$2 to $8 million AMERICA INVENTS ACT MANAGING IP RISK IN THE NEW ERA OF POST GRANT PROCEEDINGS 7/30/2013 MANAGING RISK UNDER THE AIA

Transcription

1 AMERICA INVENTS ACT MANAGING IP RISK IN THE NEW ERA OF POST GRANT PROCEEDINGS John B. Scherling Antony M. Novom Sughrue Mion, PLLC July 30, $2 to $8 million 2 1

2 $1.8 billion $1.5 billion $1.2 billion $1.0 billion $1.0 billion 3 $1.8 billion (Centocor v. Abbott) (2009) arthritis medication $1.5 billion (Lucent v. Microsoft) (2007) MP3 technology $1.2 billion (Carnegie Mellon v. Marvell Tech. Group) (2012) disk drive noise reduction $1.0 billion (Apple v. Samsung) (2012) smartphone software $1.0 billion (Monsanto v. Dupont) (2012) genetically modified soybean seeds 4 2

3 $1.9 to $16.5 million

4 (2013 PwC Patent Litigation Study) 7 Are businesses making irrational decisions? 8 4

5 S&P 500 Companies Market Cap 9 The value of innovation The real value of the iphone doesn't lie in its parts or even in putting those parts together. The bulk of the iphone's value is in the conception and design of the iphone. Professor Mark J. Perry, School of Management, Flint campus, The University of Michigan. 10 5

6 Major risks faced by potential infringers Damages Six years (notice may be required) Lost profits Reasonable royalty Injunction Preliminary Permanent Attorneys' fees and other litigation expenses Uncertainty (costs and time) 11 CHALLENGING PATENTS PRIOR TO THE AIA 12 6

7 Mechanisms for challenging patents prior to AIA A company faced with a patent infringement suit or the threat of one had the options of: District court litigation (as a defendant or declaratory judgment plaintiff) Ex parte reexamination Inter partes reexamination (limited to applications filed on or after November 29, 1999) 13 District court litigation milestones (1) Complaint (3) Discovery/Scheduling (4) Claim Construction Conference (2) Answer Scheduling Order (5) Fact Discovery Closes (6) Expert Discovery Closes (7) Dispositive Motions (Summary Judgment) (10) Verdict/ (8) Pretrial - (12) Appeal Posttrial - Submissions Decisition (9) Jury Trial (11) Beginning of Appeal Begins 14 7

8 Drawbacks of district court litigation District court litigation challenging patents Standing to challenge patent: sued or under an imminent threat of suit Presumption of validity/clear and convincing evidence standard Lay judges and jury trials Claims construed in light of intrinsic record/not under BRI standard Duration not fixed (2 4 years) and typically not until 7 10 years after patent issues. (See Nat l Research Council, A Patent System for the 21st Century (2004)) Very expensive $$$ Success rates* when challenged about 40% ( ): Invalid under 102 Invalid under 103 Invlaid other Total 40% (425/1052) 42% (299/709) 39% (353/894) 40.5% (invalid) 59.5 (valid) (Success rates reflect adjudicated patents and does not reflect settlements) 15 Source: PATSTATS.ORG Drawbacks of district court litigation District court litigation forum selection strategies increases uncertainty/risk due to lack of uniformity among district courts Different local rules Different judges Range of competencies with patent litigation Range of competencies with technologies Different lengths of time through trial Different jury pools Most patent cases settle. When cases do go to Judgment patentees win 32.5% on average nationally National average masks the range of win rates by district: 11.5% to 55. Source: AIPLA QUARTERLY JOURNAL, Volume 38, Number 4 Fall

9 Ex parte reexamination trend KSR Inter partes reexamination trend KSR 18 9

10 Drawbacks of pre AIA mechanism Ex parte reexamination ex parte potentially one sided in favor of patent owner Limited to novelty and obviousness based on publications Inconsistency in quality of reexamination among examiners Patent owner may add unlimited new narrower claims Appeal to Board Duration indeterminate (ave months) Percent known to be in litigation 32% Success rates (when challenged by third party 67 % of all ex parte reexams): All claims confirmed All claims canceled Claim changes 23% 12% 65% 19 Drawbacks of pre AIA mechanism Inter partes reexamination Limited participation by third party requestor with no discovery Limited to novelty and obviousness based on publications Inconsistency in quality of reexamination among examiners Patent owner may add unlimited new narrower claims Appeal to Board Duration indeterminate (ave. 36 months) Percent known to be in litigation 67% Success rates when challenged by third party: All claims confirmed All claims canceled Claim changes 11% 42% 47% 20 10

11 CHALLENGING PATENTS UNDER THE AIA 21 Mechanisms for challenging patents post AIA Post AIA, a company faced with a patent infringement suit has the options of: District court litigation Ex parte reexamination Inter partes review Post grant review (including covered business method patents) 22 11

12 Advantages of the AIA mechanisms Ex parte reexaminations All patents (unexpired) Multiple petitions permissible No presumption of validity Claims construed under the BRI standard No estoppel Anonymity No page limits Less expensive 23 Advantages of the AIA mechanisms Inter parte review ("IPR") Converted inter partes reexamination into an adjudicative proceeding All patents (unexpired) Full participation by challenger Certain discovery permitted (initial disclosures, deposition of declarants) Trial presided over by administrative law judge (PTAB) Patent owner's ability to add new claims restricted Duration of proceeding is fixed (12 months from institution of trial) Percent known to be in litigation (as of November 30, 2012): 77% Success rates expected to parallel inter partes reexamination 24 12

13 Advantages of the AIA mechanisms Post grant review ("PGR") (effective March 16, 2013) Applicable for all first to file patents Within 9 months after the grant of a patent or issuance of a reissue patent Challenge can be on any ground of patentability (not best mode) Certain discovery permitted (initial disclosures, deposition of declarants) Trial presided over by administrative law judge (PTAB) Patent owner's ability to add new claims restricted Duration of proceeding is fixed (12 months from institution of trial) Success rates may be greater than inter partes reexamination given additional grounds 25 Advantages of the AIA mechanisms Settlement Permitted in inter partes reexamination, post grant review, and covered business method patent review Settlement terminates the proceeding with respect to the petitioner No estoppel 26 13

14 Summary comparison Ex parte Reexamination Inter Partes Review Post Grant Review Eligible Patents Any in force patent Any in force patent Patents issuing from applications subject to first inventor to file provisions of the AIA (effective date on or after March 16, 2013) Timing After issuance of any inforce patent 9 months after issuance of patent or after termination of post grant review Within 9 months of issuance of the patent Who 3 rd Parties, Patent Owner, USPTO Director 3 rd Parties 3 rd Parties Grounds Novelty and obviousness grounds based on prior art, printed publications, and patents Novelty and obviousness grounds based on prior art, printed publications, and patents Any grounds for invalidity of the patent under 282(b)(2) or (3) (except for failure to comply with the best mode requirement) 27 Summary comparison (cont'd) Threshold Ex parte Reexamination Inter Partes Review Post Grant Review Substantial new question (SNQ) of patentability affecting any claim of the patent based on printed publication and patents Reasonable likelihood that the requester would prevail with respect to at least one of the claims challenged More likely than not that at least one of the claims challenged is unpatentable; or whether the request raises a novel or unsettled legal question important to other patents or applications Anonymity Yes No, must identify real party in interest Participation 3 rd Party is limited to making the initial request for reexamination Requester may submit declarations, obtain limited discovery, submit observations on discovery, file replies and has right to oral hearing No, must identify real party in interest Requester may submit declarations, obtain limited discovery, submit observations on discovery, file replies and has right to oral hearing 28 14

15 Summary comparison (cont'd) Ex parte Reexamination Inter Partes Review Post Grant Review Discovery None Discovery limited to deposition of witnesses submitting declarations and what is otherwise necessary in the interest of justice Discovery limited to evidence directly related to factual assertions advanced by either party in the proceeding Estoppel None Real party in interest is estopped from challenging a patent claim before the Patent Office and in district court by prior Inter Partes Review decision with respect to any ground that was raised or reasonably could have been raised in the Inter Partes Review Real party in interest is estopped from challenging a patent claim before the Patent Office and in district court by prior Post Grant Review decision with respect to any ground that was raised or reasonably could have been raised in the Post Grant Review 29 Cost comparison example Petitioner Patent Owner EP Rx PTO Fees: $12,000 (large entity) Atty Fees: $ 50K Atty Fees: $ 75K IP Rx PTO Fees: $8,800 Atty Fees: $250K Atty Fees: $250K (expired) IPR PGR PTO Fees: $9,000 request (1 20 claims) + $14,000 post institution (1 15 claims) ($200/$400 for each additional claim) Atty Fees: $375K PTO Fees: $12,000 request (1 20 claims) + $18,000 post institution (1 15 claims) ($250/$550 for each additional claim) Atty Fees: $450K Atty Fees: $375K Atty Fees: $450K D.Ct. Atty Fees: $2M $8M Atty Fees: $2M $8M * Estimate 15% to 25% for additional costs relating to disbursements such as expert fees, deposition cost, etc

16 Post grant proceeding: certainty within one year USPTO Office Patent Trial Reference Guide, Federal Register/Vol. 77, No. 157/Tuesday, August 14, 2012/Rules and Regulations 31 2 Track Patent Litigation COURT ACTION PRETRIAL DISCOVERY AND MOTIONS TRIAL OF VALIDITY AND INFRINGEMENT DECISION BY JUDGE Track 1 1 YEAR 2YEARS 3 YEARS Track 2 VALID LIMITED DISCOVERY TRIAL OF INFRINGEMENT ONLY USPTO TRIAL MOTIONS AND USPTO DECISION INVALID NO TRIAL AMENDED LIMITED DISCOVERY INFRINGEMENT TRIAL, NO PAST DAMAGES 16

17 District Court Litigation Article III Judge and lay jury Infringement and validity Clear and convincing evidentiary standard (validity only) Claims construed in light of the intrinsic evidence Two to five years through trial Broad discovery Expensive Settlement possible Bound by Patent Office finding of unpatentability Patent Office Trials Adminstrative law judge with both technical and patent law background Validity (unpatentability) Preponderance of the evidence evidentiary standard Claims given the broadest reasonable interpretation One year to decision Limited and focused discovery Significantly less expensive Settlement possible Not bound by district court finding that patent not shown invalid Fresenius USA, Inc. v. Baxter Int'l, Inc U.S. App. LEXIS (Fed. Cir. July 2, 2013) Prior Case Law: Once a district court case has concluded in favor of the patentee, res judicata precludes a later PTO finding of invalidity from upsetting the district court judgment. See, e.g.: Moffitt v. Garr, 66 U.S. 273, 283 (1861) ( [i]t is a mistake to suppose... that... moneys recovered on judgments in suits... might be recovered back after a patent is invalidated); In re Baxter, 698 F.3d 1349, (Fed Cir. 2012) (under well established principles of res judicata, the invalidation of a patent s claims cannot be used to reopen a final damages judgment based on those claims) (O Malley, J., concurring in a denial of rehearing en banc)

18 Fresenius USA, Inc. v. Baxter Int'l, Inc. (cont.) Facts: CAFC affirmed district court's finding that Baxter's '434 patent was valid, but remanded for further proceedings regarding damages and injunctive relief. District court reduced damages award and Fresenius again appealed. While district court case was on appeal, CAFC affirmed PTO's rejection of the '434 claims in reexamination. Issue: Whether the cancellation of the asserted claims by the PTO in reexamination must be given effect in "pending" infringement litigation. 35 Fresenius USA, Inc. v. Baxter Int'l, Inc. (cont.) Held: CAFC (2 1) "In light of the cancellation of Baxter's remaining claims, Baxter no longer has a viable cause of action against Fresenius. Therefore, the pending litigation is moot." Dissent by Judge Newman: The remand for the district court to address remedies issues did not undermine the finality of the previous CAFC validity determination. Accordingly, the majority decision improperly authorizes the PTO "to override and void the final judgment of a federal Article III Court of Appeals." 36 18

19 Fresenius USA, Inc. v. Baxter Int'l, Inc. (cont.) What does this mean? Any remaining issue makes a district court verdict for the patentee vulnerable to attack from pending PTO proceedings Speed of new AIA procedures a major factor Off to the races! 37 THANK YOU 19

20 John B. Scherling John Scherling is a Partner in the San Diego office of Sughrue Mion, PLLC. Mr. Scherling's practice focuses on litigation and resolution of intellectual property disputes, primarily relating to patents, trademarks and trade secrets, from the inception of the case through trial and appeal. Mr. Scherling previously served as an Assistant United States Attorney in the United States Attorney s Office in the Southern District of California. In that capacity, he handled all aspects of litigation, including district court jury trials, bench trials and appeals in the United States Court of Appeals for the Ninth Circuit, and received numerous awards from the United States Department of Justice and the Department of State. Handling litigation matters across a wide variety of technologies, Mr. Scherling also has a technical emphasis in chemistry, as well as biochemistry and microbiology, acquired during his undergraduate studies at Iowa State University (B.S. with Honors and Distinction). Mr. Scherling received his J.D. from Vanderbilt University, where he was Order of the Coif and Associate Articles Editor of the Vanderbilt Law Review. Following receipt of his J.D., Mr. Scherling served as a law clerk to the Honorable Judith N. Keep in the United States District Court for the Southern District of California. 39 Antony M. Novom Antony Novom is Of Counsel in the San Diego office of Sughrue Mion, PLLC. Mr. Novom s practice includes counseling clients on strategic creation and management of intellectual property portfolios, non infringement and validity opinions, due diligence work in connection with mergers and acquisitions, and litigation in infringement actions. Mr. Novom also has experience in litigating administrative actions before the USPTO, including interference proceedings and reexaminations. Handling technologies including molecular and cell biology, diagnostics, therapeutics, mechanical and medical devices, semiconductors, sports equipment, and green technologies, Mr. Novom has a B.S. in Biochemistry from the University of California, San Diego, and received his J.D. from California Western School of Law. Since 2006, Mr. Novom has served as a Judge Pro Tem for the Superior Court of San Diego, Central Division, during which he adjudicates small claims cases