update on patent trolls and their actual influence on litigation practice

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American Intellectual Property Law Association

UPDATE ON PATENT TROLLS ANDTHEIR ACTUAL INFLUENCE ON

LITIGATION PRACTICESTEVEN F. MEYER

AIPLA IP in Japan Committee

Delegation to Japan

Presentation To Tokyo IP High Court

April 9, 2014

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Background: Nature of Problem

The number of suits filed by patent trolls (i.e., patent assertion entities or “PAE’s”), as a percentage of all patent infringement suits rose from 23% in 2007 to 45% in 2011, and 62% in 2012.1

1.Chien, Colleen V., “Patent Trolls by the Numbers”, Santa Clara Univ. Legal Studies Research Paper No. 08-13 (Mar. 2013); available at http://ssrn.com/abstract=2233041.

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Suits Filed By PAEs as % of All Patent Litigation.

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Source: Chien (2013), using data from RPX Corporation

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Source: Chien (2013), using data from Patent Freedom

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Source: Chien Presentation, FTC/DOJ Workshop on PAE’s (Dec. 10, 2012)

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Median Attorney Fees To Defend Against NPE’s Infringement Suit (2013)

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Amount at Risk End of Discovery Inclusive, All Costs

< $ 1 million $ 300,000 $ 600,000

$1 - $10 million $ 750,000 $ 1,250,000

$10 - $25 million $ 1,500,000 $ 2,400,000

> $25 million $ 2,500,000 $ 4,000,000

Source: AIPLA, “Report of the Economic Survey” (2013)

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I. Patent Troll’s Influence On Current Litigation Practice

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Patent Trolls Are Suing End Users

Personal Observation: Instead of suing the manufacturer ultimately responsible for the accused product, patent trolls are targeting customer companies who are end users of the accused products, which results in greater number of defendants.

• By as early as 2010, Acacia was adding local customer companies as co-defendants to satisfy personal jurisdiction requirement, and avoid motion to transfer venue from district court with local patent rules.

•Larger and more creative damages theories possible against end users of the accused products.

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Damages Theories For Accused WebsiteStore Locator Functionality

Greater Damages Award Available From End User (i.e., website owner):

Software Vendor: Royalty Rate x $10,000-20,000 price (one time per customer)

End User: 10,000 Clicks x 1 sale x Royalty Rate x Price of x Months of

month 10 clicks Product Infringement

Price of product can be great (i.e., car), medium (i.e., luxury watch or camera), or small (i.e., a meal at a restaurant)

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Joint Defense Group (“JDG”) Formed By All Defendants

• Defendants Have Common And Possibly Conflicting Interests– Invalidity: all Defendants have common interest– Claim Construction / Infringement: could be conflicting depending

upon differences in accused products

• Range of Level of Participation– JDG leader or active participation (increased fees)– Non-active participation (reduced fees, but no input)

• Membership Has Financial Benefits And Detriments– Benefit: Fees and costs for prior art searches and legal research

are reduced by sharing among JDG members– Detriment: Increased time spent on numerous JDG telephone

conferences and arriving at consensus on alternative approaches

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Patent Trolls Are Still Able to GroupTogether Large Numbers of Defendants

35 U.S.C. §299. Joinder of Parties (Effective September 16, 2011)

(b)ALLEGATIONS INSUFFICIENT FOR JOINDER. - For purposes of this subsection, accused infringers may not be joined in one action as defendants or counterclaim defendants, or have their actions consolidated for trial, based solely on allegations that they each have infringed the patent or patents in suit.

Continuing Problem: Large number of unrelated companies are having their suits consolidated through discovery, Markman proceeding and summary judgment proceedings.

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Court Forces All Defendants “To Share”

Court consolidates for discovery purposes:

•Maximum of 15 common interrogatories may be asked by the Defendants collectively, and each Defendant may individually ask up to 10 individual interrogatories.

•Defendants may collectively take 50 hours of deposition of the Patent Troll, and each Defendant may take 15 hours of deposition on topics not covered collectively.

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Court Forces All Defendants “To Share”

Court consolidates for Markman purposes:

•Each Defendant cannot file its own Markman brief.

•Same page limit applied to Defendants’ joint Markman brief, regardless of number of Defendants.

•Same time period for presenting Markman oral argument regardless of number of Defendants, and only one Defendant attorney per claim term.

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Later-Sued Defendants May Be EffectivelyBound By Earlier Markman Ruling

• Patent trolls file multiple waves of infringement suits spaced out over time.

• If patent troll obtains a favorable initial Markman Ruling, the subsequent complaints are filed in same district court, and assigned to same Judge.

• Very difficult for Later-Sued Defendants to change the earlier Markman Ruling:

“In general, prior claim construction proceedings involving the same patents-in-suit are entitled to reasoned deference under the broad principles of stare decisis and the goals articulated by the Supreme Court in Markman, even though stare decisis may not be applicable per se”.

GeoTag Markman Ruling (E.D. Tex; J. Gilstrap; dated Feb. 26, 2013).

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Limitations On Summary Judgment Motion In Scheduling Orders

• Delaware District Court: “All case dispositive motions … shall be served and filed on or before [one month after close of expert discovery]. No case dispositive motion under Rule 56 may be filed more than ten days before the above date without leave of the Court.”

• Eastern District of Texas: “Prior to filing any motion that would dispose of all or part of this case (including motions for summary judgment …) the parties must submit a letter brief seeking permission to file the motion.”

–In GeoTag case, Court granted 19 such letter briefs, each on a different ground of non-infringement or invalidity.

–Each Defendant limited to 60 pages collectively over the 19 allowed summary judgment motions, resulting in numerous 5-page briefs.

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Eastern District of Texas Streamlined “Rifle Shot” Procedure For 120 Defendants

“Responding to the number of defendants and to Parallel’s stated strategy of trying to extract an early settlement from as many defendants as possible, the district court implemented a creative procedure designed to streamline the case. The court ordered an initial Markman hearing to construe three terms in two claims that defendants had contended ‘affect all Defendants [and], if construed, would be case dispositive.’ The court ordered accompanying summary judgment briefing on the same claims.”

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Parallel Networks, LLC v. Abercrombie & Fitch Co., 704 F.3d 958, 965 (Fed. Cir. 2013)

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Infringement Contentions Require Patent Troll To Explain Its Infringement Theories

• At least 24 district courts have local patent rules requiring infringement contentions by the Patentee, including:

– Northern District of California– Eastern District of Texas (very popular with patent trolls)– District of Delaware (increasingly popular with patent trolls)– District of New Jersey (popular with pharma)

• Infringement Contentions Requirements:– identify asserted claims– claim charts mapping asserted claims against accused products– identify whether infringement is literal or under doctrine of equivalents

• Patent troll’s infringement contentions (and expert reports) are typically generic and at a very high level, so as to apply to all Defendants.

• Personal Observation: Weakness in Patent Troll’s case is typically due to too broad of an infringement theory, rather than invalidity.

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Patent Trolls Typically Assert Old Patents Having ClaimsReciting Means-Plus-Function Limitations

• Construction of means-plus-function limitation in two-step process:– the district court identifies and construes the claimed function– the district court then ascertains the corresponding structure in the patent

specification that performs this function

• Structure disclosed in the specification is “corresponding” only if the specification or prosecution history clearly links or associates that structure to the function recited in the claim.

• If there is no “corresponding” structure disclosed in the specification, the claim is invalid for being indefinite under 35 U.S.C. §112.

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Patent Trolls Typically Assert Old PatentsThat May Implicate Joint Infringement Complications

• For example, claim recites:

• Federal Circuit held:“In order to ‘make’ the system under §271(a), Qwest would need to combine all of the claim elements – this it does not do. The customer, not Qwest, completes the system by providing the ‘personal computer data processing means’ and installing the client software.

Further, Qwest is not vicariously liable for the actions of its customers; as discussed above, Qwest’s customers do not act as Qwest’s agents as a matter of law nor are they contractually obligated by Qwest to act.”

Centillion Data Sys., LLC v. Qwest Comms. Int’l, Inc., 631 F.3d 1279, 1288 (Fed. Cir. 2011)

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Defendant’sServer

Customer’s Computer

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Patent Trolls May Overlook Subtle, Individualized Non-Infringement Defenses

Prohibition Against Extra-Territoriality

•“[A] process cannot be used ‘within’ the United States as required by section 271(a) unless each of the steps is performed within this country.” NTP, Inc. v. Research In Motion, Ltd., 418 F.3d 1282, 1318 (Fed. Cir. 2005).

•The patentee bears the burden of proving that each recited step was, in fact, performed within the United States. ION, Inc. v. Sercel, Inc., 2010 WL 3768086, at *7 (E.D.Tex. Sept. 16, 2010).

•In GeoTag, Patent Troll overlooked that the server hosting the accused store locator was located in Europe.

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III. Attempts to Legislate A Cure to Patent Troll Practice

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“Anti-Patent Troll” Bills Before Congress

There are five Bills pending before Congress that address one or more of the following steps in a Patent Troll infringement suit:

1.Pre-Complaint Demand Letters sent to accused infringers;

2.Content of patent infringement Complaint;

3.Stay of patent troll suits against end users;

4.Discovery; and

5.Award of attorneys’ fees.

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Bad Faith Demand Letters

H.R. 3309 – Goodlatte (Passed By House on Dec. 5, 2013):

Claimant seeking to establish willful infringement may not rely on pre-suit notification unless the notification:

•identifies with particularity the asserted patent;

•identifies the accused product or process;

•identifies the ultimate parent entity of claimant; and

•explains with particularity, how the product or process infringes.

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Bad Faith Demand Letters

• Leahy S. 1720 (“Patent Transparency And Improvement Act”):The sending of a fraudulent or materially misleading demand letter is unfair and deceptive trade practice under §5 of the Federal Trade Commission Act.

• McCaskill S. 2049 (“Transparency In Assertion of Patents Act)”:

FTC required to regulate content of patent infringement demand letters, which would be required to contain:

–detailed description of asserted patent and claim;–detailed description of accused product or process;–detailed description of infringement theory;–notice of possible indemnification by manufacturer;–description of any FRAND licensing obligation; and–method of calculating any settlement amount.

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Heightened Pleading Requirements For Patent Infringement

H.R. 3309 - Goodlatte (Passed By House on Dec. 5, 2013):

Must plead in Complaint:•an identification of each asserted patent and patent claim;•for each asserted patent claim, an identification of the accused product or process, with particularity;•an element-by-element showing of direct infringement;•a description of the acts of any alleged indirect infringement;•description of all rights to assert patent;•a list of previous complaints asserting the same patent(s); and•an identification of applicable industry standard(s) to which the patent(s) apply.

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Heightened Pleadings Requirement For Patent Infringement

Cornyn S. 1013 recites same pleading requirements as Goodlatte H.R. 3309, but further requires the pleading of:

•identity of any persons other than the plaintiff that owns or co-owns the patent or is an exclusive licensee; and

•the identity of any person with a direct financial interest in the outcome of the suit, and the basis for the financial interest.

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Stay of Litigation (other than ANDA suits) Against CustomerWhere Manufacturer is a Party to Same or Other Suit on Same Patent

H.R. 3309 – Goodlatte (Passed By House on Dec. 5, 2013):

• Manufacturer and customer must consent in writing to stay;

• Customer must agree to be bound by any issues finally decided as to the manufacturer;

• Motion to stay must be filed within later of 120 days or the entry of first scheduling order;

• Stays may be lifted where:

‒ manufacturer suit does not resolve major issue against customer; or ‒ unreasonably prejudices and would be manifestly unjust to party seeking to lift stay.

Leahy S. 1720 (“Patent Transparency And Improvement Act”): same

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Discovery In Patent Infringement Action

H.R. 3309 – Goodlatte (Passed by House on Dec. 5, 2013)

•If the district court requires a Markman ruling, all discovery prior to that ruling shall be limited to claim construction issues.

•Court shall expand discovery limits where resolution within specified period affects rights of a party with respect to a patent.

•Court may allow limited discovery as necessary to resolve a motion properly filed before Markman ruling.

•Personal observation: Helpful only if upon Markman ruling, district court considers summary judgment motions.

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Discovery In Patent Infringement Action

Cornyn S. 1013: Recites same discovery limitations as Goodlatte H.R. 3309, but further provides:

•Each party is responsible for costs of producing “core documentary evidence” within its possession, custody, or control, which is defined as including documents that:

– relate to conception, reduction to practice and the patent application;– show the technical operation of the accused product;– relate to potentially invalidating art;– relate to damages including licenses;– relate to willfulness; and– relate to marking of embodying product or notice under 35 U.S.C. §287.

•Party may seek additional discovery if that party bears the costs, including reasonable attorneys’ fees.

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Cost Shifting – Including Attorney Fees


•Awards to prevailing party, unless:– position and conduct of non-prevailing party was reasonably justified in

law and fact; or– special circumstances make unjust.

• Party asserting claim, who later unilaterally extends covenant not to sue, is deemed to be a “non-prevailing” party.

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•Upon motion, court may require a party to certify ability to pay such a fee award

•If non-prevailing party cannot pay awarded fees, court shall join “an interested party” if “the nonprevailing party has no substantial interest in the subject matter at issue other than asserting such patent claim in litigation.”

•“Interested Party” defined:

– Assignee of the asserted patent(s)– Entity with right to sublicense or enforce the asserted patent(s)– Entity with direct financial interest in the asserted patent(s) (excludes contingent fee law

firm)

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Cornyn S. 1013:

•Awards to prevailing party, unless:– position and conduct of non-prevailing party was reasonable and substantially justified;

or– exceptional circumstances make unjust.

•The court shall join an interested party if defendant shows that the plaintiff’s interest in the patent “is limited primarily to asserting any such patent claim in litigation.”

•If non-prevailing party cannot pay awarded fees, court may make fees recoverable against interested party (defined same as Goodlatte).

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Hatch S. 1612:

•The court shall award to prevailing party reasonable attorney fees unless the position and conduct of the nonprevailing party were substantially justified or that special circumstances make an award unjust.

•No provision for joining interested party.

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Thanks for your attention! Questions?

Steven F. MeyerPartner

Locke Lord LLP3 World Financial Center

New York, NY 10281

+1-212.415.8535

[email protected]

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update on patent trolls and their actual influence on litigation practice

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