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Finnegan, Henderson, Farabow, Garrett & Dunner, LLP
Advanced U.S. Patent Litigation Practice
and Strategy
December 25, 2015
Presented by Ming-Tao Yang
2 2
Disclaimer
These materials have been prepared solely for educational and
entertainment purposes to contribute to the understanding of U.S.
intellectual property law. These materials reflect only the personal views of
the authors and are not individualized legal advice. It is understood that
each case is fact specific, and that the appropriate solution in any case will
vary. Therefore, these materials may or may not be relevant to any
particular situation. Thus, the authors, Finnegan, Henderson, Farabow,
Garrett & Dunner, LLP cannot be bound either philosophically or as
representatives of their various present and future clients to the comments
expressed in these materials. The presentation of these materials does not
establish any form of attorney-client relationship with these authors or
Finnegan. While every attempt was made to ensure that these materials
are accurate, errors or omissions may be contained herein, for which any
liability is disclaimed.
3 3
Recent Developments Affecting Foreign Companies
• Infringement risks for component suppliers
• Apportionment possibly new: effects on damages
• Willful infringement: standard for proving willfulness?
• Use of IPRs: strategy, strategy, strategy
• Litigating and licensing “standard essential patents”
(SEPs)
4 4
Component Suppliers’ Infringement Risks
5 5
Component Suppliers’ Infringement Risks
• A defendant can infringe a U.S. patent directly
and/or indirectly
• 35 U.S.C. § 271(a) states: “. . . whoever without
authority makes, uses, offers to sell, or sells any
patented invention within the United States, or
imports into the United States . . . . infringes the
patent.” (direct infringement)
• 35 U.S.C. § 271(b) states: “Whoever actively
induces infringement of a patent shall be liable as
an infringer.” (indirect infringement)
6 6
Direct Infringement by Component Suppliers
• Recently, U.S. court decisions have made it more
difficult for patentees to prove direct infringement
by foreign component suppliers
• Rationale of the decisions: U.S. patents address
only activities within the United States, not
activities abroad
• Power Integrations, Inc. v. Fairchild Semiconductor
Int’l, Inc., 711 F. 3d 1348 (Fed. Cir. 2013) (“It is
axiomatic that U.S. patent law does not operate
extraterritorially to prohibit infringement abroad.”)
7 7
No Direct Infringement for Non-U.S. Activities
• Halo Electronics, Inc. v. Pulse Electronics, Inc.,
769 F. 3d 1371 (Fed. Cir. 2014)
– Facts (Pulse activities outside the U.S.)
• Manufactured products in Asia
• Shipped products to customers in Asia, including
OEMs for U.S. companies
• Received the purchase orders in Asia
• Payments made by foreign customers (payments not
made from the U.S.)
8 8
Non-U.S. Sales
• Halo Electronics, Inc. v. Pulse Electronics, Inc.,
769 F.3d 1371 (Fed. Cir. 2014)
– Facts (Pulse activities inside the U.S.)
• Conducted pricing negotiations in the United States
with companies such as Cisco
– Cisco negotiated with Pulse the prices that its contract
manufacturers in Asia would pay when purchasing
component parts from Pulse
– Pulse executed a general agreement with Cisco that set
forth manufacturing capacity, low price warranty, and lead
time terms
9 9
Non-U.S. Sales
• Halo Electronics, Inc. v. Pulse Electronics, Inc.,
769 F.3d 1371 (Fed. Cir. 2014)
– Facts (Pulse activities inside the U.S.)
• Pricing negotiations with Cisco in the U.S.
– Pulse responded to Cisco’s requests for quotes with a
proposed price and minimum quantity for each product
– Cisco issued the agreed-upon price, projected demand, and
percentage allocation to Pulse for each product for the
upcoming quarter
10 10
Non-U.S. Sales
• Halo Electronics, Inc. v. Pulse Electronics, Inc.,
769 F.3d 1371 (Fed. Cir. 2014).
– Facts (Pulse activities inside the U.S.)
• Met regularly with Cisco design engineers
• Sent product samples to Cisco for pre-approval
• Employees attended sales meetings with its U.S.
“customers”
• Provided post-sale support for its products
11 11
Non-U.S. Sales
• Halo Electronics, Inc. v. Pulse Electronics, Inc.,
769 F.3d 1371 (Fe. Cir. 2014)
– Holding
• “When substantial activities of a sales transaction,
including the final formation of a contract for sale
encompassing all essential terms as well as the
delivery and performance under that sales contract,
occur entirely outside the United States [there is no]
‘sale’ within the United States for purposes of the
patent infringement statute.”
12 12
Non-U.S. Sales
• Halo Electronics, Inc. v. Pulse Electronics, Inc.,
769 F.3d 1371 (Fed. Cir. 2014)
– Rationale
• “[S]ubstantial activities of the sales transactions at
issue, in addition to manufacturing and delivery,
occurred outside the United States. Although Halo
did present evidence that pricing negotiations and
certain contracting and marketing activities took place
in the United States, which purportedly resulted in the
purchase orders and sales overseas, as indicated,
such pricing and contracting negotiations alone are
insufficient to constitute a ‘sale’ within the United
States.”
13 13
Non-U.S. Sales
• Halo Electronics, Inc. v. Pulse Electronics, Inc.,
769 F.3d 1371 (Fed. Cir. 2014)
– Rationale
• “Any doubt as to whether Pulse’s contracting
activities in the United States constituted a sale within
the United States under § 271(a) is resolved by the
presumption against extraterritorial application of
United States laws.”
14 14
CMU v. Marvell
Carnegie Mellon University v. Marvell
2015 WL 4639309 (Fed. Cir. August 4, 2015)
– CMU owns patents covering hard-disk drives.
– A jury found Marvell infringed the patents and awarded
$1.17 billion in damages calculated by a reasonable
royalty using a fixed $0.50 per chip sold.
– Marvell appealed the verdict, raising similar
extraterritoriality issues as in Power Integrations and
Halo
15 15
CMU v. Marvell
• Federal Circuit Review:
– The Court affirmed the prohibition against extraterritorial
reach of the U.S. Patent laws
– The Court found that chips imported into the U.S. were
covered by the patent laws and appropriately part of the
royalty base.
– For the remainder of the chips, the Court, however,
remanded the case for further consideration of whether
the chips were sold within the U.S.
16 16
CMU v. Marvell
• Federal Circuit Review:
– One of the circumstance presented in this case is the
concept of a “design win”
– CMU argued that certain activities occurring in the U.S.,
(including customer engineering and provision of
samples) constituted part of the “sales cycle” and
resulted in sales to contract manufacturers overseas
– The Court lacks a full understanding of what was meant
by a “design win,” and whether these circumstances
justified finding the overseas transactions were U.S.
sales, asking that the issue be developed on remand.
17 17
CMU v. Marvell
• Federal Circuit Review:
“The standards for determining where a sale may be
said to occur do not pinpoint a single, universally
applicable fact that determines the answer, and it is
not even settled whether a sale can have more than
one location. . . . Places of seeming relevance include
a place of inking the legal commitment to buy and sell
and a place of delivery,[ ] and perhaps also a place
where other “substantial activities of the sales
transactions” occurred. At this point, we do not settle
on a legal definition or even to say whether any sale
has a unique location.”
18 18
Risk of Induced Infringement
• Foreign component suppliers are often sued for both
direct infringement under § 271(a) and induced
infringement under § 271(b), which occurs where one
company directs or causes another to infringe a U.S.
patent
• Example: a Taiwan company that sells components to a
customer in China may be sued for induced infringement
if those components are incorporated into products sold
in the United States. These lawsuits often come as a
surprise to foreign companies who generally do not sell
in the U.S.
• Another example: risks from indemnity obligations
19 19
• Inducement – entity that does not commit direct
infringement, but asks or induces another to do so
– E.g., sells a product with advertising or instructions
about an infringing use
– Requires direct infringement
• Circumstantial proof showing accused inducing
entity: knew of the patent, and knew that its
activities would lead to infringement of the patent
can establish the requisite intent
– DSU Med. Corp. v. JMS Co., Ltd., 471 F.3d 1293 (Fed.
Cir. 2006)
Indirect Infringement
20 20
Inducement Requires Actual Knowledge or
“Willful Blindness”
• In Global-Tech Appliances, Inc. v. SEB S.A., 131
S. Ct. 2060 (2011), the Supreme Court held that to
“actively induce” infringement of a patent under
§ 271(b), a defendant must either (a) have actual
knowledge that the induced acts constitute
infringement, or (b) be "willfully blind" to the
infringement. Neither recklessness nor negligence
is sufficient for finding induced infringement.
21 21
Brief of Non-Infringement
As Defense to Inducement
• In line with the Court’s holding in Global-Tech
Appliances, Inc. v. SEB S.A., 131 S. Ct. 2060 (2011),
one who has done the proper analysis or reasonably
relies on opinions of counsel to support a belief of non-
infringement may avoid or reduce risks of indirect
infringement liability in later litigation.
• In other words, a good faith belief of non-infringement
may be a defense to an induced infringement claim.
22 22
Belief of Invalidity Does Not Negate Intent
• Commil USA, LLC v. Cisco Systems, Inc., 191 L.
Ed. 2d 883, 891 (U.S. Supreme Ct., May 26, 2015)
• Facts:
– Commil accused Cisco of induced infringement
– Trial #1
• Patent not invalid
• Cisco liable for direct infringement—$3.7 million
• Cisco not liable for induced infringement
– New trial on induced infringement & damages
– Court grants Commil’s motion in limine to preclude Cisco
from presenting belief of invalidity
23 23
Commil v. Cisco (Federal Circuit)
• Facts (cont.):
– Trial #2
• Cisco liable for induced infringement—$63.7 million
– Federal Circuit (720 F.3d 1361) vacated/remanded,
holding:
• Good faith belief of invalidity may negate the requisite intent for
induced infringement
• District court erred by not allowing Cisco to present evidence it
believed the patent was invalid
• Appealed to the Supreme Court
24 24
Commil v. Cisco (Supreme Court)
• Supreme Court (No. 13-896) granted cert:
– Issue: Whether the Federal Circuit erred in holding that
a defendant’s belief that a patent is invalid is a defense
to induced infringement under 35 U.S.C. § 271(b)
– Argument: March 31, 2015
• Held: Reversed. Defendant’s reasonable belief in
invalidity is not a defense to induced infringement,
but a reasonable belief of non-infringement (as
stated in Global-Tech) is still a valid defense
• Dissent said this creates a powerful threat by NPEs
• Majority said there are other ways to deal with them
25 25
Direct vs. Indirect Infringement
• A foreign company not liable for direct infringement
under 271(a) has drastically – reduced liability
– drastically reduce the claimed damages
• Liability under 271(b) for indirect infringement does
not extend to period pre-notice
• However, a supplier’s contractual obligation to
indemnify may expose significant risks
26 26
Indirect Infringement: Strategies
• Noninfringement opinions become critical
– Opinion should be explicit about how claims are being
construed
– Opinion should address the lack of intent for others to
infringe
– Pre-suit opinions are best, when practical
– A well-reasoned opinion likely negates intent for willful
infringement
27 27
Takeaways
• Recent case decisions have made it more difficult
for patentees to prove direct infringement (271(a))
by foreign component supplier where most
accused activities occur abroad (where products
are made, sold, and delivered outside the U.S.)
• Foreign component suppliers are still at risk of
induced infringement (271(b)) where patentee can
show the defendant (a) knew about the patent, and
(b) had the specific intent to cause another
company to directly infringe
• Risk of indemnity obligations remain significant
28 28
Apportionment of Damages
29 29
Apportionment of Damages
• Recent case decisions regarding reasonable
royalties and the apportionment requirement have
been cutting into damages
– Requiring proper apportionment of both royalty base
and royalty rate
– Requiring closer nexus between the patented
technology and both the royalty base and royalty rate
– The “Entire Market Value” (EMV) Rule is a “narrow
exception” to the apportionment requirement
– Effect: decreased damages awards
30 30
35 U.S.C. § 284
• Upon finding for the claimant the court shall
award the claimant damages adequate to
compensate for the infringement, but in no
event less than a reasonable royalty for the use
made of the invention by the infringer . . . .
– A reasonable royalty is the “floor” or lower limit
– “Lost profits” are also available if requirements
(notice, marking, etc.) are met
– Other damages are possible when “adequate to
compensate for the infringement”
31 31
35 U.S.C. § 284
• Types of damages under § 284 may include:
– Lost sales due to competitor’s sales of infringing product
– Price suppression/erosion – reduction in price to
compete with the infringer
• Damages may be large despite small sales by
infringer
– Convoyed sales – lost sales of additional products
coupled with patented product and sold together
– Reasonable royalty (e.g., base times royalty rate, or
lump sum)
32 32
Entire Market Value Rule (EMV)
• Under the EMV rule, damages can be based on
value of the whole article without apportionment.
See Crosby Steam-Gauge & Valve Co. v. Consol.
Safety-Valve Co., 141 U.S. 441, 453 (1891).
– Patented component must be part of a single assembly
of parts or complete machine, or function together as a
unit. Cornell Univ. v. Hewlett-Packard Co., 609 F. Supp.
2d. 279, 286–87 (N.D.N.Y. 2009) (Rader, J.).
– Infringing components must create substantial basis for
product demand. VirnetX, Inc. v. Cisco Sys., Inc., 767
F.3d 1308, 1326–27 (Fed. Cir. 2014).
33 33
Reasonable Royalty
Does
patented
feature drive
demand?
Apportion
royalty base Apply Entire
Market Value
(EMV) • Smallest saleable unit
• Does SSU include other
unpatented features?
• Apportion further
• Avoid rules of thumb (25%)
Determine
reasonable
royalty rate
YES NO
34 34
Apportionment & EMV
“[T]he patentee . . . must in every case give evidence
tending to separate or apportion the defendant’s
profits and the patentee’s damages between the
patented feature and the unpatented features, and
such evidence must be reliable and tangible, and not
conjectural or speculative.”
• Laser Dynamics, Inc. v. Quanta Computer, Inc., 694
F.3d 51, 67 (Fed. Cir. 2012) (quoting Garretson v.
Clark, 111 U.S. 120, 121 (1884)).
35 35
Apportionment & EMV
“The entire market value rule is a narrow exception
to this general rule. If it can be shown that the
patented feature drives the demand for an entire
multi-component product, a patentee may be
awarded damages as a percentage of revenues or
profits attributable to the entire product.”
• Laser Dynamics, 694 F.3d at 67.
36 36
Royalty Based on Usage
• Summit 6, LLC v. Samsung Elec. Co., Ltd., -- F.3d
--, 2015 WL 5515331 (Fed. Cir. Sept. 21, 2015)
– ’482 patent directed to, e.g., sending digital photographs
via text messaging
– Samsung cell phones found to infringe
– Jury verdict awarded $15 million
37 37
Summit 6 v. Samsung
• Summit 6’s damages opinion:
– Determined that camera component of a cell phone accounts for 6.2% of production cost, i.e., $14.15.
– Determined that 20.8% of users utilized the camera for infringing features, instead of other features, and thus $2.93 of the $14.15 revenue was due to infringing features.
– Applied Samsung’s profit margin to the $2.93 base = $0.56.
– Applied Nash Bargaining Solution for a 50/50 split of the $0.56 royalty base.
– Effective royalty rate becomes 3.96%.
– Relied on comparable licensing agreement with RIM.
38 38
Peer Review Not Necessary
• Summit 6’s expert opinion was based on
correlating usage with value (20.8%).
– Expert’s methodology never published or peer-reviewed.
– Federal Circuit, however, did not exclude under Daubert.
– “We recognize that the fact-based nature of Mr. Benoit’s
damages testimony made it impractical, if not
impossible, to subject the methods to peer review and
publication.”
• Summit 6, 2015 WL 5515331, at *13.
39 39
Daubert Challenge on Appeal Failed
• “A distinct but integral part of [the Daubert] inquiry
is whether the data utilized in the methodology is
sufficiently tied to the facts of the case.”
• “[W]here the methodology is reasonable and its
data or evidence are sufficiently tied to the facts of
the case, the gatekeeping role of the court is
satisfied, and the inquiry on the correctness of the
methodology and of the results produced
thereunder belongs to the factfinder,” i.e., the jury.
– Summit 6, 2015 WL 5515331, at *10-11.
40 40
Using Defendant’s Own Records
• Damages analysis – Federal Circuit review:
– $14.15 component cost based on Samsung’s own annual reports
and cost/revenue spreadsheets.
– 20.8% usage of infringing feature based on Samsung’s own internal
customer surveys.
– Profit margin of the 20.8% apportioned revenue based on
Samsung’s annual reports on profit margins.
– 50/50 split of incremental $0.56 profit under Nash Bargaining
Solution adequately applied to the facts of the case because neither
party had a stronger bargaining position, since Samsung had no
noninfringing alternatives.
– RIM license was comparable, because it involved the ’482 patent.
41 41
Fact – Intensive Damages Analysis
• Where a damages opinion relies on infringer’s own
internal data, Federal Circuit appears willing to allow
juries to consider unpublished damages theories from
experts.
• Demonstrates importance of fact discovery for
patentees to prove damages.
• Potential infringers may expect increased scrutiny of
their financials during fact discovery.
– Document production & interrogatories
– Fact and 30(b)(6) depositions
– Protective orders therefore also increasingly important
42 42
Three Damages Theories – All Failed
• VirnetX, Inc. v. Cisco Sys., Inc., 767 F.3d 1308
(Fed. Cir. 2014)
– VirnetX patents directed to secure communications
– Jury found that Apple’s FaceTime and VPN on Demand
features infringed
– Expert offered three damages opinions
43 43
Apportionment & EMV from VirnetX v. Cisco
• Federal Circuit guidance on apportionment:
– Unless patented feature “drives demand,” patentee
cannot use EMV as the royalty base
– Patentee may use smallest saleable unit, but further
apportionment is required if value is affected by other
unpatented features
– Royalty rate must be based on facts related to the
patent and the specific technology at issue
44 44
VirnetX v. Cisco
• First damages opinion:
– Used entire iOS device (e.g., iPod, iPhone) as the
royalty base because it was the “smallest saleable
unit.”
• Argued that “software creates the largest share of the product’s
value” for the iOS devices.
– Used a 1% royalty rate, based on VirnetX licensing
policies and comparable licenses.
– Jury verdict awarded $368 million.
45 45
VirnetX v. Cisco
• Second/third damages opinions:
– Used $29 cost of FaceTime software upgrade as the
royalty base.
– Argued that “software creates the largest share of the
product’s value” for the iOS devices.
– Applied “Nash Bargaining Solution” to determine
hypothetical division of incremental profits.
• Started from a 50/50 baseline.
• Adjusted to 45% to VirnetX, 55% to Apple, based on Apple’s
stronger negotiating position.
46 46
VirnetX v. Cisco
• First damages opinion – Federal Circuit review:
– “[A] patentee’s obligation to apportion damages only to
the patented features does not end with the
identification of the smallest saleable unit if that unit still
contains significant unpatented features.”
– VirnetX’s expert “made no attempt to separate software
from hardware, much less to separate the FaceTime
software from other valuable software components.”
47 47
VirnetX v. Cisco
• Second/third damages opinions – Federal Circuit:
– $29 royalty base not challenged.
– But 50/50 starting point of Nash Bargaining Solution was
not based on “the facts of the case at hand.”
– No factual analysis underlying expert’s adjustment of
10% based on relative bargaining position.
– Application of Nash Bargaining Solution deemed
insufficient, like 25% “rule of thumb” in Uniloc.
48 48
VirnetX v. Cisco
• VirnetX – First damages opinion
– Incorrect royalty base.
• VirnetX – Second/third damages opinions
– No challenge to royalty base.
– But 45% royalty rate, based on adjusted Nash
Bargaining Solution, was an “inappropriate rule of
thumb” analysis.”
49 49
Willful Infringement and
Enhanced Damages
50 50
Willful Infringement and Enhanced Damages
• Under 35 U.S.C. § 284, courts in patent cases
“may” increase the awarded damages up to 3
times the amount assessed
• “Willful infringement” is a standard not expressly
recited in § 284, or anywhere else in the Patent
Act, but that has long been held to be a necessary
condition for the enhancement of damages under
§ 284
• Question: Should a patentee be required to prove
willful infringement to obtain enhanced damages
under § 284?
51 51
Compare: Attorney’s Fees under 35 U.S.C. § 285
• 35 U.S.C. § 285 states: “The court in exceptional
cases may award reasonable attorney fees to the
prevailing party.”
• Prior to 2014, recovering attorney’s fees in patent
cases was difficult and relatively uncommon
(under the “American Rule,” parties pay their own
attorney’s fees)
52 52
Recovering Attorneys’ Fees Made Easier
• Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134
S. Ct. 1749 (2014)
– Lowered standard for finding case “exceptional” under 35
U.S.C. § 285
– No need for clear and convincing evidence
• Highmark Inc. v. Allcare Health Management System,
Inc., 134 S. Ct. 1744 (2014)
– Raised standard for overturning a district court’s § 285
determination
– “We hold that an appellate court should review all aspects of a
district court’s § 285 determination for abuse of discretion.”
53 53
Attorney’s Fees Awards Are Becoming More Common
• Since the Octane Fitness & Highmark decisions, district
courts have been granting motions for attorney’s fees
with greater regularity, often in the millions of dollars
• Question: Is it fair to have a less stringent standard for
recovering attorney’s fees under § 285 than for
enhanced damages under § 284?
54 54
Recent Statistics on Motions for Attorney’s Fees
• Recent rulings on attorney’s fees motions in some
of the busiest patent dockets since
Octane/Highmark
– CD Cal. (7 granted, 7 denied)
– D. Del. (6 granted, 10 denied)
– ED Tex. (0 granted, 9 denied)
– ND Cal. (8 granted, 12 denied)
– SD NY (5 granted, 4 denied)
– D. Minn. (1 granted, 5 denied)
– D. Nev. (5 granted, 0 denied)
55 55
Recent Attorney’s Fees Awards in the Millions
• Since the Octane Fitness and Highmark decisions,
there have been 10 district court attorney’s fees
awards in patent cases of USD $2 million or more
• 3 of these awards were in excess of USD $5
million
56 56
Supreme Court to Review Willful Infringement
• On October 19, 2015, the Supreme Court agreed to
review two § 284 enhanced fee award patent cases:
Halo Electronics, Inc. v. Pulse Electronics, Inc. and
Stryker Corp. v. Zimmer, Inc., to address the following
questions:
– Halo: Whether the Federal Circuit erred by applying a
rigid, two-part test for enhancing patent infringement
damages under 35 U.S.C. § 284, that is the same as the
rigid, two-part test this Court rejected last term in Octane
Fitness, LLC v. ICON Health & Fitness, Inc. for imposing
attorneys’ fees under the similarly-worded 35 U.S.C. § 285.
57 57
Supreme Court to Review Willful Infringement
– Stryker: Whether the Federal Circuit improperly
abrogated the plain meaning of 35 U.S.C. § 284 by
forbidding any award of enhanced damages unless
there is a finding of willfulness under a rigid, two-part
test, when this Court recently rejected an analogous
framework imposed on 35 U.S.C. § 285, the statute
providing for attorneys’ fee awards in exceptional cases.
58 58
Significance of Supreme Court’s Review
• The Supreme Court’s upcoming decisions in Halo
and Stryker could significantly change the
landscape of patent law by enabling patent
plaintiffs to recover enhanced damages more
easily
• Question: Will the Supreme Court decide that
willfulness should no longer be a necessary
condition for enhancement under § 284’s "may"
language, such that a patentee may recover
enhanced damages (up to 3 times) even where the
infringement is not willful?
59 59
IPR: Strategy, Strategy, Strategy!
60 60
The Three New Post-Grant Proceedings Occur
Before the U.S. Patent Trial and Appeal Board (the
“PTAB” or the “Board”), and include:
1. Inter Partes Review (IPR)
2. Covered Business Method
Review (CBM)
3. Post-Grant Review (PGR)
Types of Post-Grant Proceedings
61 61
Record-Breaking Filings
62 62
The Basics (1 of 3)
1. Inter Partes Review (IPR)
Often used to invalidate a patent when a party has been
sued, expects to be sued, or has been asked to take a
license
Inter partes review can be initiated after nine-months of
issuance
In addition, an inter partes review must be filed within
one year of the third party being served with an
infringement complaint by the patentee
To be instituted, a petitioner must show a “reasonable
likelihood of success” that one or more claims will be
invalidated
63 63
The Basics (2 of 3)
2. Covered Business Method Review (CBM)
Similar in many ways to IPRs, but available only to
patents that the PTAB determines to be “covered
business method patents” (CBM Patents)
The U.S. Patent and Trademark Office (USPTO)
regulations define a CBM patent as a patent having
claims: (1) used in the practice, administration, or
management of a financial product or service, and (2)
that do not claim a “technological invention”
To be instituted, a petitioner must show that it is “more
likely than not” that one or more claims will be
invalidated (i.e., higher threshold than IPR)
64 64
The Basics (3 of 3)
3. Post-Grant Review (PGR)
A counter-part to IPR
A challenge must be filed within nine months of a
patent’s issuance (or reissuance), establishing that at
least one challenged claim is more likely than not to be
found unpatentable, or that the request raises a novel
or unsettled legal question that is important to other
patents or patent applications
As with CBM, to be instituted, a petitioner in a PGR
must show that it is “more likely than not” that one or
more claims will be invalidated (i.e., higher threshold
than IPR)
65 65
Differences Between Post-Grant Proceedings
Inter Partes Review
(IPR)
Covered Business
Method Review
(CBM)
Post-Grant Review
(PGR)
When After
nine months of grant,
within one year of
service if sued
After grant, and sued
with covered
business method
patents
Within
nine months
of grant
Threshold
showing
Reasonable
likelihood of success
More likely than not
PLUS sued or
charged with
infringement
More likely than not
or novel legal
question
Grounds 102 or 103 101, 102, 103, or 112 101, 102, 103, or 112
Time at PTO 12-18 months 12-18 months 12-18 months
Anonymity No No No
Numbers as of July 31, 2015.
Source: Director's Forum: A Blog from USPTO's Leadership, August 19, 2015,
http://www.uspto.gov/blog/director/entry/ptab_update_proposed_changes_to
66 66
Differences Between Post-Grant Proceedings
Inter Partes Review Covered Business
Methods Post-Grant Review
Estoppel Issues raised or
reasonably could have
been raised
PTO: raised or reasonably
could have raised
Dist. Ct: raised
Issues raised or
reasonably could have
been raised
Before whom PTAB PTAB PTAB
Discovery/
evidence
Declaration and
discovery
Declaration and
discovery
Declaration and
discovery
Appeal Both parties may appeal to
Federal Circuit
Both parties
may appeal to
Federal Circuit
Both parties
may appeal to
Federal Circuit
Petition grant
rate 73% 50% 20%
Final
decisions
Claims survived
10%
Claims survived
1% N/A
Claims substituted
< 1%
Claims substituted
< 1% N/A
Claims canceled
70%
Claims canceled
80% N/A
67 67
ISSUE IPR/CBM/PGR DISTRICT COURT
Burden of proof Preponderance of the
evidence
Clear and convincing
evidence
Presumption of
Validity?
No Yes
Claim construction Broadest reasonable
Interpretation (BRI)
Phillips/Markman framework:
analyze claims, specification,
and prosecution history to
determine how claims would
be understood by one of
ordinary skill in the art
Decision maker Patent Trial and
Appeal Board (APJs)
Jury, Judge, or Both
PTAB vs. District Court
68 68
To File or Not to File – Key Considerations
• Time
• Cost
• Effect on negotiations
• Likelihood of success
• Strength of validity attack
• Burden of proof
• Estoppel
• Other defenses available
• Stay of litigation / enforcement
69 69
Is an IPR the Right Choice? -- Pros
• Access to patent savvy decision makers
• Puts the patent owner in a defensive position
• Late-breaking evidence and arguments rarely
permitted
• Stay of co-pending litigation possible
• Time for your product line to change
• Allows you to develop a better sense of the patent
owner
70 70
Is an IPR the Right Choice? -- Cons
• One claim per petition
• Limited discovery
– Likely need to find the prior art on your own
– Without discovery from patent owner
• Need to put your best arguments in your petition
upfront
• Continuations – impact of IPR petition is not
guaranteed
71 71
Tactical Advantages Favoring the Petitioner
• Petitioner generally has time to plan attack, secure experts, and prepare detailed and compelling expert written reports.
– IPRs can generally be filed at any time up until the patent expires.
• Unlimited time if patent not in litigation;
• 12 months from service of infringement complaint if patent in litigation.
– PGR petitioners have from publication of patent application until 9 months post-issuance.
– Patent Owner has only three months to file POPR and cannot "present new testimony evidence beyond that already of record[.]”
– Once instituted, Patent Owner can bring in evidence, but is already behind the eight-ball.
• Strict limits on discovery.
• Petitioner estoppel not discouraging filings; Patent Owner estoppel is harsh.
72 72
IPRs: Additional Considerations
• Should you file one or multiple IPRs?
• Should you file alone or join another party’s IPR?
• Should you file an IPR or a declaratory relief complaint in district court? or both?
– Non-infringement DJ action does not preclude IPR
– 35 USC § 315: (“An inter partes review may not be instituted if, before the date on which the petition for such a review is filed, the petitioner or real party in interest filed a civil action challenging the validity of a claim of the patent.”)
– But a DJ of non-infringement is not viewed as a civil action challenging the validity of a patent.
73 73
IPRs: Further Considerations for Petitioners
• Be prepared – focus resources on the Petition
– Petitioner: 60 pgs (petition) + 15 pgs (reply)
– Patent Owner: 60 pgs (preliminary response) + 60 pgs (response)
• Be knowledgeable
– Devote resources to good prior art search
– Retain an expert
• Know the PTAB’s rulings
– Tricks of the trade
– PTAB practice changes quickly as Board matures
• Don’t make the PTAB guess about your positions
74 74
Petitioner: Increasing Chances of Success
• Raise only best grounds and explain fully
– Few well-reasoned grounds of rejection better than
numerous grounds lacking sufficient detail
– For obviousness, expressly set forth differences between
prior art and claims
– Simplify and narrow issues: Each reference should have a
unique purpose to avoid redundancy
75 75
Petitioner: Increasing Chances of Success
• Be ready to adapt as the proceeding progresses
– E.g., May need to find new art for amended claims
• Stagger and file separate petitions if not sure of
claims to challenge or concerned about page
limitation, scope, or one-year litigation bar
• Consider requests for rehearing (unlikely) and
second-petition joinder (more likely) if Board
denies key grounds or claims
76 76
Should You Consider a Preemptive Filing?
• Only IPRs and PGRs can be used to preemptively
invalidate a patent, since CBMs can only be filed
during a litigation
• When the America Invents Act passed, many
commentators speculated that preemptive filing
would become common
77 77
Preemptive IPR Filings
• As of June 16, 2015, only 349 of the 2,034 patents
challenged in an IPR are not in a litigation
• 1,685 of the 2,034 patents challenged in an IPR
are involved in a litigation
• Note that multiple
IPR petitions can be
filed against the same
patent – in which case
IPRs can be joined
78 78
Should You Move to Stay Pending Litigation?
• Staying litigation due to IPR or CBM proceedings
or petitions can benefit an accused infringer by
slowing the district court proceedings, providing an
accused infringer an opportunity to save costs,
defer/eliminate any potential risk, and minimize the
possibility of a preliminary injunction
79 79
Strategic Advantage of Seeking a Stay
• Courts frequently grant stays
• Of 422 decisions in contested stays pending IPRs, 253
were granted, 12 were granted in part, and 157 were
denied:
Source: LegalMetric Nationwide Report Stay Pending IPR, May 2015
80 80
Cons – Stays Are Not Always Granted
• One disadvantage in delaying the filing of a post-grant
proceeding until after a party is sued is the risk that the
case may not be stayed for a post-grant proceeding
Source: LegalMetric Nationwide Report Stay Pending IPR, May 2015
E.D. Tex.: 19.2%
N.D. Cal.: 79.3%
81 81
Cons – Estoppel
• A petitioner should also consider the impact of estoppel
when filing an IPR (e.g., not being able to assert the same
invalidity grounds at a district court / International Trade
Commission as used in the Post-Grant Proceeding)
• Estoppel results only from review that “results in a final
written decision”
• Thus, if the PTAB does not institute the IPR, the petitioner
will not be estopped
• If a petitioner fails to demonstrate that there is a reasonable
likelihood that petitioner will prevail with respect to at least
one of the claims challenged in the petition, then it may be
hard to persuade the district court
82 82
Litigation and Licensing SEPs
83 83
Standard Essential Patents
• A Standard Essential Patent is
– A patent that must be practiced to use part of a technical
standard set by a Standard Setting Organization (SSO)
• Mandatory parts
• Optional parts
• Exemplary SSOs: ETSI, ITU, IEEE, JEDEC, ANSI,
etc.
84 84
Standard Essential Patents (Cont.)
• Standard Essential Patents and F/RAND
Declarations
– Standard-setting organizations (SSOs) require members
with standard-essential patents (SEPs) to give licensing
declaration, which may require:
1.Licensing royalty-free
2.Licensing on reasonable and nondiscriminatory (RAND)
terms, or fair, reasonable, and nondiscriminatory
(FRAND) terms
3.Not giving licensing commitment
85 85
Standard Essential Patents (Cont.)
• FRAND Assurances and Contracts
– FRAND assurances generally form binding
contracts
• The contract is formed between the SEP Owner and
SSO
• Terms of the contract depend on SSO’s policies and
assurances given by SEP owner
• Potential licensees are third-party beneficiaries to the
contract (have the power to enforce)
86 86
Jorge L. Contreras, “Fixing FRAND: A Pseudo-Pool Approach to Standards-Based Patent Licensing,” Antitrust Law Journal No. 1, Vol. 79 at 54 (2013)
Litigating Standard-Essential Patents
87 87
Standards setting organisations (SSOs)
88 88
Royalty Stacking
• Many small royalties have a large cumulative
effect
• e.g. LTE royalties alone are 15% of selling price
...and other technologies need to be licensed
89 89
Patent Pools
• Group of companies that allow each other to use
their patents
• Avoids: cost of litigation
negotiations for each patent
• May also license patents to others
90 90
Patent Pools – An Example
• MPEG-LA founded in 1997 to allow access to
ISO/IEC MPEG-2 standard
• Now also licenses MPEG-4 Visual, AVC/H.264,
HEVC, IEEE 1394 (Firewire), ATSC and others.
• Anyone can request licences
• Some licences are royalty free for small users
– e.g. AVC/H.264 is royalty free for first 100,000 units/year
91 91
Injunctions and Standard Essential Patents
• Injunctive Relief and Standard Essential Patents
– Apple Inc. v. Motorola, Inc., (Fed. Cir. 2014)
• Federal Circuit clarified that, even when patents are
subject to RAND obligations, injunctions may be
appropriate in some cases
• Whether to issue an injunction for a RAND-
encumbered SEP is still evaluated under the
principles of eBay
• Federal Circuit provides exemplary eBay factors that
district courts should consider
92 92
2015, New IEEE Rules for SEPs
• On Feb. 8, 2015, the IEEE adopted a new patent
policy for SEPs pertaining to licensing and
enforcement tactics, including the following:
– “reasonable rate” now based on:
• a potential licensee’s “smallest salable compliant
implementation”
• the value of all SEPs from any patent owner in a potential
licensee’s product; and
• any prior existing licenses to other licensees
– injunctive relief now severely limited; and
– SEP owner can only demand a cross-license for the
licensee’s SEP patents (not for licensee’s non-essential
patents)
93 93
2015, New Rules for SEPs in European Union
• On the 16 July 2015, the Court of Justice of the
European Union (CJEU) handed down judgment in
Huawei Technologies Co. Ltd. v ZTE Corp. (Case
C-170/13), outlining the steps an SEP holder must
take before seeking an injunction
• Many have criticized the case as providing little
guidance in terms of license negotiations
94 94
New European SEP Rules
– The CJEU held that before seeking injunctive relief, an
SEP holder must:
• provide notice to alleged infringer, identifying the SEP and
explaining the alleged infringement;
• alleged infringer must then express a “willingness” to license on
FRAND terms (if not willing, SEP holder can seek injunction);
• SEP holder must then provide written license offer, identifying
the proposed royalty and how it is calculated (the rate must be
“comparable” to other existing licenses)
• alleged infringer must then respond in good faith, without delay,
by accepting, rejecting, or counter-offering
• if no agreement is reached after a counter-offer, the parties
“may” then ask a third party to determine a fair rate
• if no agreement reached, SEP holder may seek an injunction
95 95
Litigating Standard-Essential Patents
• Defenses for the Accused Infringer
– Infringement is difficult to fight if the patent is truly
“essential.”
– Courts, however, have found no infringement of alleged
SEPs
• In re Certain Audiovisual Components and Products Containing
the Same, 337-TA-837, Commission Opinion (affirmed on
appeal)
• In re Certain Wireless Devices With 3G and/or 4G Capabilities,
337-TA-868, Commission Opinion
96 96
Litigating Standard-Essential Patents
• Other Defenses
– No U.S. Sales: See Halo Electronics, Inc. v. Pulse
Electronics, Inc.)
– Invalidity: ITC No. 337-TA-837, Commission Opinion
(affirmed on appeal)
– Suppliers are licensed: See Quanta Computer, Inc. v.
LG Electronics, Inc., 553 U.S. 617 (2008)
– Antitrust violation: See Research in Motion Ltd. v.
Motorola, Inc., 644 F. Supp. 2d 788, 793 (N.D. Tex.
2008) (RIM’s claim based on refusing to license on
RAND terms survived a motion to dismiss)
97 97
Litigating Standard-Essential Patents
• Other Defenses
– Breach of contract: See Microsoft Corp. v. Motorola,
Inc. (9th Cir., July 30, 2015)
– Breach of duty of good faith and fair dealing: whether a
party’s actions were contrary to the reasonable and
justified expectations of other parties; whether a party’s
conduct would frustrate the purpose of the contract.
See Microsoft Corp. v. Motorola, Inc.
• Counterclaim of breach of contract and damages
98 98
Determining Damages for Standard Essential Patents
• On Dec. 3, 2015, in Commonwealth Sci. and
Indus. Research Organisation (“CSIRO”) v. Cisco
Sys., Inc., 2015-1066 (Fed. Cir. Dec. 3, 2015), the
Federal Circuit held that while apportionment
between patented and non-patented features is
always required, the appropriate royalty base for
calculating damages need not be the smallest
saleable patent-practicing unit if the evidence
shows that the parties relied on a different base in
their real-world negotiations.
99 99
CSIRO v. Cisco: More than one way to “apportion”
• The “smallest saleable patent practicing unit” is just
one method of apportioning. Here, the district court
began with the parties’ negotiations, which were about
the patent-in-suit, took place at the time of the
hypothetical negotiation, and involved concrete
proposals by each party for a per unit royalty
rate. “Because the parties’ discussions centered on a
license rate for the [asserted] patent, this starting point
for the district court’s analysis already built in
apportionment.” (i.e., the parties’ negotiations were
already limited just to the patent-in-suit, and no
more, as the apportionment rule requires.)
100 100
CSIRO v. Cisco: Essentiality Is Not a Basis for Increased Damages
• In CSIRO v. Cisco, the Federal Circuit also held that a
patent’s inclusion in a standard is not a basis to increase
the damages
– “the patented feature must be apportioned from all of the
unpatented features reflected in the standard”
– “the patentee’s royalty must be premised on the value of
the patented feature, not any value added by the
standard’s adoption of the patented technology.”
– “the [standard essential patent] holder should only be
compensated for the approximate incremental benefit
derived from his invention, and not from the value added
by the standard’s widespread adoptions.”
101 101
Questions?
102 102
Thank you!
103 103
Biography
Ming-Tao Yang ([email protected]/+1.650.305.0656)
Broad litigation experience at various forums, including the
ITC, many district courts, and the Federal Circuit
Regularly leads and manages patent litigation relating to
LCDs, LEDs, Integrated Circuits (ICs), semiconductor
devices, controllers, telecommunications, smart phones,
computers, networking devices, etc.
Regularly travels to Asia, teaches law courses on patent
litigation and licensing, and counsels Asian clients on patent
enforcement, prosecution, and licensing matters
