NPE Patent Enforcement
David Healey
Fish & Richardson
Houston, Texas
713-654-5300
www.fr.com
[email protected]
NPE Cases Arise Most Often in
Software and Business Method Cases

Most recent Federal Circuit software cases are most helpful in defending
NPE lawsuits:
– Lucent emphasized apportionment in patent damages: small
software feature cannot support large award.
– BMC: where different actors or users perform the accused method
there is no liability for any one unless there is sufficient legal
relationship among them for joint infringement liability.
– DSU Medical inducement requires actual intent to infinge the patent.
– Standing: Often assignment records are incomplete and inaccurate
or prior owner retained too many rights or had duty to assign
invention.
– Written Description and Priority: Anascape v Microsoft set the
standard in Spring 2010 for how the written description of the
invention must disclose the invention for priority: And along with
Ariad, could be important for software and business patents.
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2008 BUST
 Number of new patent filings in US is down in 2009
(also in Europe).
 There is a correlation between the financial markets,
patent applications filed, patents issued, and patent
litigation.
 More so than any change in the law, most likely
investment in patenting and availability of capital for
both patenting and for litigation will drive future NPE
litigation.
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4500
500,000
4000
450,000
400,000
3500
3000
Patent Applications
NASDAQ
350,000
300,000
2500
250,000
2000
200,000
1500
150,000
1000
100,000
500
50,000
0
1970
0
1980
1990
2000
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2007
3500
200,000
180,000
3000
2500
Patents Issued
Patent Suits Filed
160,000
140,000
120,000
2000
100,000
1500
80,000
60,000
1000
40,000
500
20,000
0
0
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1970
1980
1990
2000
2007
4500
4000
3500
3000
NASDAQ
Patent Suits Filed
2500
2000
1500
1000
500
0
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1970
1980
1990
2000
2007
Re-examination
 Inter Partes re-exam is successful way to threaten
NPE’s licensing program and to void or limit patents,
but is subject to revision by Congress and PTO’s
limited resources
 Ex Parte Re-examination is generally much less
effective to limit or void patents
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Reexamination
Reexam
Declared
Average
Pendency
Inter
partes
95%
Ex Parte1
92%
All claims
confirmed
All claims
canceled
Claims
changed
32.6 months 12%
67%
21%
24.5 months 28%
13%
59%
1 statistics
for third-party requests
Source USPTO website
Since 2005, PTO Central Reexamination Unit has
improved PTO reexamination practice
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Inter Partes Re-Exam: The Best Weapon?
 Inter Partes Re-examination is typically an effective tool in dealing
with an NPE because it threatens the entire licensing program:
– Re-examination gives no deference to prior examination.
– CRU is elite of patent examination group.
– Active participation by interested parties leads to better result.
– Patentee has to be consistent in concurrent litigation and reexamination proceedings, often erring toward validity with
narrower claim scope.
– Often PTO examiner on continuation applications will
coordinate with CRU on Inter Partes Re-exam, slowing or
limiting new claims in continuation applications.
– Re-exam is 100% recycle-able in litigation (invalidity charts).
– SNQ can be evidence of no-willfulness and also basis for stay.
– Priority can also be challenged in context of “prior art” date.9<#>
Future Trends:Europe as an NPE Venue?
 Current German system of pre-suit seizure, no discovery,
separate infringement and invalidity cases, is cheap and fast.
– Civil law system does not permit for equitable defenses as in
common law system.
– European patent interpretation is not as strict as U.S. law.
– Pre-suit seizures are available to patentees under current EU
practice.
– Hamburg is second busiest port in EU.
– Statutory limits on attorneys’ fees minimize risk to
unsuccessful patentee.
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Europe as an NPE Venue
 Progress toward unified EU patent and enforcement system is
substantial.
– Low damages would be off-set by pan-EU injunction.
– Compulsory licensing in proposed EU system gives NPE what
it wants: money for pan-EU license.
– Politics over EU enforcement system will encourage national
courts to follow EU standards since patentee picks the forum.
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“Ministers back EU Patent Reform Plan”
Financial Times, December 4, 2009
Industry ministers took a significant step towards
reforming Europe’s cumbersome and costly patent
system on Friday, by approving in principle a new
specialised litigation system and the creation of a single
European Union-wide patent….
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Future Trends: Continuation Problems Grow
 Failure of PTO or Congress to limit U.S. continuation
patent practice will make NPE cases harder to defend.
 More continuation applications means:
– More claims written after new products come to
market, making infringement difficult to defend; and,
– More invalid patents saved by “laundering” key prior
art through original examiner in continuation.
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Future Trends: Litigation
 Business method and software patents were not limited by In re
Bilski decision from Supreme Court in 2010.
 But priority, enablement and written description strengthened in
Anascape and Ariad: 112 is important tool for NPE cases.
 Multi-party cases will become “norm” for NPE lawsuits:
– Medimmune encourages “sue first” tactics;
– Multiple defendant tactic is useful to help hold venue by
joinder of parties from different locations;
– Multiple defendant cases create confusion, competition, and
costs for defendants in attempts at coordination, benefitting
plaintiff: Which incentivizes settlement by individual
defendants.
– Lots of smaller settlements are easier to get than one big one.
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Future Trends: NPE Litigation
 Damages will be more heavily scrutinized under Lucent, but will
still go up:
– Inflation will drive up verdicts;
– High volume of sales for popular products drive up damages;
– Vague Georgia-Pacific factors can be manipulated;
– Federal Circuit’s approval of use of entire accused
instrumentality as a royalty base makes apportionment
remains subject to manipulation: No need to use “entire
market rule”, rather allocate a high royalty to the specific
infringing feature and then transform it to entire system cost
for “convenience” in calculation.
– Cornell’s solution of smallest salable unit is helpful only to the
point of that component’s sales price.
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Future Trends: Litigation
 Diffusion of patent cases may increase verdicts and costs:
– Courts unfamiliar with patent law are less likely to limit
discovery, grant SJ or narrow claims (this could be costly with
ediscovery/emails).
– Juries in metro areas grant bigger verdicts in NPE cases: e.g.
Microsoft verdicts: Eolas-Chicago $600 million, Lucent-San
Diego $1.5 billion, Uniloc-Providence $388 million; Tyler-z4$134 million; Tyler-i4i-$200 million. (Centocor v Abbott and
Medtronic v Boston Scientific were competitor cases).
 Whether markets remain stagnant, unstable or go up, investment
in well-run NPE litigation can be highly profitable in a short period
of time, which will attract investment.
 Europe will likely see NPE cases emerge in coordination with or
separate from U.S. suit.
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Conclusion
 NPE sees patent enforcement only as a business.
 Handle NPE patent cases like a business problem:
• Set up systems to reduce cost of repetitive tasks (e.g.,
document vendors) and negotiate preferred vendor pricing.
• Share costs and counsel with co-defendants insofar as
possible or practical; avoid confusion and competition.
• Limit discovery by agreement or Court assistance at CMC.
• Triage cases immediately; make a plan; tailor budget to
plan; consider that each case impacts future cases.
• Consider alternative royalty theories: e.g., Valuation.
• Consider how to apportion damages to invention.
• Do not waste money:
– On discovery fights,
– On giving or taking unnecessary discovery,
– On meaningless procedural moves.
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Conclusion
Attack the “asset” in inter partes re-exam in
USPTO and invalidity proceedings in other
countries to put the NPE’s business model at risk
Limit discovery by cooperation or motion
Consider asking for Court appointed expert to
testify at trial under Fed. R. Civ. P. 706
Focus on damages early to minimize exposure
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