inventor lacking the resources to start a business or protect his inventions

• Universities and their researchers

• Failed or formerly producing product company

• IP-holding subsidiary of large product company

All trolls may be NPEs, but not all NPEs are trolls

6

How Big Is The Problem?

7

Annual NPE Lawsuit Filings

0

100

200

300

400

500

600

2001 2002 2003 2004 2005 2006 2007 2008 2009

8

Domination of Patent Litigationby NPEs

• Different percentages of NPE patent case filings, depending upon who’s measuring what:

– 64% overall– 19% when universities and independent inventors are excluded– 88% against technology firms– 40% of financial services cases– 30% of software cases

9

If Forced to Litigate to the End,Trolls Aren’t Successful

• In all patent cases, patentees win just 26% of fully-litigated cases

• Software patentees win just 13% of cases, compared to 37% of other patentees

• NPEs win just 9% of cases

10

Average Patent Litigation Costs(According to 2009 AIPLA Statistics)

$967,000

$3,109,000

$6,250,000

$1,794,000

$3,731,000

$498,000

$0

$1,000,000

$2,000,000

$3,000,000

$4,000,000

$5,000,000

$6,000,000

$7,000,000

Less than $1million at risk

$1 - $25 million atrisk

More than $25million at risk

End of Discovery All Costs

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Types of Troll Cases

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Types of Trolls and Troll Cases

• The Kings of Troll Litigation:– Acacia Technologies– Ronald A. Katz Technology Licensing– Millenium LP– Plutus IP– Sorensen Research and Development Trust– US Ethernet Innovations, LLC

14

Business Method Trolls: the Bilski Near Miss

• Four Justices voted to bar all business method patents, and the Court unanimously concluded that a patent on a hedging method was barred because it was an “abstract idea”

• But the majority rejected any categorical disallowance of types of patents, including business method patents:– “Congress plainly contemplated that the patent laws should be given

wide scope” and contain a “dynamic provision designed to encompass new and unforeseen inventions”

• The Court also rejected adoption of any prior Federal Circuit test for patentability:– “Nothing in today’s opinion should be read as endorsing interpretations

of [patentability] that the [Federal Circuit] has used in the past.”

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What To Do If You Get Sued

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What You Sometimes Have to Accept

• Plaintiffs’ choice of venues: the Eastern District of Texas, the Western District of Wisconsin, and Delaware

• No counterclaims for trolls’ own actions

• Imbalanced discovery burdens, because trolls have few documents

• Imbalanced impact on business, because trolls have no business to disrupt

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What To Do with a LawsuitAfter Being Sued by a Troll

1. Don’t feel compelled to cave immediately

2. Call your supplier

3. Consider organization of joint defense

4. Consider Reexamination Request – Inter partes or ex parte

5. Move to dismiss under Twombly and Iqbal tests

6. Consider trying to force a change of venue

7. Seek early claim construction or summary judgment motion

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The Re-Examination Option

• PTO grants 92% of reexamination requests

– But if it does not succeed, or your case does not get stayed . . .

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Do Iqbal and Twombley Pleading Requirements Help?

• Bell Atlantic v. Twombly (2007) and Ashcroft v. Iqbal(2009)

vs.

• Fed. R. Civ. P. 84, Form 18, and McZeal v. Sprint Nextel(Fed. Cir. 2007)

• Plaintiffs’ allegations must cross “the line from conceivable to plausible”

20

False Marking: A New Species of Troll?

What is false marking?

– Marking an “unpatented article”

– For the purpose of deceiving the public

35 U.S.C. § 292

21

Forest Group v. Bon Tool

False marking statute’s plain language requires imposing a penalty on a per article basis

– Up to $500 per article, rather than $500 for each false marking decision

– But: District Courts have wide discretion to set the penalty. “In the case of inexpensive mass-produced articles, a court has the discretion to determine that a fraction of a penny per article is a proper penalty.”

– Forest Group, Inc. v. Bon Tool Co., 590 F.3d 1295 (Fed. Cir. 2009)

22

The 2010 Explosion inFalse Marking Litigation

• “Any person” may sue

• As of October 28, 2010, 515 new false marking cases filed since Bon Tool

– Stauffer v. Brooks Brothers, Inc., __ F.3d __, 2010 WL 3397419 (Fed. Cir. Aug. 31, 2010) (Section 292 is a qui tam statute, and any person has standing to sue on behalf of the United States)

– www.docketnavigator.com

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Who Are The Plaintiffs?

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Who Are The Targets?

Kimberly-Clark

Home Depot

Toys “R” Us

Glock

Electrolux Procter & Gamble

BoeingHasbro

Pop Rocks Candy

The Wiffle Ball Corporation

Wham-O

25

How Can Your CompanyAvoid a False Marking Suit?

• Most of the suits involve expired patents

• Check your products, and call your lawyer

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What Is the Real Exposure?

• Even “a fraction of a penny per article” piles up fast

– Wham-O—millions of Frisbees– Solo Cup—billions of plastic cups

• We don’t really know

– Very few results yet

27

How Do You Defend False Marking Claims?

1) Standing challenge— Federal Circuit has rejected

(Stauffer v. Brooks Brothers)2) Constitutional challenge3) Motions to dismiss

— Role of Fed. R. Civ. P. 9(b)?4) Motions to transfer venue5) Quick settlements 6) Defend the merits

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Judicial or Legislative Solutions

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Judicial Patent Reform• eBay v. MercExchange (2006) - Injunctions are not automatic, and are

unlikely for NPEs• MedImmune v. Genentech (2007) – Defendants can more easily

choose a venue• KSR v. Teleflex (2007) – Broader challenges to obviousness are

available• In re Seagate Technology (Fed. Cir. 2007) – Enhanced damages and

attorney fee awards made less likely • Quanta Computer v. LG Electronics (2008) – Recovery against

manufacturer exhausts rights against downstream purchasers• In re TS Tech USA (Fed. Cir. 2008) – Transfer ordered out of Eastern

District of Texas• Lucent v. Gateway and Microsoft (Fed. Cir. 2009) – “Entire market

value” rule qualified in vacating $360 million award

30

The Problem eBay Addresses

• NTP v. Research in Motion– $600 million settlement to inventor-owned NPE following

injunction that threatened to shut down Blackberry service

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eBay

• There is no bright-line rule:– Court rejects the district court’s general rule that not practicing

the patent may be sufficient basis to deny injunction– Court also rejects the Federal Circuit’s general rule that an

injunction follows determinations of validity and infringement

• Court holds that injunctions in patent cases should be judged by the traditional four-part equity test

32

The eBay Concurrencethat Enemies of Trolls Cherish

• “An industry has developed in which firms use patents ... primarily for obtaining licensing fees. For these firms, an injunction ... can be employed as a bargaining tool to charge exorbitant fees to companies that seek to buy licenses to practice the patent. [Such] an injunction may not serve the public interest. In addition injunctive relief may have different consequences for the burgeoning number of patents over business methods, which were not of much economic and legal significance in earlier times. The potential vagueness and suspect validity of some of these patents may affect the calculus under the four-factor test.”

33

Will Congress Stem theTide of False Marking Cases?

Congress is considering:

• Eliminating qui tam plaintiffs, by requiring that the plaintiff suffer a “competitive injury”

• Reversing Bon Tool, and limiting fine to $500 per decision

H.R. 6352; H.R. 4954; S. 515

34

Comprehensive Patent Reform