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NPE Patent Litigation:

Latest Developments Leveraging Alice, Federal Rules Amendments, and

Patent Office Proceedings in Defending Infringement Disputes

Today’s faculty features:

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

WEDNESDAY, JANUARY 27, 2016

Presenting a live 90-minute webinar with interactive Q&A

R. David Donoghue, Partner, Holland & Knight, Chicago

Dana M. Herberholz, Shareholder, Parsons Behle & Latimer, Boise, Idaho

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NPE Patent Litigation: Latest Developments R . D AV I D D O N O G H U E H O L L A N D & K N I G H T L L P 1 3 1 S . D e a r b o r n S t r e e t C h i c a g o , I l l i n o i s 6 0 6 0 3 Te l e p h o n e : 3 1 2 . 5 7 8 . 6 5 5 3 d a v i d . d o n o g h u e @ h k l a w. c o m

D A N A M . H E R B E R H O L Z PA R S O N S B E H L E & L AT I M E R 8 0 0 We s t M a i n S t r e e t , S u i t e 1 3 0 0 B o i s e , I d a h o 8 3 7 0 2 Te l e p h o n e : 2 0 8 . 5 6 2 . 4 9 0 6 d h e r b e r h o l z @ p a r s o n s b e h l e . c o m

Overview 1. Background and Trends

2. Impact of Alice Corp. v. CLS Bank

3. Patent Office Proceedings

4. Amendments to Federal Rules and Impact on NPE Litigation

5. Strategic Motion Practice

6. NPE-Proofing

5

BACKGROUND AND TRENDS

6

Terminology Non-Practicing Entity (“NPE”) – Derives majority of its revenue from patent licensing or enforcement

NPEs exist an a variety of forms

◦ Patent Assertion Entities (PAEs) / “aggregators” / “trolls”

◦ Universities and non-profits

◦ Companies

◦ Individuals and start-ups

7

The NPE Business Model

Incorporate (often in ED Tex)

Acquire patents

Early Settlement

◦ Demand Letter

◦ Litigation (often in ED Tex)

Eastern District of Texas, Sam B. Jr. Federal Building and US Courthouse Marshall, Texas

8

Common NPE Litigation Tactics

Sue first, negotiate later

Assert patents with broad or abstract claims

Leverage existing licenses and settlement agreements

Build a war chest

Leverage disproportionate discovery obligations

Play the “shell game”

9

NPEs By The Numbers - Median Damages

On average, damage awards to NPEs exceed

those to practicing patent owners

10

NPEs By The Numbers - Success Rate

Overall Success Rate for NPEs – 26%

Success Rate for NPEs at Trial – 65%

11

NPEs By The Numbers – All Patent Cases Filed

Source: Docket Navigator

12

NPEs By The Numbers – NPE Filings

63%

of patent cases filed in 2014 were filed by NPEs

Source: RPX 2014 NPE Litigation Report

13

NPEs By The Numbers – NPE Filings (cont’d)

89%

of NPE cases filed by patent assertion entities in 2014


14

NPEs By The Numbers – NPE Filings (cont’d)


15

NPEs By The Numbers – ED Tex Filings

16

NPEs By The Numbers - Who Are These People?


17

NPEs By The Numbers – PTAB Filings

18

Impact of Alice Corp. v. CLS

Bank

19

Alice Motions – Success Rate

20

Alice Motions: The Law 35 USC § 101: Defines the scope of patent eligibility to include “any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof”

◦ Exceptions: laws of nature, physical phenomena and abstract ideas

◦ But what is an abstract idea?

◦ “A principle, in the abstract, is a fundamental truth; an original cause; a motive; these cannot be patented, as no one can claim in either of them an exclusive right”

21

Alice Motions: The Law

Two-part test:

1. Laws of nature, natural phenomenon or abstract ideas?

2. An “inventive concept” such that the patent is “significantly more” than a claim to the ineligible subject matter.

22


Alice is not a new test.

◦ DietGoal Innovations LLC v. Bravo Media LLC, 2014 WL 3582914 (S.D.N.Y. 2014).

◦ Led many to say Alice changed nothing.

23


Alice is not a new test.

◦ District courts (for now at least) feel differently

◦ See, e.g., AmDocs (Israel) Ltd. V. Openet Telecom, Inc., __ F.Supp.3d __, 2014 WL 5430956 (E.D. Va.) (Brinkema, J.) (“Alice represents a change, or a significant clarification . . . .”) (quoting Eclipse IP LLC v. McKinley Equip. Corp., 2014 WL 4407592, at *3 (C.D. Cal.) (Sep. 4, 2014).

24


General purpose computer is not enough.

◦ But what is?

◦ Databases – No

◦ Fast computing – Probably No, but sometimes.

25

Alice Motions: The Statistics

About 65/35 SJ vs. MTD

Claim construction generally not required

OVER 50% SUCCESS RATE

26

Alice Motions: The Cases

Technologies held unpatentable:

◦ Selecting daily meals to meet dietary goals

◦ Web-updated database with distribution by email

◦ Managing a bingo game and allowing players to

repeatedly play the same number

27

Alice Motions: The Cases

Technologies held unpatentable:

◦ Conversion of loyalty points from one company’s to another

◦ Monitoring locations, movements, and load status of shipping containers

◦ Claims creating a contractual relationship using computers

28

Alice Motions: The Strategies

The devil is in the details

Claim drafting requires specifics

◦ Specific computers

◦ Volume/speed/timing of calculations

◦ Details in the specification

29


Avoiding Alice:

◦ Claim construction is critical

◦ Show inventiveness with speed/multi-tasking

◦ Force summary judgment identify

complexity

30


Leveraging Alice:

◦ Rule 12 motions avoid claim construction

◦ Throttle back computing/internet power

◦ Perform transactions in serial

◦ Challenge early & often

31


Balance offensive & defensive strategies

Reconsider portfolio valuations

◦ Build in cost of Alice challenges

◦ Use reissues to amend and narrow claims

32

Patent Office Proceedings

IPR vs. PGR Ex Parte Reexam. Inter Partes Review Post Grant Review

Who The patent owner, The Director of the USPTO Third parties, can be anonymous BUT 3rd party not involved in proceedings

Any Party BUT: The patent owner A party who first files a declaratory judgment suit

Any Party BUT: The patent owner A party who first files a declaratory judgment suit

Timing Within the term of the patent

9 months after the patent issues (if the patent is PGR eligible) until 1 year after the party was first sued for alleged infringement of the patent

Within 9 months of the patent issuing

34


Basis Novelty and Obviousness using: Other patents Printed publications

Anticipation and Obviousness using: Other patents Printed Publications Affidavits Declarations (Broader)

Patentability, Anticipation, Obviousness, and Indefiniteness using, not limited to: Other patents Printed Publications Affidavits Declarations (Broadest)

Threshold to Determine Whether to Institute

Whether “a substantial new question of patentability” affecting any claim of the patent has been raised.

Whether there is a “reasonable likelihood that the petitioner would prevail with respect to at least 1 of the claims challenged in the petition.”

Whether it is “more than likely than not that at least 1 of the claims challenged in the petition is unpatentable.”

35


Appeal – decision to institute

No No No

Appeal – Final decision Federal Circuit Federal Circuit Federal Circuit

Time to Decision

Avg. pendency is 2 years 12-18 months 12-18 months

36

Strategy Impact on litigation?

◦ Managing two proceedings at once

Discovery considerations:

◦ Multiple depositions

When should proceeding be filed?

◦ Sooner: adds pressure to patent owner, may receive a stay

◦ Later: may be able to use patent owner’s statements in litigation (Markman hearing) against it

37

Strategy Co-Defendants, Join or Stay Out?

◦ Parties estopped from raising invalidity issues that “reasonably could have been raised” in the IPR and PGR (more limited in CBM)

◦ A defendant who does not participate in the IPR can raise any invalidity defense at trial, assuming they are not held to be in “privity.”

◦ A defendant who participates in, is a real party in interest or is in privity with the IPR/PGR petitioner the cannot raise IPR/PGR defenses as trial, as well as those issues that reasonably could have been raised.

◦ Participating ensures claims asserted are covered by the IPR

Initiate separate IPR?

38

Advantages of IPR No presumption of validity

Broadest reasonable claim construction

3-judge panel with patent expertise

In almost all cases, a decision must be issued within 18 months from the filing of the initial petition to institute an IPR

Appeal directly to the Federal Circuit

COST to NPE

39

Advantages of IPR Lower cost than district court

Fast-paced

Stay litigation (maybe)

Likelihood of success

Settlement leverage

40

Disadvantages of IPR Patentee can amend claims (but not broaden)

Discovery is limited

Dual-tracking

Estoppel for what could have been raised

Only patents or publications

41

Statistics – Success Rates 80% petitions for IPR granted

80% of trials settled/dismissed/unpatentable

70% of motions to stay granted

40% resolve before institution

42

Amendments to Federal Rules and

Impact on NPE Litigation

43

Amendments to Federal Rules

44

Overview of Amendments Relevant to NPEs

Clarification of Pleading Standard

Acceleration of Early Deadlines

Emphasis on Proportionality

in Discovery

45

FRCP Amendments - Pleadings

Rule 84 and Form 18 eliminated

• Complaints should be drafted to comply with Iqbal/Twombly and should identify: • asserted claims

• accused products/functionalities/methods

• ownership of the asserted patents

• Expect more 12(b)(6) motions

• Count the costs before filing 12(b)(6) motions

46

FRCP Amendments - Pleadings Hologram USA, Inc. v. Pulse Evolution Corp., 1-14-cv-00772 (D. NV. Jan 15, 2016) (denying motion to dismiss)

◦ “The abrogation of Rule 84 does not alter existing pleading standards or otherwise change the requirements of Civil Rule 8 …. Thus the Court refers to previously existing standards in ruling upon the instant Motion.”

47

FRCP Amendments – Early Deadlines

• Serve summons & complaint within 90 days of filing (not 120)

Earlier Service – Rule 4(m)

• Reduces time for court to enter scheduling order to:

• 90 days after any defendant is served; or

• 60 days after any defendant appears

Early Scheduling Orders – Rule 16(b)(2), (3)

• Can serve RFPs more than 21 days after service of summons and complaint and before Rule 26(f) conference

Early Document Requests Rule

26(d)(2); 34(b)(2)

48

Early Deadlines - Potential Impact

Ability of parties to negotiate and reach early settlement

Case administration in multi-defendant cases

More upfront work

◦ Identification of key custodians

◦ Implementation of litigation holds

◦ Gathering and producing relevant information

More interaction & cooperation among opposing counsel

49

FRCP Amendments – Proportionality & Rule 26(b)(1)

Old Standard:

“reasonably calculated to lead to the discovery of admissible evidence”

New Standard:

proportional to the needs of the case considering

◦ importance of the issues at stake in the action

◦ amount in controversy

◦ parties’ relative access to relevant information

◦ parties’ resources

◦ importance of the discovery in resolving the issues, and

◦ whether the burden or expense of the proposed discovery outweighs its likely benefit

50

Proportionality – Potential Impact

Big Picture

◦ Minimize NPEs’ ability to saddle defendants with discovery costs?

◦ More motions and orders for cost-shifting?

In The Trenches

◦ Selection of affirmative defenses and counterclaims

◦ Scope of written discovery

◦ Quantifying proportionality

51

Proportionality – Patent Cases Applying Amended Rule 26

Gilead Sciences, Inc. v. Merck & Co, Inc. 5:13-cv-04057-

BLF (Order Denying Motion to Compel) (N.D. Cal., Jan

13, 2016) (M.J. Grewal)

◦ “No longer is it good enough to hope that the information

sought might lead to the discovery of admissible evidence ….

Instead, a party seeking discovery of relevant, non-privileged

information must show, before anything else, that the

discovery sought is proportional to the needs of the case.”

52

Proportionality – Non-Patent Cases Applying Amended Rule 26

Carr v. State Farm Mutual Auto Ins. Co., 3:15-cv-1026-M, 2015 WL 9010920 (N.D. Tex. Dec. 7, 2015) (M.J. Horan)

Siriano v. Goodman Mfg. Co., L.P., 2:14-cv-1131 (SD. Ohio Dec. 9, 2015)

Gowan v. Mid Century Ins. Co., 2016 WL 126746 (D. SD. Jan. 11, 2016)

Elliott v. Superior Pool Prod, LLC, 2016 WL 29243 (CD. Ill. Jan 4, 2016)

Fosbre v. Legas Vegas Sands Corp., 2016 WL 54202 (D. Nev. Jan 5, 2016)

53

Strategic Motion Practice

54

Strategic Motion Practice - Toolkit

Parties and jurisdiction

Pleadings

Case management

MSJ

Daubert and Motions in Limine

Sanctions and attorneys’ fees

Injunctive relief

55

Strategic Motion Practice – Parties & Jurisdiction

Personal jurisdiction

Improper venue or transfer under 28 U.S.C. § 1404

◦ Fewer are being filed & success rate is low

Misjoinder

56

Strategic Motion Practice – Pleadings

Alice Motions

Sufficiency of infringement allegations (direct and indirect)

Willful infringement

57

Strategic Motion Practice – Case Management

Motion to stay pending reexamination or IPR

Bifurcation & severance

Accelerated Schedule (ED TEX Track B)

Early claim construction and summary judgment motion

58

Strategic Motion Practice – MSJ

Alice?

Non-Infringement

Invalidity

No willful infringement

Damages

59

Strategic Motion Practice – Daubert and Motions in Limine

Daubert

◦ Low success rate

◦ Preservation of issues for appeal

◦ Damages

Motions in Limine

◦ Offense

◦ Defense

60

Strategic Motion Practice – Sanctions & Fees

Rule 11

28 U.S.C. § 1927

Exceptional Case (35 U.S.C. § 285)

61

Strategic Motion Practice – Injunctive Relief

62

What To Watch • Halo Electronics, Inc. v. Pulse Electronics, Inc. (enhanced damages)

• Stryker Corporation, et al. v. Zimmer (enhanced damages)

• In Re Cuozzo Speed Tech. v. Lee (IPR: BRI and judicial review of decisions to institute)

• Cooper v. Lee (petition for cert. re: constitutionality of IPR)

SCOTUS

• In re TC Heartland LLC (jurisdiction and venue) FEDERAL CIRCUIT

• Cases applying amended Federal Rules

• Cases applying Alice and Octane Fitness

DISTRICT COURTS

63

NPE-PROOFING

64

NPE-Proofing

Avoid success and profit

Do not win industry awards

Do not engage in prominent marketing campaigns

No internet-based marketing

Avoid products with internet-

based offerings

65

NPE-Proofing

Develop an NPE Plan

Pre-litigation demand strategy

Litigation strategy

Defense costs

66

NPE-Proofing – Responding to Demand Letters

Review and understand allegations

Seek clarification if you do not understand

Many NPEs will give an early presentation

67


• Do we do it? Did we do it before them?

• Any revenue?

• The patent(s)

• Expiration

• Priority

• Scope

• Assignment history

• Asserted in other proceedings?

Due diligence

68


Respond courteously (if at all)

Get time

Do not engage

◦ Tell them they are wrong, but only if absolutely clear

Less is more

69

NPE-Proofing – Costs Get a realistic budget

◦ Tight leash

◦ Regular weekly updates

Partner with counsel – Joint Defense Group?

Engage business leaders

In-house dedicated resources?

Early discovery gathering and production

Strategic fights, not all fights

Smart, early trial preparation

70

Questions R . D AV I D D O N O G H U E H O L L A N D & K N I G H T L L P 1 3 1 S . D e a r b o r n S t r e e t C h i c a g o , I l l i n o i s 6 0 6 0 3 Te l e p h o n e : 3 1 2 . 5 7 8 . 6 5 5 3 d a v i d . d o n o g h u e @ h k l a w. c o m

D A N A M . H E R B E R H O L Z PA R S O N S B E H L E & L AT I M E R 8 0 0 We s t M a i n S t r e e t , S u i t e 1 3 0 0 B o i s e , I d a h o 8 3 7 0 2 Te l e p h o n e : 2 0 8 . 5 6 2 . 4 9 0 6 d h e r b e r h o l z @ p a r s o n s b e h l e . c o m

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