What Merchants Need to Know About How the Key Players in the Mobile Payments Services Ecosystem Relate to Each Other. Patent Infringement Disputes

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1 What Merchants Need to Know About How the Key Players in the Mobile Payments Services Ecosystem Relate to Each Other Patent Infringement Disputes Presented by Erica Wilson May 14, 2013 LSI Merchant Strategies for Mobile Payments

2 If you touch the internet... you likely will be sued for patent infringement 2

3 There are hundreds of thousands of software patents 3

4 NPEs are in the business of suing! A non-practicing entity (NPE) is broadly defined as: an entity that does not make a product but buys patents to make money through licensing or recovering money damages in a patent infringement suit 4

5 Direct Infringement 35 U.S.C. 271(a) -make -use - sell - offer to sell - import into the U.S. 5

6 How is it possible that a merchant is liable? Direct patent infringement is a strict liability offense Merchants can be liable even if they don t know of the patent s existence Merchants can be liable even if they didn t create the accused technology or can prove that the technology was independently developed 6

7 Active inducement under 35 U.S.C. 271(b) Merchant induces someone to act Induced act constitutes direct infringement Merchant knows that induced acts constitute patent infringement No liability if merchant did not know about patent 7

8 Contributory infringement under 35 U.S.C. 271 (c) Merchant sells a good that is a material component of a patented invention Component is used in direct infringement of a patent Merchant knows that component is especially made for use in infringement of a patented invention No liability for time period when merchant did not know of patent No liability if component is staple article of commerce that has substantial non-infringing uses 8

9 Patent infringement suits cover every aspect of a website and communications over the Internet Transmission of data between merchant and customers Compression/encryption Shopping cart technology Advertising Including a link in a text message Store locator Consumer rewards Portal features... and these are just a few examples 9

10 TQP Development Sued hundreds of merchants and others for using standard security protocol for Internet communications with customers Target Mattel Rite-Aid Flowers.com Deere OTC Direct, Inc. Sierra Trading Post Net-a-Porter Gilt Groupe Green Dot Corp... and that s just a few 10

11 Infringement complaints are often incomprehensible Rite Aid generates, or directs the client computer to generate, a first sequence of pseudo-random key values, such as alpha and/or numerical values used to encrypt data, based on said seed value at the transmitter... 11

12 TQP is still suing even though the patent is expired No damages going forward Everyone is free to practice the patent But TQP wants to collect money for supposed past infringement Damages period starts 6 years prior to the time the patent infringement suit is filed and ends on the date the patent expired 12

13 Why sue merchants and not just technology vendors? NPEs hope to get more money by basing royalty on merchants sales 13

14 What to consider if you re served with... A demand letter or A complaint for patent infringement 14

15 Considerations Design-around Indemnification Patent exhaustion Limitations on damages Forum Transfer out of an undesirable forum America Invents Act ( AIA ) Inter partes review ( IPR ) Post-grant review ( PGR ) Covered business method ( CBM ) Band together Licensing 15

16 Do you need the accused feature? Can you remove it? Can you modify it? 16

17 Are you indemnified? 17

18 Indemnity Express Review all contracts and license agreements with technology vendors for indemnity provisions Promptly tender indemnity request to your technology vendor(s) Statutory/Treaty UCC CSIG Prompt notice required Negotiate indemnity after receipt of demand letter or patent infringement complaint 18

19 Patent Exhaustion Technology vendor s license may extend to customers (e.g., merchants) under the doctrine of patent exhaustion or first sale doctrine Vitality of patent exhaustion reaffirmed in Quanta Computer* Currently an issue for Helferich patents *Quanta Computer, Inc. v. LG Electronics, Inc., 553 U.S. 617 (2008) 19

20 Where do you fight? 20

21 Popular NPE forums 21

22 Declaratory judgment action Available if merchant has received a demand letter but suit has not been filed Allows a merchant some choice of forum Must be a forum in which the patent holder is subject to personal jurisdiction 22

23 What if you find yourself in an unfavorable forum? Forum non conveniens motion under 28 U.S.C. 1404(a) 23

24 Juries are uncomfortable invalidating patents because they don t feel qualified Consider challenging validity in the U.S. Patent and Trademark Office 24

25 Challenging validity in the PTO Inter partes review ( IPR ) Invalidity and obviousness based on prior art patents and publications Applicable to any U.S. patent Can be filed 9 months after patent issued or after termination of postgrant review (whichever is later) Petition must be filed before civil action challenging invalidity Petition must be filed within one year of being sued for patent infringement Petitioner must propose claim construction Petition granted upon showing a reasonable likelihood that petitioner will succeed on invalidity challenge for at least one of the claims Some discovery Decided by 3-judge panel with oral argument before panel Fast Less expensive than district court litigation Estoppel 25

26 Challenging validity in the PTO Post-grant review ( PGR ) Covered business method review ( CBM ) Ex Parte Reexamination 26

27 Band together to share costs Joint defense group Joint representation 27

28 Soverain Software shopping cart 28

29 If you want to settle, negotiate! One million dollars! 29

30 Saving High-Tech Innovators From Egregious Legal Disputes (SHIELD) Bi-partisan bill Stated goal is chilling effect on NPE filings Loser pays defendants attorneys fees 30