Delaware Federal Court Sanction Rulings Offer Lessons for Patent Plaintiffs and Defendants

Kaminski_Jeffri_LRFeatured Expert Contributor – Intellectual Property (Patents)

Jeffri A. Kaminski, Venable LLP, with Briana Rizzo,* Venable LLP

*Editor’s Note: With this post we welcome the participation in The WLF Legal Pulse of Featured Expert Contributor on patent litigation and policy issues, Jeffri Kaminski.

The Delaware District Court, historically known as a venue friendly to patent holders, appears ready to fight back against the litigation strategies of Patent Assertion Entities (PAEs), or “patent trolls.” While the court has traditionally disfavored imposing fees and sanctions on unsuccessful Plaintiffs [1], several recent cases signal a major shift in the judicial perspective on what District Court Judge Richard G. Andrews calls “misleading and prejudicial” tactics. [2] Most notably, Parallel Iron LLC v. NetApp Inc. and Summit Data Systems, LLC v. EMC Corporation et al solidify a growing trend in the Delaware Circuit of both judicial discontent with PAE litigation tactics and a willingness to sanction such behavior.

A trend on the rise

The U.S. Supreme Court released its groundbreaking Octane Fitness, LLC v. Icon Health & Fitness, Inc. decision on April 29, 2014, lowering the standard of 35 U.S.C. § 285 “exceptional” behavior and enabling prevailing parties to obtain attorneys’ fees for behavior that merely “stands out from others with respect to the substantive strength of a party’s litigating position […] or the unreasonable manner in which the case was litigated.” While several cases immediately following Octane Fitness retained a traditional refusal to award fees, on September 12, 2014, Judge Andrews released three pro-defendant opinions on the matter, the most significant being Parallel Iron LLC v. NetApp Inc. Continue reading

Federal Circuit Orders Eastern District of Texas Patent Suit Stayed

The WLF Legal Pufederal circuitlse has addressed the U.S. Court of Appeals for the Federal Circuit’s patent litigation venue jurisprudence in several posts (here and here). That court issued two rulings this past March (In re Apple Inc. and In re Barnes & Noble, Inc.) that, in our opinion, incorrectly applied factors the Federal Circuit had previously relied upon to order patent suits transferred to more appropriate venues. On October 9, a unanimous three-judge panel added another twist to the Federal Circuit’s venue case law with In re Google Inc.

Background. Last October, non-practicing entity Rockstar Consortium filed a patent infringement suit in the Eastern District of Texas (EDTX) against five companies whose technology utilized Google’s Android operating system. At the end of 2013, Google filed a declaratory judgment action against Rockstar in the Northern District of California (NDCA) that involved the same patents that Rockstar was suing to enforce in Texas. Rockstar countersued Google in the NDCA and concurrently added Google as a defendant in the EDTX action. Rockstar then moved to transfer or dismiss the California action, which the NDCA denied. Google and its five customers petitioned the EDTX to stay Rockstar’s infringement action pending an outcome in the NDCA, or to transfer the case to California. EDTX Judge James Rodney Gilstrap denied the order, and the six companies appealed. Continue reading

Profit, Not Ideology, Motivates Cyberlockers that Facilitate Copyright Infringement

copyrightwarningInformation wants to be free” is a standard rejoinder to criticism of online entertainment piracy. Such a sentiment may motivate some copyright thieves, but profit, not ideology, drives the proprietors of “cyberlockers” whose business is trafficking pirated entertainment content. A recent study by the Digital Citizens Alliance (DCA)—”Behind the Cyberlocker Door“— has laid bare that reality. These websites generate profit margins that lawful businesses can only dream of, and they do so on the backs of countless workers in the music, movie, and television industries.

DCA analyzed data from the 15 top direct download cyberlockers and 15 top streaming cyberlockers. It found that 78% of the files on the direct download sites, and 84% on the streaming sites, were infringing content such as music, movies, and TV shows. Total annual revenue for the 30 businesses was $96.2 million, which averages out to $3.2 million a site. The average profit ratio of the direct download sites was 63.4%, with one site enjoying 88.5%. For the streaming cyberlockers, the average ratio was 87.6%, with the highest coming in at 96.3%.

Much like people who run the illicit cyberlockers, some of those who unlawfully access and share copyright-protected content may claim to be advancing an extreme public commons ideology or “sticking it to Big Entertainment,” but the volume of such piracy reflects a baser motivation. Pirated content consumers’ catchphrase shouldn’t be “information wants to be free;” it should be  “we want free information.” Continue reading

No Name Calling in My Court: Judge Bans Use of Term “Patent Troll” in Jury Trial

thumbnailTrollThis recent item from Law360 (subscribers only) caught our eye: “Judge Koh Bars Apple From Calling Rival ‘Patent Troll’ At Trial.”

In addition to being referenced regularly at this blog for her food labeling class action rulings, Judge Lucy Koh of the U.S. District Court for the Northern District California has been presiding over a number of high-profile skirmishes in the “Smartphone Patent Wars.”

The case before her is GPNE Corp. v. Apple, Inc. GPNE alleged in its complaint last June that Apple iPads and iPhones infringe patents GPNE holds on data transmission. GPNE’s business model is arguably similar to that of other entities commonly labeled “patent trolls.” It does not practice its patents; rather, it seeks revenue through licensing and litigation. GPNE views the term as prejudicial and urged Judge Koh to prohibit its use before the jury.

In her June 24 Pretrial Order Re: Motions In Limine, Judge Koh dictated:

Apple may not refer to GPNE as a ‘patent troll,’ ‘pirate,’ ‘bounty hunter,’ ‘privateer,’ ‘bandit,’ ‘paper patent,’ ‘stick up,’ ‘shakedown,’ ‘playing the lawsuit lottery,’ ‘corporate shell game,’ or ‘a corporate shell.’

She did, however, permit Apple to use other terms when referring to GPNE:

Apple may refer to GPNE as a ‘non-practicing entity,’ ‘licensing entity,’ ‘patent assertion entity,’ ‘a company that doesn’t make anything,’ or ‘a company that doesn’t sell anything.’ The Court finds that this conclusion strikes the balance between allowing Apple to argue that GPNE’s status as a non-practicing entity is relevant to the calculation of reasonable royalties and to secondary considerations of non-obviousness without unduly prejudicing GPNE or confusing the jury. See Fed. R. Evid. 403.

Judge Koh’s order reflects how this once “inside baseball” term has become part of the broader patent law and technology policy lexicon. “Patent troll” was coined, ironically, in 1999 by an Intel attorney, Peter Detkin.  Detkin left Intel and eventually co-founded Intellectual Ventures, a non-practicing entity which some have called “a patent troll on steroids.”

For years, only those who were narrowly involved with patent licensing and litigation uttered the term. Lately, however it is being utilized in everyday discussions on patents and technology. While President Obama did not specifically use the term is his February 2013 “Fireside Hangout” on Google Plus,  he did accuse entities “that don’t produce anything themselves” of “extort[ing] money” out of technology producers. A document issued by the White House Task Force on High-Tech Patent Issues last June, however, did utilize the term “patent trolls” when discussing the need for reform.

One could argue that “patent troll” has become so widely used that it has lost its “punch” as a pejorative in characterizing those whose singular business is sticking up or shaking down technology-producing companies through opaque demand letters and playing the lawsuit lottery. Obviously, Judge Koh does not see it that way, and declared her courtroom a troll-free zone. Whether that helps GPNE prevail in its claim, however, is uncertain.

Also published at WLF’s Forbes.com contributor page

Supreme Court Observations: Alice Corp. v. CLS Bank

LangdonSmith,DanielF-48047-87-bwrGuest Commentary

by Evan H. Langdon and Daniel F. Smith, Adduci, Mastriani & Schaumberg, LLP*

The Supreme Court’s ruling in Alice Corp. v. CLS Bank is notable for what it does not say. Though the Court struck down a software invention directed to mitigating settlement risk through a computer intermediary as patent ineligible, the Court did not rule that software patents or patents that implement software on a computer are per se ineligible. The Court was careful to leave open the door for patent protection of software inventions. In a 9-0 ruling, the Supreme Court affirmed the en banc U.S. Court of Appeals for the Federal Circuit ruling that Alice Corp.’s patent was invalid as directed to ineligible subject matter under 35 U.S.C. § 101. In so doing, the Court reiterated its ruling in Bilski v. Kappos that it is the invention itself that must be patent eligible and whether a claim is directed to software or is tied to a computer does not alter the analysis.

CLS Bank initiated the case by filing for declaratory judgment that the asserted patent was invalid, unenforceable, and not infringed; Alice Corp. counterclaimed for infringement. The parties cross-moved for summary judgment on whether the asserted claims are eligible for patent protection. After the Supreme Court issued Bilski, the District Court granted CLS Bank’s motion finding the claims ineligible for patent protection because they were directed to an abstract idea. On appeal, the Federal Circuit panel reversed the District Court, finding it was not “manifestly evident” that the claims were directed to an abstract idea. A divided en banc Federal Circuit upheld the District Court’s conclusion with a five judge plurality concluding that the claims draw on an abstract idea and the use of a computer added nothing of substance to that idea.

Reliance on Mayo and Gottschalk

In analyzing the claims at issue, the Court relied heavily on its established precedent under 35 U.S.C. § 101 and concluded that Alice Corp.’s claims did not cover patentable subject matter. The Court emphasized the long-standing principle that laws of nature, natural phenomena, and abstract ideas are not patentable because upholding such a patent would effectively grant a monopoly and pre-empt the claimed approach in all fields. Continue reading

Supreme Court Observations: Halliburton v. Erica P. John Fund

supreme courtGuest Commentary

by Lyle Roberts, Cooley LLP

*Editor’s note: We are cross-posting this commentary from Mr. Roberts’s blog, The 10b-5 Daily, where it originally appeared. Mr. Roberts authored Washington Legal Foundation’s amicus brief in Halliburton.

The U.S. Supreme Court has issued a decision in the Halliburton v. Erica P. John Fund case holding that defendants can rebut the fraud-on-the-market presumption of reliance at the class certification stage with evidence of a lack of stock price impact. It is a 9-0 decision authored by Chief Justice Roberts, although Justice Thomas (joined by Justices Alito and Scalia) concurred only in the judgment. As discussed in a February 2010 post on this blog, Halliburton has a long history that now includes two Supreme Court decisions on class certification issues. A summary of the earlier Supreme Court decision can be found here.

Under the fraud-on-the-market presumption, reliance by investors on a misrepresentation is presumed if the misrepresentation is material and the company’s shares were traded on an efficient market that would have incorporated the information into the stock price. The fraud-on-the-market presumption is crucial to pursuing a securities fraud case as a class action—without it, the proposed class of investors would have to provide actual proof of its common reliance on the alleged misrepresentation, a daunting task for classes that can include thousands of investors.

The fraud-on-the-market presumption, however, is not part of the federal securities laws. It was judicially created by the Supreme Court in a 1988 decision (Basic v. Levinson). In Halliburton, the Court agreed to revisit that decision, but ultimately decided that there was an insufficient “special justification” for overturning its own precedent. Continue reading

Court Upholds FTC Rule for Pharma Patent License Transfers

amurinoFeatured Expert Column – Antitrust/Federal Trade Commission

Andrea Agathoklis Murino,Wilson Sonsini Goodrich & Rosati

Last November, I wrote about a new Federal Trade Commission (FTC) rule which, in a change to long-standing policy, made the transfer of a license providing an exclusive licensee with “all commercially significant rights” over a patent within a therapeutic area reportable under the Hart-Scott-Rodino Act. In practice, this meant that licensing agreements which previously required only the signatures of the two parties, now required a waiting period and an FTC blessing.

Shortly before the rule was to become operative, the Pharmaceutical Research and Manufacturers of America (PhRMA), an industry group representing biopharmaceutical researchers and biotechnology companies sued to block it. The group argued that the FTC had not observed the appropriate procedures under the Administrative Procedures Act and that the FTC lacked authority to issue an industry-specific rule rather than a rule of general application, among other claims.

In a lengthy opinion on May 30, 2014, Judge Beryl A. Howell of the United States District Court for the District of Columbia, sided with the FTC and tossed PhRMA’s claims, finding that the FTC had followed the correct processes, had a reasoned basis for creating and instituting this rule, and should be shown deference. This bottom line is this puts us right back to where the FTC hoped it would be back in November: the transfer of “all commercially significant rights” over a patent is a HSR-reportable event.

That’s the headline but there are at least two questions that result from the opinion worth pausing to consider. First, this rule continues to only apply to the pharmaceutical industry. There are virtually no other industries with HSR-specific rules applicable only to them. Does this mean the FTC plans to extend HSR-specific rules to other industries? Or is the pharma industry so important in its own right that proper antitrust enforcement demands a different set of rules? Only time will tell. More importantly, perhaps, the FTC has not defined the phrase “all commercially significant rights.” What are the contours of this definition? What’s included or excluded? How, if at all, will the FTC provide guidance to the pharma community? PhRMA has up to 60 days to appeal so this may not be the last word. Stay tuned.