Proposed Patent Legislation - Proposed Patent Legislation - RemediesRemedies

David A. EdsengaDavid A. Edsenga

November 29, 2005November 29, 2005

OverviewOverview

• Patent TrollsPatent Trolls• InjunctionsInjunctions

– 35 U.S.C. §283; Committee Print, Sec. 735 U.S.C. §283; Committee Print, Sec. 7– Smith v. Hughes; MercExchange v. eBaySmith v. Hughes; MercExchange v. eBay– Testimony before the SubcommitteeTestimony before the Subcommittee

• DamagesDamages– 35 U.S.C. 35 U.S.C. §284; Committee Print, Sec. 6§284; Committee Print, Sec. 6– Testimony before the SubcommitteeTestimony before the Subcommittee

• Class CommentsClass Comments• Current State of Proposed Current State of Proposed

LegislationLegislation

Patent Trolls• Own patents, but do

not manufacture or invent anything.

• Famous Trolls• Lemelson• NTP (Blackberry)• Eolas Technologies

(Internet Explorer)

35 U.S.C. §283: Injunctions

The several courts having jurisdiction . . .may grant injunctions

in accordance with the principles of equity to prevent the violation of any right secured by

patent, on such terms as the court deems

reasonable.

Smith Intl. Inc. v. Hughes Tool Co.Smith Intl. Inc. v. Hughes Tool Co.

HughesHughes owns ‘928 and ‘195 patents owns ‘928 and ‘195 patents SmithSmith files suit seeking declaratory judgment of files suit seeking declaratory judgment of

invalidity for ‘928 patentinvalidity for ‘928 patent HughesHughes counterclaims for infringement of ‘928 and counterclaims for infringement of ‘928 and

‘195‘195 SmithSmith admits selling/making devices within claims of admits selling/making devices within claims of

‘928 and ‘195 patents, but claims invalidity for both‘928 and ‘195 patents, but claims invalidity for both Ninth Circuit reversed district court finding of Ninth Circuit reversed district court finding of

invalidityinvalidity On remand, On remand, HughesHughes moved for judgment in its favor moved for judgment in its favor

and sought a preliminary injunction.and sought a preliminary injunction. The district court denied the preliminary injunction to The district court denied the preliminary injunction to

determine the extent of determine the extent of Smith’sSmith’s infringement. infringement.

Smith v. Hughes Contd.Smith v. Hughes Contd. Congress has the power to award “inventors the Congress has the power to award “inventors the exclusive exclusive

rightright to their . . . discoveries.” U.S. Const., art 1, to their . . . discoveries.” U.S. Const., art 1, §8, cl. 8.§8, cl. 8. Patent statute provides the Patent statute provides the right to excluderight to exclude others from others from

making, using, or selling the invention.making, using, or selling the invention. Preliminary InjunctionPreliminary Injunction: : normally issue for purpose ofnormally issue for purpose of

preserving the status quopreserving the status quo protecting the rights of the parties pending final protecting the rights of the parties pending final

disposition.disposition. Usual requirement: Probability of success on the meritsUsual requirement: Probability of success on the merits Generally must be beyond question that patent is valid Generally must be beyond question that patent is valid

and infringed.and infringed. Must demonstrate that will suffer immediate irreparable Must demonstrate that will suffer immediate irreparable

harmharm

Smith v. Hughes Contd.Smith v. Hughes Contd.

Preliminary Injunction Contd:Preliminary Injunction Contd: Court should take into accountCourt should take into account

possibility of harm to other interested personspossibility of harm to other interested persons the public interestthe public interest

HoldingHolding Infringement is established beyond all questionInfringement is established beyond all question

Smith admitted that it intended to continue to Smith admitted that it intended to continue to make and sell the infringing bitsmake and sell the infringing bits

No burden to show the extent of infringementNo burden to show the extent of infringement Validity and continuing infringement have been Validity and continuing infringement have been

established, then immediate irreparable harm is established, then immediate irreparable harm is presumed.presumed.

MercExchange v. eBayMercExchange v. eBay Jury found that eBay and Half.com Jury found that eBay and Half.com

willfully infringed MercExchange’s patentwillfully infringed MercExchange’s patent District court refused to enter a District court refused to enter a

permanent injunctionpermanent injunction General RuleGeneral Rule: permanent injunction : permanent injunction

issues once infringement and validity issues once infringement and validity have been adjudged.have been adjudged.

Injunctive relief has been denied in rare Injunctive relief has been denied in rare instances to protect the instances to protect the public interestpublic interest Public healthPublic health (i.e. Milwaukee (i.e. Milwaukee

Sewers)Sewers) General concern about business method General concern about business method

patents isn’t an important public need patents isn’t an important public need for denying injunctionfor denying injunction

MercExchange v. eBay Contd.MercExchange v. eBay Contd.

Concern about future litigation isn’t a sufficient Concern about future litigation isn’t a sufficient basis for denying an injunctionbasis for denying an injunction

A willingness to license should not deprive of the A willingness to license should not deprive of the right to an injunctionright to an injunction Injunctions aren’t reserved for those who intend to Injunctions aren’t reserved for those who intend to

practice patents, as opposed to those who choose to practice patents, as opposed to those who choose to licenselicense

The right to exclude is available to both groups equallyThe right to exclude is available to both groups equally Leverage in licensing is a consequence of the right to Leverage in licensing is a consequence of the right to

excludeexclude Failure to move for a preliminary injunction has no Failure to move for a preliminary injunction has no

bearing on permanent injunctionbearing on permanent injunction

Proposed Legislation Timeline

April 14, 2005: Committee Print is created

April 20/28, 2005: Testimony before the Subcommittee on Courts, the Internet, and

Intellectual Property

June 8, 2005: H.R. 2795 is created

July 26, 2005: H.R. 2795 is amended, eliminating Sec. 7 (Injunctions)

October 20, 2005: H.R. 2795 is amended

Committee Print, Sec. 7: Injunctions

(a) In General: (Identical to 35 U.S.C. §283)

(b) Grounds for Granting InjunctionA court shall not grant an injunction under

this section unless it finds

that the patentee is likely to suffer irreparable harm

that cannot be remedied by the payment of money damages.

Sec. 7, Contd.

In making such a finding, the court shall not presume the existence of irreparable

harm,

but shall consider and weigh evidence that establishes

or negates any equitable factor relevant to a determination of the existence of irreparable harm,

including the extent to which the patentee makes use of the invention.

Testimony before Testimony before SubcommitteeSubcommittee

• Richard J. Lutton Jr.; Business Software Alliance (BSA)Richard J. Lutton Jr.; Business Software Alliance (BSA)– ProPro Committee Print Committee Print– The law says to balance equities before issuing an injunction.The law says to balance equities before issuing an injunction.

• ““may grant an injunction in accordance with the principles of may grant an injunction in accordance with the principles of equity” equity” 35 U.S.C. 35 U.S.C. §283§283

– Granting of injunction has become nearly automaticGranting of injunction has become nearly automatic– Leverage is exploited by patentees who don’t desire injunctive reliefLeverage is exploited by patentees who don’t desire injunctive relief

• Jeff Hawley; Intellectual Property Owners of America Jeff Hawley; Intellectual Property Owners of America (IPO)(IPO)– AntiAnti Committee Print Committee Print– Patent is an exclusive right, coming from availability of permanent Patent is an exclusive right, coming from availability of permanent

injunctioninjunction– Irreparable harm is a preliminary injunction conceptIrreparable harm is a preliminary injunction concept– Considering use is similar to a “working requirement”Considering use is similar to a “working requirement”– Want leverage to PO to encourage settlement by taking licensesWant leverage to PO to encourage settlement by taking licenses– AI can often redesign to avoid patentAI can often redesign to avoid patent

Testimony Contd.Testimony Contd.

• Jeffrey P. Kusham; GenetechJeffrey P. Kusham; Genetech– AntiAnti Committee Print Committee Print– Long established precedent that PO is presumed to be Long established precedent that PO is presumed to be

irreparably harmed by infringementirreparably harmed by infringement– Capacity to prevent unauthorized use is essential to patent’s Capacity to prevent unauthorized use is essential to patent’s

character as a property rightcharacter as a property right– Current law places burden on AI to show why injunction Current law places burden on AI to show why injunction

should not be granted. should not be granted. • Committee Print alters this burdenCommittee Print alters this burden

– Courts currently contemplate factors in Committee PrintCourts currently contemplate factors in Committee Print– Courts often stay injunctions pending appealCourts often stay injunctions pending appeal– Other legislation for PO’s not in the market of AIOther legislation for PO’s not in the market of AI

35 U.S.C. §284: Damages 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, together with interest and costs as fixed by the court.

When the damages are not found by a jury, the court shall assess them. In either event the court may increase the damages up to three times the amount found or assessed.

Increased damages under this paragraph shall not apply to provisional rights under section 154(d) of this title [35 USCS §154(d)].

The court may receive expert testimony as an aid to the determination of damages or of what royalty would be reasonable under the circumstances.

Committee Print, Sec. 6: Damages (a) AWARD OF DAMAGES [Identical to §284] (b) ROLE OF THE COURT; TREBLE DAMAGES [Identical to §284] (c) EXPERT TESTIMONY [Identical to §284] (d) BASIS FOR INCREASED DAMAGES

(1) WILLFULNESS - For purposes of determining whether to increase damages under this section, the court may consider the willfulness of any infringement. The absence of an opinion of counsel shall not create an inference that the infringement was willful. Increased damages may not be awarded based merely

upon the knowledge of a patent or its contents by the defendant prior to suit.

(2) OTHER FACTORS – Increased damages may be awarded for any infringement

(A) occurring after the defendant receives from the plaintiff written notice that –

(i) contains a charge of infringement,

Sec. 6, Contd. (ii) identifies the

-specific patent, -claims, and -allegedly infringing products or processes infringed, and

(iii) is sufficient to give the defendant an objectively reasonable apprehension of suit on such patent,

Unless the defendant had an informed good faith belief that a court would reasonably hold that the patent is invalid, not infringed, or unenforceable;

(B) in which the defendant intentionally copied the patent subject matter with knowledge that it was patented,

unless the defendant had an informed good faith belief that a court would reasonably hold the patent is invalid, not infringed, or enforceable; or

Sec. 6, Contd. (C) if the patent was asserted against the defendant

in a previous judicial proceeding in a Federal court, and the present infringement is more than colorably different from the conduct asserted to be infringing in the previous proceeding.

(e) DETERMINATION OF ROYALTIES OR DAMAGES FOR COMPONENTS – Whenever the invention

-is incorporated into, or -is made part of,

a method or apparatus otherwise known in the art, or is an approved method or apparatus including within it elements

otherwise known in the art, then any award of a reasonable royalty or other damages shall be based only upon such portion of the total value of the method or apparatus asis attributable to the method, apparatus, or elements

otherwise known in the art or contributed by the infringer or its licensors.

Testimony Before Testimony Before SubcommitteeSubcommittee

• Jeff Hawley, IPOJeff Hawley, IPO– ProPro Committee Print Committee Print– §284 makes some companies wary of allowing employees §284 makes some companies wary of allowing employees

to read competitor’s patents for fear of being put on to read competitor’s patents for fear of being put on notice of infringementnotice of infringement

– Sec. 6 will reduce litigation costs and discourage Sec. 6 will reduce litigation costs and discourage unwarranted suitsunwarranted suits

• Richard J. Lutton Jr., BSARichard J. Lutton Jr., BSA– Mostly ProMostly Pro Committee Print Committee Print– §284 allows knowing of a patent to be the basis for an §284 allows knowing of a patent to be the basis for an

allegation of willfulnessallegation of willfulness– Should make clear that punitive damages are imposed Should make clear that punitive damages are imposed

where there is evidence of reprehensible conductwhere there is evidence of reprehensible conduct– Committee Print may still allow well-drafted notice letter Committee Print may still allow well-drafted notice letter

to give rise to a charge of willfulnessto give rise to a charge of willfulness

Testimony Contd.Testimony Contd.• Jeffrey P. Kusham, GenetechJeffrey P. Kusham, Genetech

– Mostly ProMostly Pro Committee Print Committee Print– Supports Supports Sec. 6 (A,B,C) onlySec. 6 (A,B,C) only: these scenarios should be the : these scenarios should be the

only that warrant a finding of willful infringementonly that warrant a finding of willful infringement– Makes explicit what constitutes willful infringementMakes explicit what constitutes willful infringement– Sec. 6 needs Sec. 6 needs additional measuresadditional measures

• Preclude question of willful infringement until patent has Preclude question of willful infringement until patent has been found infringedbeen found infringed

• Willfulness should only be addressed by court, not by juryWillfulness should only be addressed by court, not by jury• No discovery of opinions of counsel until after No discovery of opinions of counsel until after

infringement is establishedinfringement is established

• Nathan P. Myhrvold, Intellectual VenturesNathan P. Myhrvold, Intellectual Ventures– AntiAnti Committee Print Committee Print– Committee Print goes Committee Print goes too far in reducing conditionstoo far in reducing conditions for for

willfulnesswillfulness– Large companies will Large companies will infringe at willinfringe at will without increased without increased

financial penaltyfinancial penalty– Would increase the volume of litigation and motivate Would increase the volume of litigation and motivate

companies to infringecompanies to infringe

Class CommentsClass Comments Question 1Question 1

• ShuiShui: If PO proves infringement, court issues injunction: If PO proves infringement, court issues injunction The right to exclude takes precedence.The right to exclude takes precedence. There are other ways to correct the problems.There are other ways to correct the problems.

• CohenCohen: Court orders injunction unless: Court orders injunction unless public interest is sufficient; court orders cease to public interest is sufficient; court orders cease to

infringing activity, equitable defenses limit scope of infringing activity, equitable defenses limit scope of injunction.injunction.

Still reasonably compensate; AI must prove Still reasonably compensate; AI must prove conditions for exceptionconditions for exception

• KoKo: Presume irreparable harm, grant injunction, unless : Presume irreparable harm, grant injunction, unless evidence to rebut presumptionevidence to rebut presumption

Stay injunctions pending appealsStay injunctions pending appeals Gives time to design aroundGives time to design around

Class Comments Contd.Class Comments Contd.• YatesYates: Permanent injunction unless exceptional : Permanent injunction unless exceptional

circumstancescircumstances Don’t want compulsory licenses; commercialization Don’t want compulsory licenses; commercialization

doesn’t matterdoesn’t matter• ClearyCleary: Permanent injunction unless evidence : Permanent injunction unless evidence

outweighs presumptionoutweighs presumption

Question 2Question 2• OlinOlin: Trolls = Bad: Take into account the extent which PO : Trolls = Bad: Take into account the extent which PO

intends to make useintends to make use Weigh equitable factors. Weigh equitable factors. Distinguish between real and fake trolls.Distinguish between real and fake trolls.

• PearsonPearson: Trolls = Bad: Rebuttable pesumption, unless : Trolls = Bad: Rebuttable pesumption, unless PO possessed for 4 years and intentionally failed to PO possessed for 4 years and intentionally failed to market. Then reasonable royaltymarket. Then reasonable royalty

Purpose is to promote progress of science and useful Purpose is to promote progress of science and useful artsarts

Class Comments Contd.Class Comments Contd.

• KolbKolb: PTO = Broke: PTO fees to PTO. Increase federal : PTO = Broke: PTO fees to PTO. Increase federal funding. Additional examiners and training.funding. Additional examiners and training.

Better patents will result in less trollingBetter patents will result in less trolling• HellerHeller: Trolls = Bank Robbers: No injunction if PO isn’t : Trolls = Bank Robbers: No injunction if PO isn’t

inventor or doesn’t practice, AND seeks injunction in bad inventor or doesn’t practice, AND seeks injunction in bad faith/to harass, or PO isn’t likely to suffer irreparable faith/to harass, or PO isn’t likely to suffer irreparable harmharm

• MurshakMurshak: Trolls = Bad: No injunction unless AI is direct : Trolls = Bad: No injunction unless AI is direct competitor or PO intends to excludecompetitor or PO intends to exclude

Need an intent to exclude rather than gain an Need an intent to exclude rather than gain an overpriced licenseoverpriced license

What’s the current state of H.R. What’s the current state of H.R. 2795?2795?

► Sec. 6Sec. 6 (a) AWARD OF DAMAGES [added to end of paragraph 1](a) AWARD OF DAMAGES [added to end of paragraph 1]

► In determining a reasonable royalty consideration shall In determining a reasonable royalty consideration shall be given to, among other relevant factors, the portion be given to, among other relevant factors, the portion of realizable profit or value that should be credited to of realizable profit or value that should be credited to the the inventive contributionsinventive contributions arising from the claimed arising from the claimed invention as distinguished from contributions arising invention as distinguished from contributions arising from features, manufacturing processes or from features, manufacturing processes or improvementsimprovements added by the added by the infringerinfringer and from the and from the business risks the infringer undertook in business risks the infringer undertook in commercialization.commercialization.

(b) WILLFUL INFRINGEMENT(b) WILLFUL INFRINGEMENT► (3) (3) LIMITATIONS ON WILLFULNESSLIMITATIONS ON WILLFULNESS

(B) An informed good faith belief within the meaning (B) An informed good faith belief within the meaning of subparagraph (A) may be established by of subparagraph (A) may be established by reasonable reliance on advice of counselreasonable reliance on advice of counsel

Current H.R. 2795 Contd.Current H.R. 2795 Contd.

► Sec. 6 Contd.Sec. 6 Contd. (4) LIMITATION ON PLEADING(4) LIMITATION ON PLEADING

► Prior toPrior to the date that a the date that a determinationdetermination has been has been made that the patent in suit is made that the patent in suit is not invalidnot invalid, is , is enforceableenforceable, and has been , and has been infringedinfringed by the infringer, by the infringer, a patentee may not plead, and a court may not a patentee may not plead, and a court may not determine, that an infringer has determine, that an infringer has willfully infringedwillfully infringed a a patent. The court’s determination of an infringer’s patent. The court’s determination of an infringer’s willfulness shall be made willfulness shall be made without the involvement of without the involvement of a jurya jury..

Sec. 9, VenueSec. 9, Venue

► 35 U.S.C. 35 U.S.C. §281: Remedy for Infringement of a Patent§281: Remedy for Infringement of a Patent A patentee shall have remedy by civil action for A patentee shall have remedy by civil action for

infringement of his patent.infringement of his patent.► Sec. 9 Transfer of Venue [added to Sec. 9 Transfer of Venue [added to §281]§281]

(c) TRANSFER OF VENUE. - A court shall grant a motion to (c) TRANSFER OF VENUE. - A court shall grant a motion to transfer . . . to a judicial district . . . transfer . . . to a judicial district . . .

► where the action could have been brought and where the action could have been brought and ► that is a more appropriate forum for the action, that is a more appropriate forum for the action,

which includes any judicial district . . . where a party to the which includes any judicial district . . . where a party to the action has substantial evidence or witnesses, action has substantial evidence or witnesses, ifif – –

► (1) the action was not brought in a district . . .(1) the action was not brought in a district . . . (A) in which the patentee resides or (A) in which the patentee resides or

► maintains its principal place of business,maintains its principal place of business,

Sec. 9, Venue Contd.Sec. 9, Venue Contd. (B) in which an accused infringer maintains its (B) in which an accused infringer maintains its

principal place of business, orprincipal place of business, or (C) in the State in which an accused infringer, if a (C) in the State in which an accused infringer, if a

domestic corporation, is incorporateddomestic corporation, is incorporated► (2) at the time the action was brought, neither the (2) at the time the action was brought, neither the

patentee nor an accused infringer had substantial patentee nor an accused infringer had substantial evidence or witnesses in the judicial district in which evidence or witnesses in the judicial district in which the action was brought, andthe action was brought, and

► (3) the action has not been previously transferred (3) the action has not been previously transferred under this subsection.under this subsection.

(d) For purposes of section (c), use or sale of allegedly (d) For purposes of section (c), use or sale of allegedly infringing subject matter in a judicial district shall not, by infringing subject matter in a judicial district shall not, by itself, establish the existence of substantial evidence or itself, establish the existence of substantial evidence or witnesses in such a judicial district.witnesses in such a judicial district.