1. “What Can Be Done About the High Costs of IP Litigation?” Speakers: Stacy L. Prall, Baker & Daniels and Nancy Tinsley of Roche Diagnostic Operations, Inc. © 2009 Baker & Daniels LLP and Roche Diagnostic Operations, Inc. These materials may not be reproduced, transmitted, or distributed without the express written consent of the authors. They are intended for information only and are not to be considered legal advice. If specific legal issues are raised by matters covered in these materials, consultation with legal counsel may be appropriate. Intellectual Property Section Lunch & CLE – July 10, 2009

2. How High Is The Cost?  Are the costs disproportionate to the dollars at stake?  Is it higher than other types of litigation with similar amounts of money at stake? 2

3. Median Litigation Costs Patent Infringement Suit* 2001200320052007 Less Than $1 Million at Risk End of discovery$250$290$350$350 Inclusive all costs$499$500$650$600 $1-$25 Million at Risk End of discovery$797$1,001$1,250$1,250 Inclusive all costs$1,499$2,000$2,000$2,500 More Than $25 Million at Risk End of discovery$1,508$2,508$3,000$3,000 Inclusive all costs$2,992$3,995$4,500$5,000 *2007 AIPLA Report on the Economic Survey 33

4. Less Than $1 Million at Risk More Than $25 Million at Risk $1-25 Million at Risk 4

5. Patent litigation is often... High-stakes, Lengthy, Demanding (e.g., extensive briefing), Emotional and Expensive 5

6. Why Is the Cost So High?  High stakes/continuing viability at stake  Discovery-ESI, discovery disputes  Extensive briefing (injunctions, venue, Markman, SJ)  Hard-fought-lack of cooperation and civility  Experts  Technology, jury consultants, mock juries  Excessive discovery –Document collection and production eDiscovery “All documents relating to....” –Depositions  Poor control over and communication with outside counsel  Delays  Runaway experts  Attitude (e.g., “Must win at all costs” “Never admit weakness”) 66

7. Discovery Costs ─ Not a New Problem “Perhaps the greatest driving force in litigation today is discovery. Discovery abuse is a principal cause of high litigation transaction costs. Indeed, in far too many cases, economics-and not the merits-govern discovery decisions. Litigants of moderate means are often deterred through discovery from vindicating claims or defenses, and the litigation process all too often becomes a war of attrition for all parties….” S.Rep. No. 101-650, at 20-21, as reprinted in 1990 U.S.C.C.A.N. 6823-24 (internal citations omitted). 7

8. The Cost of Discovery  Have Read –70% litigation costs collecting, producing, and reviewing documents –e-discovery costs 40-40% of the total litigation budget –first-level document review 58-90% of total litigation costs  AIPLA statistics don’t support these estimates. For 2007, costs through end of discovery ranged from 50- 60% of the costs through trial.* *2007 AIPLA Report of the Economic Survey 8

9. Why Is E-Discovery So Costly? 1. Multi-stage process  Collect –Collect, log, and copy content for discovery  Prepare –Restore backups, data extraction, deduplicate –Organize documents by custodian, concept, keyword, batch, or other methodology  Review –Review for relevance, responsiveness and privilege  Produce –Output data to a usable format such as PDF 9

10. 2.Volume  Even if companies have established Document Retention/Deletion Policies they may not be followed with respect to ESI.  Following litigation, DuPont conducted an internal cost assessment of a single discovery request. Reviewed 75 million pages finding that more than 50% of the documents collected and reviewed were kept beyond their retention period. Cost of reviewing those “old” documents was $12 million.  Follow Document Retention Policies and thereby reduce the amount of information retained (as long as there is no threat of litigation or a litigation hold in place). Why Is E-Discovery So Costly? 10

11. Steps to Reduce ESI Costs  Educate –Find the custodian of your client’s ESI and educate yourself on what they have and how it is organized (appoint lawyer to be the so-called “CIO”)  Develop a Plan with Client –Who are the relevant departments/employees who may have discoverable information; what files are relevant  Preservation –Beyond a simple hold notice, ESI requires preserving metadata, and disabling auto-delete and backup overwriting processes  Culling & Searching –Utilize agreed keyword search term lists  Transparency/Documentation –Create and keep a record of the choices made and why they were made 11

12. Key Word Search Terms  United States v. O’Keefe, 537 F. Supp. 2d 14, 24 (D.D.C. Feb. 18, 2008). Requiring expert testimony to challenge search terms. For lawyers and judges to dare opine that a certain search terms or terms would be more likely to produce information than the terms that were used is truly to go where angels fear to tread.  Equity Analytics, LLC v. Lundin, 248 F.R.D. 331 (D.D.C. Mar. 7, 2008). Requiring expert testimony to challenge search terms.  D’Onofrio v. SFX Sports Group, Inc., 2008 WL 4737202 (D.D.C. Oct. 29, 2008). Judge created his own list of terms.  Victor Stanley, Inc. v. Creative Pipe, Inc., 250 F.R.D. 251 (D. Md. 2008). Defendants had failed to demonstrate the keyword search they performed was reasonable; they did not identify keywords selected nor the qualifications of the persons who selected them. 12

13. Can Anything Be Done About the Cost?  Rule 26(f)  Control over outside counsel –Litigation plan –Budget, including staffing –Limit extensions of time  Client communication  Court intervention  ADR? 13

14. Rule 26 Requires the Parties to...  Consider the nature and basis of their claims and defenses  Consider the possibilities for promptly settling or resolving the case  Make or arrange for the disclosures required by Rule 26(a)(1)  Discuss any issues about preserving discoverable information  Develop and submit a proposed discovery plan 14

15. The discovery plan must include (among other things):  Changes to the timing, form or requirement for disclosures under Rule 26(a)  Subjects on which discovery may be needed  Consider whether discovery should be conducted in phases or limited to or focused on particular issues  ESI issues  Any need for limitations on discovery 15

16.  Agreements not to collect and exchange certain types of documents such as voice mail, IMs, archives or backup data, metadata, foreign documents subject to foreign privacy laws, etc.  Phasing of discovery to focus on key issues  Limits on the number of depositions  Keywords for searches of electronic files  Documents “sufficient to show” instead of all “relating to” The discovery plan should include (among other things): 16

17. How Does Forum Choice Impact Costs?  Local Counsel Retainer fees- (ED Tex. $5000-7500 per month)  Time to Trial-rocket dockets-cheaper as compressed schedule or more expensive due to larger team needed?  Local Patent Rules (e.g. SD Ca., ED Tex., ND Tex.) (when in jurisdictions with no local patent rules, CD Ca. and MD Ga.-parties can agree to follow other’s local rules)  Knowledge of Judges-less time spent educating judges about patent practice  Mandatory Disclosures-(e.g. ED Tex.) 17

18. Civility and Professionalism  Does a lack of Cooperation and Professionalism among attorneys increases the cost of litigation? –Confuse advocacy with adversarial conduct –Lack of cooperation in discovery process Leads to more disputes Multiple meet and confers (some courts require these to be in person) Unnecessary motions practice 18

19. Hypertherm, Inc. v. American Torch Tip Co., 207 WL 2695323 (D.N.H. 2007) (Judge Diclerioco)  In a ruling on a motion to dismiss or in the alternative for summary judgment in a patent infringement case, the judge reprimanded the parties for the tone used in their briefing, noting the parties had violated the level of civility that the court expects of litigants in this district. “Such conduct is not persuasive and does little to advance a party's cause. The court expects a more professional approach from counsel in future filings.” 19

20. Examples from the Briefs  From Defendant’s response brief: Had Hypertherm not chosen its “hyper-aggressive” litigation tactics and, instead of filing this improper motion, answered the Counterclaims and allowed associated discovery to proceed, it could have avoided making the baseless argument.  Hypertherm, by precipitously filing this frivolous summary judgment motion ought to appreciate the maxim that he who lives by the sword, dies by the sword, and be sanctioned for its improper conduct.  Contributing Factor? ─ Previous litigation between these competitors, jury verdict and settlement 20

21. Qualcomm Inc. v. Broadcom Corp. 2008 WL 66932 (S.D. Cal. 2008) (Magistrate Major)*  Judge issued sanctions against 6 attorneys and referred them to the CA State Bar  Sanctions order following Judge Brewster's findings that “counsel participated in an organized program of litigation misconduct and concealment throughout discovery, trial, and post-trial….”  Qualcomm intentionally withheld tens of thousands of emails and the attorneys “assisted, either intentionally or by virtue of acting with reckless disregard for their discovery obligations….”  The judge said she hoped this “would establish a turning point in what the Court perceives as a decline in and deterioration of civility, professionalism and ethical conduct in the litigation arena.” *Later ruling was subsequently appealed and affirmed as duty to disclose, breach of duty, exceptional case determination. 548 F.3d 1004 (Fed. Cir. Dec. 1, 2008). 21

22. Graves v. Mazda Motor Corp. 2008 WL 5070953 (W.D. Okla. 2008) (Judge Friot)*  In its answer, defendant asserted as an affirmative defense that defendant be allowed to assert a claim against plaintiff's counsel for any costs and expenses taxed to plaintiff.  Apparently Mazda was tired of what it deemed frivolous lawsuits.  When the judge asked for briefing on why Mazda should be permitted to raise such a defense, Mazda sought to withdraw the defense. The Court took it under advisement and issued an order noting the lack of civility:  “[T]here is no support…for the “proposition that a lawyer's duty to his client includes a duty to engage in offensive or abusive conduct, even if that conduct falls short of being sanctionable.” *Not a patent infringement case. 22

23. Judge's “moral” — “adherence to basic tenets of professionalism sometimes requires officers of this court to have some backbone in contending with the demands of their own clients…[t]hat requirement goes to the very essence of what it means to be a professional and not a mere tradesman.” Would more public “reprimands” and sanctions curtail such behavior and reduce costs? 23

24. Control Over Outside Counsel Litigation Plan An outline of what discovery, experts, briefing, etc is anticipated and the associated cost which serves as an a memorandum of understanding as to the scope of the expected litigation A living document subject to change after discussion of developments in the case and the need to alter the original plan 24

25. BudgetWho is on the team, level and hourly rate A living document to be revised as necessary To be compared with actual expenses DelaysTime is money; work fills the available time Avoid extensions Control Over Outside Counsel 25

26. Client Communication What are the client’s goals? What is a realistic outcome? Milestones for review Court Intervention Rules 1 and 11 (see e.g., Federal Deposit Ins. Corp. v. Maxxam, 523 F.3d 566 (5 th Cir. 2008) (affirming district court finding that the FDIC pursued litigation for improper purpose of increasing costs and forcing settlement) Pleading requirements (e.g., Ashcroft v Iqbal, 556 U.S. __ (2009)) 26

27. ADR ArbitrationCheaper? Faster? Rarely an option MediationIf early, starts the dialogue. Rarely get agreement to do early. Court may not compel early if one party is resistant. 27

28. Should Anything Be Done About the Cost?  Is there motivation to reduce costs?  Are prohibitive costs keeping people from pursuing legitimate claims?  If efforts are made to reduce costs, does this impact a party's ability to discover highly relevant evidence that will lead to a fair and just result 28

29.  The legislature?  The Supreme Court in its adoption of FRCP?  The local court through local rules, case management, sanctions?  The attorneys?  The parties?  Who is in the best position to reduce the cost Who Should Do Anything About the Cost? 29

30. Thank you for your attention All the views expressed herein are those of the authors and do not reflect the views of Baker & Daniels or Roche Diagnostics Operations, Inc. or any other Roche entity. 30

31. “What Can Be Done About the High Costs of IP Litigation?” Speakers: Stacy L. Prall, Baker & Daniels and Nancy Tinsley of Roche Diagnostic Operations, Inc. Intellectual Property Section Lunch & CLE – July 10, 2009