ACC Advocacy Interactive Roundtable: Pending Patent Legislation

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1 ACC Advocacy Interactive Roundtable: Pending Patent Legislation Thursday, February 27 at 2PM ET, 7PM GMT Presented by ACC Advocacy and ACC s Intellectual Property & Litigation Committees

2 Agenda: Introduction of Topic and Panelist Non-Practicing Entity Landscape Legislative Landscape Discussion of Issues Demand Letters Pleading Standards Discovery Stay & Cost Shifting Customer Stay Fee Shifting Proposals Joinder and Bonding Proposal for Shell Plaintiffs Contingent Liability Alternative Covered Business Method Expansion Opportunities to Participate Question and Answer

3 Non-Practicing Entity Landscape What is a patent troll? Abusive litigation tactics Why in-house counsel should be concerned

4 Current Regulatory Landscape America Invents Act US PTO Courts Judicial Conference Attorneys General

5 Today s Speakers Phillip Johnson, Senior Vice-President & Chief Intellectual Property Counsel, Johnson & Johnson Diane Lettelleir, Senior Managing Counsel, J.C. Penney Dana Rao, Vice-President, Intellectual Property & Litigation, Adobe Evan Slavitt, Vice President for Business and Legal Affairs, AVX Corporation Amar Sarwal, Vice President & Chief Legal Strategist, ACC

6 Demand Letters Significant support in Congress and from businesses for demand letter reform Part of the President s agenda NAAG letter supporting demand letter reform H.R Innovation Act passed with demand letter reform

7 H.R A(e) Statement of Congress as to belief that vague demand letters are an abuse of the system limits use of vague demand letters as evidence of pre-suit notification in support of claim of willfulness [amending 35 U.S.C. 285] Commissions one year study of bad faith demand letters

8 Patent Bills Comparison of Pleading Standards Issue Iden%ty of Patent Ownership in Complaint Goodlatte H.R [passed] Plain(ff must iden(fy (A) assignee, (B) en(ty with right to sublicense or enforce patent, (C) en(ty with financial interest in patent or plain(ff (defined as (i) right to receive proceedings, (ii) ownership/ control of > 5% of plain(ff), and (D) ul(mate parent en(ty. Ongoing duty to update this informa(on throughout the life of the patent in the PTO. Failure to comply loss of enhanced damages, requires payment of other side s aporney fees incurred in discovering any previously undisclosed owner. Leahy S [introduced] Plain(ff must iden(fy all en((es with financial interest in subject maper or party to proceeding; or any other interest that could be substan(ally affected by outcome of proceeding Applicant must disclose to PTO the assignee s ul(mate parent en(ty within 3 months of assignment of all substan(al rights in an issued patent that results in a change to the ul(mate parent. Failure to comply will result in loss of enhanced damages and requires payment of other side s aporney fees incurred in discovering any previously undisclosed owner. Cornyn S Plain(ff must iden(fy (1) patent s owner, assignee, or exclusive licensee, (2) any person who has the legal right to enforce the patent; and (3) the iden(ty of any person with direct financial interest in the outcome of the ac(on, including the right to receive proceeds.

9 Patent Bills Comparison of Pleading Standards Issue Heightened Pleading Standard in Complaint Goodlatte H.R [passed] Complaint must iden(fy the patents and claims infringed, name and serial number of the accused product, where each claim element is found in the accused product, the plain(ff s theory of direct/indirect infringement, list of all prior complaints filed, and any standards- sexng bodies that have imposed licensing condi(ons on the patent. Leahy S [introduced] None. [Senate Democrats are presently inclined to allow the courts, via the U.S. Judicial Conference, to address this issue themselves. Indeed, the Conference has already proposed elimina(ng the patent infringement complaint form (Form 18). The result would be that the Supreme Court s Twombly (2007) and Iqbal (2009) (Twiqbal) cases would apply to patent infringement complaints. Although this change would not raise complaint pleading standards to that of the GoodlaPe proposal, it s(ll represents a major heightening of that ini(al pleading hurdle.] Cornyn S Same as H.R

10 Key Issues Seeks to facilitate global settlement may miss mark & burden non-npe plaintiffs Front ends work & disclosure Impact varies by district Facilitates analysis & evaluation Raises issues of relationship Congress & Judicial Conference General application of Twombly/Iqbal v. special treatment of particular field

11 Discovery Stay In the Cornyn and House bills If claim construction is required, discovery is limited to information related to defining the meanings of the patent claim terms Courts have discretion to expand the scope of discovery If an action is filed requiring resolution within a specific period of time to resolve any motion properly raised, if the parties agree (House only) If there are special circumstances that would make denial a manifest injustice (House only) If the action is seeking a preliminary injunction (House only) Implications Could delay cases heading to trial Could speed up resolution of cases headed toward settlement 11

12 Discovery Cost Shifting In Cornyn, House bills Judicial Conference shall develop rules to address the asymmetries in discovery burdens and costs Requests for discovery beyond core documents are paid for by requesting party Core documents include: discovery to show conception, reduction to practice, and application for the patent; documents relating to technical operation of accused product; potential prior art; existing licenses; profit; willfulness Code may be part of core discovery on motion and for good cause E-Discovery: if appropriate, whether it should happen after core discovery House bill has very specific guidelines on parameters of e-discovery Either party can seek additional discovery on any document if it pays A bond or showing may be required to prove it can pay Implications: Lowering the cost of discovery may remove a financial threat forcing defendants to settle troll suits Forcing plaintiffs to pay for additional discovery may be a burden for legitimate patent holders 12

13 Customer Stay Significant support in Congress and from businesses for workable stay language Part of President s patent reform action plan H.R Innovation Act includes customer stay provision.

14 H.R Concept of mandatory stay in favor of customer Manufacturer is party to the action against customer OR a separate action Same product or process Customer agrees to be bound 120 day time limit to seek stay Provision for lift of the stay in limited circumstances

15 Customer Stay Cont All interested parties agree stay language in H.R needs improvement Chairman Patrick Leahy (D-VT) introduced the Patent Transparency & Improvement Act with similar stay language Ongoing discussions in the Senate to improve the language so it helps customers/end users

16 Fee Shifting Proposals Innovation Act: awards fees unless the court finds that the position and conduct of the nonprevailing party or parties were reasonably justified in law and fact or that special circumstance (such as severe economic hardship to a named inventor) make an award unjust. Cornyn: awards fees unless the court finds that the position of the losing party was objectively reasonable and substantially justified. Hatch: awards fees unless the court finds that the position and conduct of the nonprevailing party or parties were substantially justified or that special circumstances make an award unjust.

17 Joinder Proposal for Shell Plaintiffs Innovation Act & Cornyn Bill would join interested parties if the party is a PAE with no substantial interest in the patent other than litigation, but joinder will be defeated if the party to be joined: is not amenable to service would deprive the court of jurisdiction would make venue improper Interested parties are assignees, persons with right to enforce or sublicense, or one with direct financial interest, but not law firms or non-controlling investors Joined parties would be made liable for fees Provision easily avoided, however, by structuring PAE such that interested parties can t be joined

18 Bonding Proposal for Shell Plaintiffs Hatch Bill authorizes motions to post bonds to cover fee awards to be brought at the outset of a case, grant of which depends on factors to be considered that are unrelated to merits of the case: Burden on plaintiff to pursue activities other than assertion, acquisition, litigation or licensing of any patent Institution of higher education ( IHE ) or its tech transfer organization Whether exclusive licensee of IHE conducts further research on invention Whether plaintiff is named inventor on patent Whether plaintiff makes or sells a related product Whether plaintiff (or other person) has ability to pay fees

19 Contingent Liability Alternative Extend contingent liability for satisfaction of a fee award to certain non-parties related to a losing party against whom fees have been assessed Liability would extend to those who: Have a right to share in the proceeds of the case Have been given early notice of the contingent liability Have not disclaimed their right to receive those proceeds

20 Covered Business Method Expansion Can be filed any time in life of patent (48 in FY13) Can use any sort of invalidity argument Estoppel is only for arguments raised Scope: Covers patents that claim a method or apparatus for performing data processing or other operations used in the practice, administration or management of a financial product or service, except patents for technological inventions Technological invention (PTO): whether the subject matter as a whole recites a technological feature that is novel and unobvious over the prior art, and solves a technical problem using a technical solution Expansion would cover patents related to management of an enterprise, product or service (Schumer bill) Implications: New definition brings in general software patents discriminatory? Allows more troll patents to be invalidated with a cost effective tool

21 Opportunities to Participate

22 Questions?

23 For further information about ACC Advocacy or to provide feedback, please contact: Amar Sarwal Vice President & Chief Legal Strategist Paul Goatley Legal Strategies Manager