HOT TOPICS IN PATENT LAW

HOT TOPICS IN PATENT LAW 2014 Jason Weil, Akin Gump Strauss Hauer & Feld LLP Barbara L. Mullin, Akin Gump Strauss Hauer & Feld LLP Jimmie Johnson, Sr. Patent Counsel, Johnson Matthey Alex Plache, Sr. IP Counsel, Saint-Gobain http://delvacca.acc.com

2 OUTLINE Challenging Validity Of A Patent Through IPR: An Alternative To Traditional Litigation Attempts To Rein In Non-Practicing Entities Induced Infringement: Single Actor Required, But Good Faith Might Avoid Liability

3 Challenging Validity of A Patent Through IPR: An Alternative To Traditional Litigation

4 LEAHY-SMITH AMERICA INVENTS ACT ( AIA ) Signed into law September 16, 2011 Created Inter Partes Review (IPR), a new proceeding for challenging previously issued patents at the USPTO IPR proceedings became available on September 16, 2012.

5 What is an IPR? INTER PARTES REVIEW? Codified at 35 U.S.C. 311-319 Replaced Inter Partes Reexamination as a method for a third party to administratively challenge the validity of an issued patent Adversarial Proceeding Requires participation of the third party petitioner Evidence and briefing presented by both parties On June 17, 2014, the PTO held live testimony for the first time in an IPR proceeding

6 INTER PARTES REVIEW Who may petition? Anyone (except patent owner) Real party in interest (RPI) must be identified No anonymity When must they do so? < 1 year has passed since petitioner/rpi was sued May not petition if Petitioner/RPI previously filed a civil action seeking declaratory judgment that the patent is invalid.

7 How Initiated? INTER PARTES REVIEW File a petition at U.S. PTO Threshold = reasonable likelihood that petitioner would prevail with respect to at least one of the claims What is Challenged? Grounds of invalidity limited to novelty and nonobviousness Evidence limited to patents and printed publications

8 INTER PARTES REVIEW (IPR) What happens after an IPR petition is filed? Patent owner may file a preliminary response arguing why no IPR should be instituted PTO will determine whether to institute an IPR within about three months (decision cannot be appealed) Limited discovery and briefing, followed by oral hearing Decision in 1 year (really 12-18 months)

9 PROS AND CONS OF PETITIONING FOR IPR Pros: Preponderance of evidence standard Broadest reasonable claim interpretation Limited discovery by Patent Owner Estoppel of Patent Owner Cons: Estoppel of Petitioner Amended or Substituted claims by patentee May only challenge anticipation and obviousness and challenges must be based on patents and publications

OVERVIEW OF THE FIRST EIGHTEEN MONTHS IPR Petitions by Area of Technology 10

11 IPR RESULTS TO DATE The PTO has started issuing Final Decisions First IPR petition filed on Sept. 16, 2012. First IPR final decision issued by the PTO on Nov. 11, 2013. Garmin v. Cuozzo Speed Tech., IPR2012-00001 (PTAB Nov. 11, 2013) As of June 26, 2014, the PTO had issued 85 final decisions First pharmaceutical claims invalidated in an IPR on June 20, 2014 Gnosis S.P.A. v. South Alabama Med. Sci. Found., IPR2013-00116, - 00118, -00119 (PTAB June 20, 2014); Gonosis v. Merck & CIE, IPR2013-00117 (PTAB June 20, 2014)

12 Current Statistics on IPRs (through June 26, 2014) 85 IPR final written decisions 65: All instituted claims cancelled 10: Some instituted claims cancelled 10: No instituted claims cancelled 228 974 Claims Cancelled Claims Survived (81%) (19%)

13 DIFFERENT VIEWS ON THE INITIAL RESULTS OF IPR It s fast and has a whole fleet of expert judges that understand the science and know the technology. Andrew Etkind, GC of Garmin Ltd. PTAB panels are death squads killing property rights. Judge Randall Rader Source: Ashby Jones, A New Weapon in Corporate Patent Wars, WALL STREET JOURNAL, March 10, 2014.

14 Conclusion on IPRs Cheaper than District Court Litigation, but still an adversarial proceeding that will require significant resources Initial results favor the petitioner claims are often cancelled Significant Risk: If the PTO does not cancel all claims, petitioner is estopped from fully challenging validity in district court PTO final decisions have not yet reached the Federal Circuit

15 Attempts To Rein In Non-Practicing Entities

16 NON PRACTICING ENTITIES (NPEs) A Non Practicing Entity does not practice the subject of its patents, but profits by licensing or suing on the patent. Often referred to as patent trolls have gotten substantial bad press lately. The concept of a NPE is not bad per se but the system is often abused.

17 NON PRACTICING ENTITIES (NPEs) What about a large company with many products and patents that simply does not practice a particular patent? What about a solo inventor who does not want to start a company, but gladly sells his invention for a few million dollars? And a company gladly buys the patent knowing it can exploit the patent for tens of millions of dollars. The solo inventor was still incentivized to invent the purpose of the Patent Act.

18 NON PRACTICING ENTITIES (NPEs) Main Criticism: Overbroad assertion of vague patents against defendants who would rather settle than litigate Electronic Frontier Foundation estimated that companies made $29 billion dollars in direct payments to patent trolls in 2011.

19 NON PRACTICING ENTITIES (NPEs) Trend in SCOTUS and Congress has been to curtail patent rights to deal with this issue. The response to patent trolls is shaping current patent law Legislation Octane Fitness (decided April 29, 2014) Alice Corp. (decided June 19, 2014) Biosig (decided June 2, 2014)

20 PROPOSED NPE RELATED LEGISLATION Limits on mass-joinder of defendants (implemented in AIA) Fee Shifting Provision Heightened pleading requirements Shifting Discovery costs Protection for end users Expansion of the Covered Business Method Review System Transparency of Patent Ownership and Demand Letters Recently: On May 21, 2014, Sen. Leahy withdrew the patent reform legislation he had introduced in November 2013. The House has followed up with legislation (yet to be introduced) targeting demand letters.

21 PROPOSED NPE RELATED LEGISLATION Several states have attempted to regulate NPEs under state consumer protection laws: These state laws specify that the law is not a claim for relief under patent laws These laws generally target bad faith demand letters They enumerate factors that indicate an assertion was made in bad faith Vermont was the first state to enact such a law and filed suit against MPHJ Tech. Investments, LLC. MPHJ removed the case to Federal court. On April 15, 2014, the federal court remanded Vermont s action to the state court.

22 JUDICIAL RESPONSE Recent Supreme Court decisions on topics related to NPEs Exceptional Case/Attorney s Fees Patentable subject matter (computer implemented methods) Patent Invalidity for indefinite claims

23 Previous Exceptional Case Standard 35 U.S.C. 285: The court in exceptional cases may award reasonable attorney fees to the prevailing party. Old Standard: 1) Litigation or other misconduct, or 2) case was objectively baseless and brought in subjective bad faith. Even where the court found a case exceptional did not always lead to a fee award See Oplus Techs. Ltd. v. Sears Holding Corp., No. 12-cv-5707 (C.D. Cal. Feb. 3, 2014)

Octane Fitness, LLC v. Icon Health & Fitness, Inc., 134 S. Ct. 1749 (2014) (Decided April 29, 2014) Icon sued Octane for infringement of Icon s patent covering elliptical exercise machines with adjustable stride length 24 The district court construed claim terms and granted Octane s motion for summary judgment of noninfringement Octane argued that the case was exceptional because of Icon s unreasonable claim construction positions At the Federal Circuit Octane argued the exceptional case standard should be lowered to objectively unreasonable.

25 Octane Fitness, LLC v. Icon Health & Fitness, Inc. Federal Circuit affirmed summary judgment of noninfringement Federal Circuit affirmed the finding that the case was not exceptional and declined to change its standard. Supreme Court reversed: Litigation Misconduct is separately sanctionable Objective baseless/subjective bad faith standard was too rigid. The statute requires only that the case be exceptional.

26 Octane Fitness The proper inquiry is a totality of the circumstances analysis as to whether the case stands out from others with respect to the substantive strength of a party s litigating position... or the unreasonable manner in which the case was litigated. The Court also rejected the Federal Circuit s clear and convincing burden for proving a case exceptional. Now a party must show the case exceptional by a preponderance. The result: A more flexible test with a lower bar. District courts are free to award fees more readily. This may help stem the tide of weak suits by NPEs.

OCTANE FITNESS IN ACTION 27 See Lumen v. Findthebest.com, No. 13-cv-3599 (S.D.N.Y. May 30, 2014) (Order granting motion for attorney s fees) This is a prototypical exceptional case. The patent covered a computer implemented method of matchmaking based on parties input.

28 Lumen v. Findthebest.com Lumen sent a demand letter to Findthebest (FTB) Plaintiff is ready for full-scale litigation (including protracted discovery ) Settlement offer that would increase every time FTB filed a pleading Extremely broad demand to preserve electronic data Would settle the case for an $85,000 licensing fee FTB explained it did not use the claimed bilateral process Lumen provided no facts supporting its infringement claim FTB informed Lumen its conduct might be render the case exceptional Lumen then alleged that FTB s CEO committed a hate crime by using the term patent troll and threatened to pursue criminal charges if FTB did not license

29 Lumen v. Findthebest.com The day before FTB answered the Complaint Lumen offered a one-day only offer to settle for $55,000. The district court cited the recent Octane Fitness decision and guidance on factors that show a case is exceptional Frivolousness Motivation Objective Unreasonableness Need to advance compensation and deterrence

Lumen v. Findthebest.com 30 The court held that no reasonable litigant could have expected success on the merits (frivolous and objectively unreasonable) Motivation: To extract a nuisance settlement Deterrence: Boilerplate Complaint, no pre-suit investigation, and number of similar lawsuits show Lumen s predatory strategy. Here, Lumen could not properly assert infringement under its patent and the court awarded attorney s fees

31 OCTANE FITNESS IN ACTION Octane Fitness relaxed the standard, it did not open the floodgates Kaneka Corp. v. Zhejiang Medicine Co., No. 11-cv-2389 (C.D. Cal. May 23, 2014): Case not exceptional solely because patentee litigated infringement to summary judgment even after an unfavorable early claim construction Eon Corp. IP Holdings, LLC v. Flo TV Inc., No. 10-cv-812, 2014 WL 2196418 (D. Del. May 27, 2014): Case not exceptional because EON s case turned on a complex legal position and there was no reason to believe EON litigated the case unreasonably.

Alice Corp. Pty. Ltd. v. CLS Bank Int l., No. 13-298, 2014 WL 2765283 (U.S. June 19, 2014) Patentable Subject Matter under 35 U.S.C. 101 32 What is not patentable? Laws of Nature Natural Phenomena Abstract Ideas

Alice Corp. Pty. Ltd. v. CLS Bank Int l., No. 13-298, 2014 WL 2765283 (U.S. June 19, 2014) 33 Alice Corp. is assignee of patents that cover systems, methods, and media directed to financial risk management. Specifically covers intermediated settlement Claims covered an intermediary using a shadow account that mirrors a financial institute s real world account The intermediary updates the shadow accounts in real time, allowing only transactions for which the party has sufficient funds At the end of the day, the intermediary instructs the financial institute to carry out the permitted transactions, mitigating the risk that only one party will perform the agreed-upon exchange

Alice Corp. Pty. Ltd. v. CLS Bank Int l., No. 13-298, 2014 WL 2765283 (U.S. June 19, 2014) 34 CLS Bank sought to invalidate Alice s patents under 101 as an unpatentable abstract idea. The en banc Federal Circuit was highly fractured One paragraph per curiam opinion affirming the district court s finding that the claims were not directed to patentable subject matter Five different opinions discussing system, media, and method claims

35 Alice Corp. Pty. Ltd. v. CLS Bank Int l., No. 13-298, 2014 WL 2765283 (U.S. June 19, 2014) Supreme Court unanimously affirmed Court applied its patentable subject matter test from Mayo v. Prometheus 1) Are the claims at issue directed to a patent-ineligible concept? 2) If so, what else in in the claims? Do additional claim elements transform the concept to a patentable application? Here: 1) The claims were directed to an abstract idea intermediated settlement 2) The only additional claim elements are a general purpose computer

Nautilus, Inc. v. Biosig Instruments., Inc., 134 S. Ct. 2120 (June 2, 2014) 36 Indefinite Claims under 112 Previous Federal Circuit Standard: Insolubly Ambiguous or Amenable to Construction

Nautilus, Inc. v. Biosig Instruments., Inc., 134 S. Ct. 2120 (June 2, 2014) 37 Invention: An improved heart rate monitor that filters out other electrical signals. Patent required two electrodes mounted in [a] spaced relationship with each other

Nautilus, Inc. v. Biosig Instruments., Inc., 134 S. Ct. 2120 (June 2, 2014) The district court held the patent indefinite because it did not explain what the space should be 38 Federal Circuit reversed: the functional limitations help define the term Supreme Court vacated and remanded: Federal Circuit s inquiry whether a court can ascribe some meaning to the claims cannot be correct Real inquiry is whether a patent s claims, viewed in light of the specification and prosecution history, inform those skilled in the art about the scope if the invention with reasonable certainty

39 Conclusion on NPEs Not necessarily bad in theory, but there is abuse The response to abusive NPE practices is shaping current legislation and case law. Both Federal and State legislative attempts to deal with the situation Arguably every recent Supreme Court case will impact NPE tactics Even if you are never sued by an NPE, these legislative and judicial changes will affect your IP management and litigation decisions

40 Induced Infringement: Single Actor Required, But Good Faith Might Avoid Liability

41 LIABILITY FOR INDUCING INFRINGEMENT Direct infringement (35 U.S.C. 271(a)) Strict liability tort One entity commits an act of infringement (this can be one entity vicariously liable for the acts of others) Example: I carry out every step of a patented process Induced Infringement (35 U.S.C. 271(b)) Requires specific intent One entity directly infringes, but another entity induced the infringement Example: A doctor might carry out the steps of a patented medical treatment, but a drug company might have induced that infringement

42 INDUCED INFRINGEMENT BEFORE AUG. 2012 All steps of the method must have been performed by a single actor or someone under his direction or control. That single actor thus committed an act of direct infringement If some entity actively induced the single actor to commit that act of direct infringement, then the entity was potentially liable for inducing infringement.

43 Limelight Networks, Inc. v. Akamai Techs., Inc., 134 S. Ct. 2111 (2014) Akamai s patent covers a method of delivering electronic data. Web sites store certain content of their sites on Akamai s servers and Akamai delivers content to internet users The patent requires tagging such content for storage on multiple servers in multiple locations Limelight operates a similar system Limelight requires the Web sites to do their own tagging Thus, neither Limelight, nor its customers carry out every step of the patented method

44 Limelight Networks, Inc. v. Akamai Techs., Inc., 134 S. Ct. 2111 (2014) AKAMAI Akamai stores and provides web site content and tags files Limelight Limelight stores and provides web site content Web Site Proprietors Web Site Proprietors Limelight s customers tag files

45 FEDERAL CIRCUIT AKAMAI DECISION (Aug. 31, 2012) The Federal Circuit en banc ruled that an entity could be liable for infringement by inducing all the steps of a method patent. The steps did not have to be performed by a single actor. So long as all steps were performed, the patentee suffered harm, and could hold the inducer liable Thus, even if no entity was liable for committing an act of direct infringement, some party could still be liable for inducing infringement. Thus, under the facts of Akamai Limelight was liable for inducing infringement

46 SUPREME COURT DECISION (June 2, 2014) The Supreme Court reversed Held that there must always be someone liable for an act of direct infringement for someone else to be liable for inducing that infringement. Because neither Limelight nor its customers performed all steps of the claimed method, there was no act of direct infringement. With no direct infringement, there could be no inducement of infringement.

47 POST-AKAMAI What does this mean to us? Claims must be drafted appropriately! Draft method claims such that a single entity will have to perform every step. If the claim is drafted such that two entities may carry out the steps, a clever infringer will avoid liability under your patent.

A GOOD FAITH BELIEF OF INVALIDITY IS A DEFENSE TO LIABILITY FOR INDUCEMENT 48 Induced infringement requires specific intent Good faith belief that your product did not infringe has been a defense to negate the intent requirement Then, in June of 2013 the Federal Circuit held: - Commil USA, LLC v. Cisco Sys., Inc., 720 F.3d 1361, 1368 (Fed. Cir. 2013)

COMMIL v. CISCO 49 First trial Jury found Commil s patents not invalid and that Cisco did not induce infringement. Second trial solely on induced infringement and damages District court prevented Cisco from introducing evidence that it had a good-faith belief Commil s patent was invalid. The Federal Circuit reversed, holding that a good-faith belief the patent is invalid can negate the specific intent to induce infringement.

50 BOSE CORP. v. SDI TECHS., 2014 WL 982765 (Fed. Cir. Mar. 14, 2014) (nonprecedential) Bose Corp. owned a patent covering a speaker system that converted digital signals to analog signals Bose sued SDI Techs. for indirect infringement The district court held SDI could not have the requisite intent SDI obtained a letter of counsel alleging the patent was invalid The references counsel relied on were ultimately combined to reject the patent in reexamination Bose s expert agreed that SDI believed its invalidity opinion

51 BOSE CORP. v. SDI TECHS. (nonprecedential) The Federal Circuit disagreed and recognized that there could be liability during some time periods and not others. SDI learns of patent SDI obtains opinion of counsel Judicial resolution of validity Can be no liability for inducement Inducement if no evidence of Defendant s invalidity belief Inducement if no evidence of Defendant s reliance on opinion Inducement depending on resolution of validity

52 WHAT ELSE IS HOT? Lighting Ballast Control LLC v Philips Electronics N. Am. Corp., 744 F.3d 1272 Fed. Cir. 2014) (en banc) En banc Federal Circuit opinion confirming that claim construction is reviewed as a matter of law (Feb. 21, 2014). Supreme Court might disagree granted a petition for Cert on the same issue in Teva v. Sandoz (March 31, 2014). Medtronic, Inc. v. Mirowski Family Ventures, LLC, 134 S. Ct. 842 (2014) Supreme Court held that the burden of proving infringement remains on the patentee even where the patentee is contractually barred from asserting infringement and the licensee seeks a declaratory judgment that the patent is invalid and not-infringed

QUESTIONS? 53