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Patent Infringement Letters: Considerations and Best Practices for Senders and Recipients

Patent Holder Strategies for Leveraging Letters and Avoiding DJ Actions; Defense and Response Strategies for Alleged Infringers

Today’s faculty features:

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific THURSDAY, JUNE 18, 2015

Presenting a live 90-minute webinar with interactive Q&A Kirupa Pushparaj, Head IP Counsel, Square, San Francisco Bobbie Wilson, Partner, Perkins Coie, San Francisco

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Perkins Coie LLP

Patent Infringement Letters

Considerations and Strategies for Sender and Recipient

June 18, 2015

Presented by:

Kirupa Pushparaj Head IP Counsel, Square, Inc. Bobbie Wilson Partner, Perkins Coie LLP BWilson@perkinscoie.com +1.415.344.7000

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Overview

I. Introduction & Background II. Considerations for Patent Owners

• III. Strategies & Best Practices for Patent Owners
• IV. Considerations, Strategies & Best Practices

for Recipients of Infringement Letters V. Q&A?

5

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Introduction & Background

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Patent Infringement Letters

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Source: See Colleen V. Chien, Startups and Patent Trolls, 17 Stan. Tech. L. Rev. 461, 472 (2014)

• Important step prior to litigation; implications for

both patent owners and recipients of letters

• Statistics
• 73% of letters consume founder time
• 89% of letters distract from the core business
• 63% of letters cause a financial impact
• 22% of recipients take no action to resolve

the demand

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Increasing Policy Scrutiny

8

Sources: See, e.g., Ricoh Americas Corp. et al. v. MPHJ Tech. Invs., LLC, IPR2013-00302 (filed May 23, 2013); Hewlett-Packard, Co. v. MPHJ

• Tech. Invs., LLC, IPR2013-00309 (filed May 24, 2013); see In re MPHJ Tech. Invs., LLC et al., FTC File No. 142 3003, Agreement Containing

Consent Order, available at http://www.ftc.gov/system/files/documents/cases/141106mphjagree.pdf ; In re MPHJ Tech. Inv., LLC et al., Docket

• No. C-142 3003, FTC Compl., available at http://www.ftc.gov/system/files/documents/cases/141106mphjcmpt.pdf ;

https://www.eff.org/deeplinks/2014/01/mphj-exposed-the-real-dirt-notorious-scanner-troll

• Policy concerns about “trolls” that rely on

patent infringement letter campaigns

• Example: MPHJ Technologies

(notorious “scanner” troll)

• Sent 16,000+ patent infringement letters
• Accused manufacturers successfully used inter partes

review proceedings to challenge underlying patents

• FTC used its Section 5 authority to reach a settlement

with MPHJ for deceptive acts

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Pending Legislation Implicating Patent Threat Letters

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Sources: http://energycommerce.house.gov/hearing/hr-targeting-rogue-and-opaque-letters-act-trol-act; https://www.publicknowledge.org/press-release/public-knowledge-applauds-demand-letter-transparency-act

• TROL Act

(Introduced by Michael Burgess (R-TX))

• Gives FTC enforcement authority for demand letters
• Preempts state laws
• Punishes “bad faith” demand letters
• Demand Letter Transparency Act

(Introduced by Jared Polis (D-CO))

• Creates national database of demand letters
• Minimum content requirements for demand letters

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Countervailing Policy Considerations – Benefits of Patent Threat Letters

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Source: http://docs.house.gov/meetings/IF/IF17/20150226/103029/HHRG-114-IF17-Wstate-SelfL-20150226.pdf

• Provide notice to infringer
• Encourage licenses and design-arounds,

which lead to innovation

• Legislative disclosure requirements may

impose undue burden on patent owners

• First Amendment of the Constitution protects

communications regarding patent rights

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State Statutes – Vermont Model

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Sources: VT. STAT. ANN., Tit. 9, § 4197(a); http://docs.house.gov/meetings/IF/IF17/20150226/103029/HHRG-114-IF17-Wstate- GugliuzzaP-20150226.pdf

• Some states have adopted statutes governing patent

infringement letters (AG & private right of action)

• Few different models
• Vermont model
• Core of the statute is simple: “A person shall not make a bad faith

assertion of patent infringement.”

• Thirteen other states have adopted (Alabama, Georgia,

Idaho, Louisiana, Maine, Maryland, Missouri, New Hampshire, North Carolina, Oregon, South Dakota, Utah, and Virginia)

• Provides examples of bad faith
• Unreasonable license request
• Deceptive assertion of infringement
• Does not contain patent number or specific factual allegations

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State Statutes – Wisconsin Model

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Sources: WIS. STAT. § 100.197(2)(a); http://docs.house.gov/meetings/IF/IF17/20150226/103029/HHRG-114-IF17-Wstate- GugliuzzaP-20150226.pdf

• Outlines in detail the information that a demand

letter must include

• Identification of each patent claim being asserted
• Identification of allegedly infringing product or service
• Factual allegations and an analysis setting forth in

detail the patent holder’s theory of infringement

• Target may notify sender that letter is

incomplete; 30 days to remedy

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State Statutes – Illinois / Oklahoma / Tennessee

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Sources: OKLA. STAT. tit. 23, § 112(A).; http://docs.house.gov/meetings/IF/IF17/20150226/103029/HHRG-114-IF17-Wstate- GugliuzzaP-20150226.pdf

• Different model
• Prohibits specific acts or omissions, rather than

general “bad faith” assertions of patent infringement

• Examples of prohibited acts or omissions
• Falsely stating that litigation has been filed
• Seeking compensation for infringement of a

patent that has been held invalid or has expired

• Failing to include factual allegations concerning

specific areas in which recipient’s product infringe the patent

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Considerations for Patent Owners

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Considerations for Patent Owners

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• Think about letter as a “notice” to preserve enforcement rights
• Per Supreme Court, “[p]atents would be of little value if infringers of them

could not be notified of the consequences of infringement”

• Virtue v. Creamery Package Mfg., Co., 227 U.S. 8, 37-38 (1913)
• Patent Act Section 287(a)
• “In the event of failure [to properly mark patented products], no damages

shall be recovered by the patentee in any action for infringement, except on proof that the infringer was notified of the infringement and continued to infringe thereafter, in which event damages may be recovered only for infringement occurring after such notice. Filing of an action for infringement shall constitute such notice.”

• Know the state statutory scheme
• Be prepared to defend legitimacy and “good faith” of letter, particularly

if sending a series or campaign.

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Strategies & Best Practices for Patent Owners

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Strategies & Best Practices for Patent Owners

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• Keep state statutory scheme and

policy environment in mind

• Ensure letter is specific enough
• Include all required language
• Watch out for signs of “bad faith”

(e.g. expired patents, disproportionate licensing requests)

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Strategies & Best Practices for Patent Owners – Declaratory Judgment Issues

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Sources: SRI Int’l, Inc. v. Advanced Tech. Labs., Inc., 127 F.3d 1462, 1470 (Fed. Cir. 1997); http://www.stoel.com/files/PatentInfringement.pdf

• Important: Be careful to avoid creating jurisdiction for

a declaratory judgment!

• Walk the tightrope between “actual notice” and

an “actual controversy”

• An “actual controversy” must exist in order for an accused

infringer to bring a declaratory judgment action seeking a declaration of non-infringement and/or invalidity of the patent at issue

• Consider past actions taken, which may inform DJ
• Have you sued in the past?
• Threats against accused infringer’s customers?
• Is it a competitor?

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Strategies & Best Practices for Patent Owners – Declaratory Judgment Issues

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Sources: SRI Int’l, Inc. v. Advanced Tech. Labs., Inc., 127 F.3d 1462, 1470 (Fed. Cir. 1997); http://www.stoel.com/files/PatentInfringement.pdf

• Standard
• To show an actual controversy, a DJ plaintiff

(accused infringer) must prove that it

• 1. has a “reasonable apprehension” of an infringement

lawsuit, and

• 2. produces or is prepared to produce the allegedly

infringing device (or practices or is prepared to practice the allegedly infringing method)

• Note: An explicit threat of litigation may satisfy

the “reasonable apprehension” test per se

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Strategies & Best Practices for Patent Owners – Declaratory Judgment Issues

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Sources: Shell Oil Co. v. Amoco Corp., 970 F.2d 885, 887 n.2 (Fed. Cir. 1992); See Blistex Inc. v. Circle Labs., Inc., No. 00 C3084, 2000 U.S. Dist. LEXIS 11749 (N.D. Ill. Aug. 14, 2000)

• Express “concern” instead of definitively

asserting that a product “infringes”

• Say it “may infringe” or “may be covered by” or

“fall within” the patent

• Use conditional language
• If you infringe, we would …
• Consider softening “litigation” language
• Careful with “damages” or “liability” talk,

citing statutes, mentioning past lawsuits,

• r mentioning a jury

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Strategies & Best Practices for Patent Owners – Declaratory Judgment Issues

21

• Offer a license: License negotiations may help establish that

no controversy exists

• Caveat: License offer may compromise ability to obtain a

preliminary injunction

• “When there are proposed or ongoing license negotiations, a litigation

controversy normally does not arise until the negotiations have broken down.”

• Phillips Plastics Corp. v. Kato Hatsujou Kabushiki Kaisha,

57 F.3d 1051, 1053-54 (Fed. Cir. 1995)

• “[T]he evidence shows that [the patentee] offered a license to [the

accused infringer], so it is clear that [the patentee] is willing to forgo its patent rights for compensation. That evidence suggests that any injury suffered by [the patentee] would be compensable in damages assessed as part of the final judgment in the case.”

• See High Tech Med. Instrumentation, Inc. v. New Image Indus., Inc.,

49 F.3d 1551, 1557 (Fed. Cir. 1995)

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Considerations, Strategies & Best Practices for Recipients of Infringement Letters

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Considerations for Recipients of Letters

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• Assess the situation
• Business interruption risks?
• 73% of letters consume founder time
• 89% distract from the core business
• 63% of letters cause a financial impact
• Think about litigation
• Receive opinion of counsel
• Evaluate the threat letter
• Does it meet statutory requirements?

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Best Practices for Recipients of Infringement Letters

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• Ask:
• Who sent it? The patent owner? A competitor?

A licensee? A firm paid on a contingency fee basis?

• Is the sender interested in a licensing

agreement?

• What is the tone of the notice? Is the sender

threatening you to leave the market?

• Are you infringing?
• Is there any indication that preliminary relief

will follow?

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Recipients – Consider Response Strategies

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• Defenses
• Invalidity
• Non-infringement
• Equitable defenses
• Modify the product;

design-around

• License Agreement
• Litigation
• Seek opinion of counsel

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Recipients – Evaluate Claim Value

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Sources: Letter from Activision TV, Inc., (Mar. 1, 2013), available at https://trollingeffects.org/demand/activision-tv-inc-2013-03-01; Letter from Treehouse Avatar Technologies, (July 30, 2013), available at https://trollingeffects.org/demand/treehouse-avatar- technologies-inc-2013-07-30

• Consider outcome scenarios
• Precedent of settlement? Is there a risk of drawing in
• ther threat letters?
• Are there any policy or principle reasons to respond

more aggressively?

• Recognize bluster (may be the sign of a troll)
• “As background, our firm practices nationally and

specializes solely in patent litigation and licensing.”

• “As you know, a United States patent grants its owner the

right to exclude others from using products that fall within the scope of the claimed invention and collect damages not less than a reasonable royalty.”

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Recipients – Declaratory Judgment Jurisdiction

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• Does the threat letter create an

“actual controversy”?

• Are there aggressive threats of litigation?
• How strident are the infringement accusations?
• Is there a license offer?
• Note: As discussed, leverage a license offer

to combat preliminary injunctions

• What is the history of the entity sending the

threat letter? Aggressive litigant? Competitor?

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Recipients – Patent Trial and Appeal Board (PTAB) Options

Source: Colice, Max, and Armon, Orion, Neutralize Threatening Patents Using the U.S. Patent and Trademark Office’s Inter Partes Review Process, September 30, 2014

• Challenge validity: District Court or PTAB?
• PTAB
• Inter partes review
• Post-grant review
• Covered business method patent review
• Ex parte reexamination

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Recipients – Consider “Bad Faith” Remedies

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• Does the threat letter violate a state statute?
• Stay current on policy and federal legislative

changes

• Examples of things to watch out for”
• Vagueness as to patent numbers infringed
• Expired patents
• Disproportionate license fee requests
• Sensationalized language

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Recipients – Consider Product Modifications

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• Is there a business solution?
• Can you design around the patent?
• Can you make an innovation in your product

that is more defensible against a claim?

• Can you invent an alternative product?

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Thank you for your time.