Dramatic Changes in U.S. Patent Litigation

1. Dramatic Changes in U.S. Patent Litigation Michael A. Jacobs Morrison & Foerster LLP October 29, 2007

2. 2006-7 – Tohu v’ Vohu in U.S. Patent Litigation • Injunction standard • Obviousness standard • Declaratory judgment jurisdictional standard • Willfulness standard

3. Am I at risk of an injunction? • Old rule: If patentee wins on infringement and validity, injunction virtually always issues • Articulated and enforced by “Federal Circuit” – the appellate court that hears virtually all patent appeals • Powerful hammer in patent litigation – shut down a company • New rule: If you don’t practice the invention you may not get an injunction • Supreme Court decision in Ebay v. MercExchange reversed Federal Circuit • Applied traditional test for equitable relief of injunction • District courts now denying “trolls” injunctive relief

4. Post-eBay: Injunction Denied

5. Implications of new rule on injunctions • Patentees have more to prove in order to win an injunction • District courts struggling with question of what to do if an injunction not issued • Compulsory license? • Renewed infringement litigation? • More patent cases brought in International Trade Commission • Bars infringing imports • ITC not bound to apply the four-factor test

6. When is a patent invalid as “obvious”? • Old rule: the “teaching, suggestion, or motivation” (TSM) requirement for combining two or moreprior art references • Articulated and enforced by “Federal Circuit” – appellate court that hears virtually all patent appeals • Intended to guard against “hindsight” in obviousness analysis • Need some objective reason to combine references • Rule of thumb: need a prior art reference to itself suggest combining references

7. When is a patent invalid as “obvious”? • New rule: it is all open for argument, and common sense is back • Decided by U.S. Supreme Court in KSR v. Teleflex (2007) • Rejects Federal Circuit’s “rigid” TSM test and reaffirms “broad inquiry” • Emphasizes “caution” in granting patent “based on the combination of elements found in the prior art” • “The combination of familiar elements according to known methods is likely to be obvious when it does no more than yield predictable results” • Obviousness analysis need not “seek out precise teachings” • Literature may have “little discussion” of obvious techniques • Market demand may drive design trends

8. How do I get a patent declared invalid as obvious? • Old rule: obviousness goes to the jury • New rule: obviousness may be suitable for summary judgment by court • Again, by the Supreme Court in KSR v. Teleflex • Critically, dueling experts on obviousness does not preclude summary judgment • “Where, as here, the content of the prior art, the scope of the patent claim, and the level of ordinary skill in the art are not in material dispute, and the obviousness of the claim is apparent in light of these factors, summary judgment is appropriate”

9. Implications of changes in obviousness law • New patents likely to be harder to get from Patent Office -- but perhaps stronger in litigation • Tougher for inventors to overcome obviousness rejections by PTO • Examiners may rely on their own common sense of obviousness • Old, weak patents easier to defeat in litigation • Expensive battles on obviousness • “Trying the invention” • More opportunities to defeat patents using Patent Office “reexamination” procedures

10. What triggers “Declaratory Judgment” litigation? • Old rule: need a threat to sue or clear statement of infringement • Articulated by Federal Circuit as requiring an “actual controversy” • “We think you might be interested in licensing…” not enough to “trigger” a DJ • Hard to file a preemptive lawsuit against a patent holder • New rule: any apparent disagreement is enough • Foreshadowed by Supreme Court in a footnote in Medimmune, which reversed Federal Circuit on a related issue • Articulated by Federal Circuit in SanDisk v. ST Microelectronics • STM told SanDisk it did not intend to sue

11. Implications of new Declaratory Judgment rule • No “bright line” test for patent holders to avoid “being DJ’d” in a court favored by worried potential infringers • Patent holders are filing lawsuits first in their favorite courthouses, and negotiating second • Worried potential infringers now have more options to tackle “scarecrow” patents • More extensive reliance in license agreements on “no challenge” and venue clauses

12. Do I “get an opinion” to avoid treble damages? • Old rule: To avoid “willful infringement” and increased damages (up to 3x), need to “get an opinion” • Shows (supposedly) use of “due care” to avoid infringement • Required by Federal Circuit in 1983 decision • Opinions expensive • Relying on opinion? Then waive attorney-client privilege -- not just for opinion but for all related documents • New rule: Willfulness means "no objectively reasonable basis” for believing patent invalid or not infringed • Decided by Federal Circuit in wake of recent Supreme Court decision on meaning of “willful” in different context • Resolved complicated privilege waiver issues

13. Implications of new rule on willfulness • Much less pressure to seek opinions of counsel • Modest decrease in patent litigation expenses • Still need to have an explanation for conduct in view of patent

14. And coming soon – patent reform! • Changes so far are mostly court made • Supreme Court very active • Congress getting into the game • House bill passed September 7, 2007 • First to file – like the rest of the world • Post-grant opposition – like the rest of the world

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