Breaking the Cycle – Stand Up and Fight Patent Trolls

The term “patent troll” conjures up all kinds of images and ideas, but there is no universally accepted definition of who is a patent troll. This has lead many to recognize that, by and large, if you are being sued for patent infringement, it will likely be your belief that you are being sued by a patent troll. But obviously not everyone who sues for patent infringement is a patent troll, and neither is every plaintiff who loses a patent infringement lawsuit. There will be reasonable assertions that ultimately result in a defendant prevailing for a variety of reasons. Thus, a patent troll really should be identified by litigation tactics. A patent troll is one who is abusing the judicial process and leveraging judicial inefficiencies to obtain unwarranted settlement payments.

In determining whether one is a patent troll, I don’t think it should matter how the patents were acquired. If there is infringement of substantial patents, then there should be recourse. Having said that, it would be naive to pretend that there is not real evil lurking in the patent infringement realm. Stories of $500 to $1,000 offers to settle and avoid patent infringement litigation that would cost millions of dollars to defend abound. Some courts have openly acknowledged what feels like “extortion-like” activity. See Indicia of Extortion and Troll Turning Point? 

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Contempt Proceeding Fails on Colorable Difference Prong

Last week, the United States Court of Appeals for the Federal Circuit issued a decision in ncCUBE Corporation v. SeaChange International, dealing with the failure of the district court to find SeaChange in contempt for violating a permanent injunction.

ARRIS (formerly nCUBE) commenced the present litigation on January 8, 2001, alleging the infringement of certain claims of U.S. Patent No. 5,805,804 (“’804 patent”), which discloses and claims a media server capable of transmitting multimedia information over any network configuration in real time to a client that has requested the information. The patented technology allows a user to purchase videos that are then streamed to a device such as a television.

On May 28, 2002, the jury returned a verdict in ARRIS’s favor, finding that SeaChange willfully infringed the asserted claims in the ’804 patent. The Federal Circuit later affirmed the jury verdict and the district court’s subsequent decision to enhance the damages award. Subsequent to the Federal Circuit affirmance, the district court entered a permanent injunction enjoining SeaChange from “making, using, selling, or offering to sell… the SeaChange Interactive Television System… as well as any devices not more than colorably different therefrom that clearly infringe the Adjudicated Claims of the ’804 patent.”

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Patent Litigation Settlement Suggests Both Parties Just Gave Up

On July 18, 2013, Complete Genomics, Inc., which is a wholly-owned subsidiary of BGI-Shenzhen (“BGI”), announced that it entered into a settlement agreement with Illumina, Inc. under which Illumina will dismiss with prejudice both lawsuits it had brought against Complete:  Illumina, Inc. and Solexa, Inc. v. Complete Genomics, Inc., Case No. 10-cv-05542 EDL (N.D. Cal.); and Illumina, Inc. and Illumina Cambridge Ltd. v. Complete Genomics, Inc., Case No. 12-cv-01465 BEN BGS (S.D. Cal).  The agreement is reciprocal, so Complete will likewise dismiss with prejudice all counterclaims against Illumina.

No payment is being made by either party to the other, which is not particularly unusual. What makes this story interesting is that the parties also announced that no licenses are being granted by either party to the other. Typically, in patent litigation, you will see either a payment going in one direction or some kind of cross-license.  Thus, it would seem that the parties simply decided that they would each be better off simply giving up on the case and moving in separate directions.

It is a bit unusual to see both parties walk away empty-handed, but with the cost of patent litigation and the reality that patent litigation stalls forward movement with respect to research and development, perhaps it is not shocking.

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Covidien Wins $176 Million Patent Verdict

Gene QuinnOn March 28, 2013, Covidien (NYSE: COV), a leading global provider of healthcare products, won a patent infringement lawsuit against Ethicon Endo-Surgery, Inc., a Johnson & Johnson company, relating to Ethicon’s Harmonic line of ultrasonic surgical products.

Before proceeding, to clear up any possible confusion for those who look to the Memorandum of Decision issued by the United States Federal District Court for the District of Connecticut, you will not see Covidien’s name on the case. Tyco Healthcare Group LP and United States Surgical Corporation were the named plaintiffs. US Surgical was acquired by TYCO in 1998, and subsequently Tyco spun off Tyco Healthcare in 2007. Tyco Healthcare was later renamed Covidien.

Representing Covidien in this victory was DLA Piper, with New York partners Drew Wintringham and Frank Ryan leading a litigation team further comprised of  partner Mark Rueh and associates Erica Pascal, Matt GanasAirina Rodrigues and Joanna Sykes-Saavedra.

What is Causing the Rise in Patent Infringement Litigation?

Gene QuinnOver the past week or so, there have been a series of articles on IPWatchdog.com that have taken a look at the rise of patent litigation beginning in about 2009, but really with an alarming growth in the number of patent infringement lawsuits brought in 2012. The first article in what is now a trilogy (and likely will be more) is The Rise of Patent Litigation in America: 1980 to 2012. The chart below sets the table.

But why would there be such an enormous growth in patent litigation over the past few years, and a rise of more than 25% between FY 2011 and FY 2012?

The rise in the number of patents issued certainly has something to do with this, but probably less than you might expect. The number of patents issued has been rising for decades, and would likely account for the growth in the number of patent infringement lawsuits between 1980 and 2008, given that the slope of the upward trajectory roughly matches in both the above and below graphs.

Ron Katznelson published his thoughts on the matter, suggesting that the American Invents Act is the major cause for the rise in patent infringement lawsuits. Katznelson cites the fact that, in FY 2009, the typical patent enforced via litigation was between 1 to 5 years old, but in FY 2012, the typical patent enforced was less than 1 year old. First, he points out that the AIA makes it harder to bring lawsuits with multiple defendants (i.e., the joinder provisions). Second, the AIA also provides that, if a patentee files suit for infringement within 3 months of the patent issuance, the court may not stay a motion for preliminary injunction on the basis of a post-grant review.

Additionally, pursuant to 37 CFR 42.101, an inter partes review cannot be filed more than one year after the date on which a defendant is served with a complaint alleging infringement of the patent. So a quick filing starts the 1-year inter partes review countdown. I wonder how much that influences the decision as well?

A new study by Professor Robin Feldman at UC Hastings Law School also finds that 58% of new patent infringement lawsuits are brought by patent monetizers. See Patent Monetization Entities Filed 58% of Lawsuits in 2012.

In his article, Katznelson questions whether the rise of patent litigation can be attributed to patent monetizers, although not directly challenging Professor Feldman. He points out that “NPE’s mostly acquire older patents,” which to me seems true. If Katznelson is correct, and more than 14% of patent litigations filed in FY 2012 related to patents less than 1 year old, the increase in patent litigation doesn’t seem tied to monetizers, who in many cases partner with the original innovators, as does Acacia Research.

What this suggests is that there is still a lot to understand and anyone jumping to the conclusion that the patent system is broken as a result of the rise in patent litigation is doing so without all the information and hardly a sense of the complicated structure of the overall patent system. It seems the incentives Congress has interjected into the Patent Act thanks to the AIA virtually ensured a rise in patent litigation, thus the system is not broken. It is working exactly as it was designed to work.