Slaying the Patent Troll: Learning to Throw Lightning Bolts Presented to Association of Corporate Counsel, South/Central Texas Chapter Presented By: William B. Nash Haynes and Boone, LLC Phone: 210-978-7477 Email: Bill.Nash@haynesboone.com
Patent Trolls in 2014 (and beyond?) Pending legislation Impact of America Invents Act Recent cases 2
What Makes a Troll? Possible definitions: 1. An entity that doesn t sell products based on the patent University asserting patent that it merely licenses? 2. Same as 1, excluding education entities Company asserting patent that it developed for a previous generation of technology but no longer sells or outside its line of business? 3. Same as 2, also excluding entities that produced products based on the patent at some time Solo inventor who could not acquire sufficient capital to produce the products? 3
Troll Definition Difficult to define a troll based only on whether or how the entity provides goods or services The other parts of the definition are: The litigation tactics The substance of the patent infringement allegations 4
NPE Defendants by Sector 5
Duration of NPE Cases Ended in 2012 6
Top 10 NPEs by Cases Filed in 2012 7
Top 10 NPEs by Cases Filed In Past 5 Years 8
Innovation Act Primarily directed towards litigation tactics H.R. 3309, introduced by Cong. Bob Goodlatte of Virginia Passed House on Dec. 5, 2013 by 325-91 vote Currently in Senate, expected to face greater opposition 9
Rep. Goodlatte s Patent Reform Primer Video http://youtu.be/useh7nytrh4 10
Innovation Act: Key Provisions Heightened Pleading Requirements Identify patents and infringing products with specificity Disclose ultimate parent entity Only applies to party alleging infringement but includes infringement counterclaims and cross claims Discovery limited until claim construction 11
Innovation Act: Key Provisions Fee Shifting Awards prevailing party reasonable fees and other expenses in responding to patent claims Includes infringement claims, invalidity claims, DJ claims Court need not award fees if position and conduct of nonprevailing party or parties were reasonably justified in law and fact or special circumstances... make an award unjust 12
Innovation Act: What Will the Senate Do? Patent Abuse Reduction Act, S. 1013, introduced by Sen. John Cornyn. Fee Shifting losing party pay litigation costs unless losing party s conduct was substantially justified. Raise pleading requirements Limit discovery prior to claim construction 13
Innovation Act: What Will the Senate Do? A patent reform bill that does not address patent quality is like treating the symptoms instead of the disease, Schumer argued. If we do not address the fundamental problem of patent quality, trolls will continue to abuse poor quality patents and we will be right back here having this same debate. Sen. Chuck Schumer of New York http://www.washingtonpost.com/blogs/theswitch/wp/2013/12/17/senator-says-house-patent-bill-is-treatingthe-symptoms-instead-of-the-disease/ 14
Innovation Act: What Will the Senate Do? Several other bills introduced. Several senators calling for caution of Patent Troll bills. 1/6/2014 -- FTC s Maureen Ohlhausen urges caution on taking action against Patent Trolls. FTC preparing to launch 2 year study of the competitive effects of NPEs on the market 15
America Invents Act Became law in Sept. 2011 Although some parts did not become effective until March 2013 Significant changes to U.S. patent law 3 new patent review proceedings at PTAB: Inter Partes Review Post-Grant Review Covered Business Method Review 16
Impact of AIA Cases Filed Defendants per case 2.4 2.6 3.1 2.6 1.5 17
NPE Cases Filed Impact of AIA Defendants per case 3.9 4.1 5.6 3.6 1.4 18
Impact of AIA NPE Cases as Percentage 19
America Invents Act (cont.) Benefits of PTAB proceedings: Less discovery than in district court litigation High rate (~60%) of district court litigation stays being reported Much shorter timeframe than district court litigation (due to statutory deadlines) More than PTAB 300 petitions for review were filed in the first year 20
Why IPRs Were Popular in 2013 Greater Control Over Prior Art Allow evidentiary challenges and depositions Oral hearing with challenger near end of trial Shorter Timelines and More Litigation Stays 18 months from filing requesting petition Limited Opportunity to Amend Claims 21
Why IPRs Were Popular in 2013 Limited Discovery Agreed Mandatory Initial Disclosures, Cross examination of affidavits, additional discovery if approved by Board. Detailed Claim Construction at Initiate Stage Can Consider Old Arguments and Prior Art Not limited to substantial new question of patentability 22
America Invents Act (cont.) AIA also required the GAO to release a study on NPE (i.e. troll) patent litigation Study results released Aug. 22, 2013: From 2007 to 2011, the total number of patent infringement defendants grew 129% By 2011, software patents > 50% of new patents granted 23
America Invents Act (cont.) More changes to PTAB review proceedings on the horizon? Sen. Schumer introduced the Patent Quality Improvement Act (S. 866) Would expand the eligibility of covered business method patent review from only patents related to the financial industry to all business method patents 24
Supreme Court Cases Impacting NPEs in 2014 Alice Corp. v. CLS Bank, cert. granted Patentability under 101 The patent claimed a computer-readable medium (disc, hard drive) containing computer instructions to perform an escrow method A divided Federal Circuit decision found these claims unpatentable as disembodied, abstract ideas No majority opinion 7 separate opinions from the 10-member en banc panel Supreme Court granted cert. in Dec. 2013 25
S. Ct. Cases in 2014 (cont.) Alice Corp. v. CLS Bank What exactly was the invention? Method of reducing settlement risk by using a third party intermediary (a computer) to ensure that both parties can fulfill their obligations before allowing transaction completion Will this hard case lead to bad law? Software that implements abstract idea not patentable unless includes some kind of inventive concept, not patentable merely by adding computer language. Software invention tied to specific way of doing something on computer should be patentable, even if it involves otherwise abstract idea. 26
S. Ct. Cases in 2014 (cont.) Highmark v. Allcare Health Mgmt. Sys. / Octane Fitness v. Icon Health & Fitness, cert granted Two cases dealing with award of attorneys fees for exceptional cases under 285 Octane Fitness case = Challenges current standard that infringement claim must be objectively baseless to be exceptional Highmark case = Are attorneys fees awards pure questions of law, entitled to no deference, or do factual questions exist? 27
Other Important S.Ct. NPE Cases Akami Tech. v. Limelight Networks, cert pending. Is defendant liable for direct or induced infringement when it performed only some steps but induced others to perform remaining steps? Maersk Drilling USA v. Transocean Offshore, cert pending. Extraterritorial jurisdiction of US patent law. Offer, negotiation, and sale occurred in Scandinavia of oil services which allegedly infringe. When rig brought into US waters modified to not infringe claims. But, Fed. Cir. held can be liable within the US. 28
Other Important NPE Cases Kilopass Technology v. Sidense Corp., Fed. Cir. 2013-1193, Dec. 26, 2013. Vacated and remanded denial of attorneys fees because district court exceptional case analysis failed to consider all of relevant circumstances. No longer need to produce smoking gun evidence that suit was brought in bad faith. Judges can infer bad faith and award fees if they find suit was baseless. Downplays importance of bad faith. More lenient standard. 29
Other Important NPE Cases Lighting Ballast v. Phillips, Fed. Cir. 12-1014. En banc oral arguments in September. Are claim construction rulings by district court judges entitled to deference on appeal? Lighting asserts Fed. Cir. should defer all aspects of claim construction Phillips asserts only factual findings by judge should be deferred. 30