Guarding the Path to Innovation Regulatory and Policy Developments - - PowerPoint PPT Presentation

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

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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

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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

• f finding companies or individual inventors that the troll can claim with more
• r 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

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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

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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

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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-Pennington doctrine

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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.”

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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

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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
• wners 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

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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

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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

• f 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

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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

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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

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State Anti-Troll Measures

• VT Attorney General promptly sued MPHJ Technology Investments

LLC

The complaint alleges that the company sent demand letters to many VT

small businesses (non-profits who “were unlikely to have the resources to fight patent-litigation”)

Demand letters alleged that MPHJ’s patent covers using a scanner to send

electronic copies of a scanned document through email.

Demanded a royalty of $1,000 per employee

• NE Attorney General – cease and desist letter sent to MPHJ in July,

2013

Basis for letter – NE’s Consumer Protection Act and the Uniform Deceptive

Trade Practices Act

“Infringement assertions are unsubstantiated and contain false, misleading or

deceptive statements”

• Will these state measures be limited by federal patent law?

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PTO Developments

• “The USPTO team is working hard, in consultation with

stakeholders and the American public, to make [the White House’s] vision a reality.” (USPTO’s Director’s Forum, June 17, 2013)

• Roundtable on Proposed Requirements for Recordation of Real-

Party-in-Interest Information

Roundtable held and the PTO has received public comments from

numerous companies, academics, IP organizations and government agencies

• Software Partnership Roundtable and Listening Sessions

A partnership with the software community to enhance the quality of

software-related patents

The USPTO is currently reviewing the comments and the input

provided at roundtable events held in Silicon Valley and New York City

• Will also create an online portal that will provide answers to key

questions from small businesses and individuals who have received threats from patent trolls

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Pilot Program for Early Termination of Section 337 Investigations

• Launched June 2013
• In “special cases” identified by ITC at institution of the

investigation, the assigned ALJ must issue an ID within 100 days

• f institution that can lead to early termination

Special cases = where a potentially dispositive issue (e.g., the

economic prong of domestic injury, standing, or importation) is in doubt

• If an investigation is designated to participate in the pilot

program, the ITC will set out specific timeframes for expedited activities

• In general, for such investigations, the ITC will direct the

assigned ALJ to expedite fact-finding relating to the potentially case-dispositive issue

• The presiding ALJ may limit or stay discovery on issues other

than the potentially case-dispositive one during the early disposition phase

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ITC Developments

• Certain Products Having Laminated Packaging, Laminated

Packaging and Components Thereof

First use of early determination of a potentially case-dispositive issue

—— the economic prong of the domestic industry requirement

On July 5, the ALJ determined that the complainant had failed to

satisfy the economic prong of the domestic industry requirement

Case is now before the Commission to decide whether to review the

ID

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Antitrust and Competition Policy Concerns

• DOJ/FTC 2012 Joint Workshop on Patent Assertion Entity

Activities

Included academics and representatives from technology and IP

• industries. Also collected public comments
• Joint Comment to the PTO on its Proposed Requirements for

Recordation of Real-Party-in-Interest Information

• Industry Conferences

CCIA and AAI panel discussion on “Competition Law and Patent

Assertion Entities: What Antitrust Enforces Can Do” – FTC Chairwoman Edith Ramirez and DOJ Special Counsel for Intellectual Property Frances Marshall

Multiple ABA brownbag sessions on the topic, including attorneys from

both DOJ and FTC

• Economists’ Roundtable on Hot Patent-Related Antitrust Issues

(Antitrust, Vol. 27, No. 3, Summer 2013)

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European Union Interest

• Joaquin Almunia

“Well of course we respect patent rights… but like any right the holder

can’t abuse it.”

DG Comp might find “we need to innovate. Because if we look to our

past, 10 years ago these problems didn’t exist. We can’t look backwards to find out what to do.” (American Bar Association Section

• f Antitrust Law, 2012 Spring Meeting)
• EU recently agreed on the creation of a Unified Patent Court,

which will have “exclusive jurisdiction for litigation relating to European patents and European patents with unitary effect.”

• Similar to developments regarding reverse payments?

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Trolls and Antitrust Litigation

• No fully litigated, pure antitrust cases against patent trolls
• FTC v. Actavis

The Supreme Court chose not to follow the bright line scope of the patent

test and instead directed the lower court to analyze the potential anticompetitive effects of the reverse payment settlement in question

“Patent protection that exists only to the extent that the public is given a

novel and useful invention in consideration for its grant”

Is a PAE furthering the public interest in the novel and useful invention of

the product at issue?

• Cascades Computer Innovation LLC v. RPX Corp., et al. (N.D. Cal.)

Helpful? Defensive buying funds as an alternative patent assertion

business model. (FTC’s Evolving IP Marketplace Report)

Harmful? “Consider the scenario in which the mass aggregator negotiates

a license from a troublesome troll on behalf of its members. Under certain circumstances, one might consider this to be an example of horizontal collusion in which competitor producing companies join together to force a lower price from a supplier.” (Robin Feldman and Tom Ewing, The Giants Among Us)

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Theories of Marketplace Harm

• “Trolls unchained”

No cross-licensing need Less incentive to compromise FTC v. Lundbeck, Inc. (D. Minn.)

• Monopoly concerns if a large enough share of a relevant IP market is

accumulated

Can lead to higher prices Raising rivals’ costs Hold-up concerns

• Section 5/consumer protection concerns

False claims made to induce payment of illegitimate licensing fees Catch-all for anticompetitive conduct not caught by the antitrust laws

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Justifications?

• Enable small inventors to get reasonable royalties from large

infringing firms

Due to patent trolls scale and expertise in licensing and litigation

• Enhance the value of patents through effective monetization and

aggregation

Help lower search and negotiation costs

• Broaden markets for intellectual property

Connect inventors with manufacturers

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FTC 6(b) Study

• What is a 6(b) study? The Commission’s 6(b) authority enables it

to conduct wide-ranging economic studies that do not have a specific law enforcement purpose

Can lead to competition enforcement/investigation, legislation and

private litigation

• Will be used to study the “costs and benefits of PAE activity.”

(FTC Chairwoman Ramirez, CCIA and AAI Conference, June 20, 2013)

• Example - The Commission used its 6(b) authority to investigate

practices associated with generic drug entry prior to patent expiration under the Hatch-Waxman framework

That investigation led to a report in 2002 that influenced regulatory

policy adjustments by the FDA and congressional modifications included in the Medicare Modernization Act of 2003

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Questions or Comments?

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Contact Information

Steven M. Auvil Leader, U.S. Intellectual Property & Technology Litigation 4900 Key Tower 127 Public Square Cleveland, Ohio 44114 T +1 440 356 5059 steven.auvil@squiresanders.com Mark J. Botti Co-leader, Global Antitrust & Competition Practice Group 1200 19th St, NW Suite 300 Washington, DC 20036 T +1 202 626 6292 mark.botti@squiresanders.com

For questions regarding CLE credit, please contact:

Robin Hallagan robin.hallagan@squiresanders.com

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