1 1 AIPLA Firm Logo American Intellectual Property Law Association Non-Practicing Entities Litigation Trends and Solutions Kimberly N. Van Voorhis AIPLA-LESJ Meeting Tokyo, Japan April 8, 2013

2 2 AIPLA Firm Logo NPE Lawsuit Statistics 2011 NPEs brought 45% of 2011 patent litigations 63% of 2011 patent litigation defendants were defendants to NPE suits Source: RPX Corporation Litigation Database & Pacer

3 3 AIPLA Firm Logo NPE Lawsuit Statistics 2012 NPEs brought 62% of 2012 patent litigations 94% by corporate NPEs 5% by individual inventors 1% by universities 59% of 2012 patent litigation defendants were defendants to NPE suits Source: RPX Corporation Litigation Database & Pacer

4 4 AIPLA Firm Logo NPE Lawsuit Statistics In 2012, NPEs sued more non-tech companies than tech companies. Retailers are among hardest hit. 55% unique NPE defendants make $10M or less 66% unique NPE defendants make $100M or less Source: Chien, Colleen V., Patent Trolls by the Numbers (March 13, 2013). Available at SSRN:

5 5 AIPLA Firm Logo NPE suits in the ITC Source: Facts and Trends Regarding USITC Section 337 Investigations, prepared by the USITC, 6/18/2012

6 6 AIPLA Firm Logo Increased ITC Litigation Domestic industry requirement can be met by licensing activity NPEs do not have to show irreparable injury and inadequate damages under eBay Not limited by the new AIA provision restricting joinder Rare for ITC to grant a motion to stay pending a PTO reexamination

7 7 AIPLA Firm Logo Increased ITC Litigation Interdigital Communications, LLC, v. ITC, _F.3d_ (Fed. Cir. 2013)(on panel reh’g) (2012) Federal Circuit confirmed that a domestic industry can consist of purely licensing activities as a “substantial investment in [the patent’s] exploitation.” No need for domestic manufacture. InterDigital met this requirement because it (1) invested around $7.6 million on employees engaged in licensing and (2) received almost $1 billion in licensing revenue.

8 8 AIPLA Firm Logo Litigation Limits Permanent injunctions limited post-Ebay Stricter requirements for software claims Limits to damages Reliance on prior settlement agreements, negotiations Early disclosure requirements Patent Pilot Program

9 9 AIPLA Firm Logo Permanent Injunctions after Ebay eBay, Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006) Before this case, irreparable harm for patent infringement was presumed 4-factor test for permanent injunction in patent cases: (1) irreparable injury, (2) showing of inadequate relief, (3) considering the balance of hardships, remedy in equity is warranted, (4) public interest will not be disserved Difficult for NPEs to satisfy these factors

10 AIPLA Firm Logo Stricter Requirements for Software Claims? CLS Bank v. Alice, 685 F.3d 1341 (2012) – opinion vacated; rehearing granted en banc District court held software patents invalid as abstract ideas. Federal Circuit reversed, then decided to rehear. En Banc hearing to clarify whether a computer implemented invention is a patent-ineligible “abstract idea”. Federal Circuit may further clarify what software is patentable under §101.

11 AIPLA Firm Logo Stricter Requirements for Damages LaserDynamics v. Quanta Computer, 694 F.3d 51 (Fed. Cir. 2012) Entire market value rule is a narrow exception Royalties cannot be based on entire market value for a product unless the patented features constitute the basis for consumer demand Applies to "smallest saleable patent-practicing unit" Must be reasonable in light of the technology Consider economic reality

12 AIPLA Firm Logo Prior Settlements & Royalties ResQNet.com v. Lansa, 594 F.3d 860 (Fed. Cir. 2010) Past license evidence used to calculate royalty rates should be reasonably related to the claimed invention. Courts should not rely on unrelated or extraneous licenses to increase the reasonable royalty rate above rates more clearly linked to the economic demand for the claimed technology.

13 AIPLA Firm Logo Prior Settlements & Royalties In re MSTG, 675 F. 3d 1337 (Fed. Cir. 2012) Federal Circuit determined that license negotiation discussions are not protected from discovery based on a settlement negotiation privilege District court did not abuse its discretion by compelling MSTG to produce documents related to license negotiation discussions Relevance v. Admissibility

14 AIPLA Firm Logo Early Disclosure Requirements – Dist. Court N.D.Cal Local Patent Rules: Exchange infringement contentions - < 14 days after initial case management conference (Patent L-R- 3-1) Exchange invalidity contentions - < 45 days after disclosing asserted claims and infringement contentions (Patent L-R 3-3) E.D. Texas Local Patent Rules: Exchange of infringement contentions - < 10 days before the initial case management conference (P.R. 3-1) Exchange invalidity contentions - < 45 days after disclosing infringement contentions (P.R. 3-3) 27 districts have official local patent rules. Source:

15 AIPLA Firm Logo Early Disclosure Requirements - ITC 337-TA-874 – Certain Products Having Laminated Packaging ITC investigated an investigation based on a complaint filed by a Longview, Texas based patent entity. ITC directed the ALJ to hold early evidentiary hearing on economic domestic industry. Issue an initial determination within 100 days of institution. If no domestic industry, case stayed.

16 AIPLA Firm Logo Patent Pilot Program 10 year pilot program to determine if changes are needed in the way courts resolve patent disputes due to the technical and procedural complexities of patent cases Groups of judges are selected to hear patent cases and given specialized training Study differences in reversal rates and disposition times between “patent” and “non-patent” judges

17 AIPLA Firm Logo Statutory Solutions Joinder limitations under the America Invents Act (AIA), 35 U.S.C. § 299 Post-Grant review, interpartes review; transitional program for business methods under AIA SHIELD Act

18 AIPLA Firm Logo Joinder Limitations under the AIA 35 U.S.C. § 299 provides a higher joinder standard Joinder permitted only where: Claims arise out of the same transaction, occurrence, or series of transactions, or occurrences There are questions of fact common to all defendants Accused infringers may not be joined together “based solely on allegations that they each have infringed the patent or patents in suit” §299(a)(2)

19 AIPLA Firm Logo Phoenix Licensing, LLC v. Aetna, Inc., 2012 WL , at *2 (E.D. Tex. 2012) Defendant improperly joined under Section 299 because only commonality between codefendants was “allegations of patent infringement” Digitech Image Technologies LLC v. Agfaphoto Holding GmbH, 2012 WL at *1 (C.D. Cal. 2012) NPE sued 45 defendants for patent infringement Court granted motion to sever for improper joinder under Section 299 Joinder Limitations under the AIA

20 AIPLA Firm Logo Thanks for your attention! Questions? Kimberly N. Van Voorhis Partner Morrison & Foerster, LLP 755 Page Mill Rd. Palo Alto, CA