NPE Patent Enforcement

David HealeyFish & RichardsonHouston, Texas713-654-5300www.fr.comhealey@fr.com

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NPE Cases Arise Most Often in Software and Business Method Cases

Most recent Federal Circuit software cases are most helpful in defending NPE lawsuits:

– Lucent emphasized apportionment in patent damages: small software feature cannot support large award.

– BMC: where different actors or users perform the accused method there is no liability for any one unless there is sufficient legal relationship among them for joint infringement liability.

– DSU Medical inducement requires actual intent to infinge the patent.

– Standing: Often assignment records are incomplete and inaccurate or prior owner retained too many rights or had duty to assign invention.

– Written Description and Priority: Anascape v Microsoft set the standard in Spring 2010 for how the written description of the invention must disclose the invention for priority: And along with Ariad, could be important for software and business patents.

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2008 BUST

Number of new patent filings in US is down in 2009 (also in Europe).

There is a correlation between the financial markets, patent applications filed, patents issued, and patent litigation.

More so than any change in the law, most likely investment in patenting and availability of capital for both patenting and for litigation will drive future NPE litigation.

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Re-examination

Inter Partes re-exam is successful way to threaten NPE’s licensing program and to void or limit patents, but is subject to revision by Congress and PTO’s limited resources

Ex Parte Re-examination is generally much less effective to limit or void patents

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Reexamination

Reexam Declared

Average Pendency

All claims confirmed

All claims canceled

Claims changed

Inter partes

95% 32.6 months 12% 67% 21%

Ex Parte1 92% 24.5 months 28% 13% 59%

1 statistics for third-party requestsSource USPTO website

Since 2005, PTO Central Reexamination Unit has improved PTO reexamination practice

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Inter Partes Re-Exam: The Best Weapon? Inter Partes Re-examination is typically an effective tool in dealing with

an NPE because it threatens the entire licensing program:

– Re-examination gives no deference to prior examination.

– CRU is elite of patent examination group.

– Active participation by interested parties leads to better result.

– Patentee has to be consistent in concurrent litigation and re-examination proceedings, often erring toward validity with narrower claim scope.

– Often PTO examiner on continuation applications will coordinate with CRU on Inter Partes Re-exam, slowing or limiting new claims in continuation applications.

– Re-exam is 100% recycle-able in litigation (invalidity charts).

– SNQ can be evidence of no-willfulness and also basis for stay.

– Priority can also be challenged in context of “prior art” date.

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Future Trends:Europe as an NPE Venue?

Current German system of pre-suit seizure, no discovery, separate infringement and invalidity cases, is cheap and fast.

– Civil law system does not permit for equitable defenses as in common law system.

– European patent interpretation is not as strict as U.S. law.

– Pre-suit seizures are available to patentees under current EU practice.

– Hamburg is second busiest port in EU.

– Statutory limits on attorneys’ fees minimize risk to unsuccessful patentee.

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Europe as an NPE Venue

Progress toward unified EU patent and enforcement system is substantial.

– Low damages would be off-set by pan-EU injunction.

– Compulsory licensing in proposed EU system gives NPE what it wants: money for pan-EU license.

– Politics over EU enforcement system will encourage national courts to follow EU standards since patentee picks the forum.

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“Ministers back EU Patent Reform Plan”Financial Times, December 4, 2009

Industry ministers took a significant step towards reforming Europe’s cumbersome and costly patent system on Friday, by approving in principle a new specialised litigation system and the creation of a single European Union-wide patent….

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Future Trends: Continuation Problems Grow Failure of PTO or Congress to limit U.S. continuation

patent practice will make NPE cases harder to defend.

More continuation applications means:

– More claims written after new products come to market, making infringement difficult to defend; and,

– More invalid patents saved by “laundering” key prior art through original examiner in continuation.

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Future Trends: Litigation Business method and software patents were not limited by In re Bilski

decision from Supreme Court in 2010.

But priority, enablement and written description strengthened in Anascape and Ariad: 112 is important tool for NPE cases.

Multi-party cases will become “norm” for NPE lawsuits:

– Medimmune encourages “sue first” tactics;

– Multiple defendant tactic is useful to help hold venue by joinder of parties from different locations;

– Multiple defendant cases create confusion, competition, and costs for defendants in attempts at coordination, benefitting plaintiff: Which incentivizes settlement by individual defendants.

– Lots of smaller settlements are easier to get than one big one.

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Future Trends: NPE Litigation Damages will be more heavily scrutinized under Lucent, but will still

go up:

– Inflation will drive up verdicts;

– High volume of sales for popular products drive up damages;

– Vague Georgia-Pacific factors can be manipulated;

– Federal Circuit’s approval of use of entire accused instrumentality as a royalty base makes apportionment remains subject to manipulation: No need to use “entire market rule”, rather allocate a high royalty to the specific infringing feature and then transform it to entire system cost for “convenience” in calculation.

– Cornell’s solution of smallest salable unit is helpful only to the point of that component’s sales price.

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Future Trends: Litigation Diffusion of patent cases may increase verdicts and costs:

– Courts unfamiliar with patent law are less likely to limit discovery, grant SJ or narrow claims (this could be costly with ediscovery/emails).

– Juries in metro areas grant bigger verdicts in NPE cases: e.g. Microsoft verdicts: Eolas-Chicago $600 million, Lucent-San Diego $1.5 billion, Uniloc-Providence $388 million; Tyler-z4-$134 million; Tyler-i4i-$200 million. (Centocor v Abbott and Medtronic v Boston Scientific were competitor cases).

Whether markets remain stagnant, unstable or go up, investment in well-run NPE litigation can be highly profitable in a short period of time, which will attract investment.

Europe will likely see NPE cases emerge in coordination with or separate from U.S. suit.

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Conclusion NPE sees patent enforcement only as a business.

Handle NPE patent cases like a business problem:• Set up systems to reduce cost of repetitive tasks (e.g.,

document vendors) and negotiate preferred vendor pricing.• Share costs and counsel with co-defendants insofar as

possible or practical; avoid confusion and competition.• Limit discovery by agreement or Court assistance at CMC.• Triage cases immediately; make a plan; tailor budget to

plan; consider that each case impacts future cases.• Consider alternative royalty theories: e.g., Valuation.• Consider how to apportion damages to invention.• Do not waste money:

– On discovery fights, – On giving or taking unnecessary discovery,– On meaningless procedural moves.

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Conclusion

Attack the “asset” in inter partes re-exam in USPTO and invalidity proceedings in other countries to put the NPE’s business model at risk

Limit discovery by cooperation or motion

Consider asking for Court appointed expert to testify at trial under Fed. R. Civ. P. 706

Focus on damages early to minimize exposure

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