PATENT TROLL LEGISLATION How it could affect your IP portfolio - PDF document

1/22/2014 Sughrue Mion, PLLC Washington, Tokyo, San Diego www.sughrue.com PATENT TROLL LEGISLATION How it could affect your IP portfolio Presented by John B. Scherling and Antony M. Novom 1

1/22/2014 This presentation is for educational purposes only, and does not provide legal advice, or comment on the application of US law or USPTO regulations to any specific patent or application . The views expressed herein are not necessarily those of Sughrue Mion, PLLC or any of its clients. Patent Litigation is Increasing • Recent data shows that the number of patent lawsuits filed by “patent trolls” is increasing. 2

1/22/2014 General Definitions Non-Practicing Entity (NPE) • Broadly refers to a company that owns patents but does not design or manufacture a product or use a process • Covered entities include: – Universities / Technology Transfer Offices – Start-ups – Research Institutions – Individual Inventors General Definitions Patent Assertion Entities (PAE) • Subset of NPE • Typically synonymous with “patent troll” – An entity that obtains patents primarily for obtaining license fees (not for producing and selling goods) – An entity that obtains patents primarily for obtaining license fees (rather than to support the development or transfer of technology) 3

1/22/2014 Recent Statistics Misleading Cotropia, et al. analyzed patent litigations from 2010 and 2012 (University of Illinois College of Law) – “[t]here has not been any explosion of non-practicing entity litigation between 2010 and 2012, as others have reported.” – “…differences between the years is likely explained by and attributable to a change in the joinder rules adopted in 2011 as part of the America Invents Act.” • The AIA included a revision to the joinder rules, which required lawsuits filed against multiple unrelated parties to be filed separately. Study by Cotropia, et al. Classified all patent holders into one of the following groups: – University – Individual inventor – Large patent aggregator – Failed operating or start-up company – Patent holding company – Operating company – IP holding company owned by operating company – Technology development company 4

1/22/2014 Study by Cotropia, et al. Study by Cotropia, et al. 5

1/22/2014 Study by Cotropia, et al. Litigation Reform Several Bills introduced to address increasing problem of abusive patent litigation: – Goodlatte H.R.3309 (“Innovation Act”) – passed by H.R. on 12/05/2013 – Leahy S.1720 (“Patent Transparency and Improvements Act”) – Cornyn S.1013 (“Patent Abuse Reduction Act”) – Hatch S.1612 (“Patent Litigation Integrity Act”) – Schumer S.866 (“Patent Quality Improvement Act”) – Deutch H.R.2024 (“End Anonymous Patents Act”) – Polis H.R.3540 (“Demand Letter Transparency Act”) – DeFazio H.R. 845 (“S.H.I.E.L.D. Act”) – Jeffries H.R. 2639 (“Patent Litigation and Innovation Act”) – Issa H.R. 2766 (“S.T.O.P. Act”) – White House Fact Sheet – June 4, 2013 6

1/22/2014 Goodlatte H.R. 3309 Section 3 – Patent Infringement Actions • § 281A Pleading Requirements – Initial complaint shall include a listing of: • each patent that is allegedly infringed, • each claim of each patent that is allegedly infringed, • each accused process/product that allegedly infringes (including name/model number), • how each limitation of each claim is met by the accused instrumentality, • clear description of the principal business of accused infringer, • list of each complaint filed that asserts any of the patents Adds to cost and subjects to greater scrutiny and motion practice? Amend complaint to include new info learned in discovery? Goodlatte H.R. 3309 Section 3 – Patent Infringement Actions • § 285 Fee Shifting – The court shall award to the prevailing party reasonable fees and other expenses; • UNLESS the court finds that the position and conduct of the nonprevailing party was reasonably justified or that special circumstances ( e.g., economic hardship) make an award unjust. – Upon motion of any party, the court shall require another party to certify whether or not the other party can pay an award of fees • If unable to certify, the court may make a party that has been joined liable for the unsatisfied portion of the award. 7

1/22/2014 Goodlatte H.R. 3309 Section 3 – Patent Infringement Actions • § 285 Fee Shifting – If an asserting party later extends a covenant not to sue for infringement with respect to the patent, the party shall be deemed to be a nonprevailing party for purposes of awarding costs/fees. Is a ‘loser-pays’ system going to encourage PAEs to file more suits? Will it discourage some patentees from filing suit? Goodlatte H.R. 3309 Section 3 – Patent Infringement Actions • Joinder of Interested Parties – If a party asserting a patent loses and is unable to pay costs/fees, the court shall grant a motion by the prevailing defendant to join an interested party. – Interested party = any assignee, any party having a right to enforce or sublicense the patent, or any party having a financial interest (>5%) in the patent. • DOES NOT include attorneys or law firms providing legal representation or individual investors/owners in party alleging infringement. Disclose non-ownership interests? 8

1/22/2014 Goodlatte H.R. 3309 Section 3 – Patent Infringement Actions • § 299A Discovery – If court determines that claim construction is required, discovery shall be limited to the terms requiring construction until a ruling is issued. – The court may expand the scope of discovery as necessary to ensure timely resolution of the action. – DOES NOT apply to discovery related to a preliminary injunction to redress harm arising from use, sale, or offer for sale. Will this throttle a judge’s discretion to manage discovery according to the particular circumstances in a case? Goodlatte H.R. 3309 Section 3 – Patent Infringement Actions • Demand Letters – It is considered abuse of the patent system to send purposefully evasive demand letters to end users – Must include information about the patent, what is being infringed, and how it is being infringed. 9

1/22/2014 Goodlatte H.R. 3309 Section 3 – Patent Infringement Actions • Demand Letters – To establish willful infringement, a claimant may not rely on pre-suit notification unless the notification identifies: • The asserted patent • The product or process accused • The ultimate parent entity of the claimant • How the product or process infringes one or more claims – Must be after a reasonable investigation or inquiry – Kilopass Technology, Inc. v . Sidense Corp. Goodlatte H.R. 3309 Section 4 – Transparency of Patent Ownership • Upon filing of the initial complaint, the plaintiff shall disclose to the PTO, the court, and each party: – The identity of the assignee(s) of the patent; – Any entity with a right to sublicense or enforce; – Any entity having a financial interest in the patent – The ultimate parent entity of any assignee • This is an on-going duty – Changes of info must be provided within 90 days 10

1/22/2014 Goodlatte H.R. 3309 Section 5 – Customer Suit Exception • § 296 Stay of action against customer – The court shall grant a motion to stay an action against a covered customer if: • Covered manufacturer is a party to an action based on the same patent • Covered customer agrees to be bound by any issues that the customer has in common with the manufacturer • Motion must be filed within 120 days of first pleading – The stay may be lifted if the action will not resolve an issue against the customer Customer direct infringement may be necessary to prove manufacturer's indirect infringement Goodlatte H.R. 3309 Section 6 – Procedures to Implement • Discovery – Electronic Communications – Requests for production shall be specific and may not be a general request relating to product or business – Must identify the custodian of the information, the search terms, and time frame • Parties must cooperate to identify the above – May not submit production requests to more than 5 custodians unless parties jointly agree – Additional discovery available at expense of requesting party 11

1/22/2014 Goodlatte H.R. 3309 Section 7 – Small Business Education/Access • PTO must use existing resources to provide educational programs for small businesses about litigation abuse. • Website information to notify the public when a patent case is brought in Federal court – Searchable by patent number, patent art area, and entity. Requires USPTO to do more with no additional funding. Goodlatte H.R. 3309 Section 8 – Studies • Study on Patent Small Claims Court • Study on demand letters • Study on quality of all business method patents to expand beyond financial CBM 12