April 15, 2015 Litigation Webinar Series: INSIGHTS Our take on litigation and trial developments across the U.S. Current Landscape for NPE Litigation Frank Scherkenbach Principal, Boston Michael Rosen Principal, San Diego
Overview Monthly 3 rd Wednesday at 1pm ET Key Developments & Trends Housekeeping CLE Contact: makarevich@fr.com Patent Reform in the INSIGHTS Litigation Webinar Series Questions Materials: fishlitigationblog.com/webinars Next in Series Wednesday, May 20 1:00 p.m. EST Webinar Alice and Octane Fitness: Federal Judiciary Next webinar May 20 Patents for Financial Services Summit July 22-23, NYC #fishwebinar 2
Agenda The numerical decline in patent litigation The parallel explosion in Patent Office proceedings such as IPRs, PGRs, and CBMs The impact of Alice and other Supreme Court decisions The effect of federal legislative efforts targeting NPEs The enactment in many states of legislation restricting patent demand letters 3
Numerical decline in patent litigation 2014: Patent litigation down across the board 18% decline in district court filings From 6,107 patent litigation lawsuits in 2013 to 5,020 in 2014 Followed 25% increase in 2013 (over 2012) NPEs accounted for about 20% of patent cases filed in 2013 21% decline in ITC patent filings From 47 ITC patent investigations in 2013 to 37 in 2014 But signs of a recent bounce-back Jan-Feb 2015: 22% more cases filed than in Jan-Feb 2014 65% of patent cases filed in Feb 2015 were by NPEs* Q1 2015 up total of 13% over Q1 2014 (62% by NPEs*) (Sources: PWC, RPX, Docket Navigator, Lex Machina, *Unified Patents) 4
Explosion in Patent Office proceedings Dramatic growth from 2013 to 2014, as expected 212% spike in PTAB cases From 792 in 2013 to 1,677 in 2014 232% jump in new litigants filing at PTAB 2,448 in 2013 to 5,682 in 2014 24% increase in granted motions for stays pending reexam 216 in 2013 to 265 in 2014 Nearly 200 PGR/IPR/CBM petitions filed in Oct 2014 (new record) 5
Impact of Alice and other SCOTUS rulings CLS Bank v. Alice Imposed two-part test for determining patentability Are claims directed to law of nature, natural phenomenon, or abstract idea? If so, do claims contain significantly more? In case of CLS Bank, method of managing settlement risk through computerized third-party intermediary did not contain significantly more Larger-than-expected effect on business method and software patents 6
Impact of Alice and other SCOTUS rulings New Patent Office guidelines 7
Impact of Alice and other SCOTUS rulings New Patent Office guidelines Claim that recites a law of nature, but clearly does not attempt to tie up the law, does not require a markedly different characteristics analysis to identify a law of nature exception Claimed products that merely include ancillary law-of-nature components are patent eligible For example, a claim including the Pythagorean Theorem (i.e. a method for calculating the length of a hypotenuse of a right triangle on the basis of the lengths of the two other sides) would require analysis But a suite of CAD software that makes use of the Pythagorean Theorem wouldn t require analysis 8
Impact of Alice and other SCOTUS rulings CLS Bank v. Alice - Impact PTO examination process: Rejection rate more than tripled from 24% to 78% from Jan-June 2014 in software and business method art units Acceptance rate plummeted from 24% to 4.5% District courts and Federal Circuit Between June and October 2014, out of 12 cases involving Alice challenges, 11 held claims invalid Patent Trial and Appeals Board Between June and October 2014, 90% of rulings on Alice grounds held claims invalid 9
Impact of Alice and other SCOTUS rulings CLS Bank v. Alice - Impact Key cases finding no patent eligibility under Alice Ultramercial v. Hulu (requiring user to watch ad before accessing content) Planet Bingo v. VKGS (guess) Key cases finding patent eligibility under Alice DDR Holdings v. Hotels.com (composite web-page with look and feel of host page) Smartflash v. Apple (notification of attempt to purchase previouslydownloaded content) 10
Impact of Alice and other SCOTUS rulings Other key SCOTUS rulings Octane Fitness/Highmark now easier for prevailing parties in patent cases to receive attorney fees Uptick in filing and success rates of attorney-fee motions Limelight now harder to prove induced infringement of a method patent when multiple parties are involved Nautilus now easier to prove indefiniteness Follows trend of previous years (Myriad, Mayo, Actavis) 11
Effect of legislative efforts Goodlatte s Innovation Act Republican of Virginia Bill addresses the issues that businesses of all sizes and industries face from patent trolltype behavior and aims to correct the current asymmetries surrounding abusive patent litigation. Introduced in 2013. Back on the table in 2015. 12
Effect of legislative efforts Goodlatte s Innovation Act 1. Heightened pleading requirements Complaint must be accompanied by a chart explaining with detailed specificity, how each limitation of each claim is met by the product accused of infringing the patent. Not all that onerous, as most patentees have already created such claim charts as Rule 11 basis for suit But more flexibility is required to enable defendants to later modify claim charts when patentees receive confidential information (especially source code in SW cases) 13
Effect of legislative efforts Goodlatte s Innovation Act 2. Fee shifting The court shall award, to a prevailing party, reasonable fees and other expenses incurred by that party [in a patent case] 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 circumstances (such as severe economic hardship to a named inventor) make an award unjust. Flips current exceptional case fees burden on its head Proliferation of fees motions by losers Defendants may be on the hook won t only deter NPEs Better to lower fees standard modestly to substantially unjustified 14
Effect of legislative efforts Goodlatte s Innovation Act 3. Discovery limits No discovery permitted until after claim construction ruling is issued, except in competitor suits or to avoid manifest injustice Goodlatte himself: bill provides for more clarity surrounding initial discovery, case management and not only reduces litigation expenses but saves the court s time and resources But nothing in bill requires claim construction ruling to issue early on, or CC process to even begin early on Inhibits parties from narrowing scope of case, as patentee often can t tell exactly which claims are infringed or not infringed without discovery (esp. in SW cases) 15
Effect of legislative efforts Goodlatte s Innovation Act 4. Real Party in Interest To recover attorney fees, a prevailing party can join any party with a right to enforce or sublicense patent, or with a direct financial interest in the patent or patents at issue, including the right to any part of an award of damages or any part of licensing revenue Generally good 5. Customer suit exception Suit can be stayed if customer agrees to be bound by any issues that the covered customer has in common with the covered manufacturer Goes too far, could exclude downstream assemblers/manufacturers claiming to be customers Need to specify retailers or end-users more precisely 16
Effect of legislative efforts Sen. Coons s STRONG Patents Act Democrat of Delaware Introduced in Feb. 2015 Laments unintended consequences of the comprehensive 2011 reform of patent laws, such as strategic filing of PGR proceedings to depress stock prices and extort settlements. 17
Effect of legislative efforts Sen. Coons s STRONG Patents Act Reins in Patent Office proceedings Changes claim construction standard from broadest reasonable interpretation to ordinary & customary meaning to a POSITA Easier to amend or cancel claims during proceeding Changes burden from preponderance to clear-and-convincing for previously issued claims (amended claims still subject to preponderance) Also: transparency, additional briefing for petitioner Litigation and other changes Heightened pleadings; harder to prove willful/indirect infringement; demand letters (transparency, bad faith) 18
Effect of legislative efforts Cornyn-Schumer draft, May 2014) Republican of Texas, Democrat of NY Elements Enhanced pleading requirements, but possibility of amendment, summary of confidential info Pre-claim construction discovery stay, but exception in the interests of justice Core discovery limitations (conception, RTP, functionality of accused products, prior art), but Judicial Conf. to implement via FRCP Fee-shifting softened: burden remains on prevailing party to show losing party s position was objectively unreasonable Reported carve-out for universities 19
Effect of patent demand letter restrictions 37 states have at least introduced demand letter bills 20
Effect of patent demand letter restrictions Basic elements Civil penalties for bad-faith allegations of patent infringement Requires response in unreasonable amount of time Wouldn t enable reasonable person to grasp basis of allegation Doesn t compare claims to accused product Seeks an unreasonable amount of money State attorney-general investigation Treble damages Preemption issues? 21
Questions? 22
INSIGHTS Litigation Webinar Series Mark your calendar! Wednesday, May 20 Webinar Alice and Octane Fitness: Patent Reform in the Federal Judiciary fishlitigationblog.com/webinars July 22-23 NYC Patents for Financial Services Summit Wednesday, July 22 11:25am-12:15pm Gain an Update on Defending Against NPE Lawsuits Understand effective mechanisms to deal with NPE threats Tackle trolls who come after a portfolio of patents Learn about new defense mechanisms www.fr.com/events Moderators: Michael T. Zoppo, Fish & Richardson Panelists: Seth Brown, LivingSocial Bill Foster, USAA Jim Howard, The Clearing House Payments Company Steven P. Klocinski, MasterCard Worldwide Joe O. Long, Wells Fargo Legal Group
Thank you! Frank Scherkenbach Principal, Boston 617-521-7883 scherkenbach@fr.com Michael Rosen Principal, San Diego 858-678-4355 rosen@fr.com Please send your NY CLE forms or questions about the webinar to Ellen at makarevich@fr.com. A replay of the webinar will be available for viewing at http://fishlitigationblog.com. 24
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