Guarding the Path to Innovation Regulatory and Policy Developments and Defenses to the Attack of Patent Trolls Steven M. Auvil Leader, U.S. Intellectual Property & Technology Litigation steven.auvil@squiresanders.com Mark J. Botti Co-leader, Global Antitrust & Competition Practice Group mark.botti@squiresanders.com July 31, 2013
Agenda • What Are Trolls and Why Have They Generated this Backlash • Policy Attack on Trolls: White House and Congressional Actions • Other Responses � State Efforts � Federal Regulatory Developments – Patent Trademark Office (PTO) – International Trade Commission (ITC) Developments • Antitrust and Competition Policy Concerns � General Interest � European Union Interest � Litigation, Theories of Harm and Justifications � FTC 6(b) Study • Questions or Comments 2
Trolls and Their Progeny • So What Are Trolls? � PAEs and NMEs � “A patent troll buys patents (sometimes thousands) with the aim not of making the patented product or process or licensing it to others to make but of finding companies or individual inventors that the troll can claim with more or less plausibility are infringing one or more of his inventory of patents.” (Richard Posner, The Becker-Posner Blog, July 21, 2013) • Privateering � A specialized form of patent troll that asserts IPR against target companies selected by the sponsor � FTC’s concerns – Comments of Chairwoman Ramirez � Industry concerns – Comment from Google, Blackberry, Earthlink and Red Hat to the DOJ and FTC • The “anti-troll” � An organization that purchases patents or patent rights from patent holders so that those patents are not used offensively by trolls. The patents are then licensed to members of the anti-troll organization for defensive use 3
Litigation Developments • In 2012, patent trolls brought over 2,500 lawsuits, 62% of all patent infringement suits, a substantial increase over 2011 (45%) and 2010 (29%) • Estimates place the number of litigation threats received last year at a minimum of 60,000 and more likely over 100,000 • 80% of patent troll suits involved patents directed to software related inventions where boundaries can be difficult to discern 4
Litigation Developments • Lochner Technologies LLC v. Apple Inc. et al . (C.D. CA) � Lochner Technologies, a patent troll, sued 22 technology companies (including Apple, Google and Amazon) for patent infringement for wirelessly playing streaming video from a server � All defendants settled, except for Vizio and Toshiba � On a motion for summary judgment, the Court ruled that Vizio and Toshiba were not violating the patent and the patent was too broad and vague to apply 5
Litigation Developments • Motorola Solutions, Inc. v. Innovatio IP Ventures (N.D. Ill.) � Innovatio, a patent troll, alleged patent infringement by numerous wireless internet users, including hotels, coffee shops and supermarkets. Sent demand letters to these companies demanding payments for licensing or threatening litigation and later sued them � Motorola and several other producers of the enabling technology brought actions against Innovatio seeking a declaration of non-infringement and invalidity � The actions were consolidated into one MDL case � The producers then filed an amended complaint, charging Innovatio with numerous unfair competition claims, including fraudulently enforcing patents using pre-litigation demand letters � Unfair competition claims dismissed as protected pre-litigation communication under Noerr-Penningto n doctrine 6
Litigation Developments • Lamina Packing Innovations, LLC v. Monsieur Touton Selection, LTD (S.D. NY) � Recent example of a court cracking down on a patent troll � “Because it is an NPE, Lamina cannot obtain an injunction against patent infringement from a federal court. At the time this case was filed, plaintiff had no licenses with any enterprise, which meant that it also could not satisfy the “domestic industry” requirement to initiate an action before the U.S. International Trade Commission.” � Lamina proposed a “leisurely” discovery which the court rejected in favor of a fast track � Lamina then moved to dismiss the case. Touton opposed the motion, asking for protection from further litigation and an award of attorney’s fees � The court dismissed the case with prejudice and awarded to Touton “attorney’s fees incurred in the preparation of the claim construction papers that Touton was forced (unnecessarily) to file the day before Plaintiff moved to dismiss the case.” 7
White House Action • President Obama � PAEs “don’t actually produce anything themselves. They’re just trying to essentially leverage and hijack somebody else’s idea and see if they can extort some money out of them... [O]ur efforts at patent reform only went about halfway to where we need to go and what we need to do is pull together additional stakeholders and see if we can build some additional consensus on smarter patent laws.” (Feb. 14, 2013) • Study on Patent Assertion and U.S. Innovation � Released in June, 2013 by President’s Council of Economic Advisers, the National Economic Council, and the Office of Science & Technology Policy � Focuses on the increase in patent troll litigation over the past two years and the costs of patent troll activities to innovation and economic growth, and suggests ways to resolve the problems 8
White House – Five Executive Actions 1. Making “real party-in-interest” the new default � The PTO will begin a rulemaking process to require patent applicants and owners to regularly update ownership information 2. Tightening functional claiming � The PTO will provide new targeted training to its examiners on scrutiny of functional claims and will develop strategies to improve claim clarity 3. Empowering downstream users � The PTO will publish new education and outreach materials 4. Expanding dedicated outreach and study � The PTO will expand its outreach efforts, including six months of high-profile events across the county to develop new ideas and consensus around updates to patent policies and laws 5. Strengthen enforcement process of exclusion orders 9
White House – Seven Legislative Proposals 1. Require patentees and applicants to disclose the “real party-in- interest” 2. Permit more discretion in awarding fees to prevailing parties 3. Expand the PTO’s transitional program for covered business method patents 4. Protect off-the-shelf use by consumers and businesses 5. Change the ITC standard for obtaining an injunction 6. Require demand letter transparency to help curb abusive suits 7. Ensure the ITC has adequate flexibility in hiring qualified ALJs 10
Federal Legislative Efforts 1. H.R. 845 Saving High-Tech Innovators from Egregious Legal Disputes (SHIELD Act) � Force a patent troll that loses its case on patent validity or infringement to pay the defendant’s costs 2. S. 866 Patent Quality Improvement Act of 2013 � Expand and extend the existing post grant review process for business method patents 3. H.R. 2024 End Anonymous Patents Act � Require disclosure of real-party-in-interest and transfers of ownership of patents 4. S. 1013 Patent Abuse Reduction Act � Require heightened pleading requirement, disclosure of real-party-in- interest and provide for fee shifting that awards costs to the prevailing party unless the loser’s position was substantially justified 11
Federal Legislative Efforts 5. H.R. 2639 The Patent Litigation and Innovation Act � Heighten pleading requirements for patent suits and restrict discovery � Also includes a requirement to identify specific products that allegedly infringe and the detailed basis of infringement 6. H.R. 2766 Stopping the Offensive Use of Patents Act (STOP Act) � Expand and extend the existing post grant review process for business method patents 7. May 2013 Discussion Draft sponsored by Chairman Goodlatte and Chairman Leahy � Goal is to reduce the costs of frivolous litigation, increase patent certainty and promote the creation of American jobs 12
State Anti-Troll Measures • VT Legislation (May 2013) created a right to sue a patent holder from making a “bad faith assertion” of patent infringement • Relevant factors: � The demand letter does not contain patent number, name and address of patent owner, or detail about the basis of the infringement claim � Prior to sending the demand letter, the person fails to conduct an infringement analysis � The demand letter requires payment of a license fee or response within an unreasonably short period of time � The claim of patent infringement is meritless, and patent owner knew, or should have known, that the claim is meritless � The claim of patent infringement is misleading or deceptive � The patent owner or its subsidiaries or affiliates have previously made similar claims and threated or filed suit � Not covered by this legislation – the inventor, an institution of higher education, or a person who has successfully enforced the patent through litigation 13
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