Moderator: Chelsea Loughran, Wolf Greenfield Speakers: Ashley - - PowerPoint PPT Presentation

Litigation 101 for Universities and Research Institutes

Moderator:

• Chelsea Loughran, Wolf Greenfield

Speakers:

• Ashley Stevens, Focus IP Group, LLC
• Nathan Speed, Wolf Greenfield

The following presentation reflects the personal views and thoughts of Chelsea Loughran, Nathan Speed and Ashley Stevens, and is not to be construed as representing in any way the corporate views or advice of Wolf Greenfield & Sacks, P.C. or Focus IP Group, LLP and their Affiliates, Subsidiaries or Divisions, nor the views or advice of the Association of University Technology Managers (AUTM). The content is solely for purposes of discussion and illustration, and is not to be considered legal advice.

Agenda/Overview

• Public perception (overlays all decisions on points below)
• Patent litigation value proposition
• The lifecycle of a patent litigation
• Pre-filing concerns
• Discovery
• Relief
• Contract actions as an alternative to patent litigation

Litigation Value – Recent monetary awards

• Carnegie Mellon v. Marvell, Case No. 2:09cv290 (W.D. Pa.)
• Technology related to hard disk drives
• $750M settlement following >$1B verdict (reversed-in-part by Fed. Cir., No. 14–1492)
• Wisconsin Alumni Research Foundation v. Apple, Case No. 3:14cv62 (W.D. Wis.)
• Technology related to computer processors
• $506M judgment (currently on appeal to Fed. Cir., No. 17-2400)
• Trustees of Boston University v. Everlight Electronics Co., Case No. 1:12cv11935 (D. Mass.)
• Technology related to light emitting diodes (LEDs)
• $17.3M verdict, though remittitur/damages retrial granted

(up on appeal to Fed. Cir., lead case No. 16-2577) *** Between 1997-2016, median damages award for university litigation is $16.3M with a success rate of 52%

Litigation Value – Other considerations

• Aside from dollar amounts, litigation (and the willingness to

litigate) adds value by:

• Demonstrating to faculty that the University values and will protect

faculty and student creativity and investment in research

• Strengthening the University’s position on unrelated licensing efforts

Patent Litigation Life-Cycle

Pre-filing Considerations

• Identifying defendants
• Funding
• Standing
• Where to file?

Identification of defendants

• The identification of defendants can come about in a variety of different

ways, including:

• P.I./inventor follows the field and notices infringement
• TLO seeks out licensees and licensing efforts fail
• Licensee/licensor relationships break down
• Internal teams “mine” portfolios and look for infringing entities
• Outside firms “mine” portfolios and look for infringing entities (can be part of

funding structure)

Funding: Litigation expense

Source: 2015 AIPLA Economic Survey

$0 $1,000,000 $2,000,000 $3,000,000 $4,000,000 $5,000,000 $6,000,000 $7,000,000 $10M – $25M >$25M

Average cost of patent litigation (by amount at stake)

Costs through end of discovery Total costs

Funding a Meritorious Patent Litigation

• With options available today, funding should not impede a University’s

ability to bring a meritorious infringement claim

• Some options include:
• Contingent fee arrangements
• Partial contingent fee arrangements
• Variety of other alternative fee arrangements (limited only by the creativity of the

parties involved)

• Investment/funding entities
• In 2016, 36% of U.S. lawyers say their firms have used litigation finance (compared to 7 % in

2013)

Standing Considerations: General Rules

• Patentee can sue in its own name
• “A patentee shall have remedy by civil action for infringement of his patent” – 35 U.S.C. § 281
• Assignee can sue in its own name
• Assignee or party that holds “all rights” or “all substantial rights” has standing to sue in its name alone
• Exclusive licensee with “all substantial rights” may be a “virtual assignee” with standing

to sue in its own name

• Generally must name patent owner in suit where exclusive licensee does not possess “all substantial

rights,” which include:

• Exclusive rights to make, use, sell, or offer to sell the patented invention;
• Unrestricted right to sublicense; and
• Right to sue, or decided not to sue, for past, present, and future infringement

Standing Considerations: Specific Issues

• An assignment does not convey the right to sue for past infringement without an

express provision granting the right

• “The authorities are uniform that [an assignment of a right of action for past infringements] must

be express, and can not be inferred from an assignment of the patent itself”

• Arachnid, Inc. v. Merit Indus., Inc., 939 F.2d 1574, 1579 n.7 (Fed. Cir. 1991)
• Not an issue where invention is assigned prior to patent issuance, but can arise if

university acquires issued patent(s)

Where to File?

E.D.Tex. 23% D.Del. 14% C.D.Cal. 8% N.D.Cal. 6% Other 49%

Popular district court patent litigation venues, 2008-2016

Patent owner may sue in:

Federal court ITC (for imported products)

Source: Lex Machina

Where to File?

• Depending on target, Universities may not be able to count on filing in their “home court”
• 28 U.S.C. § 1400(b): “Any civil action for patent infringement may be brought in the judicial district

where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business”

• TC Heartland LLC v. Kraft Foods Group Brands LLC, 137 S. Ct. 1514 (May 22, 2017)
• “As applied to domestic corporations, ‘reside[nce]’ in § 1400(b) refers only to the State of incorporation”
• In re Cray, Inc., No. 2017-129 (Fed. Cir. Sept. 21, 2017)
• “Following … TC Heartland, litigants and courts are raising with increased frequency the question of

where a defendant has a ‘regular and established place of business’”

• “[T]hree general requirements relevant to the inquiry: (1) there must be a physical place in the district;

(2) it must be a regular and established place of business; and (3) it must be the place of the defendant. If any statutory requirement is not satisfied, venue is improper under § 1400(b)”

• “[N]o precise rule has been laid down and each case depends on its own facts”

Discovery – Record Keeping Tips

• Take inventory of your information systems, including email
• Know your systems – universities can be highly decentralized, including with email
• Be honest about your record keeping
• Have you maintained all pertinent invention disclosure documents and assignment records?
• What about licenses and licensing policies?
• Consider lab notebook/report standardization
• Can your technical documents tell your story – your “invention story”?
• Can that puzzle be pieced together, easily and persuasively?
• Have a plan for departing employees/students
• There should be a plan in place for determining what records should or need to be

preserved, and for preserving same

Record Keeping (cont.)

• Clearly delineate roles and responsibilities of relevant players
• Know who the key custodians are
• Know who in your IT staff is best suited to assist with preservation and collection efforts
• Identify a University contact who will bear primary responsibility for circulating litigation hold

letters/memoranda and for supervising early case discovery

• Identify the primary in-house/outside counsel contact for early discovery efforts
• Stay involved
• Your involvement in early discovery activities (e.g., with custodian interviews, initial document

collections) will help litigation counsel avoid missing key custodians and information repositories

• Exercise caution with public statements (not just during discovery)
• Instruct employees, scientific researchers, PIs, and students to be careful

Relief

• Injunctive relief highly unlikely, but has not stopped some University plaintiffs from

asking

• “A lack of commercial activity in the practicing patents does not by itself establish that the holder

would not suffer irreparable harm if a permanent injunction is not issued. And even without practicing the claimed invention, the patentee can suffer irreparable injury. However, Courts have more commonly found irreparable injury warranting an injunction in cases between direct competitors.”

• CMU v. Marvell, No. 09cv290, 2014 WL 1320154, at *28 (W.D. Pa. 2014) (citations and quotations omitted)
• Consider public perception of University seeking to enjoin production of drug or

exclusion of biotherapeutic

• Relief ultimately to center on reasonable royalty structure

Breach of Contract

• Venues
• State Court
• Arbitration
• AAA
• ICC
• WIPO
• No reliable data on number of lawsuits
• Opposite of Infringement

My Personal Experience

• Retained 56 times
• 19 times infringement
• Federal Court
• 37 times breach of contract
• State court (usually)
• Arbitration
• University involved 29 times
• 8 times infringement
• 21 times breach of contract

Some Examples

• Revenue sharing of royalties between two institutions with overlapping patents to a biologic
• Royalties payable for licensee’s own use of a jointly-owned patent exclusively licensed to co-
• wner
• Monitor your licensee’s public statements about their sales of licensed products
• Audit early and audit often
• Every 3 years for $500k - $1 million
• Annually over $1 million
• Royalty rate payable for use of clinical trials know-how; agreement specified a range, actual rate

to be determined in “good faith”

• Good faith normally seems to require arbitration
• Never specify a range in an agreement without specifying the criteria to pick where in the

range

Some Examples

• Two cases in which an inventor sued the institution for failure to license their

technology

• Application of combination product language to determine royalties due
• What to do if one product isn’t sold separately?
• Manufacturing cost may not be a reasonable approach
• “Good faith” attempt to determine “value” of each component
• Apportion equally
• Three cases on sublicense income sharing
• Technology taken out the “back door”
• Trade secret theft through on-going of materials shared under a collaboration

agreement after termination

Some Examples

• Should an indefinite agreement be assigned a term?
• Royalties payable for use of know-how
• Large company’s failure to consummate a sublicense with a licensee
• Breach of a gift agreement

Sublicense Income Sharing

• A very difficult issue
• Need to anticipate an event that will happen well in the future
• Negotiators won’t know:
• The value of the technology at the time of the sublicense
• The bargaining strengths of the licensee and sublicensee
• What the financial structure of the sublicense will be
• University’s main objective will be to ensure that the licensee can’t game the system

by structuring the sublicense to minimize what it pays the university

• Licensee’s main objective will be to minimize the “tax” on the value they monetize

through the sublicense

Sublicense Income Sharing

• University gets a piece of every payment that the licensee gets from the

sublicensee “You will pay me every which way there is”

Louis P. Berneman

• Exclusions for:
• Research support payments
• Purchases of equity
• At Fair Market Value
• Or some defined premium to FMV
• ~20%

Sublicense Income Sharing

• Three models:
• 1. Allocation
• University gets a set % of every payment the licensee gets from the sublicensee
• Including running royalties
• 2. Tiered Allocation
• University gets a lower % of payments received from sublicensee before commercialization
• Higher % of running royalties after commercialization
• 3. Pass Through
• University gets same running royalty on sublicensee’s sales as if the licensee sold the product;

plus

• A set percentage of every payment received apart from running royalties

Regents of the University of California v. Medivation

• Medivation licensed ~170 diarylthiohydantoin compounds from UCLA in 2005
• The RD Series
• Bind and inhibit the androgen receptor
• Preclinical
• $15,000 upfront
• $2.8 million in milestone payments
• 4% royalty on sales, passed through to sublicensees
• 10% of non-royalty sublicense income sharing
• One became Xtandi
• Best drug for advanced prostate cancer
• 2016 sales ~$2.2 billion

Regents of the University of California vs. Medivation

• In 2009, Medivation did a deal with Astellas
• Drug just entering Phase 3
• $110 million upfront
• $335 million in milestone payments
• $320 million in sales milestone payments
• 50:50 co-development and profit sharing in U.S.
• Tiered running royalties low teens to low twenties in RoW
• In March 2016, UCLA monetized its royalty rights from $1.14 billion
• Having already received ~$300 million in running royalties and sublicense income sharing

payments

• In August 2016, Pfizer acquired Medivation for $14 billion

Regents of the University of California vs. Medivation

• UCLA and Medivation love each other like brothers, right?
• Wrong
• 3 rounds of litigation
• First round was about two compounds that UCLA contended weren’t licensed

to Medivation

• The A-series
• Differed from the RD-series by replacement of a benzene ring by a

pyridine ring

• One of the compounds was the A series analogue of the precursor to

Xtandi

Xtandi Apalutamide

Regents of the University of California vs. Medivation

• UCLA and Medivation love each other like brothers, right?
• Wrong
• 3 rounds of litigation
• First round was about two compounds that UCLA contended weren’t licensed to Medivation
• The A-series
• Differed from the RD-series by replacement of a benzene ring by a pyridine ring
• One of the compounds was the A series analogue of the precursor to Xtandi
• Judge Munter ruled that Medivation only had rights to the RD-series

Regents of the University of California vs. Medivation

• UCLA licensed A-series to Farallon Biosciences, founded by Sawyers and Jung
• Farallon became Aragon
• Acquired by J&J in 2013
• Phase 2
• $650 million upfront
• $350 million in milestones
• Spun off Seragon before acquisition
• Rights to some estrogen receptor compounds
• Acquired by Genentech in 2014
• $725 million upfront
• $1 billion in milestone payments

Regents of the University of California vs. Medivation

• Second and Third Disputes: Sublicense Income sharing
• UC uses a standard definition of Sublicense Income

Sublicensing Income includes income received including but not limited to license issue fees, milestone payments, and the like but specifically excludes royalties on the sale or distribution of Licensed Products or the practice of Licensed Methods ……….

• Medivation argued that Sales Milestone payments are “royalties on the

sale” and hence excluded

Regents of the University of California vs. Medivation

• Judge Munter disagreed:

The term "milestone payments" found in the above definition of Sublicensing Income is not defined in the [Agreement]. In the context of licensing agreements such as the [Agreement], the term "milestone payments" is commonly understood in the industry to mean event- driven or success payments, which are distinct from royalty payments. It is also commonly understood in the industry that the term includes payments made upon the occurrence of both regulatory milestones and sales milestones. Each sales milestone payment is owed only once, and the maximum total payment owed to Medivation is $320 million. Unlike sales milestones, royalties are triggered by individual sales, they are based only on sales outside of the U.S., and they are recurring.

Regents of the University of California vs. Medivation

• Awarded Regents 10% of $320 million
• $32 million
• Appealed all the way to the Supreme Court of California
• Upheld

Regents of the University of California vs. Medivation

• Third Dispute
• Regents contended that Profit Sharing payments are not “royalties on the

sale”

• Therefore not excluded from Sublicensing Income
• Therefore Regents should receive 10% of Medivation’s 50% Profit Share
• In addition to the pass through running royalty 4% of Astella’s Net Sales
• Would have roughly doubled Regents’ revenues
• Case settled
• No judicial resolution and determination

Are Profit Sharing Payments “Royalties on the Sale”?

• My 2¢ worth:
• The original meaning of “royalty” was sharing profits with the Crown
• The formula for a running royalty is:

Running royalty = Royalty base * Royalty rate

• Profits are a perfectly acceptable royalty base
• 50% is a perfectly acceptable royalty rate
• Medivation granted Astellas an exclusive, royalty-bearing sublicense
• The profit sharing payments are Medivation’s only recurring payments from Astellas
• Only thing that can be a running royalty
• Medivation’s profit sharing payments in U.S. were ~2x the tiered running royalties in RoW as a % of Net

Sales

• The difference is Medivation’s return on the $448 million it spent as its share of Xtandi’s U.S.

development costs after the Astellas deal