The Normalization of Patent Rights

Transcription

1 BEIJING BOSTON BRUSSELS CHICAGO DALLAS GENEVA HONG KONG HOUSTON LONDON LOS ANGELES NEW YORK PALO ALTO SAN FRANCISCO SHANGHAI SINGAPORE SYDNEY TOKYO WASHINGTON, D.C. The Normalization of Patent Rights ACC April 30 May 1, 2015 Holly Hogan Ash Nagdev

2 Holly Hogan Counsel at Sidley Austin Introductions B.A., University of San Francisco / J.D. Harvard Law School Ash Nagdev Senior Associate at Sidley Austin Former Software Engineer at Symantec B.S. Computer Science, UCLA / J.D. Northwestern Law 2

3 The Value of Patents Are Down Average selling price per patent is $165k in 2014 versus $375k in 2012 District Court filings are down Median damages awards are trending down 3

4 4 The Value of Patents Are Down (cont d)

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6 Agenda Cases That Have Significantly Affected Patent Rights Alice Octane Fitness Virnetx Legislative Reforms That Have Significantly Affected Patent Rights IPR proceedings Potential Reforms STRONG Act (originated from Senate) Innovation Act (originated from House) 6

7 Unpatentable Subject Matter

8 The test: Alice Corp. v. CLS Bank Is the software patent directed to an abstract idea? Standard computer functions Some other fundamental practice If so, is there an inventive concept? Not enough to implement the idea on a computer 8

9 Critics of Alice Decision Judge Michel (former Chief Judge of the Federal Circuit): Alice, in my view, create[s] a standard that is too vague, too subjective, too unpredictable and impossible to administer in a coherent, consistent way in the patent office or in the district courts or even in the Federal Circuit. Judge Pfaelzer (federal judge in the Central District of California): [N]either Alice nor any other Supreme Court precedent defines when software is patentable. This has proven detrimental to the patent system. 9

10 The Test: Alice Corp. v. CLS Bank Is the software patent directed to an abstract idea? If so, is there an inventive concept? Bottom Line Problem Specific Solution Tied to the Claims 10

11 Application of Alice Examples of Patent Eligible Inventions Redirecting users who click to a third party site to another automatically generated website having the same look and feel as the third party site. Translating SMS text messages such that it can be received and understood by computers. Making use of a mathematical formula that enables real-time tracking of vehicles as they approach an intersection. Examples of Patent Ineligible Inventions Conversion of loyalty award points from one vendor to another Receiving credit application data and forwarding to remote terminals Displaying copyrighted materials in exchange for watching advertisements 11

12 LIMITATIONS OF 050 PATENT CLAIM 9 receiving, on a processing system, file content identifiers for data files from a plurality of file content identifier generator agents, each agent provided on a source system and creating file content IDs using a mathematical algorithm, via a network determining, on the processing system, whether each received content identifier matches a characteristic of other identifiers outputting, to at least one of the source systems responsive to a request from said source system, an indication of the characteristic of the data file based on said step of determining ROUTINE STEPS PERFORMED WHEN LOOKING FOR STOLEN CARS Jones, a dispatch officer, receives a call from Smith, one of several officers patrolling for stolen cars, asking whether a car with license plate number has been reported stolen. Jones looks at a list of cars reported stolen to the police, generated by all patrol officers, and finds that a car with license plate number has been reported as stolen. Jones tells Smith that the license plate number indicates that car has been reported stolen. ROUTINE STEPS PERFORMED TO DETERMINE NUMBER OF UNPAID TICKETS ASSOCIATED WITH CAR A parking enforcement dispatcher in Wilmington receives a radio call from one of several parking enforcement officers, asking about an illegally-parked car with license plate number The dispatcher looks down a list of license plate numbers having unpaid tickets, generated from all the city enforcement officers, and finds that four unpaid tickets show up for the entry The dispatcher replies, That vehicle has four outstanding tickets.

13 Takeaways for Litigators What did you invent? Is it tied to the claims? Distinguish/Analogize from DDR Move early Standard of Proof Narrow the scope of the invention 13

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16 Takeaways for Prosecutors Analogize to PTO Guidelines Analogize to DDR Holdings Get clear on the inventive concept Tie it to the claim language Keep patents alive more Federal Circuit decisions coming! 16

17 Attorneys Fees

18 18 The Attorneys' Fees Debate

19 New Exceptional Case Standard PRIOR STANDARD NEW STANDARD Must prove by clear and convincing evidence, either 1) litigation misconduct ( such as willful infringement, fraud or inequitable conduct in procuring the patent, misconduct during litigation, vexatious or unjustified litigation, conduct that violates Fed. R. Civ. P. 11 ) or 2) that the litigation was both objectively baseless and brought in subjective bad faith. Must show by a preponderance of the evidence that the case is one that stands out from others with respect to 1) the substantive strength of a party s litigating position (considering both the governing law and the facts of the case) or 2) the unreasonable manner in which the case was litigated Brooks Furniture Mfg., Inc. v. Dutailier Int l, Inc., 393 F.3d 1378, (Fed. Cir. 2005) Octane Fitness, LLC v. Icon Health & Fitness, Inc., No (Apr. 29, 2014) 19

20 The Impact of the New Standard [The Octane decision] lowers considerably the standard for awarding fees. Oplus Techs., Ltd. v. Vizio, Inc., Fed. Cir. No [R]ecent federal court decisions have lowered the threshold for obtaining attorneys fees in patent infringement cases and increased the level of deference given to a district court s fee-shifting determination. These decisions may make it easier for district courts to shift a prevailing party s attorneys fees to a non-prevailing party if the district court believes that the case was weak or conducted in an abusive manner. As a result, defendants in patent infringement actions brought by a nonpracticing entities may elect no to settle because these decisions make it much easier for defendants to get attorneys fees. Acacia Research Corporation s 2014 Annual Report 20

21 Defense Strategies How have defendants successfully won fees? 21

22 Yufa v. TSI, Inc. (N.D. Cal.) Claim element added during re-exam. Publicly available information clearly showed element missing from accused products. Court granted summary judgment of noninfringement. Takeaways Contrast: Cases in which weak positions were not enough to justify exceptional case finding. Pivot Point: Claim elements added during re-examination. Publicly available information. 22

23 Home Gambling v. Piche et al. (D. Nev.) Tried to recapture expressly disclaimed subject matter through lawsuit, and tried to license and sue based on disclaimed subject matter, amounting to patent misuse. Method claims involved conduct outside the United States. Takeaways Contrast: Weak infringement cases not rising to the level of exceptional. Pivot Points: Prosecution history disclaimer. Wellknown case should have ended lawsuit. 23

24 Chalumeau v. Alcatel-Lucent (D. Del.) Dropped lawsuit because of licensing defense. Five pages of pre-suit investigation. Claim construction and related infringement positions refuted by specification. Frivolous lawsuit with the sole purpose of extorting a settlement fee. Takeaways Contrast: Cases dismissed because of low damages, business reasons. Pivot Point: Should have known about licensing defense. 24

25 Exceptional Case Motion Success Metrics Federal Circuit Bar Association: A Comparison of Pre-Octane and Post-Octane District Court Decisions on Motions for Attorneys Fees Under Section 285, p.1. 25

26 Right Size Damages

27 Virnetx v. Apple, et al. Infringement directed to Facetime/VPN features on various Apple products Virnetx expert told Jury to use $70 billion royalty base Smallest saleable unit Apple does not sell Facetime/VPN separately Expert applied 1% royalty rate to that base =$700 million demand Jury Awarded $368 million 27

28 Virnetx v. Apple, et al. Federal Circuit vacated the damages award Apportionment concept: Virnetx s expert made no attempt to separate software from hardware, much less to separate the FaceTime software from other valuable software components. Otherwise you skew damages horizon for jury Entire market value is available only where the patented feature creates the basis for customer demand or substantially creates the value of the component parts. VirnetX cannot simply hide behind Apple's sales model to avoid the task of apportionment. 28

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30 Takeaways Smallest saleable unit doctrine is essentially dead. Must apportion or right-size royalty base May not cure discovery/evidentiary issues Press Plaintiffs for early damages contentions A plaintiff must, of course, have a basis for its damages when it files suit (J. Laporte, Chief Magistrate Judge, N.D. Cal.; EON v. Sensus) E.D. Tex. Track B Move to strike if based on entire market value 30

31 Patent Reforms

32 Patent Reform Legislation: 2011 America Invents Act (AIA) Passed the Senate (95-5) and House ( ) with broad bipartisan support. Among other changes, the AIA expanded post-grant opposition proceedings, intending to make it easier to challenge and invalidate lowquality patents. 32

33 Patent Reform Legislation: Innovation Act (2013) Passed the House (325-91) with support from both parties in Stalls in the Senate in

34 Pending Patent Reforms Innovation Act (H.R. 9) Sponsor: Rep. Bob Goodlatte (R-VA) Co-sponsors: 19 co-sponsors (10 Democrats, 9 Republicans) (Re)Introduced February 5, 2015 STRONG Act (S.632) Sponsor: Sen. Chris Coons (D-DE) Co-sponsors: 2 (both Democrats) Introduced March 3,

35 Pending Patent Reform Legislation Summary POST GRANT OPPOSITION PROCEEDINGS INNOVATION ACT STRONG ACT Claim Construction Changes claim construction standard to the same one used in District Court litigation. PRO-PATENTEE Evidence to Invalidate Standing Presumes validity; clear and convincing evidence to invalidate claims. Requires business or financial reason for bringing proceedings. Permits discovery to determine the real party in interest. 35

36 Pending Patent Reform Legislation Summary INNOVATION ACT STRONG ACT Heightened requirements for demand letters: identify patent, what is accused, and why it is accused. Heightened requirements for demand letters: identify patent, what is accused, and why it is accused. Prohibits letters that fail to do so in bad faith. Provides a good faith defense. ANTI-TROLL Abusive Demand Letters Enforced through litigation measures: Evasive letters considered when determining whether litigation is abusive. Evasive letters limit ability to show willful infringement via presuit letters. Enforced through FTC Gives FTC authority to crack down on abusive patent demand letters. Pre-empts state laws on abusive letters, but authorizes state attorneys general to bring a civil action in Federal court. 36

37 Pending Patent Reform Legislation Summary INNOVATION ACT STRONG ACT ANTI-TROLL Pleadings Heightened requirements: Plaintiffs must identify claims, infringement allegations (in detail), principal business, real parties in interest, prior litigation, and whether standards essential. This information may be generally described if it is not readily available. Pharmaceutical companies not required to comply in ANDA suits under 35 U.S.C. 271(e)(2). Accused infringers can join real parties in interest. Heightened requirements: Plaintiffs must meet Iqbal/Twombly plausibility standard. 37

38 Pending Patent Reform Legislation Summary INNOVATION ACT STRONG ACT ANTI-TROLL Discovery Puts discovery mostly on hold until claim construction. Provides that producing party pays for discovery of core documentary evidence, while requesting party pays for anything else (including associated attorneys fees) and must post a bond to cover the costs. 38

39 Pending Patent Reform Legislation Summary INNOVATION ACT STRONG ACT PRO-PATENTEE ANTI-TROLL Willful Infringement Divided Infringement Cost/Fee Shifting Awards fees to the prevailing party unless the losing party s positions were objectively reasonable and substantially justified, or it would be unjust to award fees. Pierces corporate veil to make investors and other interested parties pay when the patentee is under capitalized. Makes standard for willful infringement the same for frivolous litigation under Octane (reverses Seagate). Removes single actor infringement requirement when allegations of indirect infringement. 39

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