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Intellectual Property Roundtable

A patent law update with Baker Botts, Bunsow De Mory Smith, Cooley, Keker & Van Nest, McDermott Will & Emery, and Tensegrity Law Group.

January 2017

Participants

Christa Anderson

Christa Anderson, a partner in the San Francisco office of Keker & Van Nest, handles complex and high-stakes business litigation for some of the country’s top corporations, including Google, SanDisk, Broadcom, American Honda, Sutter Health and Intel. She has extensive experience in the areas of intellectual property (patent, copyright and trademark), breach of contract, antitrust, business torts and class actions. Ms. Anderson has litigated, mediated and tried cases in federal courts around the country (including California, Texas, and Virginia), as well as in California state court.

canderson@kvn.com
http://www.kvn.com/
Denise De Mory

Denise De Mory, the managing partner of Bunsow De Mory Smith & Allison, has litigated patent cases involving wireless handset and base station technology, WiFi and WiMax, semiconductor fabrication, circuit layout, circuit design software, database software, operating systems, medical devices, and other technology. Ms. De Mory’s experience includes a patent trial verdict for her client of $61.3 million relating to cellular technology. She also has tried many other patent cases, as well as trademark and employment cases.

ddemory@bdiplaw.com
http://www.bdiplaw.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
G. Hopkins Guy, III

G. Hopkins Guy, III is a litigation partner in the Palo Alto office of Baker Botts. His practice focuses on patent, trade secret and commercial contract litigation involving all areas of web-based telecommunications, electronics and computer technologies. He also provides intellectual property counsel to technology companies from start-up to mature companies, particularly in the communications, software and tech industries. His intellectual property litigation experience includes all phases of discovery, prior art research, pretrial, jury and bench trial work, all phases of trial work, post trial motions and appeals before the Federal Circuit.

hop.guy@bakerbotts.com
http://www.bakerbotts.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
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/

The tide may be turning in the Section 101 landscape and it is making waves in the patent practice area. The Federal Circuit’s latest rulings on the issue—Enfish v. Microsoft Corp., BASCOM Global Internet Services v. AT&T Mobility, and McRO v. Bandai Namco Games America—possibly signal a new direction for patent eligibility in a post-Alice era. On the damages front, the U.S. Supreme Court grabbed headlines with its highly anticipated ruling in Samsung Electronics v. Apple, the first design patent case to be examined by the Court in over a century. Our panel of experts discussed these issues as well as patent trends on the horizon in 2017.

California Lawyer met for an update with panelists Christa Anderson of Keker & Van Nest; Denise De Mory of Bunsow De Mory Smith & Allison; Thomas J. Friel of Cooley; G. Hopkins Guy, III of Baker Botts; Fabio E. Marino of McDermott Will & Emery; and Matthew D. Powers of Tensegrity Law Group. The roundtable was co-moderated by independent mediator Jeff Kichaven with California Lawyer.

JEFF KICHAVEN: Have the Federal Circuit’s rulings in Enfish v. Microsoft Corp., 822 F.3d 1327 (Fed. Cir. 2016), BASCOM Global Internet Services v. AT&T Mobility, 827 F.3d 1341 (Fed. Cir. 2016) and McRO v. Bandai Namco Games America, No. 15-1080 (Fed. Cir. Sept. 13, 2016), significantly changed the landscape on Section 101 jurisprudence and patent eligibility?

MATTHEW D. POWERS: From the date of the decision in Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 134 S. Ct. 2347 (2014), until a year ago, there were approximately a total of 200 decisions on 101 motions, and 148 of those killed the patents at issue. The win or loss rate, depending on your perspective, was 74 percent from that period. We had one Federal Circuit decision finding eligibility and dozens going the other way. That case was DDR Holdings v. Hotels.Com, 773 F.3d 1245 (Fed. Cir. 2014), and everybody was trying to link themselves to DDR, but one data point is hard to project from to make a trend.

Now we’ve got the several decisions you listed. It has flipped, which is interesting. Since September, more decisions finding patent eligibility have been handed down than the other way. It has flipped from 74 percent killing patents to over 50 percent sustaining patents and that’s in part because of Enfish and those other decisions.

In part, it’s because the low-hanging fruit of business method patents are no longer being challenged, and different technologies are being brought in. But the trend is clearly there at the district court level. The Federal Circuit is still lopsided, but that is just a function of the time period of getting cases up to them, and I think that’s going to get sustained as well as we move forward. So the stats are interesting.

G. HOPKINS GUY, III: In BASCOM, we are seeing a bit of a headwind from certain Federal Circuit panelists that seem to dislike Section 101 and if you look at BASCOM, for instance, that was a classic circumstance in which it came up as a motion to dismiss early in the case, but they vacated the decision with a remand back for further findings, which is a very curious result if it’s a matter of law. The Federal Circuit should have decided it and yet there is implicit in 101 and in what Alice decided that there’s this, “you know it when you see it” analysis.

Does this mean there is a 103 analysis that needs to take place before 101? It is an indication of what we may see in the future is that there’s an underlying fact issue that might need to be resolved about what that might be.

FABIO E. MARINO: I agree. Enfish added a more definite test for the first prong of Alice. In other words, if the idea is directed at improving the technology, under Enfish, it will not be an abstract idea. If it’s just using a computer in its ordinary course to carry on some process, it will depend on the second part of the test. So there is at least some form of an analytic framework set forth in Enfish.

In BASCOM, which deals with the second prong, you have more of the “I know it when I see it” analysis. That’s where I think we are starting to see the Rule 12(b)6 motions being denied as premature, because how is the court—as a matter of law—supposed to decide that second prong without some factual record, for example, to compare the normal combination of elements vis-à-vis the prior act, if you don’t have what the prior act is in the record? I agree, there’s going to be a trend for the second prong to delay in a lot of cases the decision-making to a later stage of the case.

THOMAS J. FRIEL: Enfish is one of my firm’s cases. To me, one of the more significant things about it is that it answered a question many practitioners had: Is software ever patentable anymore? And now we know because of the way the court applied the test—and said no, step one is not automatic—that software can be patentable in certain circumstances. I also think that Enfish, DDR, BASCOM, and McRO have all given patent owners some tools in pleading to help them avoid 12(b)6 motions. You see complaints now that are much more directed in terms of putting in facts and statements from a specification.

DENISE DE MORY: McRO, like DDR, might be a sign that tide is changing. At a minimum, it does give patentees something else to talk about. Looking at that opinion, which contains images and a detailed discussion of the teachings of the patent, it is clear that a lot of work went into educating the Federal Circuit about the state of the art and exactly what the patent claimed as an improvement over the prior art. One might dispute whether the claims, or the lack of specificity regarding the claimed rules that comprised the alleged improvement over the art in that case meet the 101 two-part test, but at least this case gives patentees a better roadmap.  It is interesting, though, that what the court really appears to be talking about are 103 and 112 issues.

GUY: I would add that even for patent applications, I’m already putting support in the background for exactly that reason.

FRIEL: That tactic is very interesting. But in some cases, you’ll see practitioners take advantage of those techniques and make it extremely difficult for a judge—even one who thinks there’s no patentable subject matter—to make the decision because of the peculiar and stringent rules of Rule 12(b)6 in that you have to take all of the facts that are pled as true. That’s your opportunity as the patent owner framing the complaint. You also have to make all inferences in favor of the patent owner, and that makes it pretty difficult with an artfully pled complaint unlike we used to do under Form 18.

CHRISTA ANDERSON:  I agree that patent owners will try (and are trying) to take advantage of these recent decisions by including expansive discussions in the patent specifications and in complaints in order to protect their patents and defend against Rule 12(b)(6) motions.  Theoretically, this might discourage some from pursuing patent rights in ineligible subject matter. But, on balance (like some other procedural rules), I expect this will have the effect of pushing resolution of 101 issues to significantly later in the case, such as at summary judgment, given the generally difficult standards to be met on a motion to dismiss.

POWERS: On step one, the Federal Circuit has basically thrown up its hands and said, “We are not going to give you a test for defining what is or is not an abstract idea. You have to go look at our prior cases and analogize to them,” and the problem with that is there are widely varying panel decisions based on the decisions of predilections and predispositions of individual panel members.

The Federal Circuit is pretty fractured on 101 law. Some believe 101 should be killing everything and some are more neutral and some are on the other end of the spectrum. So when you have widely varying panel decisions that are dramatically inconsistent with each other and you are telling the world, “Use our past decisions as a guide,” then everybody can find something for themselves to look at and there’s really no effective guidance to the district courts who are trying to decide these motions. And at some point, that has got to go away and the inconsistency at the Federal Circuit is itself a bigger problem here because of the failure to give real guidance.

GUY: We are not going to get any guidance from the Supreme Court on that issue anytime soon.

DE MORY: The Federal Circuit law on Section 101 is fractured, but what I find most interesting about these most recent cases is the move back toward analyzing preemption in these cases, which I think is where the analysis should move. If we go back to Mayo Collaborative Services v. Prometheus Labs, 132 S. Ct. 1289 (2012), and the cases it relies on, the tests we are now applying were formulated to address preemption—namely the concern that no patents should be allowed that preempt the ability of others to innovate in a particular area. In other words, one cannot claim a law of nature, natural phenomena, or abstract idea. This fundamental concern is said in later cases to be subsumed within the Mayo test. Thus, the Court need not analyze preemption separately; the Court just needs to apply the Mayo test. But the problem is, in application the Mayo test has not really addressed the fundamental underlying preemption issue.   It seems that the analysis should begin and end with whether a patent preempts a particular field, and I know the recent discussions in Enfish and other cases about “inventive concept” is trying to get us there, but I am not sure the test is formulated in a way that it can be applied to reach the core preemption issue yet.

POWERS: One other factor that doesn’t get a lot of attention in the cases, but I think is the realpolitik of 101 decisions, is the dissonance between broad claims and skimpy disclosures. It doesn’t fit neatly into any of the topics or decisions that are coming down, but if you sit back and watch what is happening and read the specs and read the decisions, there’s a basic discomfort certainly at the Federal Circuit level with allowing fairly broad claims that aren’t supported by very specific disclosures. When that is the case, they’ll find a way to kill the patent, but they are killing the patent because of that discomfort, not because they are following a specific analytic pathway that is applicable to other cases.

MARINO: In part, I think it is human nature. Judges ask themselves a central question: Is it a true invention? In some cases, we’ll have judges less comfortable in the presence of a skimpy disclosure and a very broad claim saying, “I don’t feel comfortable approving this invention,” whereas if you have a technology they are more familiar with or a very thorough disclosure that looks like a true invention and a commensurate claim in scope, they have a much stronger feeling that it is a true invention. I think that’s what we are seeing.

DE MORY:  Yes, I agree with Fabio Marino, but I also think it took practitioners who were advocating in favor of patents some time to come up with a formula on how to argue these cases—irrespective of the robustness of the patent’s disclosure, to educate a court on the particular patent’s underlying state of the art in order to improve the chances that a judge will understand the claimed advances in the challenged patent.

GUY: If you go back to the history about software patent prosecution, there was a general view to never claim the invention in specific detail because you would assume that anybody with a software background could design around it pretty easily. So patent practitioners in the software field believed they had to figure out a way to broadly claim their invention in order to prevent the “design around” threat.

The reason there are so many 101 cases immediately following Alice is there has been a cleaning out of that practice. Over time, you are going to see that practice fall off as people recognize that they can’t bring those kinds of cases. But it is something that I certainly saw and I think that 101 was in response to that.

KICHAVEN: So if it’s now premature to adjudicate this at the pleading stage, can we now anticipate an onslaught of summary judgment motions on these issues? What advice do you have for practitioners on figuring out how to get these matters adjudicated?

GUY: To some extent, people are trying to handle it at the Markman stage, although it doesn’t necessarily fit there, but I think that is an idea because you are considering matters of law and you try to flesh that out, but eventually it will go to summary judgment if there’s a triable issue.

ANDERSON:  I agree that it is likely these 101 disputes will now often slip to the summary judgment stage. And this can be a problem because many courts are reluctant to allow defendants to bring more than one summary judgment motion. As a result, that one summary judgment motion (addressing other issues like noninfringement) won’t be filed until the last possible moment in a case.  In light of these recent 101 decisions, it may be that courts will be more willing to allow a defendant to bring a summary judgment motion on patent eligibility at an earlier stage given the efficiencies of resolving patent ineligibility early in the case, and allow a later summary judgment on other issues at the end of discovery.

FRIEL: Patent owners should try to make sure that there are material issues of fact to block any such motion, and of course an accused will do the opposite. The question then becomes who decides this? Classically, if it’s a question of law with underlying questions of fact, the facts would have to go to a jury. I’m not aware of any case where that’s happened yet. I’m sure there have been a few and I’m sure there will be some in the future as lawyers adapt to these rules and figure out that the rules are actually tools to try the case.

DE MORY: Given the emphasis on the 101 issues as a question of law, and the fact that these issues are often raised at the pleading stage, the records typically have not been developed sufficiently to find a question of fact. But I suspect that we will see expert declarations and other factual submissions that seek to push these issues to summary judgment or trial. I have already seen some of this.

POWERS: It will be fascinating to see what jury instruction you will craft because no one really knows what factual elements of a 101 analysis are.

KICHAVEN: In BASCOM, did the unique arrangement of conventional steps make the invention patent eligible?

GUY: The court didn’t answer that question. It remanded it back. That is what is interesting: It would be a question of fact for the jury possibly if the court can’t resolve it.

POWERS: What is the jury deciding? No one knows the answer to that question.

MARINO: You have to instruct the jury on what conventional means, and right now we have no guidance on it from any appellate or district court.

GUY: I would hope that Section 101 can be handled as a matter of law by the court without a jury. That would seem to me the right direction. But I don’t know if we are heading in that direction.

POWERS: It’s a fascinating issue. Some of the most illuminating cases are going to push the boundaries. There are going to be places where the 101 issue goes to the jury, with jury instructions and findings that will put a very fine point on what the Federal Circuit has to decide, which has blown by a lot of these cases about what’s factual and what’s not.

DE MORY: The BASCOM court commented that the district court’s analysis looked like a 103 analysis, but then went on to say that the 103-like analysis was incomplete as it relates to inventive concept under 101. The court noted that the district court did not consider whether the ordered combination of known steps was non-conventional, or in other words, inventive. It is hard to see how the “inventive conception” test is different from a 103 analysis, at least for a combination of known steps. Interestingly, the court also commented that the record before it, which obviously included the patent itself, was “limited,” suggesting that the parties should be submitting something more than just the patent for a complete 101 analysis, which seems contrary to this being solely a question of law.

MARINO: Given the circumstances we have, if you are the patentee in a patent case and you have a patent that’s going to be subject to 101, you have to do everything you can to educate the court as early as possible in the process as to the merits of the technology and the invention. At the end of the day, that will make or break your case.

If you are the defendant, you want to minimize the invention as early as possible. We see that in the first few cases that were filed under Alice where the defendants would always come out with an analogy making it sound like you are trying to patent warm water and a lot of the judges went along with it initially. So that’s really the game that’s being played right now. For the second prong, the procedure and the case law still need to develop. It may take trials and it may take jury instructions to get there.

POWERS: There are about 300 decisions killing patents under 101 and no matter what your point on the ideological spectrum or plaintiff-defendant spectrum, everyone agrees that a large number of those went the wrong way and it’s affecting litigation. There should be a legislative solution to eliminate Section 101. Sections 103, 102, and 112 capture the things that are the basis for patentability.

KICHAVEN: So you are with Judge Newman and her concurrence in BASCOM?

POWERS:  I am. I think 101 is not worth the mischief and damage that it’s causing legally and technologically.

KICHAVEN: In the realm of damages, what are the takeaways from the U.S. Supreme Court’s decision in Samsung Electronics v. Apple, 580 U. S. ____ (2016), which reversed Apple’s $399 million jury verdict for infringement of a design patent?

MARINO: The Court did not really decide the issue. It decided that the article of manufacture for this particular statute that deals just with design patents can be either the whole thing that you sell or a component thereof and then they remanded it to the Federal Circuit. That doesn’t really answer the question.

The challenging issue in this case is that Apple sells a phone as a unit. Consumers cannot buy most of the components separately, which should be the right place to determine which definition of article applies for this particular damage analysis and calculation. It’s a helpful decision that makes sense on its face, but it doesn’t actually answer the ultimate question: How should the Federal Circuit or a district court actually assess damages for this particular case?

ANDERSON:  I agree that the decision decides relatively little. Aside from rejecting the argument that a patent holder is entitled to the total profit from the end accused product (as opposed to a component of the product) in design patent cases, the Supreme Court left the resolution of its application in Samsung to the trial court. And the Court noted that it would not even specify the test the lower court should use in determining whether the relevant article of manufacture is the end product or a particular component of it because it had not been an issue briefed by the parties.

POWERS: The impact of this decision is going to be fairly narrow. It’s merely going to nip in the bud the nascent enthusiasm for design patents that had been dormant for a hundred years. Design patents have not been a substantial feature of the landscape for a very long time. People all of a sudden got excited when they realized they might offer a different damages pathway now that the damages for utility patents are under attack. So I think the actual impact will be quite modest.

GUY: How many people here have a design patent case right now? Not me.

MARINO: Not me.

POWERS: Not me.

FRIEL: Not me. I’ve had maybe one or two in my career.

DE MORY:  Not me. And, I’ve never had one in twenty-three years.

GUY: Enough said.

FRIEL: To add to the point Matt [Powers] made, design patents looked like a great opportunity as compared to the chaos we have had in the utility patent space because design patent infringement leads to an award of profits. What the Supreme Court said is basically we are going to limit damages for design patents, too. I expect that courts will apply jurisprudence that has been emerging for utility patents to design patents.

DE MORY: The real impact of this case is likely that it will curtail the onslaught of design patent cases, so we will not see something like the litany of failure-to-mark cases that we saw a few years back.

POWERS: To me, the more interesting questions are the developments in utility patents under patent law. One of the big questions is what is the proper role of a district judge as gatekeeper under Daubert? How far does that go? I don’t think there’s any legitimate question that a lot of judges have intruded into the province of the jury in deciding what the right result is as opposed to limiting themselves to the proper gatekeeping of Daubert.

MARINO: First, everybody was complaining that courts weren’t active enough in policing damages reports that were being presented to juries and now I think we are seeing the pendulum swing the other way. The Daubert standard did not spring from patent law or economic analysis. It came from criminal cases to sort out which scientific evidence a court should allow the jury to hear because a jury of lay people will be unduly influenced by experts if that theory isn’t universally accepted. Unfortunately, that does not work in the field of patent damages.

Damages experts should promulgate some better articulation of what a reasonable standard should be so the judges have something to compare to. That way, they are not left calling balls and strikes depending on how they feel that day.

GUY: My cases are almost all in tech, so I am often dealing with a battle against the plaintiff trying to apply the entire market value rule against a proper incremental analysis on behalf of the defendant. We had some clarity for a moment in time and then, more than a year ago, CSIRO v. Cisco Sys., 809 F.3d 1295 (Fed. Cir. 2015), basically said that if there was a prior negotiation in which some fact arguably could be used as indicating that they had used the entire market value of something for something else, then suddenly that opens the door and you can put on that analysis. That decision opens it up to yet another “totality of the circumstances” test under patent law that you can go dig into anything and hopefully you can find something to hang your entire market value hat on.

But it is creating very interesting dynamics in pre-suit negotiations and in settlement discussions about whether or not those are going to be opened up as they were in that case. At the moment, we have what seems to be a relatively clear rule, and yet suddenly it has become murky again.

FRIEL: We’ve seen lots of cases that guide us on what not to do. There are lots of damages case pitfalls out there but there’s darn little guidance as to what to do. Hop [Guy], what you just recited is true: whether you represent patent owners or accused infringers, everybody has to live with these rules.

Just recently, I heard judges at a conference lamenting that the issue of damages reaches them when they are ruling on in limine motions and it’s almost always, at that point, too late to fix it. You have the pressure of a trial date and you just want to keep things moving. You don’t get a redo on damages for one side or the other if mistakes have been made. The judges were remarking that this can lead to lots of unfairness and extreme results. I think probably everybody at this table has seen the result of that firsthand—for example, having a damages expert struck on the eve of trial. There are not any rules and there is not much guidance on it.

KICHAVEN: How do you get by without a damages expert?

FRIEL: Well, in one particular case, we had a client witness testify as to prior sales of similar products and fortunately they had a price list that they used to use. We analogized to some of the items on the price list as being equivalent to the infringing goods and that set a price. So then we had a base, and that’s how we did it. We put the prices on a chart for the jurors without an expert. Interestingly, one of the judges that spoke at that conference was the trial judge and he said that he didn’t see why lawyers were so obsessed with having a damages expert. Maybe it’s better to have your own client get up and say, “This is what I would have paid and this is what I would have taken in a hypothetical negotiation.” Very sage comments.

ANDERSON:  Especially in the last several years, I have seen a number of plaintiffs offering damages opinions that fly in the face of appellate decisions governing damages issues, including damages expert opinions that appear to ignore the rules about what analysis must be done.  That is especially true when it comes to plaintiff experts performing an apportionment; it seems many simply wave their hands and state that an apportionment has been performed without actually doing one.  In order to avoid the problem of these issues being raised right on the eve of trial, some courts now require damages Daubert challenges to be brought at a significantly earlier point than other motions in limine or Daubert challenges.  That gives time for the court to really understand and evaluate the legal soundness of damages opinions that are often extremely complex before they are ever presented to a jury.

DE MORY: Yes, what remains fascinating is that the case law seems entirely divorced from what happens in real life negotiations, either in litigation or in license negotiations that occur outside the context of litigation. Maybe that is because of the focus on presenting damages through experts who are not involved in the business of the parties. In reality, it is a very rare case where the resolution of a patent case, or a license agreement negotiated without litigation, will assign any value for one, or even a handful, of patents. The reality is that companies agree to a particular price for peace with each other for a certain period of time and of a specific scope, regardless of whether the discussions focus on one or ten patents. Sometimes that price relates to avoiding the cost of litigation, other times that price relates to the risk of litigation, and yet other times, the price relates to other entirely commercial considerations. The only way these realities currently come into play is if there has been a prior history for a particular patent or between the parties, but perhaps these realities should be the focus of the analysis, regardless of whether a patent has been asserted or licensed in the past.

MARINO: Going back to Hop Guy’s comments, I think the entire market value rule creates an interesting problem, which is most of the real world licenses are based on the real world market. It’s a percentage of total sales. So we have a rule that makes perfect sense from the legal standpoint. You only get to apply the entire market value of the product if the patent did drive sales, but in practice, it disqualified 99 percent of existing licenses; and the other side of the test was you have to find comparable licenses, so you end up in a situation where nobody was happy and then you could disregard the great majority of the evidence to comply with the rule.

So that’s an analytic framework that needs to evolve and I think CSIRO opened up a little bit of the avenue to get in some of the licenses that actually belong in the industry. I think that that whole reasonable royalty area is a work in progress.

KICHAVEN: What impacts are you seeing from the U.S. Supreme Court’s ruling in Halo Electronics v. Pulse Electronics and Stryker Corp. v. Zimmer Inc., 579 U. S. ____ (2016)?

GUY: In addition to broadening out the scope of conduct that could support willful infringement, Halo and Stryker lowered the standard of proof from clear and convincing to a preponderance of the evidence. That has created a free-for-all of what can be brought in as willful infringement evidence. As long as the defendant was on notice of patent infringement, I think pretty much anything goes. This has resulted in some interesting examination techniques of all the defendants’ witnesses.

For example, in a recent case, every witness was asked whether they had read the patent, whether they formed their own opinion about infringement, and whether they knew that patents were freely available online and that you could review them. The jury didn’t understand why these particular witnesses had refused to review and consider the patent, which is kind of the old way of approaching willful infringement. That’s a fundamental practice change that’s come about due to Halo. Now you need to have almost any witness on the defense side review the patent, have their own views about it and be able to present some good faith belief that either they didn’t infringe or the patent was invalid.

FRIEL: Some counterpoint to that, though, is that among the questions that you ask each potential witness on the defense side is, “This is a legal matter, right? This is a complicated document. Did you seek advice of counsel?” And when they say, “No,” that answer becomes significant. So I think there’s some tempering there. I do think we will see a resurgence of that type of hiring of lawyers and at least consulting lawyers—maybe not getting a bound opinion—but at least so these witnesses can say, “I had questions. I went to our in hose counsel and I asked them. He told me, ‘Don’t worry about it.’”

As I read Halo and Stryker, every day is a new day for willfulness. Put another way, it is one thing to look at it before the patents are asserted and another thing to look at it after Markman, and another thing to look at it after inter partes reviews are refused to be instituted. These cases are going to work their way through and I don’t know what the jury instructions are going to look like. It will be very interesting.

ANDERSON: In addition to the effect of these decisions on questioning that will be faced by witnesses at trial, there is the more general effect on settlement negotiations. Halo and Stryker are making plaintiffs more bullish in the kinds of numbers they demand to resolve cases, even if their particular case is not realistically the kind that would satisfy the still-high standard for a willfulness finding. This will likely lead to more cases going to trial because the gap for resolution is simply too large to bridge. I also agree with the point that we are seeing more defendants take more seriously the option of obtaining some kind of opinion of counsel, which in turn creates a host of issues for trial counsel on the fronts of privilege waiver and the like.

POWERS: After a period where there’s uncertainty, I think the only real change from Halo and Stryker is that bad cases of willfulness where there are actual facts of willfulness will now go to a jury that didn’t under the objective prong of Seagate. And we are not just talking about pure knock-off artists that do it deliberately. There are companies that do NDAs with other companies and then say, “I can do it better,” and really do it—companies that are definitely aware, and exposed to the technology and the patents. Those companies have been getting off because of Seagate’s objective prong, but now they won’t—and they shouldn’t.

MARINO: That raises an interesting question: Should we allow efficient patent infringement? I focus on competitor-competitor situations and I have seen defendants continue to infringe throughout the case and even after the jury verdict. They clearly made a decision that they were going to pay us less in damages than the profit they were going to make on the product through the period of infringement. As a policy matter, is that something that should be allowed or should it be discouraged using tools such as willfulness.

GUY: One thing I have noticed is that since Halo and Stryker came out and said it’s highly discretionary with the trial court, I have noticed that even in plaintiff-friendly jurisdictions, the increases have been relatively modest.

Even when there is a finding of willfulness, and indication of some egregious conduct, you are seeing a 20 percent increase—even though the court can increase it by two times. So it remains to be seen whether or not this is going to be the huge multiplier that it was back in the early 1990s when the judge would get a willfulness finding and kind of look at it and say, “It seems like I’m supposed to treble it right now,” and that’s what they often did. I’m trying to think since Halo whether there’s been a case of trebling. I can’t think of one.

DE MORY: Yes, it seems that under these cases, the bar has been lowered for what evidence will be allowed—which will allow for more creative trial practice on both sides of the courtroom, but that the ultimate impact will be minimal if the increases remain modest. Given the current environment, it will likely require a very special case to get back the trebling we saw many years ago.

KICHAVEN: Let’s turn briefly to the 2015 amendments to the Federal Rules of Civil Procedure and their impact on discovery practices. How have they changed the conduct of discovery in the patent cases you handle?

MARINO: Interestingly enough, some judges said at an event that I attended that they have not seen an onslaught of 12(b)(6) motions from a failure to comply with Iqbal, and that they were actually happy about that. That was the biggest change from the traditional rule, but it is not what actually happened, and actually I am a little surprised by that, not so much for the claim as a whole, but for willfulness and inducement in particular. And that could be pled and was subject to 12(b)(6) motions before the amendment and you would think after the amendment there would be an increase but that didn’t happen. Probably people are drafting better complaints.

DE MORY: People are drafting better complaints. That is a positive result of the changes.  Plaintiffs are doing their homework, and defendants have a clearer sense of what claims and theories are at issue early on. Hopefully this will improve the practice overall—plaintiffs will examine their claims more closely early before filing, but at the same time, depending on how quickly a plaintiff can move in a particular venue, defendants who were not put on notice of infringement may find themselves under more pressure early.

ANDERSON:  I agree that I am seeing that complaints are typically better pleaded than they were before these changes. And, relatedly, I am not seeing as many Iqbal motions filed as folks had expected.

KICHAVEN: What are some issues you see on the horizon in 2017? 

FRIEL: The effect of the Administrative Procedure Act and IPR’s on the estoppel provisions of the America Invents Act. The rule now is that if the challenge on a patent isn’t even taken up, there’s no estoppel, which is an odd result. But if you challenge the patent, the question is how far does the estoppel go? Some cases dealing with this issue are starting to work their way through.

POWERS: It’s pretty unsettled, but I agree that the estoppel effect is getting too narrow. If you look at the legislative history, the procedure was justified at least in part by saying we really are going to save district court time even for cases that go back.

GUY: I’m seeing cases in which there was a stay request outside of California not really being made until there is an institution on the IPR and so there really isn’t a whole lot of basis, I think, to support a broader estoppel in that circumstance where you haven’t asked for the stay. You haven’t slowed things down. You’ve started a parallel process and the PTAB has declined to take it up and there’s no appeal. As long as you have no appeal and then that’s probably about right, particularly if you haven’t asked for the stay.

MARINO: To me the interesting thing is that language in the statute could have been raised, but nobody ever wanted to find out what it meant. Finally they answered and said no, things were actually adjudicated, and I think it is probably the right result.

GUY: Your point is well taken. The reexamination procedure, particularly on ex parte, was you could get hit with seven of them and they would take two or three years a piece and so the estoppel in inter partes reexamination was meant to cut that practice out. But now I think as far as IPR’s, to decide the one year limitation from filing the lawsuit is enough right there and so it’s been solved a different way.

POWERS: Another interesting trend to watch out for, in the IP field generally, is the rise of copyright claims for software from the dead. There are two large cases on this issue. One is Oracle v. Google, 750 F.3d 1339 (2014) with the Federal Circuit interpreting Ninth Circuit law that found that APIs are copyrightable contrary to a lot of prior decisions. That then led to Cisco Systems v. Arista Networks, where the jury just came back for Arista based on the scènes à faire doctrine, and I think we are going to see more of those, particularly as you see patent issues becoming more problematic in various ways. Copyright cases aren’t going to be stayed and there’s a chance for very large damages.

DE MORY:  Yes, in addition to copyright claims, I think we will see plaintiffs trying to add other claims as well, such as contract and trade secret claims where they can find them. Any claim to either broaden the potential scope of protection or to help avoid a stay.

FRIEL: There are lots of creative lawyers in this area of practice and there are lots of creative technologists. If you can find a way to protect your intellectual property, whatever it is, it probably behooves you to think about not just one kind of protection, but to think through all kinds of protections, and help your clients develop and maintain all types of protections.

GUY: I think the appellate role in copyright cases of this ilk is going to be central for some time. Oddly enough, in the Bratz doll case, Bratz was seen as a copyright infringement and trade secret theft with respect to Barbie, but then if you do the abstraction, filtration and comparison analysis under any copyright theory and you pull out the functional elements of something, you are not left with a whole lot. So that’s the debate and unfortunately it look likes it takes an appellate decision in every case to decide them.

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