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Intellectual Property Roundtable

A patent law update with Cooley, McDermott Will & Emery, Morrison Foerster, Sidley Austin, and Tensegrity Law Group.

April 2016

Participants

Mike Bettinger

Mike Bettinger, a partner in Sidley Austin’s San Francisco office and one of the leaders of the firm’s IP Litigation practice, is a leading trial lawyer for patent cases in the U.S. District courts and before the ITC. He has tried 24 cases to verdict, securing notable wins for premier technology companies in the telecommunications, computer, software, semiconductor, healthcare and network industries. Mike has been recognized in the Daily Journal’s California’s Top 100 Lawyers, Top 50 IP Litigators, and Top 10 Defense Verdicts.

mbettinger@sidley.com
http://www.sidley.com
Thomas J. Friel

Thomas J. Friel is head of Cooley's national intellectual property litigation practice. Consistently recognized as one of the top patent litigation attorneys in the U.S., Mr. Friel has represented trailblazing startups to Fortune 500 companies in complex patent cases for more than 25 years. Over the course of his career, he has litigated hundreds of cases, achieved numerous trial victories, established new legal precedents, and negotiated very favorable settlements in highly contentious litigations.

tfriel@cooley.com
http://www.cooley.com
Jeff Kichaven

Jeff Kichaven is an independent mediator with a nationwide practice and extensive experience in intellectual property cases. He has been named to the Daily Journal’s list of California’s Top Neutrals eight times and was a California Lawyer Attorney of the Year. He belongs to the American Law Institute and has taught the Master Class for Mediators for his alma mater, Harvard Law School. He has been cited in the New York Times and the Wall Street Journal.

jk@jeffkichaven.com
http://www.jeffkichaven.com
Fabio E. Marino

Fabio E. Marino is a partner at McDermott Will & Emery based in the firm's Silicon Valley office. His practice focuses on intellectual property, including patent infringement litigation, and strategy and counseling, particularly in computer-related technologies. Mr. Marino has technical experience in a variety of areas, including computer networks, telecommunications, software engineering, e-commerce, entertainment and internet-related technologies, computer architecture, digital circuit design, parallel computing, 3D graphics and animation, medical imaging, and artificial intelligence.

fmarino@mwe.com
http://www.mwe.com
Wesley E. Overson

Wesley E. Overson is a partner with Morrison & Foerster and leads the 160-attorney litigation department in the firm's San Francisco office. As a member of the firm's Intellectual Property Group, his practice focuses on patent litigation and other complex commercial litigation. His clients include satellite TV providers, pharmaceutical and biotechnology organizations, GPS manufacturers, and home furnishing retailers. He is on the executive committee of the litigation section of the Bar Association of San Francisco and the advisory board of the Practical Law Company.

woverson@mofo.com
http://www.mofo.com
Matthew D. Powers

Matthew D. Powers, founder of Tensegrity Law Group, tries cases involving patents, trade secrets, fraud, fiduciary duty, antitrust, and contracts. He has tried cases all over the country and directed litigation all over the world. Many of the world’s leading companies have called on Mr. Powers and his teams in difficult cases. He has led teams that have won billion-dollar cases in many of the world’s most important technologies and industries.

matthew.powers@tensegritylawgroup.com
http://www.tensegritylawgroup.com/

Patent litigation remains in the limelight as the U.S. Supreme Court reviews the standards for enhancing damages in cases brought by Stryker Corporation and Halo Electronics. Meanwhile, the effects of the High Court’s decision in Alice Corp. v. CLS Bank Int’l on patent-eligible subject matter continue to take practitioners and courts by storm. On the policy front, venue and forum selection issues concerning the Eastern District of Texas and claim construction matters provide a launch point for a spirited discussion on patent reform.

California Lawyer met for an update with panelists Mike Bettinger of Sidley Austin, Thomas Friel of Cooley, Fabio Marino of McDermott Will & Emery, Wesley E. Overson of Morrison Foerster, and Matthew D. Powers of Tensegrity Law Group. The roundtable was co-moderated by independent mediator Jeff Kichaven with California Lawyer and reported by Cherree P. Peterson of Barkley Court Reporters.

JEFF KICHAVEN: What are the most important developments you have observed about Alice Corp. v. CLS Bank Int’l, 134 S. Ct. 2347 (2014), and patent-eligible subject matter since we were last together about six months ago? What do you see coming down the pike in the next several months?

WESLEY OVERSON: A positive effect of Alice is that many cases that probably should never have been brought are being thrown out relatively quickly, either in the district courts or in the Patent Trial and Appeal Board. The problem that I am having is that I still do not understand what an abstract idea is, and so I still feel like we are in the “I know it when I see it” phase. That makes it very difficult to advise clients about whether they fall under that abstract idea category or not.

Another problem is that the Alice overlay has infected the life sciences area. People with incredible inventions that deserve patents are either having their cases thrown out or they are scared away from even filing cases because their claims involve something found in nature. The Alice format does not work well for these life sciences cases.

THOMAS FRIEL: Alice was a good effort to rid the world of business method patents that have less than satisfactory invention, and it also encompasses many software patents in the same vein. The problem is it seems to be throwing out the baby with the bath water—everything seems to be swept up in it.  Like you, Wes [Overson], I’m having a hard time knowing what an abstract idea is. That is where I think we are at and where we are headed.

MATTHEW POWERS: A big part of the problem with Alice motions is that they are being used as a method of getting rid of patents that the judge feels should be gotten rid of, but it’s really being used as a proxy for Sections 102, 112, 103 without the protections and procedures that have been built up over a hundred years for those sections. The standards that are being applied are incredibly amorphous—it’s the Wild West.

Certainly some of the patents that are going down should go down.  But there have been 148 decisions killing patents, almost 10,000 claims just in the last few years. Can we really say that all of those patents should be dead? The answer is no. And it is not just business method patents. It is happening with software patents.  It is happening with networking patents.

I think we need to bring procedural rigor to 101 motions.  We need to take a step back and make a sober assessment of what the right role of Section 101 is vis-à-vis Sections 102, 103, and 112.  None of that is happening.

MIKE BETTINGER: It seems to me Section 101 is now being used early on in a case to address the core issue of what is the inventive concept. Maybe it does come down to a gut feeling of “you know it when you see it.” But is there an inventive concept there? Has someone come up with something creative, or is it more of a functional claim that’s just telling you what they’re doing, not how they’re doing it.

You could argue that it takes away some of the procedural safeguards.  But you could also argue that it expedites a process that allows you to get to a decision sooner rather than later without those safeguards that have been built in. To me it’s a policy issue at the end of the day, but I would agree with Matt [Powers] that it is being used as a proxy for the analysis that was typically done in Section 112 and Sections 102, 103 invalidity.

KICHAVEN: Where are we on the issue of software patent eligibility?

FRIEL: There was an interesting statement by Justice Breyer in the Stryker Corp. v. Zimmer Inc. argument last February where he said that it is unfortunate Congress has not created a special regime to handle software patents. It might be that we are headed in that direction if there is viability of software patents.

FABIO MARINO: I have not seen many good cases with good facts for a software patent to satisfy Section 101 yet. We need to see those cases, and we need those cases to actually be well litigated and brought to the Federal Circuit, and hopefully the jurisprudence will develop. I think we can all agree there are software inventions—and life sciences inventions, for that matter—that really should be patentable.

KICHAVEN: What would such a “good case” be?

MARINO: McRo, Inc. v. Bandai Namco Games America, No. 2015-1080, pending before the Federal Circuit is interesting and getting a lot of press. But it hasn’t been decided yet and it’s anecdotal. It does not amount to a rule. We need at least a few district court decisions, and preferably Federal Circuit decisions to take a more trial approach and try to define what the boundaries are.  We need something more than just one example.

Not every software patent will fall squarely within the factual pattern of DDR Holdings, LLC v. Hotels.com, L.P., 773 F.3d 1245 (Fed. Cir. 2014), where you basically redefine the way the computer works, and more specifically in that case, with a web browser. We need a better articulation of the standard for other types of software patents to pass muster.

KICHAVEN: What needs to happen under Rule 12 so that there are appropriate procedural safeguards and yet truly meritless cases can get weeded out?

POWERS: The problem is that it’s still incredibly unclear what factual development needs to happen to resolve a 101 motion. And once you’ve resolved that question, then you’re going to be able to know what is and is not doable under Rule 12 motions because if there are facts that have to be resolved, then you can’t do it under Rule 12.

But it’s so fuzzy what factual development there is with regard to conventionality of the steps or even the extent of preemption or what facts might be present to decide whether something is or is not an abstract idea.  All of those could involve factual questions.  Certainly what’s conventional does.

But the law is still really fuzzy about where the line is as to what judges can and cannot do.  And they’re just obliterating that line.  It’s gone.

BETTINGER: I don’t see many factual issues that are presented that need that kind of resolution.  It’s more of a claim construction issue. You could raise some legal arguments that would leave it to later in the case and perhaps a judgment on the pleadings or a summary judgment, but unless you have some specifics, I do not see many factual issues.

FRIEL: I beg to differ with that position. I have seen patent claims, of course, where I would agree with you 100 percent. But many times patent owners do not put up very good arguments about facts, and they acquiesce to representative claims and fail to really examine the claims—multiple claims, dependent claims—where you do see lots of factual issues.

OVERSON:  One of the things this 101 practice has introduced is that the judge becomes critical at the very outset of the case. We do not have a chance to have a lot of discovery or experts or factual development. So there is not a lot of factual development leading up to a Rule 12 motion. That is the whole point of Rule 12. So it puts the entire decision in the hands of the judge without a lot of information for the court to work with.

MARINO: And I think the procedure under Rule 12 is fine. The problem has been implementation and how all the courts read the test, which is not exactly precise.  It does not tell you what an “abstract idea” is. It does not tell you what “conventional” means. The Supreme Court did not decide. Different courts have contrary views of what it means, and the Federal Circuit has stayed out of it. Section 101 jurisprudence needs to be further developed. The pendulum needs to swing back, quite frankly, away from invalidity as the default.

OVERSON: Part of the problem is the way practitioners were claiming things before this jurisprudence came up—they did not know that 101 was going to be a Rule 12 issue. Presumably they could come up with better claiming strategy now, but we are going to have one or two decades and billions of dollars of capital investment in these inventions that are just lost with a few strokes of the pen.

KICHAVEN: In the realm of damages, what are your thoughts on the Halo Electronics v. Pulse Electronics, No. 14-1513, and Stryker Corp. v. Zimmer Inc., No. 14-1520, cases?

BETTINGER: The issue is this: do you use the reasonably objective standard for willful infringement, or do you give the district court more discretion like in Octane Fitness v. Icon Health and Fitness, 572 US _ (2014), with regard to attorneys’ fees?

This was one of the first arguments at the Supreme Court following the passing of Justice Scalia. As I understand it, there were some pointed questions from both Justices Breyer and Sotomayor. There is a feeling that maybe there will be some change, but nobody knows what it will be. However, with the current make-up of the Court, it is hard to know if they will be able to articulate a better standard.

OVERSON: The objective standard was very good for defendants. I have been on both sides. But as a defendant, there is some degree of comfort in the idea that if we are talking about “objectively reasonable” conduct, in most cases, the defendant can answer that question “yes.”

POWERS: The problem with the current standard is that you could have objectively bad behavior—naked copying, willful copying—that is then protected by after-the-fact discovery of a credible 102 or 103 obviousness argument. I think that is what is bothering the judges, and I think as a society we do not want to encourage a get-out-of-jail-free card for people who are engaging in bad conduct.

BETTINGER: To me the issue is that you have district court judges who may not be familiar with patent laws and some of the intricacies of that. There are certain patent principles that may not be familiar to judges who do not have a regular caseload of patent cases.

The concern is when you get into that area and you allow that judge on a matter of discretion to make a decision without an appreciation perhaps for the context in which it’s made or the way patents are issued and the back and forth with the examiners and that sort of thing, putting that in just a discretionary standard for a district court judge could raise some issues. De novo review by the Federal Circuit or something like that makes sense in the bigger picture.

KICHAVEN: What is an adequate alternative approach that can be adopted?

MARINO: I don’t think the current Seagate standard is sustainable. But I am also not enamored with the alternative approach of just telling district court judges “Well, you know it when you see it.” There is room for a middle approach.

I do not know what the realistic alternative is. It may be one of those situations where the Supreme Court has to either punt or give a vague statement and hope that the Federal Circuit and the district courts will further define it.

FRIEL: The alternative will involve facts and circumstances in the vein of Octane. Also, nobody mentions de novo review versus deference in this issue. It seems to me we have had a trend in Supreme Court jurisprudence of moving the Federal Circuit away from de novo review and in favor of giving some degree of deference in Markman rulings.

POWERS: I believe the alternative will turn to discretion of the judges. And once you are making it about facts and circumstances and discretion of the district court, there is deference implicit in that. Once facts, circumstances, and discretion become the test, at that point the standard really ought to include deference.

OVERSON: Judges have discretion about what to do with the damages award if they find willfulness. At the end of the day, it falls in their lap anyway.  So even if you take away the objective standard, maybe this will all play out similarly to how it has in the past.

KICHAVEN: What have been the effects of a more liberalized standard for granting attorneys’ fees?

POWERS: It has created a cottage industry of moving for fees. If you win, you make a motion. That is the rule now.  And that is not what the rule should be. But the law is sufficiently nascent. People are taking a shot and seeing if it works.

At the beginning many people were using the tool a bit aggressively.  It has calmed down a little bit in terms of the awards. But the awards are more frequent and the awards are certainly higher.

MARINO: I definitely agree in terms of the number of filings of motions. However, I do not think the number of motions being granted in percentage is really up that much. I think it is a small uptick. And yes, the awards that have been granted are a little bit higher. But it has not created the parade of horribles that the opponents of the Octane decision were envisioning at the time it came down. It really only applies to the most egregious types of behavior.

POWERS:  And the reason for that I think is so many cases are concentrated in Delaware and Texas. Those judges are extremely experienced and have not granted a lot of those motions.

OVERSON: I agree, except in cases when you are dealing with a newer judge or a judge who is not familiar with patent laws. They have much more discretion than the judge used to have, which allows the lawyers to get more creative.

FRIEL: As a result, attorney behavior is at times better in some districts than others. In a court where attorneys know what the standards are and what is expected of them, they recognize that they will face consequences for deviating from those standards, as opposed to when they are in front of a judge in a district with less experience.

OVERSON: At the end of the day, something has to improve. A recent PricewaterhouseCoopers study found that the Federal Circuit overturns damages-related decisions 80 percent of the time. So something has to get better.

KICHAVEN: Venue and forum selection have been underlying issues in much of our discussion. Is some venue and forum selection reform in order?

OVERSON: If you look at the statistics last year, it was the biggest year for the Eastern District of Texas ever. 44 percent of the cases in 2015 were filed there. And if I recall correctly, it used to be that Delaware and Texas were closer in their filing numbers. But last year it was triple the number in the Eastern District of Texas compared to Delaware.

I am not sure we can rely on the courts to fix this. Congress should legislate it and change the venue rules so there is a better tie to where you are filing.

POWERS: But qualitatively what is being filed in those venues has changed.  The cases there are typically much smaller and are not cases against large California-based tech companies. I think the courts have largely fixed the issue. Sure, there are many people who incorporate down there and sue everybody in sight, but those are not the big-time cases—those are bottom-feeder cases.

BETTINGER: It really comes down to a policy decision: do we want the majority of our patent cases in the United States tried in the Eastern District of Texas?  And you can even narrow it further and say Marshall and Tyler, Texas. It does seem a bit odd that, nationally, the majority of patent cases are venued in East Texas. In my view, some more diversity could be beneficial.

FRIEL: I think the sheer number of filings suggests that the issue has not been resolved judicially.  On the other hand, be careful what you wish for. If you’re wishing for venue reform, every time you are in a new court without much patent experience, you will sit there and there will be times when you will wish that you were in front of a familiar judge whom you know understands the issues, someone whom you know would get the case resolved more quickly, rather than a judge or clerk with less patent experience. That is something everybody needs to think about.

There is going to be some kind of reform. It’s either going to stem from the Federal Circuit’s In re: TC Heartland LLC, No. 16-105, decision either from the panel, which seems unlikely; en banc, which is possible; from the U.S. Supreme Court, which is also possible; or Congress. We will have to adapt to that reform, whatever it is.

POWERS: I agree. We should all want to have judges who are experienced in handling patent cases. There is an irony here that many people have called for a number of years for a patent-specific trial court because the subject matter is so complicated. You want people who are deeply familiar with patent law, where that’s what they do most of the time. Well, the closest we have to that is the Eastern District of Texas.

There’s an underlying assumption in the room and in the community at large that the Eastern District of Texas decision-making is qualitatively worse than elsewhere, and I disagree with that. They know the law cold. They call balls and strikes as they see them. They have more respect for the role of the jury than others do.

Judges have gone too far in trying to be active and get rid of patent cases. Their job is not to get rid of patent cases. Their job is to decide the cases in front of them. And that’s what I think happens in the Eastern District of Texas. And you could find a stray decision that you don’t like here or there in any court. But overall as a body of work, that court is superb.

OVERSON: There’s no doubt that the judges have a high level of experience given the quantity of patent cases in the Eastern District of Texas, but given the extraordinary number of cases before each judge, the issue is whether you can even get a ruling on any motions.

So Matt [Powers] is right: the philosophy in the Eastern District of Texas is you go to trial. And then when you go to trial, you are letting juries—often people who have nothing beyond high school education—decide IP issues of the hardest kind. I do not think any other country in the world would ever let this happen. It really is a problem.

FRIEL: I tried a case recently where the client was schooled in the British legal system and their general counsel was a barrister, and he had the same reaction to having a jury try a patent case that you just espoused.

After the trial was over, he came around and said “I’ve been humbled by this.” Three of the jurors were gardeners and housewives. The client and general counsel were so impressed by the jurors throughout the trial because of how hard they worked to understand everything.  The jurors had 20 pages of special interrogatories to get through, and they carefully worked through them. The CEO and the general counsel were both impressed and humbled by the process. So we have a system that may not be perfect, but I have become a fan of it, and I think it does work.

MARINO: I have had the same experience with clients from jurisdictions where there is no such thing as jury law. They come in very skeptically saying, “We have experts decide this.” But then they go through a trial or two and they become believers in the jury system.

I almost think it would be more dangerous when you have an expert on the jury because you lose the benefit of the jury system: a group of people applying common sense to assess credibility of witnesses and other issues. It is possible to do some social engineering at the edges of the system, but I do not think you can drastically overturn it.

BETTINGER: We should keep the juries broad-based, from all walks of life. I am a big believer in juries. In my experience, juries tend to get it right if the ground rules are set out properly and if they are free to share their thoughts with one another during deliberation.

At a policy level, it seems a little odd that we are in Marshall and Tyler, Texas for the majority of our patent cases. It makes sense to me that you would want to broaden that decision-making on a more national scale.

MARINO: The idea of a dedicated patent court is interesting because we actually have something like that in the PTAB. In the PTAB we have close to about 300 patent litigators who are made administrative patent judges. But Congress made a decision to substantially limit the jurisdiction that court can have by adopting different standards. It raises an interesting patent reform question: should there be reform that makes PTAB decision-making more applicable to district court litigation?

KICHAVEN: Let’s explore that. Let’s discuss the issue of claim construction, and the standards that are used in district courts, the standards that are used in the PTAB and how these proceedings interrelate with each other. Is it working well?

MARINO: Some of the Patent Reform Act efforts have tried to bring the PTAB and district court decision-making processes more in line with each other. As a result, you see a lot more district court judges stay the case, particularly the ones who do not get patent cases every day. If they are given the opportunity, they let the PTAB make the initial decision and then apply that decision, and it may or may not lead to a desirable outcome.

I think there is a pretty good case to be made that district courts that do not get many patent cases benefit from having that early decision made by a court with an expertise in the subject matter.

FRIEL: The PTAB’s broadest reasonable interpretation standard helps the challenger to the patent and would likely invalidate more claims than if you used a district court standard. Maybe that is not an inappropriate way to do it. It seems to me more of a policy issue as to what you choose.

POWERS: Having validity decided under the PTAB is easier to invalidate than in district court in light of Fresenius USA, Inc. v. Baxter International, Inc. (Fresenius II), No. 12-1334 (Fed. Cir. July 2, 2013). When you have parallel proceedings going forward, if the PTAB hits the Federal Circuit first before the district court, the PTAB will trump, even though it is being decided under a different test. And that to me is a problem once the patent issues, because then it is a property right.

It seems reasonable and fair to judge it under that harsher standard before the patent issues. That is fine with me. But once it is issued and you have launched an infringement allegation based on it in district court, I do not think it is appropriate that that property right can be taken away under a standard that is different from what should be applied in the district court. That seems fundamentally wrong.

OVERSON: In my own experience, I do not come across many claim construction issues that cannot be resolved with the intrinsic evidence. The judges almost always want to stick to the intrinsic evidence. They do not want to hear from experts coming in live. Rarely do I come across a judge who encourages or even permits that. I don’t think on the whole that extrinsic evidence is going to have that much of an impact.

MARINO: To me the surprising result of Teva Pharma. USA, Inc. v. Sandoz, Inc., 574 US ___ (2015) was that the whole point of it was to give more deference to district court decisions on claim construction. Judges could have availed themselves of that procedural mechanism by making findings of fact as part of their claim construction and calling them findings of fact. Everybody was expecting that to happen. But I think we all agree from experience that that has not been the case.

BETTINGER: The issue I see with claim construction in district courts is it is now just a starting point. The parties dispute a term and the judge selects one of the proposed constructions, or maybe crafts a new construction that is a variation of what’s been proposed. Then the fight is about the judge’s construction and what it means.

The problem is that not all of the issues are fully briefed and considered at claim construction. What happens is they are then confronted at trial with a slightly different construction in the middle of trial, and may respond, “Well, that is reasonable” or “That seems to be within what my construction meant.” This on-the-fly process does not have the same rigorous analysis that the claim construction hearing itself does with the particular term. And so it seems to me that claim construction at district courts has become a first step in an ongoing process.

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