Flat Fee IP

Flat Fee IP

The Frontlines of IP Litigation

Unlike California, New Federal Trade Secret Law Offers Right to Jury Trial on Reasonable Royalty Damages

Posted in Damages, Trade Secrets
Jury trial on reasonable royalty? Courtesy Google Images

Right to jury trial on reasonable royalty damages differs depending on whether suit brought under DTSA or California version of UTSA

The new Defend Trade Secrets Act (DTSA) became law on May 11, 2016 and applies to any misappropriation that occurs on or after that date.

Although the DTSA creates a federal, civil remedy for trade secret misappropriation, it does not preempt state law.  This is going to encourage serious forum shopping, including, among other things, over the right to jury trial.

The federal law cedes to the jury the determination of all possible monetary damages claims.  In comparison, the version of the Uniform Trade Secrets Act (UTSA) adopted by California (CUTSA), while giving the jury the issues of lost profits and unjust enrichment, reserves for the trial judge the determination whether and to what extent to award reasonable royalty damages. Continue Reading

Wave of Federal Trade Secret Decisions Soon to Hit State Courts

Posted in Trade Secrets

Late yesterday, the House of Representatives joined the Senate in passing a sweeping new statute that creates a new federal civil cause of action for trade secret theft.  The new statute, called the Defense of Trade Secrets Act (DTSA), can be found here and is expected to be signed into law by the President within the next few days.

Where will we first see the effects of the new federal trade secret law?  Answer: in the hundreds (thousands?) of currently pending state court trade secret misappropriation cases.  Soon after the DTSA becomes effective there will be a significant increase in federal district court decisions being relied upon in state courts to explain and construe existing state trade secret statutes. Continue Reading

Amendments to Civil Procedure Rules: Ending Patent Practice of Bludgeoning First and Valuing Later

Posted in Damages, Patent Litigation

This post summarizes Proportionality Compels Early Disclosure of Patent Damages, found here, first published by the IP Law Section, State Bar of California in connection with the March 23, 2016 seminar “Patent Disputes for our Time: New Realities, New Approaches.” 

Patent litigation norm: bludgeon one another before determining case value

Patent litigation norm: bludgeon one another before determining case value

The Dec 2015 amendments to the Federal Rules of Civil Procedure call for greater effort on the part of the court and the parties to ensure that the time and expense invested in a case is proportional to value of the case.  The typical practice in patent litigation of bludgeoning first and valuing later presents a particularly compelling focus for the renewed emphasis on achieving proportionality.

Since there is a direct causal relationship between early disclosure of patent damages and achieving proportionality, the high likelihood is that courts, going forward, will strictly enforce the requirement that a patent plaintiff provide its damage computations in its Rule 26(a) initial disclosures.  To avoid prejudice to the patent plaintiff, any such early disclosures should be non-binding and subject to revision as the case proceeds. Continue Reading

New Federal Trade Secret Law is Pro Employee Mobility and Rejects Inevitable Disclosure

Posted in Trade Secrets
DTSA does not block employment based merely on inevitable disclosure (courtesy Google images)

DTSA does not block employment based merely on inevitable disclosure (courtesy Google images)

Proposed legislation creating a federal cause of action for trade secret misappropriation is on the fast track to becoming law, as described in James Pooley’s excellent post What You Need to Know About the Amended Defend Trade Secrets Act [link], January 31, 2016 Guest Post, Patently-O.  Referred to as the Defend Trade Secrets Act (“DTSA”), the legislation was favorably reported out of the Senate Judiciary Committee on January 28, 2016.

For those seeking to catch up on these developments, the recent posts and articles by Mr. Pooley and his colleagues are a great place to start learning the salient characteristics of the new law, including the rejection of the idea that an employee should be blocked from taking a new job based on the doctrine known as “inevitable disclosure.”  The DTSA’s rejection of “inevitable disclosure” warrants a closer look; it means the DTSA embraces California’s robust policy favoring free mobility of employees between jobs.  Let’s break this down. Continue Reading

Loser Does Not Pay for AIA Costs

Posted in Fee Awards, fee shifting
Trend is patent litigation loser pays fees or costs - but not this time (courtesy Google Images)

Trend is patent litigation loser pays fees or costs – but not this time (courtesy Google Images)

The significant filing fees spent by an accused infringer on a successful American Invents Act (AIA) review are not taxable as costs in the underlying district court patent litigation, according to the January 5, 2016 decision [pdf] in Credit Acceptance Corp v. Westlake Services.

In Credit Acceptance, the district court refused to tax as costs the $73,200 in filing fees paid by the accused infringer and prevailing party Westlake to the U.S. Patent and Trademark Office in successfully challenging Credit Acceptance’s patent in an AIA review.  Although the ruling goes against the general shift of both the Courts and Congress to increasing the financial risks of bringing unsuccessful patent litigation (this in service of the underlying policy of reducing the number of frivolous patent litigations), it appears to have been correctly decided.

Credit Acceptance tracks what has become a fairly typical fact pattern.  The owner of a patent claiming a business method or a software innovation brings suit for patent infringement in federal court.  In response, the accused infringer seeks AIA review by the Patent Trial and Appeal Board (PTAB) of the validity or patentability of the claimed invention.  The court stays the litigation pending administrative review.  The PTAB sustains the challenge, compelling the party asserting patent infringement to voluntarily dismiss the lawsuit with prejudice.  As observed in Credit Acceptance, there is strong case precedent for finding that under these circumstances the accused infringer is the prevailing party. Continue Reading

Courts Everywhere are Finding Software Patents Invalid, So What Next?

Posted in Software Patents

negativespace-15

Image from NegativeSpace

For the last few decades, corporations ranging from startups to large multinationals first turned to utility patents to protect their innovative software. These patents protected everything from the minute details of microprocessor operation (e.g., Intel’s microprocessor power consumption patent) to algorithms for a search engine (e.g.Google/Stanford’s page rank patent) to innovative user interfaces (e.g.,Amazon’s “one-click” patent). In fact, by 2011, patents on software made up more than half of all patents being issued.

See the August 2013 report from the Government Accountability Office on Intellectual Property here.

The Supreme Court’s June 2014 ruling in Alice v. CLS Bank calls into question the eligibility for patent protection of these issued utility patents on computer software, and is a barrier to future applications on computer software.  Alice and its progeny compel software developers to look beyond patents to protect their intellectual property.  What are these alternatives?  When and how can they be used? Continue Reading

Possibility of More Reform Spurs Increase in Patent Case Filings

Posted in Patent Litigation, Reform

Lex Machina’s Spring 2015 Patent Case Filing Trends:

Patent case filings have been generally higher in the first five months of 2015 than in the last 8 months of 2014. May of 2015 had the most patent cases filed on any month so far this year (606 cases).

Lex Machina depicts this trend in this graphic:

Patent cases filed Jan 2014 through May 2015 (2015 in orange).

Lexmachina.com/blog, July 10, 2015, Fig. 1: Patent cases filed Jan 2014 through May 2015 (2015 in orange).

But why are we seeing this recent increase in patent case filings?  Isn’t this surprising given legislative, court, executive and administrative developments that have made it much more difficult to successfully sue for patent infringement?  Nope.

Continue Reading

In Rush to Invalidate Patents at Pleadings Stage, Are Courts Coloring Outside the Lines?

Posted in Patent Ineligibility Defenses, Patent Litigation
lined box with coloring outside the lines

chiwulff.com via googleimages

OIP Technologies v. Amazon.com and IPC v. Active Network are the most recent of a growing number of decisions dismissing software and business method patent lawsuits on the pleadings. In these decisions, the courts are finding that the invention alleged in the complaint is an abstract idea that is not eligible for patent protection.

While early resolution of patent litigation is laudable, motions directed to the pleadings generally may not consider matters outside what is pled in the complaint. Yet this is what courts are doing — they have been coloring outside the lines when deciding whether a patented software or business method is an ineligible abstraction.  They are looking beyond the allegations in the complaint to discern “fundamental economic concepts.”  Independent of anything pled in the complaint, they are making historical observations about alleged longstanding commercial practices and deciding whether the claimed invention is analogous to such practices.

Coloring outside the lines may not be acceptable.  The benefit of providing an early exit from otherwise expensive and burdensome patent litigation may be outweighed by the prejudice to all parties of eroding the rules regarding the matters that may be considered before throwing out a lawsuit. Perhaps there is a better solution. Perhaps pleading motions challenging patent subject matter eligibility should be converted to expedited and limited scope summary judgment motions, thereby allowing the parties to present declarations, testimony and other extrinsic evidence that better address whether a claimed economic practice is an unpatentable idea or a patentable invention. Continue Reading

Patent Litigation Fee Awards: Hourly-Based Lodestar Trumps AFAs

Posted in Fee Awards, Flat Fees, Patent Litigation
A lodestar is a star used to guide a ship's navigation

A lodestar is a star used to guide a ship’s navigation

Now that it is easier for prevailing parties in a patent litigation to recover attorney fees [see our previous post], how likely is that that fees paid under some form of non-hourly arrangement – for example flat fees, contingency, success fees  or some other alternative fee arrangement (AFA) – can be recovered?  The answer is that the court’s end-of-case determination of a reasonable hourly rate and fee, called the “lodestar,” trumps the amount paid under any AFA.

AFAs that exceed the lodestar likely cannot be recovered.  In Kilopass v Sidense (ND Cal), Judge Illston found that Kilopass engaged in litigation misconduct and made exceptionally meritless infringement claims, and, therefore, awarded Sidense attorney fees totaling $5.3 million.  (Kilopass has appealed.)

While the fees awarded to Sidense are significant, they appear to be less than half of the fees that Sidense actually paid its counsel under a contingency bonus arrangement.  Sidense’s fee arrangement called for Sidense to pay 50% of its lawyer’s hourly billing on a monthly basis, with the remaining 50% held back until the end of the case.  The payment of the holdback was tied to a performance based multiplier.  Since the court granted summary judgment in Sidense’s favor and dismissed all claims, Sidense’s counsel was entitled to the maximum multiplier of 2.5x, effectively requiring Sidense to pay 175% of its lawyers’ standard rates.  While the public record does not disclose the full amount of the contingency bonus, what can be inferred from the decision is that the fees paid by Sidense under the contingency arrangement exceeded $11 million (based on inferred standard rate fees of $6.5 million).

Continue Reading

Recover Flat Fees (or Not) As Prevailing Party in Patent Litigation

Posted in Fee Awards, Flat Fees, Patent Litigation

We have entered a new era where the prevailing party in a patent litigation has much better odds of recovering their attorney fees. “Until recently, winning hasn’t felt much like winning, particularly for defendants.” (Judge Grewal in Site Update Solutions v Accor)  All this changed last year when the Supreme Court established a more flexible standard in Octane Fitness for determining when a patent case is exceptional, the precondition to awarding fees under the applicable fee shifting statute.  Now, an exceptional case is “simply one that stands out from others.”

District Courts have begun to implement the new standard and the results are noteworthy for a number or reasons, not the least of which is whether and how fees are awarded where the prevailing party has paid a flat fee to its counsel (a fixed or set amount via lump sum or installments) as opposed to hourly fees.

In one such case, Parallel Iron v NetApp, the Delaware District Court rejected the losing party’s argument that flat fees allegedly caused the winning party’s counsel to frontload unnecessary work.  The Court’s instead observed that a flat fee structure incents counsel to postpone work as opposed to doing more work sooner.  While the Court is correct, it’s reasoning does not capture the more fundamental behavior encouraged by a flat fee, which is the huge incentive to lower the cost of producing legal services. Continue Reading