Responding to Patent Demand Letters: Leveraging State Laws on Bad Faith Assertion of Patents

Transcription

1 Presenting a live 90-minute webinar with interactive Q&A Responding to Patent Demand Letters: Leveraging State Laws on Bad Faith Assertion of Patents Determining What to Include or Exclude in Response, Minimizing Risk of Litigation THURSDAY, MARCH 2, pm Eastern 12pm Central 11am Mountain 10am Pacific Today s faculty features: Sharon A. Israel, Partner, Mayer Brown, Houston Brian R. Iverson, Member, Bass Berry & Sims, Washington, D.C. Baldassare Vinti, Partner, Proskauer Rose, New York The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions ed to registrants for additional information. If you have any questions, please contact Customer Service at ext. 10.

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4 Responding to Patent Demand Letters Baldassare (Baldo) Vinti, Esq. Partner PROSKAUER ROSE LLP 11 Times Square NY, NY March 2, 2017

5 Overview Legal considerations Strategic considerations Recent trends affecting strategy Void left by Congress and what s next 5 Responding to Patent Demand Letters March 2, 2017

6 Legal Considerations in Determining Whether to Respond to a Demand Letter 6 Responding to Patent Demand Letters March 2, 2017

7 Contents of Demand Letter Identity of real party in interest Identification of patent and accused products claim charts draft complaint Allegation of infringement Offer to license Financial terms 7 Responding to Patent Demand Letters March 2, 2017

8 Options Option Pros Cons Request More Info More time to gather info and assess potential exposure Denial of infringement may be preferable where recipient has good faith basis to do so Patentee need not respond to request for more info Do Nothing May be appropriate if patentee sent a lot of letters with no intent on filing a complaint If patentee was not merely casting a wide net, patentee might file a complaint, in which case recipient was put on notice and has no response on record File for Declaratory Judgment Aggressive Cost Seek to Invalidate the Patent Before the USPTO (petition for IPR, Covered Business Method, or Post Grant Review) Aggressive Cost Some petition procedures may be unavailable License Possible cost-effective resolution Costs of license may outweigh costs of litigation, especially if claims can be dismissed early Threaten Fees for Bad Faith Assertion, Violation of State Laws, Etc. May lead to faster, less expensive resolution Shifting legal landscape; not always appropriate 8 Responding to Patent Demand Letters March 2, 2017

9 Due Diligence Background research on assertion entity and affiliates Public filings District courts Federal Trade Commission USPTO Talk with current/prior litigants 9 Responding to Patent Demand Letters March 2, 2017

10 Assessment of Merits File wrapper and related patents Prior art search Opinion of counsel 10 Responding to Patent Demand Letters March 2, 2017

11 Strategic Considerations in Determining Whether to Respond to a Demand Letter 11 Responding to Patent Demand Letters March 2, 2017

12 1. Fee Shifting 35 USC 285 The court in exceptional cases may award reasonable attorney fees to the prevailing party. Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. Ct (2014) District courts may determine whether a case is exceptional in the case-by-case exercise of their discretion, considering the totality of the circumstances. 12 Responding to Patent Demand Letters March 2, 2017

13 Recent Fee Shifting Case Law re: Demand Letters Lumen View Tech., LLC v. Findthebest.com, Inc., 24 F. Supp. 3d 329 (S.D.N.Y. 2014), aff d in part, 811 F.3d 479 (Fed. Cir. 2016) prototypical exceptional case in part because of Lumen s demand letter practices Threatened expensive litigation w/ protracted discovery Demanded immediate preservation of inaccessible ESI Enclosed a complaint with merely conclusory allegations Sent many letters in a short time-frame, which the court said was a predatory strategy that should be deterred 13 Responding to Patent Demand Letters March 2, 2017

14 Fee Shifting Considerations No categorical rule Litigiousness alone not always sufficient Rates Tech. Inc. v. Broadvox Holding Co., LLC, 56 F. Supp. 3d 515, 533 (S.D.N.Y. 2014) ( If RTFs claims had merit, its status as a hyper-litigious non-practicing entity should not prevent it from bringing suit ) Risk in ignoring demand? E.g., BMW of N. Am., LLC v. Eurocar Tech., L.L.C., 2014 WL (M.D. Fla. July 15, 2014) (Lanham Act case), report and recommendation adopted, 2014 WL (M.D. Fla. Aug. 5, 2014) 14 Responding to Patent Demand Letters March 2, 2017

15 2. Venue TC Heartland LLC v. Kraft Foods Group Brands LLC Issue: Whether the patent venue statute, 28 U.S.C. 1400(b), which provides that patent infringement actions may be brought in the judicial district where the defendant resides[,] is the sole and exclusive provision governing venue in patent infringement actions. S. Ct. will hear argument on Mar. 27, Responding to Patent Demand Letters March 2, 2017

16 Implication of Heartland E.D. Tex. continues to be the most popular forum for patent cases (36.4%). But Heartland could limit forum shopping. PwC 2016 Study showed: 16 Responding to Patent Demand Letters March 2, 2017

17 3. Enhanced Damages New willfulness standard may impact demand letter strategy In June 16, SCOTUS upended law on enhanced damages. (Halo Electronics, Inc. v. Pulse Electronics, Inc. (2015)). Eliminated objectively reckless standard. Lowered the evidentiary standard (preponderance of evidence v. clear-and-convincing). Demand letter may provide notice to allow patentee to seek treble damages. On the other hand, response to demand letter may provide recipient a platform to express subjective state of mind 17 Responding to Patent Demand Letters March 2, 2017

18 Trends Post-Alice Alice Corp. v. CLS Bank Int l, 34 S. Ct (2014): Two-step test: Is the claim directed to an abstract idea? Does the claim recite significantly more than just the abstract idea i.e., inventive concept? Success rate of 101 motions declined after Alice: 2014: 71% 2015: 57% 2016: 44% 18 Responding to Patent Demand Letters March 2, 2017

19 101 Trends Post-Alice Immediately post-alice, Federal Circuit decisions upholding subject matter eligibility of software-related patents and reversing the trial court below were rare. However, 2016 saw an increase in such decisions: Bascom, 827 F.3d 1341 McRO, 837 F.3d 1299 Enfish, 822 F.3d 1327 These decisions may embolden some plaintiffs in Responding to Patent Demand Letters March 2, 2017

20 5. Personal Jurisdiction Demand letter may serve as a basis for declaratory judgment jurisdiction Xilinx, Inc. v. Papst Licensing GmbH & Co. KG, 2017 WL (Fed. Cir. Feb. 15, 2017) (minimum contacts satisfied where patentee sent multiple notice letters, traveled to recipient s home state to meet with recipient to discuss alleged infringement and potential licensing arrangements, and recipient s declaratory judgment action related to these contacts in a material way) 20 Responding to Patent Demand Letters March 2, 2017

21 Void Left by Congress and What s Next 21 Responding to Patent Demand Letters March 2, 2017

22 Legislative and Policy Developments Various patent bills would have implications for demand letters, including: Targeting Rogue and Opaque Letters Act ( TROL Act ) (H.R. 2045) STRONG Patents Act (S. 632) Demand Letter Transparency Act (H.R. 1896) 22 Responding to Patent Demand Letters March 2, 2017

23 Legislative and Policy Developments (cont d) Is Congress focused on abusive demand letter practices? Bob Goodlatte s (R-Va.) House Judiciary Committee speech on Feb. 1, 2017 set out 2017 agenda. Patent reformed was briefly mentioned. Orrin Hatch (R-Utah), Chairman of the Senate Republican High-Tech Task Force, set out the Senate s innovation agenda in a speech on Feb. 16, With respect to patents, he focused on venue issues. 23 Responding to Patent Demand Letters March 2, 2017

24 Views of the Executive Branch Commentators are looking for clues as to what to expect from the Trump administration. Trump: thinks brands are very important; concerned about IP piracy in China; might treat IP with a property rights view. Donald Trump Jr.: has expressed concern for small biz patent holders. Ken Blackwell (Domestic Policy Chair): Patent reform is another example of crony capitalism 24 Responding to Patent Demand Letters March 2, 2017

25 Views of the Executive Branch (cont d) Wilbur Ross (Secretary of Commerce nominee): Said Trump would crack[] down on currency manipulation, intellectual property theft and other mercantilist cheating Stephen Bannon: Breitbart published an article opining that [m]aintaining a strong economy and a strong patent system are directly related to our ability to provide a robust national defense and military strength. 25 Responding to Patent Demand Letters March 2, 2017

26 How Will Gorsuch Approach Patent Issues? His views on patents are mostly unknown. He has been critical of Chevron deference. Less willing to defer to the PTO s construction and implementation of the AIA? 26 Responding to Patent Demand Letters March 2, 2017

27 Thank You Baldassare (Baldo) Vinti, Esq. Partner PROSKAUER ROSE LLP 11 Times Square NY, NY March 2, 2017 The information provided in this slide presentation is not, is not intended to be, and shall not be construed to be, either the provision of legal advice or an offer to provide legal services, nor does it necessarily reflect the opinions of the firm, our lawyers or our clients. No client-lawyer relationship between you and the firm is or may be created by your access to or use of this presentation or any information contained on them. Rather, the content is intended as a general overview of the subject matter covered. Proskauer Rose LLP (Proskauer) is not obligated to provide updates on the information presented herein. Those viewing this presentation are encouraged to seek direct counsel on legal questions. Proskauer Rose LLP. All Rights Reserved.

28 State Laws on Bad Faith Assertion of Patents Sharon A. Israel Mayer Brown LLP February 2017

29 Overview Landscape Federal State Navigating The Growing Patchwork Thoughts on Best Practices 29

30 The Landscape of Patent Assertion Legislation: Federal Various proposals to address bad faith assertions of patent infringement prior to litigation in the 114 th Congress H.R. 2045, the Targeting Rogue and Opaque Letters (TROL) Act - includes federal preemption H.R. 9/S. 1137: Limits ability to establish willful infringement if pre-suit notification doesn t include specific information S. 1137: Clarifies FTC s authority; no preemption (national uniform standards) provision or definition of bad faith S. 632, the Support Technology and Research for Our Nation's Growth (STRONG) Patents Act includes provision similar to H.R (TROL Act) H.R. 1896, the Demand Letter Transparency Act - Requires disclosure of information related to patent ownership 30

31 The Landscape of Patent Assertion Legislation: Federal H.R. 2045, the Targeting Rogue and Opaque Letters (TROL) Act Proposes Federal Trade Commission address claims of patent infringement demand letters sent in bad faith Establishes that it is an unfair or deceptive act or practice under the FTC Act to engage in a pattern or practice of sending written communications that contain bad faith misrepresentations about patent rights and allows the FTC and State AGs to fine violators Requires such written communications to include key information, such as identifying the person with the patent rights, parent companies, contact information, and information on how the recipient is allegedly infringing the patent. Includes a preemption provision establishing a national standard for enforcement of abusive patent demand letters Approved by Energy & Commerce Committee on April 29,

32 The Landscape of Patent Assertion Legislation: Federal S. 632, the Support Technology and Research for Our Nation's Growth (STRONG) Patents Act According to Senator Coons the Act would strengthen our patent system and combat abuse by: Cracking down on abusive demand letters by empowering the Federal Trade Commission to target firms that abuse startups rather than invent anything Demand letter portion is similar to TROL Act elease/coons-durbin-hirono-introduce-patentreform-bill-to-protect-innovation-confront-abuse 32

33 The Landscape of Patent Assertion Legislation: State 33 States Have Passed Bills on Demand Letters Alabama, Arizona, Colorado, Florida, Georgia, Idaho, Illinois, Indiana, Kansas, Louisiana, Maine, Maryland, Michigan, Minnesota, Mississippi, Missouri, Montana, New Hampshire, North Carolina, North Dakota, Oklahoma, Oregon, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, Vermont, Washington, Wisconsin, Wyoming At least 10 States Now Have Had a Bill Introduced or Pending in a Current or Prior Session of the State s Legislature California, Connecticut, Iowa, Kentucky, Massachusetts, Nebraska, New Jersey, Ohio, Pennsylvania, South Carolina 33

34 The Landscape of Patent Assertion Legislation: State Signed by Governor 1. Alabama (SB 121) 2. Arizona (HB 2386) 3. Colorado (HB 1092) 4. Florida (HB 439) 5. Georgia (HB809) 6. Idaho (S. 1354) 7. Illinois (SB3405) 8. Indiana (HB 1102) 9. Kansas (SB 38) 10. Louisiana (SB 255) 11. Maine (SP654) 12. Maryland (SB585) 13. Michigan (SB 289/HB 4587) 14. Minnesota (HF 1586) 15. Mississippi (HB 589) 16. Missouri (SB706) 17. Montana (SB 39) Bill Introduced or Pending in Current Session Other State Bills Considered in Prior Session 1. New Jersey (A310) 1. California (SB 681) 2. Connecticut (SB 258) 3. Iowa (SSB 1028) 4. Kentucky (SB116) 5. Massachusetts (SB 178) 6. Nebraska (LB 677/LR 534) 7. New Jersey (S1563) 8. Ohio (HB 194) 9. Pennsylvania (SB1222) No Bill Introduced 1. Alaska 2. Arkansas 3. Delaware 4. Hawaii 5. Nevada 6. New Mexico 7. New York 8. West Virginia 34

35 The Landscape of Patent Assertion Legislation: State Signed by Governor 18. New Hampshire (SB0303) 19. North Carolina (SB 648) 20. North Dakota (HB 1163) 21. Oklahoma (HB 2837) 22. Oregon (SB 1540) 23. Rhode Island (SB 2542) 24. South Carolina (H 3682) 25. South Dakota (SB 143) 26. Tennessee (HB2117/SB1967) 27. Texas (SB 1457) 28. Utah (HB0117) 29. Vermont (Act No. 44) 30. Virginia (HB375) 31. Washington (SB 5059) 32. Wisconsin (SB498) 33. Wyoming (SF 65) Bill Introduced or Pending in Current Session Other State Bills Considered in Prior Session No Bill Introduced 35

36 The Landscape of Patent Assertion Legislation: State Now dealing with a patchwork of state laws, which may be hard to navigate. Provides recipients of such certain patent-related communications with tools not previously available. Varies from state to state regarding scope of bills, tests used, who can enforce, remedies available. May impact legitimate enforcement efforts and offers to license. 36

37 Patent Assertion Legislation Among The States Assessing Who s Law Will Apply Louisiana s law can be used to highlight: Any person outside the state asserting patent infringement by an enduser in the state shall be deemed to be transacting business within the state within the meaning of R.S. 13:3201 and shall thereby be subject to the jurisdiction of the courts of this state. Applies to [a]ny person and could subject a party s counsel, in addition to the party itself, to jurisdiction under the law Provision is not limited to someone merely sending demand letters in the state While Louisiana s law only applies to patent assertions against an end-user, the laws of other states are not so limited. LA REV. STAT. ANN. 51:1428 (West 2014) (emphasis added). 37

38 Patent Assertion Legislation Among The States Assessing Who s Law Will Apply But note target language of some bills: (3) 'Target' means a person: (A) Who has received a demand letter or against whom an assertion or allegation of patent infringement has been made; (B) Who has been threatened with litigation or against whom a lawsuit has been filed alleging patent infringement; or (C) Whose customers have received a demand letter asserting that use of such person's product, service, or technology infringes a patent. US/DISPLAY/ /HB/809 38

39 Patent Assertion Legislation Among The States For States With Balancing Tests Generally state: [a] person shall not make a bad faith assertion of patent. Statues list series of factors that courts may consider as evidence whether a person has made a bad-faith or good-faith assertion of patent infringement Final factor in each list generally directs that a court may consider [a]ny other factor the court finds relevant Gives courts wide latitude to decide what constitutes a bad-faith assertion of a patent No one factor may be dispositive of the outcome VT. STAT. ANN. tit. 9, 4197 (West 2013) 39

40 Patent Assertion Legislation Among The States For States With Bright Line Rules: A patent notification shall contain all of the following: The number of each patent or patent application that is the subject of the patent notification. A physical or electronic copy of each patent or pending patent. The name and physical address of the owner of each patent or pending patent and all other persons having a right to enforce the patent or pending patent. An identification of each claim of each patent or pending patent being asserted and the target s product, service, process, or technology to which that claim relates. Factual allegations and an analysis setting forth in detain the person s theory of each claim identified... and how that claim relates to the target s product, service, process, or technology. An identification of each pending or completed court or administrative proceeding, including any proceeding before the U.S. patent and trademark office, concerning each patent or pending patent. No false, misleading, or deceptive information. WIS. STAT. ANN (West 2014) 40

41 Patent Assertion Legislation Among The States Determining Who May Be Affected Targets and Intended Recipients Some states liberally define Target to include both the entity that actually receives a demand letter or threat of litigation and the entity s customers and end users that receive such a letter or threat Other states have attempted only to create liability when customers or end users are targeted with a demand letter or patent assertion Some (not all) bills have safe harbors E.g., 271(e)(2) exemptions E.g., Clarifying not a violation to notify another that patent is available for license 41

42 Patent Assertion Legislation Among The States Enforcement and remedies vary from state to state State s attorney general The attorney general may commence an action in the name of the state to restrain by temporary or permanent injunction a violation... [and] to recover a forfeiture to the state of not more than $50,000 for each violation. Private right of action/remedies A temporary or permanent injunction An appropriate award of damages Costs and reasonable attorney fees Punitive damages not to exceed $50,000 for each violation or 3 times the aggregate amount awarded for all violations. Alabama s statute includes criminal penalties 42

43 Patent Assertion Legislation Among The States Bond A number of states have potentially made a bond available Upon motion by a target and a finding by the court that a target has established a reasonable likelihood that a person has made a bad faith assertion of patent infringement in violation of this chapter, the court shall require the person to post a bond in an amount equal to a good faith estimate of the target s costs to litigate the claim and amounts reasonably likely to be recovered under subsection 4199(b) of this chapter, conditioned upon payment of any amounts finally determined to be due to the target. A hearing shall be held if either party so requests. A bond ordered pursuant to this section shall not exceed $250, The court may waive the bond requirement if it finds the person has available assets equal to the amount of the proposed bond or other good cause shown. (emphasis added) VT. STAT. ANN. tit. 9, 4198 (West 2013) 43

44 The Landscape of Patent Assertion Legislation: State Writing Required? Demand required? Some bills use language: Or other communication Some say letter, or other written communication Some not limited to patent assertion, e.g., or that the actions of target would benefit from the grant of a license to a patent or or should obtain a license to a patent Who can bring an action? A target or a person aggrieved by a violation Any person who suffers injury or damage as a result of a violation A target of conduct involving assertions of patent infringement, or a person aggrieved by a violation. Relief Possible Restitution: Restitution of any person or persons adversely affected by the violation Georgia An order requiring restitution to a victim for legal and professional expenses related to the violation - Texas 44

45 Patent Assertion Legislation Among The States Considerations Going Forward Recipients of Communications: May consider whether the communication is actionable or whether they should report it to an appropriate state attorney general Patent Rights Holders: Need to consider to whom a demand letter is sent or patent assertion is made and what to include in letter/communication VT. STAT. ANN. tit. 9, 4198 (West 2013) 45

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47 Responding to Patent Demand Letters Brian R. Iverson Member Bass, Berry & Sims PLC

48 No One Size Fits All Response Nature of the Demand Letter Client s Strategic Objectives Client s Place of Business Ethical Considerations 48

49 No One Size Fits All Response Nature of the Demand Letter Client s Strategic Objectives Client s Place of Business Ethical Considerations 49

50 Nature of the Demand Letter Who is the sender? NPE Competitor Supplier Purchaser Unrelated Business Who are the attorneys? 50

51 Nature of the Demand Letter What is the assertion? Single patent vs. portfolio Duration of alleged infringement Scope of alleged infringement 51

52 Nature of the Demand Letter What is requested? Cessation of activities Lump sum payment Royalty payment Meeting to discuss No specific demand 52

53 Nature of the Demand Letter What can you learn outside the letter? Term Assignment history Litigation history Licensing history Post-grant proceedings 53

54 No One Size Fits All Response Nature of the Demand Letter Client s Strategic Objectives Client s Place of Business Ethical Considerations 54

55 Client s Strategic Objectives Strategies Often Driven by Risk Level Strength of Infringement Allegations Prior Notice of the Patent Existence of Invalidity / Non-Infringement Opinion Strength of Invalidity Arguments 55

56 Client s Strategic Objectives Resolve Without Litigation Continue or Discontinue Activity Willing or Unwilling to Pay Willing to Cross-License Creative Business Resolution Alternative Dispute Resolution 56

57 Client s Strategic Objectives Improve Litigating Position Gather additional information Self-serving statements Avoid disclosing too much Protections and limitations of FRE

58 Client s Strategic Objectives Make an Example Will not pay nuisance value to NPEs Will use new state legislation Will use post-grant proceedings at PTO Will leverage membership in trade organization 58

59 No One Size Fits All Response Nature of the Demand Letter Client s Strategic Objectives Client s Place of Business Ethical Considerations 59

60 Client s Place of Business State anti-trolling statute State deceptive trade practices statute Attorney General interest Proper venue for infringement action? 60

61 No One Size Fits All Response Nature of the Demand Letter Client s Strategic Objectives Client s Place of Business Ethical Considerations 61

62 Ethical Considerations Activities Touching Other Jurisdictions Analyzing another state s statute Where is the attorney? Where is the client? What is the most likely forum? Unauthorized Practice of Law Multi-Jurisdictional Practice Rules Competence 62

63 Ethical Considerations Criminal Prosecution ABA Model Rules Removed specific prohibition on threats of criminal prosecution solely for advantage in civil dispute Certain threats may violate other more general rules Not All States Followed the Model Rule Change e.g., Alabama RPC 3.10 A lawyer shall not present, participate in presenting, or threaten to present criminal charges solely to obtain an advantage in a civil matter. 63

64 Takeaways No one size fits all response Assess nature of the demand letter Understand client s strategic objectives Analyze available state remedies Stay within ethical bounds 64

65 Brian R. Iverson Member Bass, Berry & Sims (202)