Impact of the Patent Reform Bill

G. Hopkins Guy, III of Orrick Herrington & Sutcliffe LLP Speaker 3: 1 Impact of the Patent Reform Bill G. Hopkins Guy, Esq. Patent Reform Bill: Current Status Passed House 9/7/07 Passed Senate Judiciary Committee 1/24/08 Further proposed amendments 3/12/08 Consideration by full Senate April 08 (or later) Some see as a solution to weak patents Some see as the creation of large companies worried about patent trolls

G. Hopkins Guy, III of Orrick Herrington & Sutcliffe LLP Speaker 3: 2 Patent Reform Bill: Current Status Significant lobbying both for and against the bill For: Business Software Alliance, MSFT, Apple, Cisco, Google, ebay, Intel, Hewlett-Packard, Amazon, Oracle Against: IEEE, AFL-CIO, United Steel Workers, Biotech/Pharma industries, Independent inventors, Patent trolls Bush Administration and USPTO opposes current form, particularly damages provisions; hints at possible veto First to Invent vs. First to File U.S. currently has a first to invent system. As between two patent applicants - requires detailed determination of who actually invented first Rest of the world has first to file systems. Who invented first turns on who first filed a patent application. Proposed revision to the Patent Act would change U.S. to a first to file system

G. Hopkins Guy, III of Orrick Herrington & Sutcliffe LLP Speaker 3: 3 Proposed First to File System When two parties file for patent on same invention, first to file is the first inventor end of analysis Inventors have grace period of 1 year from public disclosure or sale to file application Prior art includes everything prior to date application was filed Proposed First to File System Exceptions Disclosures by others after inventor discloses during 1 year grace period are not prior art Prior patents/applications that are derived from inventor or commonly owned are not prior art

G. Hopkins Guy, III of Orrick Herrington & Sutcliffe LLP Speaker 3: 4 Impact Of A First to File System Easier to determine who invented first less costly fights about inventorship Easier to determine what is prior art Easier to assess risk when sued? Easier to manage patent portfolio? File applications earlier and more often? Negative impact on smaller inventors? less resources to file patents? less knowledgeable about the patent system? Arbitrary race to file? Lower quality, hastily prepared applications? Impact On The Game Industry Most threats in game industry are from patent trolls (particularly software patents) easier to assess threat of patents issued under new system? Effect on patent portfolio? Most patents in the game industry cover hardware (consoles, processors, graphics/sound cards, peripherals, etc) these companies will have to invest in more patent filings Even so, very little patent litigation between competitors in the game industry. Patents are mostly defensive, for negotiating leverage, etc. increased incentive to file patents not likely to change this Developers/publishers: there are certainly software patents owned by larger players, but generally patent protection has not been emphasized this may change

G. Hopkins Guy, III of Orrick Herrington & Sutcliffe LLP Speaker 3: 5 More Open Application Process All applications would be published after 18 months (eliminates current exceptions) Third parties can submit during application process: relevant patents or publications statements explaining the relevance of the information This could potentially help reduce the number of overly broad patents of particular concern to software companies in the game industry Post-Issuance Challenge To Patents In The Patent Office New procedure: Two windows to challenge patent in USPTO Window 1: within 12 months of issuance Window 2: during life of patent Challenger may only file one such challenge Must be completed in 1 year (or 18 months at most) Considered by panel of 3 Patent Board judges appealed to Federal Circuit Challenger estoppel: issues raised in review process can t be raised in Court issues that were or could be raised in Court, can t be raised in review Is it worth it to prevent unnecessarily broad patent claims in the gaming space?

G. Hopkins Guy, III of Orrick Herrington & Sutcliffe LLP Speaker 3: 6 Post-Issuance Challenge To Patents In The Patent Office Window 1 within 12 months of issuance no presumption of validity prove invalidity by preponderance of evidence extension of examination process must raise substantial new question of patentability may challenge based on any invalidity defense Post-Issuance Challenge To Patents In The Patent Office Window 2 during life of patent challenged patent claim must be likely to cause petitioner significant economic harm must file request within 12 months after notice of alleged infringement must raise substantial new question of patentability presumption of validity applies p p y pp underlying proof by clear and convincing evidence finding of invalidity by preponderance of evidence may challenge based on any invalidity defense

G. Hopkins Guy, III of Orrick Herrington & Sutcliffe LLP Speaker 3: 7 Post-Issuance Challenge To Patents In The Patent Office Ex Parte Reexamination Proposal on the table would also keep the existing ex parte reexamination system Patentee or third parties can submit prior art Patent will be reexamined if prior art raises a substantial new question of patentability Venue: Limits Where Lawsuit Can Be Filed Current problems with forum-shopping in patent cases (Eastern District of Texas/Madison, Wis./others) Proposal: cases could only be brought where: Defendant has principal place of business or is incorporated Defendant committed substantial infringement and has an established facility that is a substantial portion of its operations Party may not manufacture venue by incorporating etc. in a specific judicial district If plaintiff is a university (or its licensing arm) or an individual can also be brought where plaintiff resides Again, limits suits by patent trolls benefit for the game industry?

G. Hopkins Guy, III of Orrick Herrington & Sutcliffe LLP Speaker 3: 8 Damages: Reasonable Royalty Calculation Explicit standards set forth in the statute Royalty based on entire market value of accused product requires showing that specific contribution over the prior art is predominant basis for product demand Royalty based on existing, comparable non- exclusive licenses Otherwise, consider only value of specific invention Royalty only allowed on portion of economic value properly attributable to specific contribution over prior art Damages: Reasonable Royalty Calculation Bush Administration objects primarily to the reasonable royalty provisions Argues that it unnecessarily limits damages and undercompensates inventors Others see the new provisions as simply codifying existing law, and maintaining flexibility of judges and juries to assess royalty damages Might reign in damages obtained by patent trolls; but would reign in damages generally too... Benefit for the game industry may be more ambiguous

G. Hopkins Guy, III of Orrick Herrington & Sutcliffe LLP Speaker 3: 9 When Damages Begin To Accrue Under existing statute - damages for infringing articles starts when either: actual notice of infringement i given by plaintiff, or plaintiff (or licensees) mark sold products with patent number But, if plaintiff doesn t sell products (patent troll) or has a method patent, gets damages back 6 years even if no notice Latter situation is weird In that case, proposal would limit damages to 2 years prior to actual notice instead of 6 years Provision would add more clarity to damages risk The most recent proposal would not include this change! (attempt to appease the Administration?) Willful Infringement Can result in 3x Damage Award Would be decided by judge instead of jury Cannot even be plead until after finding of validity, enforceability and infringement Clear and convincing evidence required Sets forth explicit standard for finding willfulness Current proposal also includes the standard in the recent In re Seagate Sup. Ct. opinion that defendant act with objective recklessness Should limit the threat of 3x damages except in cases of direct copying or knowing/deliberate infringement

G. Hopkins Guy, III of Orrick Herrington & Sutcliffe LLP Speaker 3: 10 Willful Infringement: Standard Notice of infringement, only if: written notice from patentee provides objectively reasonable apprehension of suit provides particularity which products/processes infringe which claims and basis for relief Willfulness only if, after notice: intentionally copied patented invention with knowledge it was patented after finding of infringement, engages in conduct not colorably different from infringing conduct Willful Infringement: Good Faith Defense No willfulness where infringer had an informed good faith belief that patent was invalid, unenforceable, or not infringed Examples: Reasonable reliance on advice of counsel Defendant sought to modify conduct to avoid infringement Decision not to waive privilege/disclose advice of counsel not relevant to determining willfulness The various willfulness amendments would provide more flexibility in responding to do you want a license? letters

G. Hopkins Guy, III of Orrick Herrington & Sutcliffe LLP Speaker 3: 11 Other proposed changes Failure to disclose Best Mode no longer grounds for invalidity in litigation Would make it easier for parties other than inventor (e.g. inventor s employer or others with interest in patent) to file patent application Would give District Courts limited discretion to certify appeals of claim construction orders to Federal Circuit during litigation Would make it harder to prove that patents are unenforceable based on patent applicants inequitable conduct Would expand prior user defense: Users of business method inventions have non-infringement defense where they used invention more than 1 year prior another s filing of patent on the invention. Defense broadened to apply to affiliates of prior user (e.g. controlled, controlling or under common control) Few immediate changes... If passed, only limitations on damages and venue would take effect immediately Reexaminations already filed would be under the old rules Interferences already filed may be under old rules Patents already filed or issued would not be subject to new first to file rules So many of the changes would take a long time to take effect

G. Hopkins Guy, III of Orrick Herrington & Sutcliffe LLP Thank you! Questions? G. Hopkins Guy hopguy@orrick.com (650) 614-7452 Speaker 3: 12