Seattle Intellectual Property Inn of Court
Group 3 Presentation: Costs of Litigation
January 16, 2014
• Introduction (Kevin Zeck)
• Overview and Effect of pertinent new provisions of AIA (Isabella Fu)
• Overview and Effect of various recently issued Local Patent Rules and
Model Orders (Ben Byer)
• Proposed changes to Federal Rules of Civil Procedure (Parker Folse)
• Proposed Patent Reform Legislation (Dario Machleidt/Jeffrey Cox)
• Questions and Answers
Group 3
Presenters: Ben Byer, Jeff Cox,
Parker Folse, Isabella Fu,
Dario Machliedt, and Kevin Zeck
Presenter: Kevin Zeck
•
Costs to Patentee/Inventor
•
•
•
•
•
Costs to Obtain/Maintain Patent Protection
Lost Profits
Price erosion
Failure to monetize (loss of expected royalties)
Litigation Fees and Costs
• Attorneys Fees
• Indirect Costs (diverting resources from R&D, marketing,
manufacturing, etc.)
•
Costs to Alleged Infringer
• Litigation Fees and Costs
• Attorneys Fees
• Settlement Value & Damages Awards
• Indirect Costs (diverting resources from R&D, marketing,
manufacturing, etc.)
•
Costs to Third Parties Involved in
Litigation
• Costs to respond to subpoenas and informal
requests for information
•
Externalities:
• Costs of enforcement borne by public (e.g.,
judicial resources consumed in effort to enforce
patent, reduction in availability of alternative
goods, etc.)
• Costs to reform system perceived to be broken
•
Depends on evaluative model
• If deontological, costs are good (or at least justified)
if necessary to secure the rights of inventors.
• If utilitarian or consequentialist, then the patent
system functions to incentivize progress (through
invention)
• Costs are theoretically good up to point where marginal
increase in progress is equal to marginal increase in cost to
achieve progress

Types of Litigation Costs:




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Attorneys Fees
Document Retention/Production Costs
Depositions
Consultants
Experts
Alternative-Dispute-Resolution Related Costs
Mock Trials and Hearings
Court Fees and Costs
Appeal Related Costs
Settlement Value/Damages Awards
Little high-quality, publicly-available,
quantitative information exists

Best Source on Quantitative Litigation Costs
Available is AIPLA: Report of the Economic Survey
 Conducted by AIPLA every two years since 1989
 Drawbacks: Self-Reporting, Small Sample Size (usu. a
couple thousand responses, equaling roughly a 20%
response rate), failure to catch many types of costs (e.g.,
judicial resources, indirect costs of litigation, etc.)

Other resources:
 PriceWaterhouseCoopers (focuses on damages), RPX
(focuses on NPEs – does not publicly provide all data),
other private studies (Bessen and Meurer)
20,000
15,000
Sample
Size
Indiv.
Resp.
10,000
5,000
0
1995
2009
2011
2013

Question Posed:
 Two part question (at least as far back as 1995)
that asks, for different levels of “value at risk”:
 What is your estimate of the total cost of a patent
infringement suit through the end of discovery?
 What is your estimate of the total cost of a patent
infringement suit inclusive of discovery, motions,
pretrial, trial, post-trial, and appeal?
$6,000,000
$5,000,000
$4,000,000
Thru
Discovery
All Costs
$3,000,000
$2,000,000
$1,000,000
$0
< 1 mil.
1 to 10 mil.
10 to 100
mil.
>100 mil.
$6,000,000
$5,000,000
$4,000,000
Thru
Discovery
$3,000,000
All Costs
$2,000,000
$1,000,000
$0
25th Percentile
Median
75th Percentile
$6,000,000
$5,000,000
$4,000,000
Thru
Discovery
$3,000,000
All Costs
$2,000,000
$1,000,000
$0
1995 2001 2003 2005 2007 2009 2011 2013
$6,000,000
$5,000,000
$4,000,000
Thru
Discovery
$3,000,000
All Costs
$2,000,000
$1,000,000
$0
2001 2003 2005 2007 2009 2011 2013
$6,000,000
$5,000,000
$4,000,000
Thru
Discovery
$3,000,000
All Costs
$2,000,000
$1,000,000
$0
2001 2003 2005 2007 2009 2011 2013
$3,000,000
Copyright
Litigation
$2,500,000
Trademark
Litigation
$2,000,000
Patent
Litigation
$1,500,000
$1,000,000
$500,000
$0
1995 2001 2003 2005 2007 2009 2011 2013
$18,000
$16,000
$14,000
Billions
$12,000
$10,000
Annual
GDP
$8,000
$6,000
$4,000
$2,000
$0
1995 2001 2003 2005 2007 2009 2011 2013
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
-0.5
-1.0
1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
From PriceWaterhouseCoopers, 2013 Patent Litigation Study: Big Cases make headlines, while patent cases proliferate 6
(2013), available at http://www.pwc.com/en_US/us/forensic-services/publications/assets/2013-patent-litigation-study.pdf

Factors:
 Economic Expansion
 The Information Age
 Non-practicing Entities (RPX thinks this is a
significant driver in the number of suits)
 Success stories (e.g., large verdicts)

Number of Suits per year has more than
tripled since 1995, which would drive up
demand for patent litigation legal services
Little research has been done
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Increased Suits/Demand for Services
E-Discovery (Information Age)
Markman v. Westview (mid-1990s)
Promulgation of Local Patent Rules
 N.D. Cal. was first in 2000
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Increasingly Complex Technologies
Higher-Stakes Litigation (Smart Phone
Wars)
Economic Expansion (general price
increases)
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Patent Applications, Issued Patents, and
Patent Infringement Suits Appear to be
Increasing at Record Paces

Technologies will continue to become more
sophisticated

Recent case law (e.g., Apple v. Samsung –
Posner) suggests damages theories will
need to be developed more rigorously

Increased costs, however, are not necessarily bad

If marginal gains from patent protection exceed
marginal costs to obtain/enforce, then cost levels
are acceptable

Little real-world data exists comparing gains to
costs
 Because of this, some theorize that patent protection is
unnecessary (Boldrin and Levine, 2013)
 Quality of life has substantially increased since 1995 (the
Internet, smart phones, etc.) – but whether this is the
result of patent protection is unknown
Costs of Patent
Litigation:
Effects of America
Invents Act
Isabella Fu
Microsoft Corporation
America Invents Act – Relevant
Provisions
• Beginning September 16, 2012, alleged infringers may challenge validity of
patents through new inter partes, litigation-like proceedings in US Patent Office
• Inter Partes Review (IPR) -- generally available if patent was issued over 9
months ago, and petitioner files request within 1 year of being sued for patent
infringement
• Covered Business Method (CBM) Review -- available for patents claiming a
method or corresponding apparatus for performing data processing or other
operations used in the practice, administration, or management of a financial
product or service; not for patent for technological inventions
• A technological invention is one where the claimed subject matter as a whole recites a
technological feature that is novel and unobvious over the prior art; and solves a technical
problem using a technical solution
• Post Grant Review (PGR) – available for patents filed after March 16, 2013
(subject to first to file rule), and within 9 months of issuance
• Lots of useful information, including statistics at PTO website:
http://www.uspto.gov/aia_implementation/index.jsp
Costs and Timeline
• IPR:
• 5-6 months after petition is filed, PTO decides whether to institute “trial”
•
PTO gives an indication of its reasoning and claim construction
• PTO aims for decision within 12 months of institution
• Total: 18 months to appealable decision, in theory
• District court litigation (other than ):
• Typically 9-12 months to get Markman ruling
• Total: 24 months or longer to trial, and additional time for post-trial motions
• Cost of IPR - http://www.uspto.gov/web/offices/ac/qs/ope/fee031913.htm
• Filing fees: About $23,000 plus additional feels for claims over 15
• PTO: “the Office estimates that the cost of preparing a petition for inter partes review
would be $46,000.” “the Office estimates that the average inter partes review will have 6
motions, oppositions, and replies after institution.”
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Very little discovery – typically just depositions of experts
Effectively patent litigation minus fact discovery, damages discovery, and trial
• Cost of district court litigation
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Discovery – infringement, validity, and damages
Markman briefing, SJ briefing, discovery motions
Infringement, validity, and damages experts
Trial
Considerations – IPR v. Litigation
• For IPR, estoppel will apply for any type of prior art that
could have been raised in an IPR (patents and printed
publications)
• Need strong documentary evidence, without need for
extensive discovery, to invalidate
• Alleged infringer can still raise subject matter (Section 101)
and Section 112 defenses, as well as 102/103 arguments
based on public use
• Consider whether the arguments will play better before
PTO or judge/jury
• Consider whether broad claim language may be
affected by PTO proceedings
• Consider whether patent owner is prepared to expend
significant sums early on in proceedings
Statistics – Petitions and Litigation
Stays
• Filings from September 16, 2012 through
November 2013
• Over 500 IPR Petitions
• Over 80 CBM Petitions
• 1 PGR Petition (accidentally filed)
• About 80% of petitions result in institution, but
only on minority of grounds
• However, challenges are instituted on most claims
• More likely to institute on anticipation than obviousness
• Over 70% of motions to stay district court
proceedings are ultimately successful
Effect of
Local Rules and ESI Orders
on Costs of Patent Litigation
Ben Byer
Research conducted by Yeu-Yan Perng
dwt.com
Background: Local Rules
 Life without local patent rules – chaos?
 Define needed contentions
 Organize selection of claim terms
 Schedule Markman briefing
33
dwt.com
Background: Local Rules
 29 District Courts
– LocalPatentRules.com
 W.D. Wash.
 E.D. Tex.
 N.D. Cal.
34
dwt.com
Background: E-Discovery Orders
 Timing:
Stage email v. non-email
 Custodian Limit:
5/10
 Search Term Limit:
5/10
 Volume Limit:
250 MBs
 Define Claw Back
 Define Inaccessible Info
35
dwt.com
Background: E-Discovery Orders - Origin
 Fed. Cir. Advisory Committee releases
 Some district courts adopt
I
ESI
– W.D. Wash.
– E.D. Tex.
– Others
36
dwt.com
Effect on Costs of Patent Litigation
37
dwt.com
Local Patent Rules – Reduce Costs?
 Pros
– Organize litigation
 Cons
– One size fits all
– Harder for early SJ
 Results
– Study: Save 2.5 months
– Not sole solution
• “Rocket Dockets” don’t use them
38
dwt.com
Model ESI Orders – Applicable Cases
 Two types: (1) all case and (2) patent cases only
 Are they needed in all patent cases?
– NPE suits
• imbalanced costs
– Competitor suits
• page-by-page review
 N.D. Cal. says “yes”
39
dwt.com
Model ESI Orders – Staging Email
 Liability typical does not depend on email
 After spending time and energy on non-email
– Less need
– Less appetite
40
dwt.com
Model ESI Orders – Custodian Limit
 Helpful to the extent it reduced volume
– Volume key!
 Limited value if still need to search for non-email ESI
 Causes issues with 30(b)(6) and trial witness
41
dwt.com
Model ESI Orders – Search Term Limit
 Limited number of terms means courser search
– Each term broader
 Tailored search may require many narrow terms
 Does not lower costs without volume limits
42
dwt.com
Model ESI Orders – Search Volume Limit
 Storage Size
– W.D. of Wash.
 Document Count
– None?
43
dwt.com
Model ESI Orders – Summary
 Keys to Cost Reduction
1. Negotiate with opposing counsel
2. Reduce volume
3. Staging
44
dwt.com
Proposed Changes to the
Federal Rules of Civil
Procedure
Parker Folse
SUSMAN GODFREY, LLP
Current Rule 37(e)
(e) Failure to Provide Electronically Stored
Information.
Absent exceptional circumstances, a court may
not impose sanctions under these rules on a
party for failing to provide electronically stored
information lost as a result of the routine, goodfaith operation of an electronic information
system.
Proposed Rule 37(e)
(e) Failure to Preserve Discoverable Information.
(1) Curative measures; sanctions. If a party
failed to preserve discoverable information that
should have been preserved in the anticipation or
conduct of litigation, the court may:
(A) permit additional discovery, order
curative measures, or order the party to pay the
reasonable expenses, including attorney’s fees,
caused by the failure; and
(B) impose any sanction listed in Rule
37(b)(2)(A) or give an adverse-inference jury
instruction, but only if the court finds that
the party’s actions:
(i) caused substantial prejudice in the
litigation and were willful or in bad faith; or
(ii) irreparably deprived a party of any
meaningful opportunity to present or defend
against the claims in the litigation.
(2) Factors to be considered in assessing a
party’s conduct. The court should consider all
relevant factors in determining whether a party
failed to preserve discoverable information that
should have been preserved in the anticipation
or conduct of litigation, and whether the failure
was willful or in bad faith. The factors include:
(A) the extent to which the party was on
notice that litigation was likely and that the
information would be discoverable;
(B) the reasonableness of the party’s
efforts to preserve the information;
(C) whether the party received a
request to preserve information, whether
the request was clear and reasonable, and
whether the person who made it and the
party consulted in good faith about the
scope of preservation;
(D) the proportionality of the
preservation efforts to any anticipated or
ongoing litigation; and
(E) whether the party timely
sought the court’s guidance on any
unresolved disputes about preserving
discoverable information.
Other Proposed Changes to the Rules
of Civil Procedure
• Shorten time for service of complaint and case
management conference
• Additional subjects for case management
conference (preservation of ESI, Rule 502,
discovery conferences)
• Earlier Rule 34 requests
Other Proposed Changes
• New presumptive limits:
– 5 depositions per side
– 6 hours per deposition
– 15 interrogatories
– 25 requests for admission (other than document
authenticity)
– Rule 34 responses: state objections with
specificity, state whether documents withheld,
state reasonable date for production
Other Proposed Changes
• Rule 26(b)(1):
Parties may obtain discovery regarding any
nonprivileged matter that is relevant to any party’s
claim or defense and proportional to the needs of
the case, considering the amount in controversy,
the importance of the issues at stake in the action,
the parties’ resources, the importance of the
discovery in resolving the issues, and whether the
burden or expense of the proposed discovery
outweighs its likely benefit. Information within this
scope of discovery need not be admissible in
evidence to be discoverable.
Public Comments
• Proposals available at www.uscourts.gov
– Federal Rulemaking
– Proposed Amendments Published for Public
Comment
• Comments due by February 15, 2014
• Three hearings – Washington, D.C. (Nov 7,
2013), Phoenix (Jan 9, 2014), Dallas (Feb 7,
2014)
After the public comment period, the Advisory Committees
will decide whether to submit the proposed amendments to
the Committee on Rules of Practice and Procedure. At this
time, the Committee on Rules of Practice and Procedure has
not approved these proposed amendments, except to
authorize their publication for comment. The proposed
amendments have not been submitted to or considered by
the Judicial Conference or the Supreme Court.
The proposed amendments would become effective on
December 1, 2015, if they are approved, with or without
revision, by the relevant Advisory Committee, the Committee
on Rules of Practice and Procedure, the Judicial Conference,
and the Supreme Court, and if Congress does not act to defer,
modify, or reject them.
Pending Federal Legislation
Dario Machleidt, Jeffrey Cox
Status of Pending Legislation
• Dec. 5, 2013—House passed H.R. 3309 (Innovation
Act), R. Goodlatte. 325 for to 91 against.
• Dec. 17, 2013—Senate Committee on the Judiciary
hearings entitled “Protecting Small Business and
Promoting Innovation by Limiting Patent Troll Abuse.”
• Senate Bills referred to committee
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–
–
–
S. 1720 (Patent Transparency and Improvements Act). Sen. Leahy (D-VT)
S. 1013 (Patent Abuse Reduction Act). Sen. Cornyn (R-TX).
S. 1612 (Patent Litigation Integrity Act). Sen. Hatch (R-UT).
S. 866 (Patent Quality Improvement Act). Sen. Schumer (D-NY)
The Innovation Act (H.R. 3309)
Provisions Directed to Reducing the Costs of Patent Litigation
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•
•
•
•
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Fee shifting
Heightened pleading requirements
Limited discovery
Corporate disclosure requirements
End-user protection
AIA amendments
Summary of Senate Bills
• S. 1720-Patent Transparency and Improvements Act
– “Customer stay” provision; regulation of “bad faith” demand letters;
transparency measures
• S. 1013-Patent Abuse Reduction Act
– fee shifting (no bond req.), heightened pleading requirements,
discovery limitations, “interested party” joinder
• S. 1612-Patent Litigation Integrity Act
– Fee shifting with bond requirement
• S. 866-Patent Quality Improvement Act
– Expansion of AIA Covered Business Method provision
Comparison of bills
Bill
HR
3309
Fee
shifting
X
Heightened
pleading
standards
X
S.
1720
X
Discovery
limitations
X
X
S.
1013
X
S.
1612
X
S. 866
Heightened
corporate
disclosures
X
End-user
protections
(Joinder,
stays)
X
AIA
amendments
X
X
X
Regulation
of bad faith
demand
letters
X
X
X
Looking Forward
• Next Steps
– Hearings by Senate Judiciary Committee
• Resources
– Bills
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•
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HR 3309—Innovation Act: https://www.govtrack.us/congress/bills/113/hr3309/text
S. 1720—Patent Transparency and Improvements Act: http://www.leahy.senate.gov/download/patenttransparency-and-improvements-act-of-2013
S. 1612—Patent Litigation Integrity Act: http://www.hatch.senate.gov/public/_cache/files/8d6b7549-fe3247cb-952f-b59ab110d97c/ALB13851.pdf
S. 1013-Patent Abuse Reduction Act : http://www.cornyn.senate.gov/public/?a=Files.Serve&File_id=2d0600bf6c00-4d9d-ad6e-d58130937c26
S. 866-Patent Quality Improvement Act: http://www.gpo.gov/fdsys/pkg/BILLS-113s866is/pdf/BILLS113s866is.pdf
– Status information
•
•
http://www.judiciary.senate.gov/
https://www.govtrack.us/congress/bills/