The U.S. Supreme Court’s May 22, 2017 decision in TC Heartland effectively shifts a significant number of patent litigations out of courts previously deemed acceptable to courts in other venues in which the defendant corporation is incorporated. In reaching this decision, the Supreme Court relied upon its 1957 decision in Fourco Glass interpreting the patent
Amendments to Civil Procedure Rules: Ending Patent Practice of Bludgeoning First and Valuing Later
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.”
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.
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Loser Does Not Pay for AIA Costs
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.
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Courts Everywhere are Finding Software Patents Invalid, So What Next?
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.
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?…
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Possibility of More Reform Spurs Increase in Patent Case Filings
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:
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.…
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In Rush to Invalidate Patents at Pleadings Stage, Are Courts Coloring Outside the Lines?
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.
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Patent Litigation Fee Awards: Hourly-Based Lodestar Trumps AFAs
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).…
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Recover Flat Fees (or Not) As Prevailing Party in 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.…
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Lost Profit Damages Alive and Well in Patent Cases
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.
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.…
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Filing Damage Expert’s Reports Under Seal: Some Bright Line Rules
“filing under seal” “damage experts” seal…
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