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

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 Possibility of More Reform Spurs Increase in Patent Case Filings

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

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 Patent Litigation Fee Awards: Hourly-Based Lodestar Trumps AFAs

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

Filed under “wisdom borne of pain” — five things about using the Hague Service Convention that lop hours off of the time spent serving a foreign company in a US-based litigation.

In this particular case, the “wisdom” was gained in connection with members of a trial team serving an accused infringer in a US patent litigation, but these insights are relevant to US federal and state court litigation generally.

Quick primer on the Convention

The US ratified the Hague Service Convention on the Service Abroad of Judicial and Extrajudicial Documents (“Hague Service Convention” or the “Convention”) 50 years ago and compliance with the Convention is mandatory where service is attempted on a person or company in one of over 60 countries that are parties to the Convention. Volkswagenwerk Aktiengesellschaft v. Schlunk, 486 U.S. 694, 705 (1988).

The primary means by which service is accomplished under the Convention is through a receiving country’s “Central Authority.” The receiving country can impose certain requirements with respect to these documents (for example, that they be translated into the language of that country). If the documents comply with the applicable requirements, the Convention affirmatively requires the Central Authority to effect service in its country.

The Convention also does not “interfere with” other methods of serving documents. Article 10(a) of the Convention states: “Provided the State of destination does not object, the present Convention shall not interfere with — (a) the freedom to send judicial documents, by postal channels, directly to persons abroad.” (Emphasis added.)

So What Are the 5 Things about the Convention That Save Time and Money? Continue Reading 5 Things to Save Time (and Client $) When Using Hague Service Convention

While the pendulum has clearly swung in favor of limiting recovery of patent infringement damages, most notably in patent cases where non-practicing entities seek reasonable royalty damages, lost profits damages are not among the casualties.

Photo of Judge Alsup in Chambers
Hon. William Alsup: courtesy Google Images

United States District Court Judge William Alsup (ND Cal) is a notoriously hard grader when it comes to determining whether to allow patent infringement damage studies to go to the jury.  He nonetheless allowed expert studies calculating lost profits on the infringer’s sales to go to the jury in his Order in Plantronics v. Aliph, 3:09-cv-1714 (ND Cal).  His analysis confirms that, notwithstanding current trends favoring aggressive judicial gatekeeping over expert damage studies in patent cases, lost profits are recoverable so long as they are supported by an appropriate market reconstruction theory.

Quick note: this post focuses on patent cases between competing operating companies separate and apart from patent cases brought by non-practicing entities (NPEs) sometimes called “trolls.”  While in NPE cases there are compelling policies favoring aggressive use of the entire market value rule and related apportionment rules to limit reasonable royalty damages, these same policies are nowhere near as strong in competitor patent litigation.

At least three highlights of the lost profit rulings in Plantronics:

  • Reasonable royalty apportionment rules don’t apply to lost profits
  • You can use the patent owner’s market share in the reconstructed market to calculate lost profits
  • You can recover lost profits under a market share theory even if there are acceptable, non-infringing substitutes

So let’s break this down.

Continue Reading Lost Profit Damages Alive and Well in Patent Cases

There are two trends increasing the costs of patent litigation.

The first is the increased use of Daubert motions to exclude the opinion of opposing damage experts as unqualified or unreliable. The practical result is that parties are filing an increased number of motions to seal in order to protect the sensitive financial, marketing and licensing data that typically are contained in expert damage reports.

The second is the court’s increased reluctance to find that a party’s interest in preventing disclosure of sensitive business information overcomes the strong common law presumption favoring public access. This raises the bar in terms of the minimum support necessary to succeed on a seal motion.  The seal motion typically trickles down to lesser experienced attorneys who are both working under short deadlines and attempting to apply often byzantine local sealing rules, however.  Thus, the seal motion is often denied on first submission and is subsequently followed by repeated do overs requiring the application of more experienced staff and attorney resources. The work on the motion to seal is inefficient and unduly expensive and a prejudicial (to the client) diversion of scarce resources from more substantive projects.

While by no means exhaustive, recent cases in the Ninth Circuit and Northern District of California provide some bright line rules [provided after the jump] that can streamline the approach to sealing a damage expert’s report. 

Continue Reading Filing Damage Expert’s Reports Under Seal: Some Bright Line Rules

Judge Alsup of the ND California clearly embraces the concept that "judges already have the authority to curtail [non-practicing entity patent litigation] practices: they can make trolls pay for abusive litigation."  Randall R. Rader, Colleen V. Chien & David Hricik, Make Trolls Pay in Court, NY Times, June 5, 2013.

In his order leading up to trial later this month of the patent infringement claims brought by non-practicing entity ("NPE" or "patent troll") Network Protection Services, LLC ("NPS"), Judge Alsup suggested he’d allow the jury to hear evidence of how:

NPS manufactured venue in Texas via a sham.  [NPS founders] Ramde and Lam rented a windlowless file-cabinet room with no employees in Texas and held it out as an ongoing business concern to the Texas judge.  They also held out [alleged employee] Cuke as its ‘director of business development’ but this too was a sham, a contrivance to manufacture venue in the Eastern District of Texas.

Order dated Aug. 20, 2013, NPS v. Fortinet [PDF].

The story of how the Judge came to threaten to admit evidence of sham offices and employees is best understood as Judge Alsup seizing an opening on an otherwise innocuous standing issue to "curtail" abusive NPE litigation.  Any doubt in this regard is dispelled by Judge Alsup’s lengthy citation to Make Trolls Pay in Court at the outset of his order.

Defendant moved to dismiss because assignment of the patent to NPS did not occur until after NPS filed suit, such that NPS lacked standing to bring the lawsuit.  Judge Alsup denied the motion, finding that there was a disputed factual issue whether NPS’s conduct in filing the lawsuit was a sufficient substitute under Texas law for the tardy signature of the assignment.

Key exercise of judicial discretion point #1 – although there is no right to jury trial on the issue of standing, Judge Alsup ruled that the underlying factual dispute whether NPS by its conduct accepted the assignment could be given to the jury for "advisory finding of fact."  In practical terms, NPS, in the middle of its case in chief, will have to spend time and evidence proving up that it is the true owner of the patent.  The practical significance of the NPS spending limited in-court time on an issue that is both distracting from core patent infringement issues and also reflects poorly on NPS ("You filed suit as the alleged owner of the patent but did not sign anything until later? Can you do that? And why would you do that?" – well, you get the idea).

But it gets worse for the NPE.  Much worse . . . 

Continue Reading Patent Troll Required to Explain “Sham Venue” and “Sham Employees” to the Jury

E-discovery costs incurred by the prevailing party – easily running into the hundreds of thousands of dollars in complex commercial and IP litigations – may be compensable under 28 U.S.C. § 1920(4).

I say ESI costs "may be compensable" advisedly. Not all of them are. Most importantly, the likelihood of recovering tens if not hundreds of thousands of dollars of ESI costs depends in significant part upon  the billing descriptions used by your vendor (or your firm’s in-house e-discovery group).

By specifying at the beginning of the case the billing format for ESI costs, you greatly increase the amount of these costs you will recover at the end of the case.

ESI costs deemed not compensable: 

The vendor’s primary responsibility was collecting data (e.g., by imaging hard drives) and de-duplication of electronically-stored information so that it could be reviewed in-house by Aliph and produced in discovery. Tasks on the bills include the following: pick-up and imaging of computer; local email extraction; network email merge and de-dupe (eliminating duplicates); normalize, prep, index, and search email; extract, de-archive, hash, filter, de-dupe, normalize, index, and search user files; and computer media.

Plantronics v. Aliph, 2012 WL 3822129, at *17 (N.D. Cal. 2012) (citations omitted) (refusing to tax third party vendor costs of $100,948.17).

Other ESI costs deemed not compensable:

The problem with Google’s e-discovery bill of costs is that many of item-line descriptions seemingly bill for “intellectual effort” such as organizing, searching, and analyzing the discovery documents. Most egregious are attempts to bill costs for “conferencing,” “prepare for and participate in kickoff call,” and communications with co-workers, other vendors, and clients.

Oracle v. Google, 2012 WL 3822129, at *3 (N.D. Cal. 2012 ) (citations omitted) (refusing to award $2.9 million of ESI costs).

But compare – ESI costs deemed compensable:

Cost of assembling, ordering, tagging, and QA for document release to Kelora. Includes the creation of metadata load files as requested by Kelora and image “placeholders” for documents and ESI that the requesting party asked to receive in native format. $ 43,500.00

Cost of feeding assembled documents into an image printer for the creation of image copies of those documents to the requesting party. The cost includes imaging, de-blanking, bates stamping, assignment of protective orders and confidentiality designations, insertion of slip sheets, and native file place holders, image quality QA and final export to production media. $ 22,450.00

[Cost of] isolating and presenting eBay source code on a secure and locked down machine in anticipation of inspection by the requesting party.  $ 1,800.00

eBay v. Kelora Systems, 2013 WL 1402736, at *6 (N.D. Cal 2013).

So why are costs taxed on some of these ESI vendor invoices and not the other? There are several reasons, each of which highlights the importance of being smarter about the manner in which ESI providers bill for their services. Let’s break this down.

Continue Reading Awarding e-Discovery Costs to Prevailing Party: Billing Descriptions Dictate What is Recoverable