$2 to $8 million 2 1 7/30/2013 M ANAGING RISK UNDER THE AIA $1.8 - PDF document

7/30/2013 M ANAGING RISK UNDER THE AIA AMERICA INVENTS ACT MANAGING IP RISK IN THE NEW ERA OF POST GRANT PROCEEDINGS John B. Scherling Antony M. Novom Sughrue Mion, PLLC July 30, 2013 1 M ANAGING RISK UNDER THE AIA $2 to $8 million 2 1

7/30/2013 M ANAGING RISK UNDER THE AIA • $1.8 billion • $1.5 billion • $1.2 billion • $1.0 billion • $1.0 billion 3 M ANAGING RISK UNDER THE AIA • $1.8 billion ( Centocor v. Abbott ) (2009) – arthritis medication • $1.5 billion ( Lucent v. Microsoft ) (2007) – MP3 technology • $1.2 billion ( Carnegie Mellon v. Marvell Tech. Group ) (2012) – disk drive noise reduction • $1.0 billion ( Apple v. Samsung ) (2012) – smartphone software • $1.0 billion ( Monsanto v. Dupont ) (2012) – genetically modified soybean seeds 4 2

7/30/2013 M ANAGING RISK UNDER THE AIA $1.9 to $16.5 million 5 M ANAGING RISK UNDER THE AIA 5778 6 3

7/30/2013 M ANAGING RISK UNDER THE AIA (2013 PwC Patent Litigation Study) 7 M ANAGING RISK UNDER THE AIA Are businesses making irrational decisions? 8 4

7/30/2013 M ANAGING RISK UNDER THE AIA S&P 500 Companies’ Market Cap 9 M ANAGING RISK UNDER THE AIA The value of innovation “The real value of the iPhone doesn't lie in its parts or even in putting those parts together. The bulk of the iPhone's value is in the conception and design of the iPhone. ” Professor Mark J. Perry, School of Management, Flint campus, The University of Michigan. 10 5

7/30/2013 M ANAGING RISK UNDER THE AIA Major risks faced by potential infringers • Damages – Six years (notice may be required) – Lost profits – Reasonable royalty • Injunction – Preliminary – Permanent • Attorneys' fees and other litigation expenses • Uncertainty (costs and time) 11 M ANAGING RISK UNDER THE AIA CHALLENGING PATENTS PRIOR TO THE AIA 12 6

7/30/2013 M ANAGING RISK UNDER THE AIA Mechanisms for challenging patents prior to AIA • A company faced with a patent infringement suit or the threat of one had the options of:  District court litigation (as a defendant or declaratory judgment plaintiff)  Ex parte reexamination  Inter partes reexamination (limited to applications filed on or after November 29, 1999) 13 M ANAGING RISK UNDER THE AIA District court litigation milestones Discovery/Scheduling (1) Complaint (1) Complaint (3) (3) (4) Claim Construction Conference (2) Answer (2) Answer Scheduling Order Scheduling Order (5) Fact Discovery Closes (7) Dispositive Motions (Summary Judgment) (6) Expert (10) Verdict/ Discovery Discovery (12) Appeal (8) Pretrial - Post Posttrial - Closes Closes Decisition Submissions (9) Jury Trial (11) Beginning of Appeal Begins Begins 14 7

7/30/2013 M ANAGING RISK UNDER THE AIA Drawbacks of district court litigation District court litigation challenging patents • – Standing to challenge patent : sued or under an imminent threat of suit – Presumption of validity /clear and convincing evidence standard – Lay judges and jury trials – Claims construed in light of intrinsic record/ not under “BRI” standard – Duration not fixed (2 ‐ 4 years) and typically not until 7 ‐ 10 years after patent issues. ( See Nat’l Research Council, A Patent System for the 21st Century 95–96 (2004)) – Very expensive $$$ – Success rates* when challenged about 40% (2000 ‐ 2011): Invalid under 102 Invalid under 103 Invlaid other Total 40% (425/1052) 42% (299/709) 39% (353/894) 40.5% (invalid) 59.5 (valid) (Success rates reflect adjudicated patents and does not reflect settlements) 15 Source: PATSTATS.ORG M ANAGING RISK UNDER THE AIA Drawbacks of district court litigation District court litigation forum selection strategies increases • uncertainty/risk due to lack of uniformity among district courts – Different local rules – Different judges • Range of competencies with patent litigation • Range of competencies with technologies – Different lengths of time through trial – Different jury pools Most patent cases settle. When cases do go to Judgment patentees • win 32.5% on average nationally – National average masks the range of win rates by district: 11.5% to 55. Source: AIPLA QUARTERLY JOURNAL, Volume 38, Number 4 Fall 2010 16 8

7/30/2013 M ANAGING RISK UNDER THE AIA Ex parte reexamination trend 900 800 KSR 700 600 500 400 300 200 100 0 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 17 M ANAGING RISK UNDER THE AIA Inter partes reexamination trend KSR 18 9

7/30/2013 M ANAGING RISK UNDER THE AIA Drawbacks of pre ‐ AIA mechanism • Ex parte reexamination – ex parte − potentially one ‐ sided in favor of patent owner – Limited to novelty and obviousness based on publications – Inconsistency in quality of reexamination among examiners – Patent owner may add unlimited new narrower claims – Appeal to Board – Duration indeterminate (ave. 25.4 months) – Percent known to be in litigation 32% – Success rates (when challenged by third party ‐ 67 % of all ex parte reexams) : All claims confirmed All claims canceled Claim changes 23% 12% 65% 19 M ANAGING RISK UNDER THE AIA Drawbacks of pre ‐ AIA mechanism • Inter partes reexamination – Limited participation by third party requestor with no discovery – Limited to novelty and obviousness based on publications – Inconsistency in quality of reexamination among examiners – Patent owner may add unlimited new narrower claims – Appeal to Board – Duration indeterminate (ave. 36 months) – Percent known to be in litigation 67% – Success rates when challenged by third party: All claims confirmed All claims canceled Claim changes 11% 42% 47% 20 10

7/30/2013 M ANAGING RISK UNDER THE AIA CHALLENGING PATENTS UNDER THE AIA 21 M ANAGING RISK UNDER THE AIA Mechanisms for challenging patents post AIA • Post AIA, a company faced with a patent infringement suit has the options of:  District court litigation  Ex parte reexamination  Inter partes review  Post grant review (including covered business method patents) 22 11

7/30/2013 M ANAGING RISK UNDER THE AIA Advantages of the AIA mechanisms • Ex parte reexaminations – All patents (unexpired) – Multiple petitions permissible – No presumption of validity – Claims construed under the “ BRI ” standard – No estoppel – Anonymity – No page limits – Less expensive 23 M ANAGING RISK UNDER THE AIA Advantages of the AIA mechanisms • Inter parte review ("IPR") – Converted inter partes reexamination into an adjudicative proceeding – All patents (unexpired) – Full participation by challenger – Certain discovery permitted (initial disclosures, deposition of declarants) – Trial presided over by administrative law judge (PTAB) – Patent owner's ability to add new claims restricted – Duration of proceeding is fixed (12 months from institution of trial) – Percent known to be in litigation (as of November 30, 2012): 77% – Success rates expected to parallel inter partes reexamination 24 12

7/30/2013 M ANAGING RISK UNDER THE AIA Advantages of the AIA mechanisms • Post grant review ("PGR") (effective March 16, 2013) – Applicable for all first ‐ to ‐ file patents – Within 9 months after the grant of a patent or issuance of a reissue patent – Challenge can be on any ground of patentability ( not best mode) – Certain discovery permitted (initial disclosures, deposition of declarants) – Trial presided over by administrative law judge (PTAB) – Patent owner's ability to add new claims restricted – Duration of proceeding is fixed (12 months from institution of trial) – Success rates may be greater than inter partes reexamination given additional grounds 25 M ANAGING RISK UNDER THE AIA Advantages of the AIA mechanisms • Settlement – Permitted in inter partes reexamination, post grant review, and covered business method patent review – Settlement terminates the proceeding with respect to the petitioner – No estoppel 26 13