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

Kudos to online retailer Newegg and its Chief Legal Officer Lee Cheng on the Federal Circuit decision handed down last week holding that three patents covering basic online checkout technology were invalid. [PDF] The decision reversed the judgment of the ED Texas trial court that the patents were not invalid and vacated the patent infringement judgment entered in favor of NPE Soverain and against Newegg by the trial court.

Check out Joe Mullin’s arstechnia post “How Newegg crushed the ‘shopping cart’ patent and saved online retail” for a full and insightful accounting of the litigation, which highlight’s Newegg’s commitment to never, ever settling with NPEs. CLO Cheng fleshed out the strategy to reporter Mullin:

We basically took a look at this situation and said, ‘This is bullshit,’ . . . We saw that if we paid off this patent holder, we’d have to pay off every patent holder this same amount. This is the first case we took all the way to trial. And now, nobody has to pay Soverain jack squat for these patents.

Without a doubt, Newegg and its counsel have achieved a very big legal victory. Soverain previously received a $40 million in settlement from Amazon, an additional undisclosed settlement from The Gap, and, while the Newegg appeal was pending, obtained a patent infringement jury verdict of $18 million from Avon and Victoria’s Secret. Due to the broad scope of online shopping technology allegedly covered by the asserted patents, InternetRetailer.com’s researcher Mark Brohan described Newegg’s decision to go to trial on Soverain’s claims (and after the other six online retailers named as defendants settled out) as creating “the mother of all patent battles.”

Yet even as we applaud both Newegg’s principled stand and the victory realized through the implementation of this strategy, we find ourselves asking whether the costs outweigh the benefits.

Continue Reading Free Riding and Other Costs to Newegg of “Crushing” NPE Soverain

The U.S. Patent Office (“PTO”) has historically moved at a snail’s pace in conducting reexamination proceedings. The length of these reexamination proceedings have typically been the Achilles heel in getting a district court to issue a stay. If the District Court for the Central District of California is any guide, though, this may be changing due to the new time limits for post-grant patent review procedures, which became effective September 16, 2012 and are specified in the America Invents Act (“AIA”). In a recent order issued in Semiconductor Energy Laboratory Co., Ltd. v. Chimei Innolux Corp., et al., 8:12-cv-00021, (CACD December 19, 2012 Order), Judge Josephine Tucker granted defendants request for a stay, explaining as a basis for granting the stay that:

The delay caused by the new inter partes review (“IPR”) procedure is significantly less than the delay caused by the old procedure.

Based on the Court’s ruling, a practical consequence of the new IPR procedure is that the odds of getting the district court to enter a stay have improved. Here is why.

Continue Reading Shorter Patent Office Delay Could Increase Chance of Stay

Vringo bought Lycos patents on search technology that keys ads to user search queries, then sued Google.  At the recently completed trial, Vringo convinced a Virgina jury to award, see page 11 of its Nov. 6 verdict, a reasonable royalty of 3.5% of that portion of Google’s revenue purportedly connected to the stolen technology, which the jury calculated as $15.8 million.

While the verdict (which to-date has not been entered as the court’s final judgment) might look like it satisfies the increasingly strict limitations against using unduly large revenue bases to calculate reasonable royalty damages, this may not be the case.

Vringo’s damage theory is effectively captured in the following trial exhibit:

Vringo introduced Google documents that supported Vringo’s theory that it’s search technology provided a quantifiable increase in revenue:

This approach appears to comply with the rule that patent royalty damages may be assessed against only the smallest portion of overall revenue attributable to the patented technology.  Vringo assessed what might be considered a small royalty percentage against only a “smaller” portion ($14 billion) of Google’s overall ad revenue.  Yet Vringo was nonetheless able to introduce the OVERALL revenue ($70 billion) to the jury, effectively bringing in entire market value through the back door.  See why after the jump.

Continue Reading Court Lets Vringo Bring in Entire Market Value Through Back Door

Since Apple’s $1.05 billion jury verdict and judgment against Samsung for patent and trade dress infringement, there has been much commentary on what it will mean for the future of technological development. Samsung says “we will appeal” and no doubt it will once Judge Koh resolves post-trial motions, motions for permanent injunctive relief and numerous related issues (see her scheduling order). Most of the comments I have read have been negative about the outcome, primarily from the vantage point of it potentially harming competition in the smartphone marketplace, as well as ultimately hurting innovation. These commentators hope for reversal on appeal. I am persuaded by the contrary view.

The major problem I have with the naysayers’ arguments is that they seem to ignore the core conduct that got Samsung in trouble – COPYING. According to published reports, Apple presented several documents from Samsung’s files revealing Samsung’s decision to copy the patented Apple products instead of fairly competing with them by sufficiently innovating “around” the patented designs. Coupled with charts showing visual evidence of how changes in the Samsung smart phones evolved to closely resemble the Apple iPhone, the jury was presented evidence of what Samsung’s head of mobile communications wrote in an internal document while discussing Samsung’s relatively poor mobile phone sales:

Let’s make something like the iPhone. . . . The iPhone has become the standard. That’s how things are already. . . . When you compare the 2007 version of the iPhone with our current Omnia, can you honestly say the Omnia is better? If you compare the UX with the iPhone, it’s a difference between Heaven and Earth.

Not only is evidence of copying likely to spell “death” to the perpetrator from even the most pedestrian patent trial jury, it is the quintessential conduct the patent laws are intended to prevent, as it categorically stifles innovation. In other words, if people can lawfully copy patented designs, then they are not encouraged to create anything new, useful and nonobvious; and the patent holder is cheated out of the benefit of her bargain with the government to innovate in exchange for a period of exclusivity. Thus, allowing such conduct to go unchecked would systematically erode the entire patent system and innovation itself.

Continue Reading Why Samsung Losing Its Appeal Is Not Such A Bad Thing: Another Perspective

Statistics show that an accused infringer usually wins on summary judgment, yet the great majority of accused infringers will settle rather than progress to the merits.  The reason is that it often costs too much and takes too long to litigate on the merits.  Changing to a non-hourly based fee gives trial counsel the heretofore missing will to find the way to a faster and cheaper adjudication.

Statistics often are misleading. This said, the odds of a patent litigation surviving a motion for summary judgment are strikingly low under any margin for error. PwC’s most recent survey of patent litigation says that in instances where a final decision is reached at summary judgment, lawsuits brought by patent owners who are non-practicing entities (NPEs) are successful only 2% of the time and that lawsuits brought by patent owners who are practicing entities are successful only 9% of the time. While these odds improve to 66% if the patent owner can get to trial, the point is that this is a very hard thing to do.

So based on the empirical data there is a compelling case that the party bringing the patent litigation likely will lose a decision on the merits.

Why then do the great majority of patent litigations, 95% by some accounts, settle instead of progressing to a decision on the merits? (See RPX: From Exposing NPE Myths to Explaining NPE Math) (PwC acknowledges that “[d]ismissals that didn’t occur at trial or summary judgment are not included in this breakdown [of PwC’s reported success rates at summary judgment].”)

Continue Reading Where There’s a Will There’s a Way: Getting a Faster, Cheaper Decision of a Patent Case

Apple founder Steve Jobs famously questioned the value of market research:

A lot of times, people don’t know what they want until you show it to them.

Business Week Online, 1988.

We built [the Mac] for ourselves. We were the group of people who were going to judge whether it was great or not. We weren’t going to go out and do market research.

Playboy, 1985.

While this philosophy served Apple well in creating product categories such as the Mac and iPhone, the same cannot be said for Apple’s attempts to enforce its intellectual property rights.

Apple sued Motorola for infringing Apple’s patents on specific features used in cell phones and tablets, seeking tens of millions of dollars as a reasonable royalty for the unauthorized use of the patented features based on the opinion of Apple’s damage expert. However, the trial judge, Richard Posner (pictured to the left – who blogs by the way), recently excluded these opinions as unreliable based largely upon the failure of the expert to properly investigate consumer preferences. (Judge Posner’s Opinion dated May 22, 2012.)

While success in the markets in which Apple competes may not require asking consumers what they want, success in the courtroom, in particular the recovery of money damages for lost royalties on infringing sales, very much hinges on evidence that these questions were asked.

So how did Judge Posner and other jurists like him get so far off the Jobs path?

Continue Reading Steve Jobs vs. Judge Posner: Ask What Customers Want? (Yes, if You Want Patent Damages)

This is what our legal system aspires to be and do.

This is the very different purpose for which patent litigants are using the legal system.

What’s wrong with patent litigant’s use of the courts is explained in the RPX Blog:

Today, NPEs and operating companies are transacting [patent] value transfer primarily through the legal system – an inefficient, imprecise, time-consuming and highly risky way to price any asset.

Thus it will always be.  Our legal system strives – as it should – to deliver blind and impartial justice premised upon discovering all possible relevant and competing viewpoints and then weighing the competing viewpoints against one another in a public forum.  John Locke’s notion of discerning truth through a competing marketplace of ideas is a far cry from the markets required to efficiently monetize patents.

Nonetheless, the recent high-profile patent litigations Oracle v Google and Apple v. Motorola manifest a desire on the part of their respective trial judges to remake the litigation process into a more rational marketplace for transacting in patent assets.

Continue Reading Using Court to Price Patents: What’s Wrong With This Picture?