Alternatives to IP
Litigation
July 13, 2012
Dan R. Gresham
Why Seek Alternatives to Litigation?
• Cost
• Even relatively straightforward patent infringement actions can cost more
that $1M
• More complicated cases can cost much more
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Potential Waiver of Sovereign Immunity
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States immune from suit in Federal Court under 11th Amendment
Immunity can be waived if state brings suit in federal court
Time
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Patent infringement litigation can take years
Use of “rocket dockets” can reduce time, but increase costs
Finality
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Final District Court rulings appealed to Federal Circuit
Federal Circuit review claim construction de novo
High percentage of reversals
• Confidentiality Concerns
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Courts are generally open to the public
Increasing reluctance of judges to seal records and trials
Why Seek Alternatives to Litigation?
• Difficulty of Obtaining Injunctive Relief
• Injunction almost always granted prior to May 2006 upon finding
of infringement
• NOT ANY MORE
• eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006):
Unanimous Supreme Court (8-0, Alito not participating) held that
the four factors generally applicable to injunctions must also be
applied in patent cases:
• Irreparable injury
• Remedies available at law, such as monetary damages, are
inadequate to compensate – almost impossible to meet if goal is to
license patents
• Balance of hardships warrants injunction
• Public interest would not be disserved by permanent injunction
What Are Some Potential Alternatives to
Litigation?
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Direct communication and negotiation
Alternative Dispute Resolution (ADR) – Mediation
ADR – Arbitration
International Trade Commission (ITC) proceedings under
Section 337 of the Tariff Act of 1930 (19 U.S.C. § 1337)
• Action in Court of Federal Claims for Infringement by U.S.
Government
• Challenging validity of patents before the USPTO
Direct Communication and Negotiation
• Advantage
• Useful and much less expensive than litigation if goal is to license
patents and both parties are willing to negotiate a license in good
faith
• Disadvantages
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Potential for delay if opposing party does not believe a license is
necessary or does not negotiate in good faith
For non-state actors, significant risk of the other party filing a
declaratory judgment action in view of MedImmune, Inc. v. Genentech,
Inc., 127 S. Ct. 764 (2007) and SanDisk Corp. v. STMicroelectronics, Inc.,
480 F.3d 1372 (Fed. Cir. 2007).
Prior to MedImmune and SanDisk, patent owners could approach
potential licensees by writing letters identifying patents and inviting
participation in licensing negotiations.
Direct Communication and Negotiation
• Disadvantages (continued)
• In view of MedImmune and SanDisk, virtually any communication from a
patent owner suggesting that the potential licensee needs a license can
potentially create a basis for the other party to file a declaratory
judgment action.
• Patent owners often file lawsuits to protect against being sued for
declaratory judgment in unfavorable forum.
• If suit is filed, can delay service of complaint if potential exists for fruitful
negotiations.
Mediation
• Mediation usually involves a third-party neutral to facilitate
licensing negotiations and settlement discussions
• Can be voluntary or court-ordered
• Encouraged and even required by many courts
• Typically involves a common session with both sides and the
mediator where each party states its position
• Followed by break-out sessions between the mediator and
each side on ex parte basis – shuttle diplomacy
Mediation
• Advantages
• Successful mediation is generally much quicker and less
expensive than litigation
• Can choose a private mediator knowledgeable in a particular
technology, as opposed to a District Judge who typically lacks
such knowledge
• Or, if mediation is conducted as part of a court proceeding, can
save money by using a Magistrate Judge as mediator as opposed
to a private mediator
• Good mediator can take an active role, pointing out strengths and
weaknesses of both sides’ positions
Mediation
• Disadvantages
• Non-binding, absent agreement of the parties
• Requires good faith on both sides in attempting to reach
compromise
• Can be used as delaying tactic
• Largely dependent on skills of mediator
Arbitration
• Formal process where an arbitrator or panel of arbitrators acts
as fact finder and makes decisions
• Generally requires an agreement to submit dispute to
arbitration
• Arbitrators generally have authority to issue subpoenas for
attendance of witnesses and other orders attendant to the
conduct of the arbitration, such as pre-hearing discovery
• Hearings are generally less formal than a court trial, and
arbitrators have more discretion
• Rules of the American Arbitration Association (AAA) are
commonly used
Arbitration
• Advantages
• Arbitration decisions are essentially final; can be overturned in
court, but showing is very stringent
• Can choose an arbitrator knowledgeable in a particular
technology, as opposed to a District Judge who typically lacks
such knowledge
• Disadvantages
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Can be expensive based on amount of discovery
Ability to compel attendance of third-parties and enforce subpoenas
may be limited
Experienced arbitrators are typically highly compensated on hourly basis
International Trade Commission (“ITC”) Proceedings Under
Section 337 of the Tariff Act of 1930 (19 U.S.C. § 1337)
• Procedure
• Under Section 337 of the Tariff Act of 1930 (19 U.S.C. § 1337), the
ITC conducts investigations into allegations of certain unfair
practices in import trade, including patent and trademark
infringement.
• Section 337 investigations are initiated by the ITC following the
receipt of a complaint; notice announcing the investigation is
published in the Federal Register.
• When an investigation is instituted, the ITC’s Chief Administrative
Law Judge assigns an ALJ to preside over the proceedings and to
render an initial decision (referred to as an “Initial
Determination”) as to whether Section 337 has been violated.
International Trade Commission (“ITC”) Proceedings Under
Section 337 of the Tariff Act of 1930 (19 U.S.C. § 1337)
• Procedure (cont’d)
• Following a hearing on the merits of the case, the ALJ issues an
Initial Determination (“ID”) that is certified to the Commission
along with the evidentiary record.
• Parties: The complainant(s), the respondent(s), and the
Commission Investigative Attorney.
• Section 337 investigations are conducted in accordance with
procedural rules similar to the Federal Rules of Civil Procedure;
supplemented by ALJ’s Ground Rules
• Formal evidentiary hearing on the merits conducted by the ALJ
under the Administrative Procedure Act (5 U.S.C. §§ 551 et seq.).
International Trade Commission (“ITC”) Proceedings Under
Section 337 of the Tariff Act of 1930 (19 U.S.C. § 1337)
• Procedure (cont’d)
• The Commission may review and adopt, modify, or reverse the ID or it
may decide not to review the ID. If the Commission declines to review
an ID, the ID becomes the final determination of the Commission.
• Upon determination of a Section 337 violation, Commission may issue an
exclusion order barring the products at issue from entry into the United
States, as well as a “cease and desist” order directing the violating
parties to cease certain actions.
• Exclusion orders are enforced by U.S. Customs and Border Protection.
• Appeals of Commission orders entered in Section 337 investigations are
heard by the U.S. Court of Appeals for the Federal Circuit.
International Trade Commission (“ITC”) Proceedings Under
Section 337 of the Tariff Act of 1930 (19 U.S.C. § 1337)
• Advantages
• Much faster than litigation
• Injunctive relief granted almost automatically
• Disadvantages
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ITC cannot award damages
Speed of proceeding may lead to additional costs
Only applicable to imported products
Subject to appeal to Federal Circuit
Infringement by the U.S. Government
Redress Must be Sought in the United States Court of Federal Claims
28 U.S.C. § 1498(a):
Whenever an invention described in and covered by a patent of the
United States is used or manufactured by or for the United States
without license of the owner thereof or lawful right to use or
manufacture the same, the owner’s remedy shall be by action against
the United States in the United States Court of Federal Claims for the
recovery of his reasonable and entire compensation for such use and
manufacture. Reasonable and entire compensation shall include the
owner’s reasonable costs, including reasonable fees for expert
witnesses and attorneys, in pursuing the action if the owner is an
independent inventor, a nonprofit organization, or an entity that had
no more than 500 employees at any time during the 5-year period
preceding the use or manufacture of the patented invention by or for
the United States.
(emphasis added).
Infringement by the U.S. Government
• Advantages
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• Only potential remedy for infringement by U.S. Government
• Independent inventors, nonprofit organizations, and small
entities (<500 employees) are granted their costs and fees for
attorneys and expert witnesses
Disadvantages
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Can only be used for infringement by U.S. Government
Challenging Validity of Patents Before
the USPTO
• Ex parte Reexamination
• Applicable to any patent currently in force
• Any person (including the patentee) can request the USPTO to
take another look at the patentability of the patent; most often
filed by party accused of infringement.
• Request limited reexamination of patent in view of prior art
patents and printed publications
• If the USPTO grants the request, a third-party requester cannot
further participate in the proceedings; participation limited to the
patent holder and the patent examiner.
Challenging Validity of Patents Before
the USPTO
• Advantages
• Inexpensive – typically less than $100k, sometimes much less
• USPTO uses preponderance of evidence standard in reexam, as
opposed to clear and convincing standard applicable to validity
challenge in litigation
• Disadvantages
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Filing party only has one chance to argue – in the initial filing
Ex parte communications between patent holder and examiner
increases likelihood that at least some claims will survive reexamination
Patent holder can amend claims during reexamination
If patent survives reexamination, it will be stronger
Challenging Validity of Patents Before
the USPTO
• Post-Grant Review (“PGR”)
• New challenge permitted under the America Invents Act -- Applicable
only to patents with effective date on or after March 16, 2013
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Procedure
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Third party may petition to institute a post-grant review to cancel claims
as failing to comply with a requirement for patentability
May be satisfied if petition raises a novel or unsettled legal question
that is important to other patents, not limited only to review in view of
prior art patents and printed publications
Must be filed no later than 9 months after grant of the patent and
identify all real parties in interest
Patent owner may file one motion to amend the patent to (1) cancel
claims or (2) for each challenged claim, propose a reasonable number of
substitute claims
Any settlement agreement between the parties must be filed with the
USPTO
Challenging Validity of Patents Before
the USPTO
• Advantages
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• Intervening Rights exist for any amended or new claims
• Relatively quick -- Final determination must be made within 1
year (but USPTO may give one 6 month extension)
• USPTO applies preponderance of evidence standard
Disadvantages
• Petitioner may NOT assert in litigation that a claim of a patent is invalid
on any ground that the petitioner raised or reasonably could have raised
during the post grant review.
Challenging Validity of Patents Before
the USPTO
• Inter Partes Review (“IPR”)
• Another option under America Invents Act – effective on September 16,
2012 as to any patent
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Procedure
• After effective date, third-party may petition to institute an inter partes
review of any issued patent
• Request to cancel claims must be based only on novelty/obviousness
grounds under 35 U.S.C. § 102 or 103, and only on basis of prior art patents
and/or printed publications (narrower than PGR)
• Must be filed after the later of either:
• Nine months after the grant of the patent (to allow for potential
PGR); or
• The termination of a PGR
• Patent owner may file one motion to amend the patent: (1) to cancel
claims or (2) for each challenged claim, to propose a reasonable number
of substitute claims
Challenging Validity of Patents Before
the USPTO
• Procedure (cont’d)
• Additional motions to amend may be permitted upon joint request by the
petitioner
• Cannot broaden claims or introduce new matter
• Any settlement agreement must be filed with the USPTO
• Advantages
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Can result in automatic stay of litigation involving the patent under certain
conditions
USPTO can invalidate claims based on preponderance of evidence standard, as
opposed to clear and convincing evidence applicable in patent litigation
• Disadvantages
• The petitioner in a IPR may not assert in a civil action that a claim is invalidity on
any ground that the petitioner raised or reasonably could have raised in the IPR
• Limited only to prior art patents and printed publications, and not other grounds
for asserting invalidity