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Patent Strategies:Developing a Thorough Plan
PRESENTED BY:
December 9, 2014
2014: A Patent Infringement Odyssey
2014: A Patent Infringement Odyssey
Patent Infringement Complaints down 40% from October, 2013
NPE/PAE actions still account for over 60% of total filings.
Large number of cases initiated in 2012-2013 remain active.
2014: The Usual Suspects
2014: The Usual Suspects*
eDekka, LLC 130
Olivistar, LLC 61
Simon Nicholas Richmond 57
Penovia, LLC 49
Hawk Tech. Systems, LLC 48
Uniloc USA Inc. 45
Presqriber, LLC 44
QualQode, LLC 43
Orlando Comm’ns, LLC 42
PanTaurus, LLC 40
*Ranked by number of defendants, Jan. 1-Nov. 30, 2014
Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 134 S. Ct. 2347 (2014)
In Alice, the Supreme Court confirms that the Mayo test should be used to determine if abstract ideas are ineligible under § 101. Id. at 7.
Building on Mayo, the Supreme Court reiterated that abstract ideas are not patentable, because monopolies over abstract ideas threaten innovation.
To be patentable, a claim that recites an abstract idea must include "additional features" to ensure "that the [claim] is more than a drafting effort designed to monopolize the [abstract idea]." Id. at 11
Recall, the Supreme Court already held the § 101 inquiry is a “threshold” inquiry, and the 12(b)(6) stage is where courts address threshold issues.
Skinner v. Switzer, 131 S. Ct. 1289 (2011).
Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 134 S. Ct. 2347 (2014)
‘Inventive Feature’ Distinguished:
The Supreme Court in Alice held that claims to a banking-related function were patent ineligible as abstract ideas, with no “inventive concept” from other limitations in the claims or in any claim as a whole.
“The addition of a conventional element like a generic computer to an abstract idea does not add an ‘inventive feature' to the abstract idea, and thus the claim is unpatentable under §101,” the district court said, characterizing the high court's view of Alice's patent claims.
Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 134 S. Ct. 2347 (2014)
Alice’s two-step analysis:
First, the court said that the patent was directed to an abstract idea, one of three judicially created exceptions to patentable subject matter.
The second step is to see if the claims “contain an inventive concept sufficient to transform the claimed abstract idea into a patent-eligible application.”
The Fallout
Ultramercial, Inc. v. Hulu, LLC, No. 2010-1544, 2013 WL 3111303, at *1-2 (Fed. Cir. June 21, 2013)
“This court has never set forth a bright line rule requiring district courts to construe claims before determining subject matter eligibility. Indeed… claim construction may not always be necessary for a § 101 analysis.”
Ultramercial, 2013 WL 3111303, at *3–4
Dismissal at the 12(b)(6) stage under § 101 may be rare because of the presumption of validity. Dismissal is nevertheless proper when “the only plausible reading of the patent” demonstrates “clear and convincing evidence of ineligibility.”
Ultramercial, 2013 WL 3111303 at *2
Ultramercial, Inc. v. Hulu, LLC, No. 2010-1544, 2013 WL 3111303, at *1-2 (Fed. Cir. June 21, 2013)
Judge Mayer, in a concurring opinion, emphasized three key points:
First, section 101 is a threshold question to be determined at the outset of the case, similarly to a jurisdictional inquiry. This conserves scarce judicial resources, protects against vexatious infringement suits, and protects the public by providing an efficient tool for weeding out bad patents.
Second, no presumption of validity applies to section 101 because the PTO has for years applied “an insufficiently rigorous subject matter eligibility standard.”
Third, Alice effectively adopted a “technological arts” test for patent-eligibility, and the claims here were invalid because the “innovative aspect of the claimed invention is an entrepreneurial rather than a technical one.”
Loyalty Conversion Systems v. American Airlines (E.D. Texas 2014)
In this case, Federal Circuit Judge Bryson, sitting by designation in the Eastern District of Texas, determined on the pleadings that Loyalty’s reward-program patent is ineligible based on Alice and Mayo
Judge Bryson concluded that the inventions claimed in the ′023 and ′550 patents were not fundamentally different from the commonplace financial transactions that were the subjects of Bilski and Alice.
Tuxis Tech v. Amazon, 2014 WL 4382446 (D. Del. Sept. 2014)
Entering judgment on the pleadings because the claim lacks eligibility under 35 U.S.C. 101.
Tuxis agreed that the mere notion of “upselling” is an abstract idea.
With that admission in-hand, the court moved forward with the question of whether the claims offer an inventive concept that goes beyond upselling.
“This type of marketing strategy is at the heart of claim 1 and has been practiced as long as markets have been in operation. Conducting this transaction on “an electronic communications device” instead of in a physical store would be an infringing sales practice if claim 1 were valid. This cannot be permitted, as it would ‘tend to impede innovation more than it would tend to promote it.’” (citing Mayo).
2014: Through the Looking Glass
Post-Alice, the Federal Circuit and at least seven different district courts hold that it is proper to find patents invalid under § 101 at the 12(b)(6) stage without first satisfying any formal claim construction procedures.
• Content Extraction & Transmission LLC v. Wells Fargo Bank, Nat’l Assoc., No. 12-2501 (MAS) (TJB), Dkt. Nos. 64, 65 (D.N.J. July 31, 2013);
• CardPool v. Plastic Jungle, Inc., No. C 12-04182 WHA, 2013 WL 245026, at *3–4 (N.D. Cal. Jan. 22, 2013);
• Uniloc USA, Inc. v. RackSpace Hosting, Inc., No. 6:12-cv-375, ECF Dkt. No. 38 (E.D. Tex. Jan. 3, 2013);
• Sinclair-Allison, Inc. v. Fifth Ave. Physician Servs., LLC, No. Civ-12-360-M, 2012 WL 6629561 (W.D. Okla. Dec. 19, 2012);
2014: Through the Looking Glass
• Graff/Ross Holdings LLP v. Fed. Home Loan Mort. Corp., 892 F. Supp. 120 (D.D.C. 2012) (converting 12(b)(6) motion into a summary judgment motion and granting it);
• Vacation Exch., LLC v. Wyndham Exch. & Rentals, Inc., No. 12-04229, Dkt. 27, at 2–6 (C.D. Cal. Sep. 18, 2012) ;
• OIP Tech., Inc. v. Amazon.com, Inc., No. C-12-1233 EMC, 2012 WL 3985118, at *5 (N.D. Cal. Sept. 11, 2012);
• Glory Licensing LLC v. Toys “R” Us, Inc., No. 09-4252 (FSH), 2011 WL 1870591, at *1–4 (D.N.J. May 16, 2011), appeal dismissed by 459 F. App’x 916 (Fed. Cir. Aug. 25, 2011);
• Buysafe, Inc. v. Google Inc., No. 1:11-cv-01282-LPS, Dkt. 69 (D. Del. July 29, 2013) (finding claims invalid under § 101 when applying 12(b)(6) standards in response to Rule 12(c) motion)
Summit Data Sys., LLC v. EMC Corp., D. Del., 1:10-cv-00749-GMS, 9/25/14
Acacia subsidiary Summit Data Systems, LLC hit with $1.4 million in attorneys' fees incurred by NetApp, Inc. for vexatious patent infringement litigation.
The U.S. District Court for the District of Delaware slammed Summit for the perceived business model of extracting settlements from companies who want to avoid hefty litigation fees.
The Court indicated that there was more to the award than just the offending business model. Specifically, Summit had licensed the patents at issue such that NetApp could not have infringed, yet pursued litigation for more than two years before finally agreeing to dismiss the complaint with prejudice.
Summit Data Sys.: An Exceptional Case
The Supreme Court decided two cases on Section 285 standards in April, 2014: Highmark Inc. v. Allcare Health Mgmt. Sys., Inc., 134 S. Ct. 1744, 2014 BL 118430, 110 U.S.P.Q.2d 1343 (2014)(83 PTD, 4/30/14), and Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. Ct. 1749, 2014 BL 118431, 110 U.S.P.Q.2d 1337 (2014)(83 PTD, 4/30/14).
Judge Sleet acknowledged that these cases had “loosened the preexisting standard for what makes a case ‘exceptional,' ”but that “NetApp likely would have succeeded in its motion under the more restrictive approach as well.”
The court's review of the “totality of the circumstances” under Octane was overwhelmingly against Summit.
Nautilus, Inc. v. Biosig Instruments, Inc., No. 13-369 (2014)
New standard for indefiniteness under 35 U.S.C. § 112:
“we read §112, ¶2 to require that a patent’s claims, viewed in light of the specification and prosecution history, inform those skilled in the art about the scope of the invention with reasonable certainty. The definiteness requirement, so understood, mandates clarity, while recognizing that absolute precision is
unattainable.”
Applying the reasonableness test, look for terms that are unbounded by the patent specification or are facially subjective (such as claim term "aesthetically pleasing")
Even limited examples may not be enough depending on claim term (such as term "unobtrusive manner")
Framed from perspective of a skilled artisan at the time the patent was applied for.
Nautilus, Inc. v. Biosig Instruments, Inc., No. 13-369 (2014)
Ultimate question when challenging patent claims is whether the terms, in light of the specification and prosecution history, inform those of skill in the art about the scope of the claims with "reasonable certainty.“
If the answer is no, declaration from PHOSITA accompanying a timely Rule 12 motion provides another basis for challenging patent claims.
Particularly troubling for NPEs who have acquired patents that are inherently ambiguous with the goal of extracting early settlements based on claim construction uncertainty.
Indefiniteness Post-Nautilus"The question here is whether the absence of identified boundaries in terms of proximity, distance, or location renders the claims indefinite under a new and more rigorous standard imposed by the Supreme Court
There is no question that the relationship terms lack any quantitative parameters or a range of distance between the mount or anchor and a target or disc space. . . . The accurate targeting of the surgical site and positioning the mount, anchor, or fixation member to limit movement provide 'some standard for measuring the scope of the phrase[s],' but something more, short of absolute or mathematical precision, is required.
The lack of clarity in these claims leaves the next inventor in the 'zone of uncertainty,' not knowing what is claimed and what is still open."
Abdou v. Alphatec Spine, Inc., 3-12-cv-01804 (CASD November 19, 2014, Order) (Benitez, J.) (granting motion for summary judgment that plaintiff's medical device patents were invalid as indefinite.)
Limelight Networks, Inc. v. Akamai Techs, Inc., 134 S. Ct. 2111 (2014)
No liability for inducing infringement under 271(b) where no single party directly infringes under 271(a), relying on Fed. Circuit decision in Muniauction v. Thompson Corp., decision, 532 F.3d 1318 (Fed. Cir. 2008).
Supreme Court directs the Federal Circuit to "revisit the § 271(a) question" and remands the case.
Limelight Networks, Inc. v. Akamai Techs, Inc., 134 S. Ct. 2111 (2014)
3 steps become clear for reducing exposure following Akamai
1. Opinion should be obtained as soon as you learn of alleged infringement.
2. Once obtained, need to rely on the opinion and document that actual reliance.
3. If applicable, include in opinion a basis for invalidating patent and rely on it as well for subsequent challenges.
See Bose Corp. v. SDI Techs, Inc., (Fed. Cir. Mar. 14, 2014).
So, if you run into one of these guys…
Stays in the District Court
Section 18(b) of the AIA sets out a four-factor analysis for whether to grant a stay pending resolution of a CBM review, which are viewed as heavily in favor of granting a stay.
The Federal Circuit indicated as much in two recent opinions worth citing if you are seeking a stay of litigation pending PTO proceedings.2
2VirtualAgility Inc. v. Salesforce.com, Inc., 2014 BL 191228, 111 U.S.P.Q.2d 1763 (Fed. Cir. July 10, 2014) (133 PTD, 7/11/14), and Benefit Funding Sys. LLC v. Advance Am. Cash Advance Ctrs. Inc., 2014-1122, 2014 BL 266984 (Fed. Cir. Sept. 25, 2014) (187 PTD, 9/26/14).
Finality of PTAB or Court Decisions
Another issue: Denial of stay may result in parallel proceedings at the board and in court, which prolong decision making and have inconsistent rules for issue preclusion.
Extreme results include the PTAB continuing a trial despite a district court decision, settlement and patent expiration,3 and the Federal Circuit denying a stay of a patent infringement award despite a PTAB ruling against the patent owner.4
3 Interthinx, Inc. v. CoreLogic Solutions, LLC, No. CBM2012-00007 (P.T.A.B., Jan. 30, 2014) (23 PTD, 2/4/14).4Versata Computer Indus. Solutions, Inc. v. SAP AG, 564 Fed. Appx. 600, 2014 BL 170171 (Fed. Cir. 2014) (120 PTD, 6/23/14).
Beware Of Estoppel Issues & PTAB Decisions
The district court is operating under a different set of standards than the PTAB and is not necessarily going to feel bound by its findings and decisions.
Claims in the PTAB are more vulnerable to validity challenge because of the PTAB’s use of a different claim construction methodology (broadest reasonable interpretation) and a laxer standard for proving invalidity (preponderance of the evidence as opposed to clear and convincing evidence).
Patent Strategies:Developing a Thorough Plan
PRESENTED BY:
December 9, 2014
Entire Market Value Rule
• The entire market value rule is a narrow exception to the general rule that royalties are awarded based on the smallest salable patent-practicing unit.
• A patentee may assess damages based on the entire market value of the accused product only where the patented feature creates the basis for customer demand or substantially creates the value of the component parts.
Versata Software, Inc. v. SAP America, Inc.,
717 F.3d 1255, 1268 (Fed. Cir. 2013)
The Basis for Consumer Demand
• It must be shown that the accused functionality motivates a consumer to buy the complete product “in the first place.”
• Not sufficient:– Patented functionality is valuable, important, or essential to
the complete product.– Complete product would be commercially unviable without
the patented functionality.– Consumers would choose a product with the patented
functionality over one without.
LaserDynamics, Inc. v. Quanta Computer, Inc.,
694 F.3d 51, 68 (Fed. Cir. 2012)
Virnetx
Virnetx, Inc. v. Cisco Systems, Inc., 767 F.3d 1308 (Fed. Cir. 2014)
• Reiterated LaserDynamics smallest salable unit rule and the fact that it is not enough to show patent essential to use of the product
• EMVR only appropriate when necessary to fully compensate for infringement
• [S]mallest salable unit approach was intended to produce a royalty base much more closely tied to the claimed invention than the entire market value of the accused products…Where the smallest salable unit is, in fact, a multi-component product containing several non-infringing features with no relation to the patented feature…the patentee must do more to estimate what portion of the value of that product is attributable to the patented technology…
Virnetx Continued
• [W]e are cognizant of the difficulty that patentees may face in assigning value to a feature that may not have ever been individually sold. However, we note that we have never required absolute precision in this task; on the contrary, it is well-understood that this process may involve some degree of approximation and uncertainty…
• According to CAFC, expert used the base price for each product sold as the royalty base and called it the smallest salable unit and did not attempt to subtract unpatented elements from the base
• According to CAFC, expert should have apportioned significant unpatented features from royalty base to identify a patent practicing feature with sufficient close relation to the claimed functionality
Virnetx Continued
• According to CAFC, expert did not try to link demand for the accused device to the patented feature
• According to CAFC, expert could have used the cost of a software upgrade as a proxy for the smallest salable unit
• $368 million damages award was vacated and the case was remanded• VirnetX Inc. asked the full Federal Circuit on October 16, 2014 to review the decision that
vacated the damages award, saying the panel's finding that its damages expert relied on flawed theories will make it too difficult for patent owners to win damages.
• Nokia also filed an amicus brief on November 10, 2016 supporting VirnetX Inc.'s petition for en banc review saying the ruling could "depress the value of many U.S. patents.”
Impact of Virnetx
Power Integrations Inc.. v. Fairchild Semiconductor International Inc., et al. No. C 09-5235 MMC (N.D.CA.)• Jury awarded damages of $105 million• Fairchild filed a motion for JMOL, new trial, and/or remittur, which was denied by District
Court on Sept. 9, 2014• Fairchild filed a renewed motion citing Virnetx• District Court granted renewed motion for a new trial based on the Federal Circuit’s recent
clarification of the law with respect to the calculation of a reasonable royalty…• District Court stated Power Integrations’ expert was obligated to apportion the royalty
solely to the patented features, but failed to do so.• In granting motion for a new trial, the District Court stated [w]ithout the requisite
apportionment, the jury lacked sufficient evidence on which to base its damages award…
EMVR: Analysis of Demand
• Complexity of the infringing product (i.e., patented vs. unpatented components/features)
• Are multiple components required under the claims to constitute the patented feature?
• Importance of benefits/features provided by patent(s) in the end products to customers vs. other benefits/features and their significance for market demand. [Marine Polymer Technologies, Inc. v. HemCon, Inc., 672 F.3d 1350 (Fed. Cir. 2012) (en banc)]
• Testimony from fact or expert witnesses regarding features and benefits sought by customers and their dependence on the claimed invention of the patent(s)-in-suit and/or whether the patented functionality is critical to the core function of the accused products [Marine Polymer , 672 F.3d 1350 (Fed. Cir. 2012) (en banc)]
EMVR: Analysis of Demand• Benefits or features provided by patent(s) vs. other benefits/features and role of claimed
invention of patent(s) in providing features, benefits, or advantages and impact when added or eliminated [Bose Corp. v. JBL, Inc., 274 F.3d 1354, 1361 (Fed. Cir. 2001)]
• Focus of Product Marketing [Fonar Corp. v. General Elec. Co., 107 F.3d 1543, 1552 (Fed. Cir. 1997)]
• Customer Requirements, Comments, Complaints, Surveys, Behavior When Patented Invention Introduced or Eliminated
− Tec Air Inc. v Denso Mfg., 192 F.3d 1353, 1362 (Fed. Cir. 1999) [C]ustomers wanted fans that were balanced to a certain specification and
once Denso abandoned the patented method, it could not meet the…specification
[A]fter Denso changed its specification, one customer complained and required Denso to rebalance the fans
EMVR: Analysis of Demand
• Non-infringing alternatives that provide similar benefits/ features
• Prior Product Versions without Patented Features
• Impact on product (prior and new) sales, prices, profits when patented feature(s) were added (or eliminated) [Bose Corp. v. JBL, Inc., 274 F.3d 1354 (Fed. Cir. 2001)]
• Changes in Market Shares after Introduction of Patented/Infringing Products or Removal of Patented Feature
• Industry/Trade Publications Reviews and Discussions of Products
• Surveys (as part of case strategy or in normal course of business). Need to make sure survey focuses on patented feature/benefits attributable to patented feature [Volovik v. Bayer Corporation, 01cv1426 (D.Minn. January 7, 2004)]
EMVR: Analysis of Demand
• Importance of Patented Features/Components to Ability to Compete
− Funai Elec. Co., Ltd. v. Daewoo Electronics Corp., 616 F.3d 1357, 1375 (Fed. Cir. 2010)
Industry demand for smaller, cheaper, faster, and more reliable VCRs
Evidence that the patented technology met the demand
Products without reduction in size were not considered by retailers due to limited shelf space
Customers requested higher speed rewind capability
High competition in the market demanded lower cost VCRs, which the patented invention enabled
EMVR: Analysis of Demand• Importance of Patented Features/Components to Ability to Compete
− DataQuill Ltd. v. High Tech Computer Corp., 887 F.Supp.2d 999, 1028 (S.D.Cal. 2011)
HTC documents, showed that the features of the patented technology were vital to HTC’s competitive position in the smart-phone market
Court differentiated from the wheels v. automobile argument
− SSL Services, LLC v. Citrix Systems, Inc., 2:08cv158(E.D.Tex. April 17, 2013, affirmed)
Several Citrix internal documents specifically stated that the patented feature (1) was vital to the success of the accused products; and (2) drove sales of the accused products
Citrix documents attributed accused product revenue to the patented feature
EMVR: Analysis of Demand
• Distinguish between demand for specific patented feature and demand for general product features of which the patented feature is but one
− Carefusion 303, Inc v. Sigma International, 10cv0442 DMS (S.D.Cal. January 3, 2012)
Plaintiff asserted that the patented sensor technology contributed to the overall safety of the infusion pump, which drove customer demand
Evidence demonstrated that sensors generally, not the particular sensor described in the '553 Patent, contribute to the safety of the pump and that other components also contributed to the safety of the pump
EMVR: Sources of Information Business plans, product development plans, sales analyses, etc.
Product technical literature, brochures, advertising, or webpages
Documents regarding how claimed invention contributes to product features and benefits, including specific patents and/or claims
Customer specifications, correspondence, surveys re: demand
Documents relating to alternative non-infringing product designs/configuration, reasons why rejected, and acceptance or lack of customer acceptance
Product sales and pricing (i.e., disk drive v. computer)
Industry reports
Internal documents, emails, etc. regarding accused products, patented features, and their relative importance
Expert/fact testimony regarding factors driving demand
EMVR: Apportionment
• EMVR is a narrow exception – consider an apportionment alternative to the smallest salable patent practicing unit
• May not get a second bite at the apple
• Difficulty in determining an apportioned royalty base may not be sufficient
• Each case is specific and what is applicable in one case may not be applicable in another case
• Per unit royalty based on economic contribution of patent(s)-in-suit to the accused products or other factors as an alternative, when possible
• Independent sales of the patented component and unpatented components [Cornell University, et al. v. Hewlett-Packard Company, 609 F. Supp. 2d 279, 283-290 (N.D.N.Y. 2009)]
EMVR: Apportionment• Prices for similar products without patented components/features to determine portion of
accused products potentially attributable to patented components/features
• If using a benchmark, need to exercise care in evaluating comparability
• May need separate technical fact or expert testimony as support [Apple Inc. v. Motorola, Inc., 757 F.3d 1286, 1316 (Fed. Cir. 2014)]
• May need to factor out value associated with non-patented features in the benchmark
• May be able to estimate based on cost estimates (e.g., bill of materials) for product that incorporates the patented feature and gross-up to portion of selling price based on product gross profit margin with adjustments based on technical information, or patentee/infringer/third-party documents regarding the relative importance of the various product components
EMVR: Apportionment
• Purchases/sales/prices of components similar to patented components
− Prices for stand-alone disk drives [LaserDynamics, Inc. v. Quanta Computer, Inc., 694 F.3d 51 (Fed. Cir. 2012)]
− Prices for SAP’s comparable bolt-on software product [Versata Software, Inc. v. SAP America, Inc., 717 F.3d 1255 (Fed. Cir. 2013)]
− Prices for third-party software as a benchmark [i4i Ltd. Partnership v. Microsoft Corp., 598 F.3d 831 (Fed. Cir. 2010)]
− Prices for Apple’s Magic Trackpad as a proxy for the value of the asserted claims of the ‘949 Patent (disclosing the use of finger contacts to control a touchscreen) [Apple Inc. v. Motorola, Inc., 757 F.3d 1286, 1316 (Fed. Cir. 2014)]
EMVR: Apportionment
• Information regarding value added by patented vs. unpatented components
• Component cost estimates/allocation of product prices to components
− Lucent Technologies, Inc. v. Microsoft Corp., 837 F.Supp.2d 1107, 1121 (S.D.Cal. 2011)
Allocation of 25 percent of average price of Microsoft Office to Outlook
CAFC Opinions Re: Comparable LicensesLucent Techs., Inc. v. Gateway, Inc., 580 F.3d 1301, 1325 (Fed.Cir.2009)
• [L]icenses relied upon by the patentee in proving damages [be] sufficiently comparable to the hypothetical license at issue in suit…
Finjan, Inc. v. Secure Computing Corp., 626 F.3d 1197, 1211 (Fed. Cir. 2010)
• [U]se of past patent licenses…must account for differences in the technologies and economic circumstances of the contracting parties… [Citing ResQNet.com, Inc. v. Lansa, Inc., 594 F.3d 860, 870 (Fed.Cir.2010) and Wordtech Sys. v. Integrated Networks Solutions, Inc., 609 F.3d 1308, 1319 (Fed.Cir.2010)]
Whitserve, LLC v. Computer Packages, Inc., 694 F.3d 10, 30 (Fed. Cir. 2012)
• [L]ump sum payments similarly should not support running royalty rates without testimony explaining how they apply to the facts of the case
CAFC Opinions Re: Comparable Licenses
LaserDynamics, Inc. v. Quanta Computer, Inc., 694 F.3d 51, 79 (Fed. Cir. 2012)
• When relying on licenses to prove a reasonable royalty, alleging a loose or vague comparability between different technologies or licenses does not suffice.…
• The patentee relied on unrelated licensing programs and license surveys, to the exclusion of past licenses to the patent-in-suit.
• New trial ordered based on improper reliance on unrelated licenses.
Virnetx, Inc. v. Cisco Systems, Inc., 2013-1489 (Fed. Cir. Sept. 16, 2014)
• [W]e have never required identity of circumstances; on the contrary, we have long acknowledged that any reasonable royalty analysis 'necessarily involves an element of approximation and uncertainty…
CAFC Opinions Re: Comparable Licenses
SSL Services, LLC v. Citrix Systems, Inc., 2013-1419, 2013-1420 (Fed.Cir. October 14, 2014)
• District Court allowed SSL’s damages expert to rely on software distribution agreements that were not patent licenses but referenced the ‘011 Patent as relevant IP to the licensed technology because the agreements were sufficiently comparable to be probative of the hypothetical negotiation as they involve actual parties, relevant technology, and were close to the hypothetical negotiation date
• SSL’s expert addressed differences between the agreements and the hypothetical negotiation
• The CAFC affirmed the admittance of testimony about the agreements and stated [w]e do not discount all agreements regarding the technology at issue other than licenses addressing the price terms and circumstances at issue in the case at bar...
Comparable LicensesFactors to consider and quantify economic impact, if possible: Date (compared to hypothetical negotiation date) Form of royalty (e.g., lump sum, per unit, % of sales, etc.) No. of patents and cross-licenses Upfront payments, minimum/maximum royalties Product/technology similarity Stage of product development Importance of licensed technology to licensed product Relationship and other transactions between parties Non-cash consideration Other consideration such as reimbursement for research Contingent royalty rates Exclusivity and territory restrictions Settlement of litigation
Comparable Licenses
Lump Sum Licenses v. Running Royalty Licenses: Fundamental differences, including assumption of risk Must provide a basis for comparing running royalties to lump-sum royalties or vice-
versa such as revenue, units, etc.[Wordtech Systems, Inc v. Integrated Networks Solutions, Inc., 609 F.3d 1308, 1319 (Fed. Cir. 2010)]
Per Unit v. Percentage Royalties: Per unit royalties may be able to be converted to percentage royalties if prices of
licensed products are known May be necessary to convert royalty to a per unit royalty if the requirements of the
entire market value rule are not satisfied
Comparable Licenses May need to account for passage of time and changes in product or industry profitability
if licenses are several years removed from the hypothetical negotiation date
Infringement expert or other experts to opine on comparability of patented technology and other technology included in licenses
If no separate expert, may require collaboration between counsel, damages expert, and other technical professionals
If licenses contain other bundled rights or patents in addition to the patent(s)-in-suit, an adjustment may be necessary or it may be difficult to establish comparability
Comparability may be implied if the infringer alleges that the patent(s)-in-suit is/are anticipated by previous patents for which licenses are being evaluated [Syntrix Biosystems, Inc. v. Illumina, Inc. 10cv5870 (W.D.WA November 4, 2013)]
Each license needs to be analyzed for both technological and economic comparability
Adjustments may need to be made for different fields of use, different products, etc. based on different profitability
Comparable Licenses May be able to account for different fields of use or products by determining the royalty
rate’s percentage of the licensed product profitability at the time of the license and applying that percentage to the hypothetical license
Also need to account for changes in bargaining position from the date of the license in question and the date of the hypothetical negotiation
May need discovery (including depositions) on how royalty rates, including those in settlement agreements, were determined and factors that were considered in the negotiation, especially if multiple patents and cross-licenses are involved
Also may need information regarding royalties paid under agreements if royalties can be tied to specific patents
While licenses entered into as a result of settlement of litigation have been admitted, the propriety of using prior settlement agreements to prove a reasonable royalty is questionable, especially if the settlement agreement was not a license for the patent(s)-at-issue [LaserDynamics v. Quanta Comp., Inc., 694 F.3d 51, 77 (Fed. Cir. 2012)]
Looking Beyond 2014
Claim construction review standard. Lighting Ballast Control LLC v. Philips Elecs. N. Amer. Corp., No. 13-1536, filed June 24, 2014. This petition is likely to join another being held pending Teva v. Sandoz. That is, the high court will hear oral argument in Teva on the same question presented by this petition—challenging the Federal Circuit's de novo review of a lower court's claim construction judgments.
Design patent obviousness. MRC Innovations, Inc. v. Hunter Mfg., LLP, No. 14-5, filed July 1, 2014 (129 PTD, 7/7/14). This petition questions the differences in the Federal Circuit's standards for design patent obviousness, compared to precedents on utility patent obviousness following the high court's 2007 KSR decision.
Looking Beyond 2014
Public use. Pronova BioPharma Norge AS v. Par Pharm. USA, Inc., No. 13-1251, filed April 16, 2014 (76 PTD, 4/21/14). In this case on the cardiovascular disease drug Lovaza, the Federal Circuit held that an invalidating Section 102 public “use” of a drug composition does not necessarily have to be for treatment.
Co-inventorship. Wilkins v. Gen. Elec. Co., No. 14-157, filed Aug. 6, 2014 (158 PTD, 8/15/14). The evidence requirement for corroborating a claim of contribution to an invention is at issue
Questions?
Ian R. Walsworth
(303) 863-2976
Mark W. Pedigo
(303) 831-5044
