hot topics in u.s. ip litigation december 3, 2015 · carnegie mellon university v. marvell--- f.3d...

Hot Topics in U.S. IP Litigation

Panel Discussion

December 3, 2015

Introductions

Sonal Mehta

Durie Tangri

Eric Olsen

RPX

Owen Byrd

Lex Machina

Chris Ponder

Baker Botts

Kathryn Clune

Crowell & Moring

Hot Topics in U.S. IP Litigation

• Direct/indirect infringement trends including international sales

• PTAB trends

• NPE trends

• Fee shifting: enhanced damages

• Questions

Duff & Phelps 3 December 3, 2015

International Sales Issues

• Plaintiffs are looking for ways to reach sales that have domestic

and international components

– Declining per-unit royalties leave plaintiffs unsatisfied with an

easily proved domestic royalty base

– Sales with domestic and international components are

increasing in value

» Growth in international markets

» Complex corporate structures with U.S. and overseas

subsidiaries or parents on the rise


Indirect Infringement

35 U.S.C.§ 271(f)(1):

Whoever without authority supplies or causes to be supplied

in or from the United States all or a substantial portion of the

components of a patented invention, where such components

are uncombined in whole or in part, in such manner as to

actively induce the combination of such components

outside of the United States in a manner that would infringe the

patent if such combination occurred within the United States,

shall be liable as an infringer.



Under 271(f)(1), can a single entity supply

the components of the invention and

“actively induce” itself to combine the

components?


Promega Corp. v. Life Technologies Corp. 773 F.3d 1338 (Fed. Cir. 2014)

• LifeTech manufactured genetic testing

kits used by law enforcement for

forensic identification, and used for

clinical research

• Kits contained several components,

and were assembled and sold from

LifeTech’s U.K. manufacturing facility

• “Taq” polymerase component was

made by LifeTech in the U.S., and

shipped to the U.K. facility

7 Duff & Phelps December 3, 2015

• District court granted JMOL that Promega failed to prove

liability under 271(f) for two reasons:

– “A substantial portion of the components” requires more than

a single component to be supplied from the U.S.

– “Actively induce the combination of components” requires a

third-party, and only LifeTech was involved in the assembly of

the kits



• Held that “actively induce” does not require a third-party

– Acknowledged that “‘induce’ can suggest that one is

influencing or persuading ‘another,’” but that “induce” also

means “to bring about, to cause”

– Object of induce can be a person or a thing, and that the

object of induce in the statute is the combination

– Congress could have written the statute to say “induce

another”

– Relied on legislative history to show that Congress intended

271(f) to have a broader sweep



• Held that a “substantial portion of the components” can be

met by a single component

– According to dictionaries, “substantial” means “important” or

“essential”

– Ordinary meaning of “portion” does not require more than one




Under 271(f)(1), can a single entity supply

the components of the invention and

“actively induce” itself to combine the

components?

Yes, for now.


• Life Tech’s petition for writ of certiorari is pending

– Argues that the Federal Circuit erred in its construction of

“actively induce” and erred in finding that “a single,

commodity component of a multi-component invention” can

satisfy 271(f)

– On October 5, the Supreme Court asked the Solicitor General

to submit a brief



Direct Infringement

35 U.S.C.§ 271(a):

[W]hoever without authority makes, uses, offers to sell, or sells

any patented invention, within the United States or imports into

the United States any patented invention during the term of the

patent therefor, infringes the patent.


Direct Infringement

Under 271(a), can a product that was

manufactured, delivered, and used entirely

abroad have been “sold in the United

States”?


Carnegie Mellon University v. Marvell --- F.3d ---- (Fed. Cir. Aug. 4, 2015)

• Marvell was found to infringe two patents relating to microchips

it supplies to hard disk drive manufacturers

• Jury returned a verdict of $1.17 billion as a reasonable royalty

(using a royalty rate of 50 cents)

• District court enhanced damages for willfulness by 23%

• Awarded an on-going royalty of 50 cents per infringing chip

15 December 3, 2015 Duff & Phelps

• Marvell argued that the district court “erred in denying

JMOL…striking the portion of the damages award that rested

on sales of foreign chips that were manufactured, sold, and

used abroad without ever entering the United States.”

• District court noted that “Marvell had the opportunity to present

evidence at trial that the sales took place only abroad and

simply failed to do so.”

• District court found that there was sufficient record evidence for

the jury to find that the sales occurred in the U.S.



• Federal Circuit found that the record before it was not adequately

developed to determine whether the foreign chips were sold in the

U.S. and ordered a new trial “to determine whether the sales are

properly said to have been in the United States.”

– “Marvell is not entitled to JMOL that the sales did not occur in

the United States.” (emphasis in the original)

– “On the other hand, we do not think that CMU is entitled to

affirmance…”

» The jury should have been instructed to “find a domestic

location of sale as to those chips not made or used in, or

imported into, the United States.”



• “The standards for determining where a sale may be said to

occur do not pinpoint a single, universally applicable fact that

determines the answer, and it is not even settled whether a

sale can have more than one location.”

• Federal Circuit noted potentially relevant facts for the district

court to consider on remand:

– “place of inking the legal commitment to buy and sell and a

place of delivery” (citing Transocean)

– “a place where other ‘substantial activities of the sales

transactions’ occurred” (citing Halo)



• However, the Federal Circuit noted that the record “suggests a

substantial level of sales activity…within the United States,

even for chips manufactured, delivered, and used entirely

abroad.”

– Facilities in Northern California

– Plaintiff’s industry expert showed that “with the exception of

the chip making…all the activities related to designing,

simulating, testing, evaluating, qualifying the chips by Marvell

as well as by its customers occur[] in the United States.”



• Additional record evidence:

– Samples and simulations of the chips were provided from

California

– A stipulation that the defendant’s engineers assisted

customers during the sales process with implementing the

chips into the customer’s products

– Some evidence “suggesting that specific contractual

commitments for specific volumes of chips were made in the

United States”



Halo Electronics v. Pulse Electronics 769 F.3d 1371 (Fed. Cir. 2014)

• Defendant made and delivered infringing components outside of the U.S., and delivered them to contract manufacturers working for a U.S. company

– Sales meetings, regular engineering meetings, product samples, price negotiations, and post-sales support all occurred in the U.S.

– Defendant and the U.S. company had a “general agreement” that set forth “manufacturing capacity, low price warranty, and lead times”

– Overseas contract manufacturers placed all orders and paid overseas at to the U.S. company’s direction


Halo Electronics v. Pulse Electronics 769 F.3d 1371 (Fed. Cir. 2014)

• The Federal Circuit found that there was no sale in the U.S.

because all “substantial activities” of the sales transaction

occurred outside the U.S.:

– The only binding contracts were the purchase orders issued

by the contract manufacturers

– Payments, manufacturing, and delivery all occurred outside of

the U.S.

– Any doubt was resolved by the presumption against the

extraterritorial application of patent law


Direct Infringement

Under 271(a), can a product that was

manufactured, delivered, and used entirely

abroad have been “sold in the United

States”?

Maybe.


PTAB Summary


Source:

PTAB Trials Flow


Source:

PTAB Grounds for Decision


Source:

Stays Pending PTAB National Rates of Grant and Denial by Year


Source:

Stays Pending PTAB ED Texas and Delaware Rates of Grant and Denial by Year


Source:

New District Court Cases, 2007-2014


Source:

District Court Defendant-Case Pairs

2008-2014


Source:

New District Court Cases, By District 2015 (change from 2014)


Source:

Patent Invalidated 2007-2014, for Lack of Patentable Subject Matter (§101)


Source:

Patent Invalidated

2007-2014, By Basis


Source:

ITC Investigations Filed, 2007-2014


Source:

4,159

4,870

3,729

4,262

3,272

4,076

2010 2011 2012 2013 2014 2015 Est.

NPE Litigation Down in 2014… But Up in 2015 Total Defendants Added to NPE Campaigns

New NPE

Campaigns

374 422 380 362 329 Q1-Q3 =

261

-23%

+25%

Q1-Q3

3,057

Q4 Estimate

Source:

More Litigation in Certain Sectors New Campaigns 2015 YTD Defendants Added 2015 YTD

130

9

10

10

11

16

17

18

18

70 E-commerce and Software

Consumer Electronics and PCs

Medical

Mobile Comm. and Devices

Networking

Semiconductors

Media Content and Distribution

Financial Services

Automotive

Other Categories 863

88

151

156

111

412

157

65

240

1,323

Duff & Phelps December 3, 2015

36

Source:

Largest NPEs Represent >30% of Activity Top 10 NPEs by Defendants Named Through 3Q 2015

34%

66%

Share of 2015 Defendants

All

other

NPEs

Top 10

NPEs

Rank NPE Defendants

1 Leigh M. Rothschild 141

2 Acacia Research Corporation 138

3 eDekka LLC 121

4 Nicolas J. Labbit 108

5 ChriMar Holding Company LLC 96

6 Oberalis LLC 95

7 IPNav 94

8 USB Technologies LLC 92

9 Genaville LLC 88

10 Empire IP LLC 76


37

NPE Defendant Declining in 2014-15 Active NPE Campaign Defendants Backlog

5,102

6,266 6,254 5,947

4,426

3,846

-3,706

-3,741

-4,569

-4,793

-3,639

4,870 3,729 4,262

3,272

3,059

Active NPE Campaigns

(End-of-Year)

1,032

1,021

1,051 964 Q3=821

-26%

2010

Backlog

(End-of-Year)

2011

Backlog

2012

Backlog 2013

Backlog

Te

rmin

atio

ns

Q3 2015

Backlog

Ad

ditio

ns

2014

Backlog

-12%


38

Source:

Estimated NPE Cost to Industry

2.6 3.1 4.4 4.9 4.9 4.2

3.0 4.0

5.4 5.9

7.6 7.9

$5.5B

$7.1B

$9.8B $10.8B

$12.5B $12.2B

2009 2010 2011 2012 2013 2014

Legal Defense Costs Settlement Costs


39

Source:

Legal Costs Generally Exceed Settlements

$0-10K $10-100K $100K-1M $1M-10M $10M-50M $50M+Total Cost

to Resolve

Legal Cost

Settlement

Least Expensive Cases Most Expensive Cases


40

Source:

Wide Distribution of Resolution Costs Costs to Resolve an NPE Suit

0

2

4

6

8

10

12

14

16

18

20

USD

$M

illio

n

Legal Defense Costs Settlement or Judgment Costs

25th percentile

$134K

95th percentile

$16.3M

Median

$482K

Up to $500M+

75th percentile

$1.7M


41

Source:

Wide Mix of Portfolios Offered

26%

14%

19%

12%

15%

7% 3% 4%

2015 Pre-litigation Market

E-commerce and Software

Semiconductors

Mobile Communications

and Devices

Networking

Consumer Electronics

and PCs

Media Content and

Distribution

Financial Services Other Sectors


42

Source:

Transaction Rate Approaches 40-50%

67 61

100

55 46 64 64 58 64 50 36 30 20 11

1

71 84

85

106 103

110 137

117

158 172 188

132 140

225

146 146

138 145

185

161 149

174

201

175

222 222 224

162 160

236

147 146

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Transacted as of Q4 2014 Not Transacted

Pre-litigation Market Portfolios

% Transacted

49% 42% 54% 34% 31% 37% 32% 33% 29% 23% 16% 19% 13% 5% 1% 0%

2011 2012 2013 2014

Source:

Fee Shifting Under 35 USC §285


44

• 35 USC § 285

“The court in exceptional cases may award

reasonable attorney fees to the prevailing

party”

Exceptionality was discretionary and

based on the totality of circumstances

In 1990s, Federal Circuit started to

heighten proof required (e.g., changed

burden to clear and convincing evidence)



45

Brooks Furniture Mfg., Inc., Dutailier Int’l, Inc., 393 F.3d 1378, 1381–82 (Fed. Cir. 2005)

• In 2005, the Federal Circuit issued Brooks

Furniture, which abandoned the totality of

circumstances test and held that a case is

exceptional under §285 only when:

There has been “material inappropriate

conduct related to the litigation” (such as

willful infringement, vexatious litigation

conduct, inequitable conduct at PTO or Rule

11 conduct. . .), or

The litigation is brought :

(1) subjectively in bad faith, and

(2) is objectively baseless.



46

• The Brooks Furniture test:

Lasted for almost 10 years;

During those years, a study** found that fees

under §285 were awarded in less than 1%

of cases (208 of 32,570 patent cases

between 2003 and 2013);

When fees were awarded, they were mostly

to the plaintiff/ patentee.

**Mark Liang & Brian Berliner, “Fee Shifting in Patent Litigation,” 18 Va. J.L. &

Tech. 59, 87 & n.73 (2013).

Brooks Furniture Mfg., Inc., Dutailier Int’l, Inc., 393 F.3d 1378, 1381–82 (Fed. Cir. 2005)



47

Octane Fitness, LLC v. Icon Health & Fitness, Inc., 134 S. Ct. 1749 (2014)

• In Octane, the district court granted SJ of non-infringement

to Octane, but denied its motion for attorney’s fees based

on Brooks Furniture because it did not find Icon’s

allegations baseless or brought in bad faith.

• ICON appealed the judgment of non-infringement, and

Octane cross-appealed the denial of attorney's fees. The

Federal Circuit affirmed both orders.

• In upholding the denial of attorney's fees, it rejected

Octane's argument that the district court had "applied an

overly restrictive standard in refusing to find the case

exceptional under § 285." The Federal Circuit declined to

"revisit the settled standard for exceptionality.“

• The Supreme Court granted certiorari and reversed.



48


• On appeal, the Supreme Court rejected the Brooks

Furniture “rigid and mechanical formulation” and held:

The two-prong willfulness test was an inflexible

framework;

Section 285 is inherently flexible and discretionary;

and

Plain language of the statute makes it patently clear

that there is only one constraint on the district court’s

discretion…that the case must be exceptional.



49


• The Supreme Court also set aside the clear and

convincing burden of proof, holding:

“Section 285 demands a simple

discretionary inquiry; it imposes no

specific evidentiary burden, much less

such a high one. Indeed, patent-

infringement litigation has always been

governed by a preponderance of the

evidence standard[.]”



50

Highmark v. Allcare Health Mgmt. Sys., 134 S. Ct. 1749 (2014)

• In Highmark, the companion case to Octane, the Supreme Court held:

The district court’s exceptional case determinations under § 285 must be reviewed for an abuse of discretion, not de novo;

The district court is better positioned to decide whether a case is exceptional and therefore its determinations should be given deference;

Inherently factual determination are best left to district courts who have lived with nuances of the case for years.



51

Impact of Octane / Highmark Decisions

0

20

40

60

80

100

120

140

160

180

200

2008-2013 2014 2015

117

170

200

Base

+45%

+70%

35%

47% 41%

Motions Filed

Percentage Increase

Motions Granted (%)

Enhanced Damages under 35 U.S.C.§ 284


52

• 35 U.S.C.§284:

Section 284 of the Patent Act provides the

district courts "may increase...damages up to

three times the amount found or assessed;”

Treble damages have been a part of U.S.

patent law since the Patent Act of February 21,

1793;

Neither § 284 nor its predecessors conditioned

enhanced damages on willfulness, bad faith or

other exceptional circumstances.



53

• 35 U.S.C.§284:

Historically, the Federal Circuit held that

enhanced damages may be appropriate in a

variety of circumstances. A finding of willful

infringement was only one such situation.

Bad faith alone was sufficient

To compensate the prevailing party if damages

were inadequate

Multi-factor discretionary test to determine

whether and to what extent enhanced damages

under 284 were appropriate. Read Corp. v

Portec, 970 F.2d 816, 826–28 (Fed. Cir. 1992)


54

• Starting with Seagate (and its progeny), the

landscape for willfulness and enhanced damages

changed as the Federal Circuit:

held that “an award of enhanced damages

requires a showing of willful infringement;” and

announced a more stringent test for willful

infringement that no longer considered the

totality of the circumstances.

In re Seagate Tech., LLC, 497 F.3d 1360, 1368 (Fed. Cir. 2007) (en banc)




55


• Willfulness (and thus enhanced damages) must

be proven by first establishing with clear and

convincing evidence that:

“the infringer acted despite an objectively high

likelihood that its actions constituted

infringement of a valid patent” and

“this objectively-defined risk . . . was either

known or so obvious that it should have been

known to the accused infringer.”



56

• The state of mind of the accused infringer is not

relevant” to the objective prong.

• Thus, arguments and theories developed solely

for litigation and not previously known to the

infringer can preclude a finding of objective

recklessness, unless they are shown to be

unreasonable by clear and convincing evidence.

• Defendants are free to copy patented inventions

as long as they raise at least one viable defense.



• Jury and District Court found willfulness. District

court awarded treble damages and attorney fees,

based on totality of circumstances.

• “Not a close case.”

• The Federal Circuit reversed based on the

objective prong of willfulness;

• Stryker sought en banc reconsideration of

enhanced damages standard in light of the Octane

and Highmark decision, but it was not granted.

Duff & Phelps 57 January 5, 2016

Stryker Corp. v. Zimmer, U.S., No. 14-1520; October 19, 2015


• Jury found Pulse’s infringement was willful. • District Court set it aside post-trial based on objective prong of willfulness, holding that Pulse’s defenses were not objectively baseless, • Federal Circuit affirmed finding of no willfulness, but Judges O’Malley and Hughes filed a concurring opinion that they were bound by current precedent to affirm, but believed the Court needed to reconsider its willfulness standard in light of the Octane and Highmark decisions.

• Halo thereafter sought en banc reconsideration request based on Octane and Highmark decisions, which was denied.


Halo Electronics v. Pulse Electronics, No. 14-1513, October 19, 2015

Questions Presented to Supreme Court

The following issues were granted in Stryker:

1. Has the Federal Circuit improperly abrogated the plain

meaning of 35 U.S.C. §284 by forbidding any award of

enhanced damages unless there is a finding of

willfulness under a rigid, two-part test, when this Court

recently rejected an analogous framework imposed on

35 U.S.C. §285, the statute providing for attorneys’ fee

awards in exceptional cases?

2. Does a district court have discretion under 35 U.S.C.

§284 to award enhanced damages where an infringer

intentionally copied a direct competitor’s patented

invention, knew the invention was covered by multiple

patents, and made no attempt to avoid infringing the

patents on that invention?


Stryker, No. 14-1520, October 19, 2015

Questions Presented to Supreme Court

In Halo, the Supreme Court only granted

certioari on Question 1, which states:

1. Whether the Federal Circuit erred by

applying a rigid, two-part test for enhancing

patent infringement damages under 35

U.S.C. §284, that is the same as the rigid,

two-part test this Court rejected last term in

Octane Fitness, LLC v. ICON Health &

Fitness, Inc., 134 S. Ct. 1749 (2014) for

imposing attorney fees under the similarly-

worded 35 U.S.C. §285.


Halo Electronics v. Pulse Electronics, No. 14-1513, October 19, 2015

2016 Predictions

• Supreme Court will reverse in both cases;

• Under same framework used in Octane and Highmark,

Court will reject rigid formula applied to even more flexible

statutory language of §284;

• Willfulness standard reversed, rejecting rigid two-prong

inquiry that separates objective inquiry from actual facts of

the case;

• Increased motions for and awards of enhanced damages

under more flexible approach, the preponderance of

evidence burden, and the abuse of discretion standard of

review;

• Strong deterrence against frivolous lawsuits;

• Congress less likely to issue patent reform against NPEs.


Stryker, No. 14-1520 and Halo, No. 14-1513

hot topics in u.s. ip litigation december 3, 2015 · carnegie mellon university v. marvell--- f.3d...

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