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Litigation Trends and Non-Practicing Entities: Insights from the AIPLA-LESJ Meeting in Tokyo

This presentation, delivered by Kimberly N. Van Voorhis at the AIPLA-LESJ Meeting in Tokyo, examines the evolving landscape of patent litigation, particularly focusing on the role of Non-Practicing Entities (NPEs). The statistics reveal that NPEs constituted 62% of patent litigations in 2012, predominantly affecting non-tech companies, with distinct trends emerging in the International Trade Commission (ITC) litigation. Attendees gained insights into litigation strategies, recent judicial decisions affecting NPEs, and implications for both plaintiffs and defendants in the patent arena.

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Litigation Trends and Non-Practicing Entities: Insights from the AIPLA-LESJ Meeting in Tokyo

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  1. Non-Practicing Entities Kimberly N. Van Voorhis AIPLA-LESJ Meeting Tokyo, Japan April 8, 2013 Litigation Trends and Solutions

  2. NPE Lawsuit Statistics • 2011 • NPEs brought 45% of 2011 patent litigations • 63% of 2011 patent litigation defendants were defendants to NPE suits • Source: RPX Corporation Litigation Database & Pacer

  3. NPE Lawsuit Statistics • 2012 • NPEs brought 62% of 2012 patent litigations • 94% by corporate NPEs • 5% by individual inventors • 1% by universities • 59% of 2012 patent litigation defendants were defendants to NPE suits • Source: RPX Corporation Litigation Database & Pacer

  4. NPE Lawsuit Statistics • In 2012, NPEs sued more non-tech companies than tech companies. • Retailers are among hardest hit. • 55% unique NPE defendants make $10M or less • 66% unique NPE defendants make $100M or less • Source: Chien, Colleen V., Patent Trolls by the Numbers (March 13, 2013). Available at SSRN: http://ssrn.com/abstract=2233041

  5. NPE suits in the ITC Source: Facts and Trends Regarding USITC Section 337 Investigations, prepared by the USITC, 6/18/2012

  6. Increased ITC Litigation • Domestic industry requirement can be met by licensing activity • NPEs do not have to show irreparable injury and inadequate damages under eBay • Not limited by the new AIA provision restricting joinder • Rare for ITC to grant a motion to stay pending a PTO reexamination

  7. Increased ITC Litigation • Interdigital Communications, LLC, v. ITC, _F.3d_ (Fed. Cir. 2013)(on panel reh’g) (2012) • Federal Circuit confirmed that a domestic industry can consist of purely licensing activities as a “substantial investment in [the patent’s] exploitation.” • No need for domestic manufacture. • InterDigital met this requirement because it (1) invested around $7.6 million on employees engaged in licensing and (2) received almost $1 billion in licensing revenue.

  8. Litigation Limits • Permanent injunctions limited post-Ebay • Stricter requirements for software claims • Limits to damages • Reliance on prior settlement agreements, negotiations • Early disclosure requirements • Patent Pilot Program

  9. Permanent Injunctions after Ebay • eBay, Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006) • Before this case, irreparable harm for patent infringement was presumed • 4-factor test for permanent injunction in patent cases: (1) irreparable injury, (2) showing of inadequate relief, (3) considering the balance of hardships, remedy in equity is warranted, (4) public interest will not be disserved • Difficult for NPEs to satisfy these factors

  10. Stricter Requirements for Software Claims? • CLS Bank v. Alice, 685 F.3d 1341 (2012) – opinion vacated; rehearing granted en banc • District court held software patents invalid as abstract ideas. • Federal Circuit reversed, then decided to rehear. • En Banc hearing to clarify whether a computer implemented invention is a patent-ineligible “abstract idea”. • Federal Circuit may further clarify what software is patentable under §101.

  11. Stricter Requirements for Damages • LaserDynamics v. Quanta Computer, 694 F.3d 51 (Fed. Cir. 2012) • Entire market value rule is a narrow exception • Royalties cannot be based on entire market value for a product unless the patented features constitute the basis for consumer demand • Applies to "smallest saleable patent-practicing unit" • Must be reasonable in light of the technology • Consider economic reality

  12. Prior Settlements & Royalties • ResQNet.com v. Lansa, 594 F.3d 860 (Fed. Cir. 2010) • Past license evidence used to calculate royalty rates should be reasonably related to the claimed invention. • Courts should not rely on unrelated or extraneous licenses to increase the reasonable royalty rate above rates more clearly linked to the economic demand for the claimed technology.

  13. Prior Settlements & Royalties • In re MSTG, 675 F. 3d 1337 (Fed. Cir. 2012) • Federal Circuit determined that license negotiation discussions are not protected from discovery based on a settlement negotiation privilege • District court did not abuse its discretion by compelling MSTG to produce documents related to license negotiation discussions • Relevance v. Admissibility

  14. Early Disclosure Requirements – Dist. Court • N.D.Cal Local Patent Rules: • Exchange infringement contentions - < 14 days after initial case management conference (Patent L-R- 3-1) • Exchange invalidity contentions - < 45 days after disclosing asserted claims and infringement contentions (Patent L-R 3-3) • E.D. Texas Local Patent Rules: • Exchange of infringement contentions - < 10 days before the initial case management conference (P.R. 3-1) • Exchange invalidity contentions - < 45 days after disclosing infringement contentions (P.R. 3-3) • 27 districts have official local patent rules. • Source: http://www.localpatentrules.com/

  15. Early Disclosure Requirements - ITC • 337-TA-874 – Certain Products Having Laminated Packaging • ITC investigated an investigation based on a complaint filed by a Longview, Texas based patent entity. • ITC directed the ALJ to hold early evidentiary hearing on economic domestic industry. • Issue an initial determination within 100 days of institution. • If no domestic industry, case stayed.

  16. Patent Pilot Program • 10 year pilot program to determine if changes are needed in the way courts resolve patent disputes due to the technical and procedural complexities of patent cases • Groups of judges are selected to hear patent cases and given specialized training • Study differences in reversal rates and disposition times between “patent” and “non-patent” judges

  17. Statutory Solutions • Joinder limitations under the America Invents Act (AIA), 35 U.S.C. § 299 • Post-Grant review, interpartes review; transitional program for business methods under AIA • SHIELD Act

  18. Joinder Limitations under the AIA • 35 U.S.C. § 299 provides a higher joinder standard • Joinder permitted only where: • Claims arise out of the same transaction, occurrence, or series of transactions, or occurrences • There are questions of fact common to all defendants • Accused infringers may not be joined together “based solely on allegations that they each have infringed the patent or patents in suit” §299(a)(2)

  19. Joinder Limitations under the AIA • Phoenix Licensing, LLC v. Aetna, Inc., 2012 WL 3472973, at *2 (E.D. Tex. 2012) • Defendant improperly joined under Section 299 because only commonality between codefendants was “allegations of patent infringement” • Digitech Image Technologies LLC v. Agfaphoto Holding GmbH, 2012 WL 4513805 at *1 (C.D. Cal. 2012) • NPE sued 45 defendants for patent infringement • Court granted motion to sever for improper joinder under Section 299

  20. Thanks for your attention! Questions? Kimberly N. Van Voorhis Partner Morrison & Foerster, LLP 755 Page Mill Rd. Palo Alto, CA 94306 +1650-813-4262 kvanvoorhis@mofo.com

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