Resolving patent disputes
October 2016 | ROUNDTABLE | INTELLECTUAL PROPERTY
Financier Worldwide Magazine
October 2016 Issue
Resolving patent disputes is not for the fainthearted. In the ultra-competitive world of innovation, there is always the possibility that an allegation of patent infringement will be made – a disagreement that may propel those in dispute into a complex, highly technical and potentially time-consuming resolution process. Ultimately, in patent dispute resolution, commitment to the process is a key determinant in ensuring that patents are effectively protected and rights robustly enforced.
Rhodes: In your opinion, what have been the key trends defining patent disputes over the past 12 to 18 months?
Hall: The Federal Circuit is continuing its trend toward tighter, more controlled damages awards in patent cases by making it much more difficult for plaintiffs to obtain large damages awards by restricting the use of theories that cannot be tied concretely to the facts of the case. In particular, increased scrutiny has been placed on the use of the entire market value rule, the 25 percent rule has been abolished; and the Nash Bargaining Solution has been rejected despite a really great acting job by Russell Crowe. Increased focus has been placed on the proper way to apportion the royalty base to the smallest saleable patent practicing unit. At the same time, the Federal Circuit has clarified its position on post-verdict royalties to acknowledge that after final judgment, a successful plaintiff may be in an improved bargaining position and therefore able to demand a higher royalty rate. In both situations, courts are now keeping a close watch on the nexus between damages theories and the facts of the case. Additionally, with regard to design patents, the primary issue before the Supreme Court is whether it is necessary to apportion the profits of the infringing products to determine damages.
Chiu: In China, one of the key trends and hottest topics for now has been the advent of Standard Essential Patent (SEP) and fair, reasonable and non-discriminatory (FRAND) licensing litigation. One of the most notable decisions in this regard was the February 2015 National Development and Reform Commission (NDRC) decision in the Qualcomm anti-competitive licensing case, imposing a staggering RMB 6.088bn fine, the highest fine to date under the anti-monopoly law. Another trend in patent litigation is the advent of the Chinese-style patent troll litigations in which IP squatters use bad faith design and utility model patents to attack bona fide businesses operating in China.
Nemec: Though still far from the centre, in the past six months the pendulum has begun to swing toward more favourable outcomes for patent owners in two separate but related respects. First, outcome statistics in US Patent Trial and Appeal Board (PTAB) proceedings are not as one-sided as was the case for the first several years in which inter partes review (IPR) and covered business method (CBM) proceedings were available. Second, the case law on patentable subject matter has moved in a direction more favourable to patent owners. From my standpoint, neither of these events is reflective of a serious doctrinal change. Rather, the levelling off of outcomes in the PTAB could be attributed to a number of other factors, such as an initial rush of petitioners challenging the weakest of patents when IPR/CBM procedures first became available.
Donoghue: The key trends have been the clarifying by the Federal Circuit of the Supreme Court’s Alice decision regarding software patentability. While more clarification is necessary, it appears clear that software patentability in the US is fairly narrow. Additionally, the Supreme Court’s Cuozzo decision allowing the PTAB to use its broadest reasonable interpretation claim construction standard, instead of the district court’s narrower claim construction standard, was also important. Finally, an increased willingness to hold patent claims invalid as indefinite is a big trend that I expect to continue to grow in the near term.
Heusch: Since the CJEU’s ruling on Huawei vs. ZTE, which gave guidance on when injunctions can be granted based on SEPs, we have seen a number of cases where lower courts have begun to apply that guidance.
Sukduang: IPRs have continued to dominate patent disputes in the United States. In just over three years, the PTAB has, overall, cancelled approximately 77 percent of all claims instituted in an IPR, whereas only 20 percent of instituted claims survive. This is a staggering number, and demonstrates the importance of considering IPR challenges when evaluating an issued or pending patent portfolio.
Ben-Ami: Recent Supreme Court decisions regarding patent eligibility – such as what sorts of inventions can or cannot be patented – have substantially affected the patent litigation landscape. In 2014, the Court ruled that certain business methods were abstract ideas, and thus not patent eligible. In another case, the Court held that a naturally occurring DNA segment is a product of nature and not patent eligible. Prior to these cases it was difficult for a defendant to have a complaint dismissed early on at the pleading stage because all patents are presumed valid and a patent holder needed to plead minimal facts in its complaint to demand discovery. The Supreme Court decisions and a new heightened pleading standard that went into effect at the end of 2015 have led to higher dismissal rates. Ending a case at the pleading stage saves a defendant a substantial amount of money by avoiding costly discovery.
“Recent Supreme Court decisions regarding patent eligibility – such as what sorts of inventions can or cannot be patented – have substantially affected the patent litigation landscape.”
Rhodes: Have you observed an increase in the number of patent disputes in today’s business world? What are some of the common causes of conflict, such as actions brought by so-called ‘patent trolls’, or issues arising from trade secrets?
Sukduang: In the area of life sciences, we have not seen any appreciable increase in the number of patent disputes. What we have seen, however, is a new area of litigation concerning biosimilars. While not significant in number, there are several pending suits involving major biologics and biosimilar stakeholders that will shape, for better or worse, the landscape of biosimilar litigation at least for the immediate future.
Heusch: There has been an increase in litigation related to SEPs, not just in the field of cellular standards such as UMTS or LTE, but also in the field of other standards such as WiFi, NFC or H.264. It is not so much an issue of ‘patent trolls’, but more of patent owners versus unlicensed patent users, many of whom consistently ‘hold out’ against taking a licence. Whether the plaintiffs are the original inventors or have acquired the patents does not change the fact that the users of SEPs have an obligation to take a licence if they want to use the standard, and if they do not, they risk being sued.
Donoghue: Patent troll or non-practicing entity cases have continued to be active after a brief drop. And those cases tend to be stratifying. In the past there was a wide variety of case quality from the small, high volume smash and grab cases to the large, more complex cases brought by larger entities with large, complex patent families and everything in between. Increasingly, the cases tend to only be the lower quality smash and grabs or the larger, more complex cases brought on larger patent families.
Ben-Ami: Cases where two innovator drug companies are involved in patent litigation against each are still rather uncommon, although some do occur. Rather, disputes between branded and generic drug companies still account for the majority of cases filed in the pharmaceutical industry. The reason is simple – a generic product has the same active ingredient as the branded product and under the statute that allows approval of a generic, based on an Abbreviated New Drug Application (ANDA), the act of filing an ANDA by a generic is, by definition, an act of infringement of any patent covering the branded product or its method of use. The branded drug company, therefore, can file a patent infringement lawsuit against the ANDA filer. For each of the past two years, the number of these ANDA cases was close to 400. So far in 2016, there have been 194 cases filed.
Hall: While we are certainly continuing to see a large number of patent cases being filed, both by so-called ‘patent trolls’ and among competitors, the overall number of patent cases filed has continued to decrease. The creation and implementation of the PTAB and IPR process, as well as the noteworthy Alice decision, has made it more difficult for patent holders to enforce their patents. As a result, fewer patent disputes actually make it to the damages phase. Yet we have seen a significant uptick in other types of matters, particularly trade secret misappropriation, and will likely continue to see an increase in trade secret matters going forward.
Chiu: The number of patent cases – and IP cases in general – has definitely risen over the last few years. This rise is partially due to the fact that the Chinese legal environment and litigation culture is quickly maturing. The opening of three specialised IP courts in China has helped a lot in this regard, but can also be partially attributed to the remaining presence of IP squatters on the Chinese market. In the patent arena, squatters focus their activities on the ‘rubber stamp’ design and utility model patents since there is no substantive examination of applications for those patents.
Nemec: I have not observed an increase in the number of patent disputes, so much as a shift in the type of patent disputes that parties are initiating. There is no question that the establishment of IPR and CBM procedures has altered the landscape for non-practicing entities, for example, ‘patent trolls’. With the relatively affordable option of putting an asserted patent back into the Patent Office for re-review, many patent trolls have revisited their settlement strategies by adjusting their settlement demands to numbers low enough to discourage defendants from seeking IPR or CBM review. Serious non-practicing entities that are looking for a large recovery and have the patience and wherewithal to wait are still out there and are less deterred by the PTAB.
“While I do not condone the hold-up strategies employed by many ‘patent trolls’, I am concerned that legislation targeting non-practicing entities will have unintended consequences and further weaken an already stressed patent system.”
Rhodes: Have any recent legislative developments had a particularly significant impact in this area?
Nemec: It would be a stretch to call any legislative development in the patent arena ‘significant’ while we are still grappling with the implications of the 2012 America Invents Act (AIA). Interestingly, the discussion surrounding the long path to the AIA’s passage revolved largely around the move to a first-to-file patent system, abandoning the centuries-old first-to-invent system that distinguished the US from the rest of the world. Adoption of a first-to-file system has surely been a big issue, but it has been thoroughly overshadowed by the dramatic impact of the PTAB. Meanwhile, multiple bills seeking to further reform the patent system, particularly with regard to ‘patent trolls’, have failed to pass. From my standpoint, that is a good thing. While I do not condone the hold-up strategies employed by many ‘patent trolls’, I am concerned that legislation targeting non-practicing entities will have unintended consequences and further weaken an already stressed patent system. In my view, it is the strategies employed by ‘patent trolls’ that should be targeted, not the mere ability of a non-practicing entity to sue, and those strategies are best addressed through tightening litigation procedures, not patent law.
Chiu: In March 2016, the Supreme People’s Court (SPC) published ‘Interpretations of the SPC on Certain Issues Concerning the Application of Law in the Trial of Patent Infringement Cases’ which does contain some important changes. For example, now the court can dismiss an infringement action as long as the patent is invalidated by the Patent Re-examination Board (PRB) without the need to wait for the final administrative judgment. In addition, a new draft amendment to the Patent law – a preparatory legislative document released for comments from stakeholders – published in December 2015, also proposes several significant changes. For instance, the increase of the damages that can be awarded for patent infringement, grants more powers to the administrative authorities, contains some new rules regarding the liability of ISPs, extends the term of protection of design patents to 15 years, contains some incentives to patent exploitation and codifies some existing practices.
Ben-Ami: The previously enacted AIA has begun to impact life sciences disputes. While the first wave of IPRs of patents focused on the computer and technology patent areas, recently there has been an uptick in IPRs in the life sciences. This increase has been the result of biosimilars attempting to enter the market and facing patent challenges, as well as generic manufacturers’ increased use of the process. Since IPRs can be resolved through settlement, in some instances they provide an alleged infringer with extra leverage for overall dispute resolution.
Hall: The calculation of damages in patent infringement matters continues to be driven by guidance and acceptance by the court. Damages experts are continuously held to a high standard and their analyses must adhere to the facts and circumstances of a particular matter and follow direction from the court. Otherwise, they risk being excluded under Daubert. A number of court opinions in recent years have continued to shape how damages experts frame their analyses. While the number of patent cases has decreased due to the challenges faced by patent owners to enforce their patents, such as the creation of the PTAB and the Alice decision, we have seen an uptick in trade secret matters, due in part of the federalisation of trade secret laws.
Sukduang: The most significant piece of legislation that passed in 2016 was the Defend Trade Secrets Act of 2016 (DTSA), which federally codified trade secret protection that was once the purview of state court actions. While the DTSA federally codified trade secret protection, it did not pre-empt state trade secret laws, allowing for continued state court trade secret misappropriation actions. Having only been enacted in spring 2016, it is still uncertain as to how many federal trade secret misappropriation actions will be instituted, but given the available remedies under the Act, including recovery of actual losses, enhanced damages, injunctions and ex parte seizure order, I would anticipate early adoption.
Donoghue: Unfortunately, the various patent reform efforts since the AIA have not gained sufficient traction. But there remains active discussion about legislative patent reform, particularly in the area of venue. Limiting venue to locations where a patent defendant has significant business operations would be an important change to the system.
“We are seeing a number of cases which fine tune the principles of willing or unwilling licensees – both what the licensor is willing to do in order to comply with their legal obligations and what the user must do in trying to get a licence under SEPs.”
Rhodes: Could you highlight any noteworthy patent cases and the likely effects of their outcome on future cases and other patent-related issues?
Ben-Ami: One of the most significant events of an active Supreme Court was the denial of certiori to Sequenom Inc., allowing the Federal Circuit’s decision invalidating a patent reflecting “a significant contribution to the medical field” as not patent eligible, to stand. With Sequenom left intact, together with the Court’s Mayo and Myriad decisions, challenges to subject matter eligibility will likely remain at the forefront in the biomedical industry. The Court also addressed IPR procedures for challenging patents. In Cuozzo Speed Technologies the Court upheld the use of the ‘broadest reasonable interpretation’ (BRI) standard for claim construction in IPR proceedings, making it possibly easier to invalidate a patent.
Nemec: The Supreme Court’s decision in Halo Electronics is noteworthy not so much for the practical impact it will have on future cases, but for what it says about the future of the patent system. In a long and discouraging string of Supreme Court decisions tracing back to the eBay case that upended automatic injunctions, the Supreme Court has been whittling away at the scope and viability of patent protection. In Halo, the Court reminds us that a patent is a constitutionally granted right that is to be respected and taken seriously by those whose actions might impinge upon it. I do not anticipate a marked increase in the number of wilful infringement rulings in the wake of Halo, but I am confident that patent lawyers will be urging greater caution in the face of infringement risks.
Donoghue: While they are both a couple of years old, the Supreme Court’s Alice decision on patentability of software patents and its Biosig decision on indefiniteness, as well as the body of case law that the Federal Circuit and the district courts have built around those decisions, are two of the most significant areas of developing case law. The Federal Circuit and the district courts have made it clear that software patentability can be challenged, in many cases, at the earliest stages of a case without discovery or claim construction. That alone is significant. Additionally, the Federal Circuit has interpreted the bounds of Alice relatively broadly, invalidating many patents. Continued increases in the breadth, or refinements and restrictions of it over the next several years will have significant impact on patent cases. Biosig and its progeny will play a similarly important role in the patent landscape. In Biosig the Supreme Court gave district courts and the Federal Circuit a new tool to address confusing, amorphous patents. The district courts have begun using their new tool. The more the bounds of indefiniteness are defined the better for the patent law.
Heusch: We are seeing a number of cases which fine tune the principles of willing or unwilling licensees – both what the licensor is willing to do in order to comply with their legal obligations and what the user must do in trying to get a licence under SEPs. At the moment, there are still some uncertainties on what constitutes a FRAND offer, and how parties can prove in court that an offer is or is not FRAND. More case law here will give more legal certainty and hopefully help to avoid litigation in future.
Hall: Virnetx, Inc. vs. Cisco Systems, Inc. related to use of the EMVR or, in lieu of the EMVR, apportionment of the royalty base to the smallest saleable patent practicing unit. In my view, limited acceptance of the EMVR and apportionment requirements will continue to be an integral part of a damages analysis and will likely be further refined upon future guidance from the Supreme Court. In Apple vs. Samsung, which deals with design patent damages, Samsung filed a petition for a writ of certiorari with the US Supreme Court in December 2015 regarding whether it is appropriate to calculate damage based on the infringer’s profit on an entire product. This decision will certainly have a significant impact on design patent damages going forward. In Halo, the Supreme Court clarified the proper standard for determining wilful infringement, discarding the Federal Circuit’s strict test for awarding enhanced damages in patent cases and allowing judges to have discretion to decide when to award enhanced damages, making them more readily available.
Chiu: There have been quite a few high-profile patent cases over the last few months. One of the most recent high-profile cases is the Huawei vs. Samsung case, recently filed before the Beijing IP Court, which marks the beginning of a new round of SEP smart phone patent wars, this time in China. One of the most important pharmaceutical patent judgments was Eli Lilly vs. Huasheng regarding the drug olanzapine, in which the SPC recently ruled that Huasheng’s products fell outside of the scope of Eli Lilly’s patents. This is the first case in which the SPC used technical investigators to help clarify the technical details of the case.
Sukduang: The Federal Circuit’s recent decision in In re Cuozzo Speed Technologies will have a significant impact on IPR proceedings before the PTAB, as it confirms two guiding principles in IPR proceedings. First, the Federal Circuit held that 35 U.S.C. § 314(d) prohibits review of the PTAB’s decision to institute an IPR even after the PTAB’s issuance of a final written decision. Thus, once the PTAB institutes an IPR proceeding, that decision to institute cannot be reviewed for errors or itself overturned. Second, the court also held that while the AIA, which created IPR proceedings, is silent with respect to the standard for claim construction, the AIA granted the PTO rule making authority. Thus, 37 C.F.R. § 42.100(b), which the PTO promulgated, adopting the ‘broadest reasonable construction’ standard for claim construction in an IPR proceeding, was proper. Cuozzo Speed settles and solidifies, unless there is Supreme Court review, a primary difference between IPR proceedings, utilising the broadest reasonable construction, and district court proceedings, which permit more narrowed construction of asserted patent claims. Confirmation of the broadest reasonable construction standard, coupled with a lower burden of proof, will continue to make IPR challenges attractive to those who are accused, or may be accused, of patent infringement.
“The Federal Circuit and the district courts have made it clear that software patentability can be challenged, in many cases, at the earliest stages of a case without discovery or claim construction. That alone is significant.”
Rhodes: From your point of view, what have been some of the major developments surrounding patent issuance and protection in recent years? Where do you see related policies and laws headed?
Chiu: One of the main developments regarding the protection of patents has been the opening of three specialised IP Courts in Beijing, Shanghai and Guangzhou. These courts are manned by specialised judges and have become the new first instance venue for all patent and trade secret-related cases. The courts can also consult technical experts connected to the courts who can also attend the hearings. Going forward, there have been plans to move the appeal jurisdiction over IP cases from the provincial Higher People’s Courts to a newly established nationwide IP Court of Appeal based in Beijing, but it is as of yet unclear how concrete these plans are.
Sukduang: In the US, there has been a particular focus on assessing patentability under 35 U.S.C. § 101, which addresses patentable subject matter. This intense inquiry has taken hold in the USPTO in light of decisions from the US Supreme Court and Federal Circuit assessing patentable subject matter, laws of nature, and abstract phenomena. Unfortunately, the USPTO has become quite strict and has increasingly rejected patent applications on the basis that the claimed subject matter is directed to an unpatentable law of nature or abstract phenomena. In an attempt to harmonise the examination process at the USPTO, the Office has issued guidelines for its examiners in December 2014, and issued two additional updates in July 2015 and May 2016. Despite these guidelines, the USPTO examiners continue to reject, at a high rate, patent applications on the grounds under § 101.
Heusch: We see that the quality of patent issuance is increasing and the patent offices have better search results, which in general leads to better decisions.
Ben-Ami: The AIA made several important changes to US patent law which has helped to bring it in closer harmony with other patent systems around the world. For years, the US granted patents to the first person to invent a patentable invention. The rest of the world looked only at who was the first person to file a patent application. Under the AIA, the US has gone away from the first to invent rule. Important new provisions allowing the Patent Office to review issued patents, through IPRs and post grant review, further align the US system closer to the European patent system. There are still some differences between the US system and the system in Europe, but it appears that eventually those differences will diminish and we will see an internationally harmonised patent system.
Rhodes: How would you describe the effectiveness of the patent office in your region of focus? Do you expect to see any changes to its approach or methodology going forward?
Hall: Patent owners have faced new challenges to enforce their patents with the creation of the PTAB, CBM patent review, IPR and post grant review, increasing the chances patent claims will be cancelled or disclaimed. Therefore, fewer cases are reaching a damages determination.
Ben-Ami: The patents being granted on pharmaceutical and biotechnology inventions have generally been of high quality. While many patents in the computer space and business methods have been invalidated by the courts and the patent office in IPRs, it has not been the case for pharmaceutical patents. For instance less than 15 percent of all the IPRs filed relate to biotech or pharma patents. This may be because pharmaceutical and biotech inventions are often based on experimental results that are disclosed in the specification. It is not easy for a non-practicing entity to file patent applications and obtain patents because the scientifically trained patent examiners are not likely to allow claims not backed up with some data.
Chiu: The SPC has recently published its list of top 10 IP cases for 2015. One of these is Warner Lambert vs. PRB, an administrative judgment handed down by the SPC in which the SPC affirmed an invalidation decision made by the PRB which declared Warner Lambert’s Chinese patent invalid. In this case, the SPC gave more guidance on the sufficient disclosure requirement for chemical compounds, and clarified the logical correlation between the technical issues to be solved by the invention and the sufficiency of the disclosure in the patent specifications.
Heusch: I think the offices have become more effective, but there is still room for improvement. I believe that granting and opposition procedures still take too long.
“If the circumstances are favourable, it might be productive to reach out to the alleged infringer to determine whether an amicable resolution could be reached without litigation.”
Rhodes: Once a patent infringement has been detected, what do you advise as being the initial steps that a company should take to help maximise the chances of reaching a successful resolution to the matter?
Heusch: This depends, of course, on the purpose of the patent. If the purpose is to differentiate, one should send a warning letter and – if the infringement continues – litigate. However, if the purpose is to generate licence revenues, or where there is an obligation to licence, such as with SEPs, then one should make the infringer aware and offer a licence. If the infringer is unwilling to accept the licence, then you must be prepared to litigate and request injunctions.
Ben-Ami: First, one should ‘pressure-test’ the claim by evaluating claim construction, potential invalidity arguments and public information on the infringing product. Pressure testing helps evaluate the likelihood of success on the merits. Secondly, one must identify the business goal and the likely risks and rewards. Everyone wants to win, but the costs of winning can be substantial, both in terms of money and time. Therefore, full vindication through trial can be the goal, but given the risks and costs, licencing may be a goal as well.
Sukduang: The first thing a company should do is conduct a thorough review to be certain that the accused product infringes the claims you may assert. This would include preliminarily construing the claims and pressure testing those constructions to ensure that the claims would survive validity and patentability attacks. Now that IPRs are a viable option, patent owners should also seek to enlist the help of experts in the field and preliminarily prepare for an IPR attack. Additionally, if the circumstances are favourable, it might be productive to reach out to the alleged infringer to determine whether an amicable resolution could be reached without litigation. That being said, if the companies have a history of disputes, or are direct competitors in a very competitive market, filing suit might be necessary as the first course of action.
Nemec: Promptness is paramount when dealing with a potential patent infringement. I would never advise a client to shoot first and ask questions later. But when a patent owner believes there is an infringement, it should be investigated immediately. I understand the reluctance of patent owners to undertake the expense of litigation. But the price for delaying an investigation into potential infringement can be even greater, as inaction in the face of a known infringement can jeopardise the right to injunctive relief and limit recoverable damages. Gaining a thorough understanding of the nature and extent of a potential infringement before approaching the perceived infringer is key – a nebulous threat of suit or invitation to license is not going to resonate nearly as much as a thoroughly researched, well-documented allegation. At the very least, a thorough investigation is required before actually bringing suit or the patent owner risks attorney fee liability in the event the suit is found to have been baseless.
Hall: From a damages perspective, once a patent matter has been filed, it is helpful to get a damages expert retained early in the case. A damages expert can perform an early case assessment, estimating the potential magnitude of damages, for example, which may guide the efforts of counsel or assist with settlement discussions. Additionally, by facilitating focused damages discovery from the onset, damages experts can help counsel craft discovery requests regarding the types of financial, product or marketing information necessary to calculate damages and assist with the questions and topics for depositions, resulting in reduced overall litigation costs.
Donoghue: There are several initial steps to maximising chances of a successful resolution. The first happens before the patent holder makes a demand. It is important that the business has a plan and a system for addressing patent claims. The plan should identify technical resources for analysing the allegations, as well as identifying invalidating prior art. It should also provide a structure for responding to any demands in terms of who responds, how to involve in-house and outside counsel, who the decision-makers should be and what the range of response should be, as well as how to evaluate and respond to settlement demands. As part of that plan, upon receiving a demand or learning of a potential infringement, an investigation should generally be instituted to identify key defence arguments and defence themes. Maximising resolution requires understanding and being able to articulate key defences and case themes to your opponent with sufficient detail and confidence.
Chiu: While every case is different, in most cases we would advise clients to initially start with an investigation of the potential infringer, in order to be able to assess the scope of the infringement, the background and connections of the infringer. Depending on the outcome of the investigations, a cease-and-desist letter could be sent to the potential infringer, possibly accompanied by some notarised evidence. However, this really depends on the target, as hard-core infringers will generally not be impressed by cease-and-desist letters and such letters may in fact backfire, since the infringer could get a chance to prepare for litigation beforehand or commence a declaration for non-infringement lawsuit. After this stage, it may be worth employing a multipronged strategy comprising civil litigation, administrative enforcement and even more creative non-litigation options. At the same time, parties should remain open to mediation and settlement attempts, as this is often an efficient and effective way to conclude cases.
Rhodes: Could you outline the role that expert witnesses can play in patent disputes? What benefits can they bring to the process, such as technical knowledge, case evaluation and damages assessment?
Nemec: Expert witnesses have always played an important role in patent disputes, and properly so. Experts can and should be used to help educate judges and juries on complex technical issues that underlie patent infringement and validity questions. Expert witnesses also supply valuable perspective on the ordinary level of skill in the field of the invention at issue, what persons in that field would discern from the teachings of the prior art, differences between patent claims and accused devices, and economic factors relating to damages. However, there is considerable room for mischief when it comes to the use of experts, because the process of the court qualifying an expert to testify lends almost presumptive credence to whatever the expert goes on to say. As such, courts should make liberal use of their right to act as ‘gatekeeper’ and exclude questionable expert opinions. This is particularly true in the case of damages testimony, where the inherently hypothetical nature of the analysis opens the door to dubious opinions.
Hall: IP litigation requires the insight of experienced professionals who understand IP management and the practical application of traditional and emerging financial theories. A damages expert who works cohesively with counsel and clients to develop solid and defensible damages analyses and strategies can be invaluable for the successful resolution of a patent matter. Damages experts can offer counsel and clients unique insight into the litigation process from a damages perspective, including early case assessment, discovery assistance, 30(b)(6) accounting and financial witness deposition support, settlement strategies, trial preparation and trial testimony. Working closely with counsel throughout the litigation process creates efficiencies and seamlessly integrates a comprehensive damages approach into the overall case strategy.
Chiu: China recently established its own system of court-employed technical experts. On 21 January 2016, the SPC issued its ‘Provisional Regulations on the Participation of Technical Investigators in Intellectual Property Court Proceedings’. The regulations control the activities of the new technical investigators at the intellectual property courts. Unlike expert witnesses, technical investigators are employed by the court but only have an assisting role as ‘judiciary auxiliary staff’, meaning they help the judges to resolve technical questions. Technical investigators can provide clarifications on any technical aspect they are asked about, and may participate in hearings and may question the parties and witnesses. Investigators can only provide their opinion and cannot take part in the actual case adjudication.
Heusch: The role of experts depends very much on the legal system. In UK courts, for example, experts play a much bigger role than in Germany. In my view, they can add much value to a case by explaining the technical background, the infringement or the commercial impact.
Ben-Ami: Expert witnesses are critical in patent litigation, from the time of assessing the merits of a matter all the way through to trial. Even though many patent litigators have technical backgrounds, an expert focused on the specific field of interest often has a different perspective than the lawyers. Therefore, use of experts at the onset of analysing a case can be very helpful. Of course, having the appropriate technical background is important for an expert, but one must remember that an infringement expert, for example, must apply the court’s claim construction rather than his own view. Similarly, an invalidity expert must be given sufficient information to follow the law in assessing the issues.
Sukduang: Technical experts play a critical role in patent disputes, both in district court litigation and post-grant proceedings before the PTAB. District court and PTAB judges are not generally interested in the arguments lawyers have on the technical nature of inventions and prior art, but would rather obtain information on technical matters from experts in the field. Many times, the outcome of the patent dispute will rest on the opinions provided by experts in the action, and thus it is essential that parties find experts who are credible, well-spoken and have the relevant expertise to provide an opinion. Technical experts also play an important role in vetting the strengths and weaknesses of a claimed invention. Here again, parties would be wise to hire experts that will provide their unvarnished opinion, rather than ‘yes-men’ that will say whatever an attorney wants. In my experience, when experts are put under the glaring lights of cross-examination, they will provide truthful opinions, even if those opinions contradict what is written in their expert reports. As such, attorneys need to ensure that they do not overextend the opinions being expressed by their experts.
Donoghue: Experts are a critical part of the patent litigation process in terms of both making each side’s necessary proofs and credibility with the court and eventually the jury. An expert’s role varies greatly depending upon when they are hired and how integrally they are involved. Our preference is to bring experts in early in the process, ideally early in the discovery period. That allows you to make sure you get the expert the documents and discovery answers they need. It also ensures that you can get the expert the discovery it needs without a flurry of costly, last minute discovery requests and motion practice. Additionally, an expert can also educate a team about the types and categories of documents to expect which brings an added degree of certainty to reviewing your opponent’s production for completeness. Engaging the expert early will also help ensure a smooth claim construction process. An early-engaged expert can assist in formulating claim constructions. That removes any concern that a late-hired expert disagrees with constructions and it helps to inform the constructions. Finally, an expert can be an excellent source of potential prior art from past dealings or work in the technology space.
“A damages expert who works cohesively with counsel and clients to develop solid and defensible damages analyses and strategies can be invaluable for the successful resolution of a patent matter.”
Rhodes: How would you gauge the current appetite for the range of dispute resolution mechanisms available? How do alternative dispute resolution (ADR) methods stack up against litigation?
Chiu: In China, parties frequently make use of alternative dispute resolution. Contracts including foreign parties often contain arbitration clauses – both mainland China-based arbitration and Hong-Kong-based arbitration prove particularly popular. There is also a comparatively large share of cases that gets settled through mediation in China. This is probably due to the fact that in China, both the administrative authorities and the courts themselves often actively propose and promote settlements in pending cases, where appropriate. The procedural system also allows for settlements in most litigation stages.
Heusch: ADR generally requires that you agree with the other side on using that method, which in patent infringement cases is often not the case. But there are situations where arbitration can make a lot of sense, such as in setting royalty rates on SEP portfolios. There, arbitration can be more efficient and better able to handle such cases, for example with regard to confidentiality for all parties.
Nemec: The appetite for ADR is highly dependent on the industry and the patent owner’s goals for its portfolio. For parties that rely upon patents to protect the market for their products, ADR generally has little appeal. For those who monetise patents through licensing, ADR has clear benefits. For example, ADR procedures that restrict a licensee’s ability to institute PTAB proceedings in the event of a dispute are particularly attractive to licensors. Looking at the question from a different angle, ADR occurs during the course of virtually every litigation in the form of court ordered, or encouraged, mediation. Mediation may be a predicate to litigation, or it may be an effective means to resolve a litigation, but it is rarely viewed as a satisfactory alternative to litigation.
Ben-Ami: Parties are eager to engage in ADR for patent disputes. ADR is universally viewed, and correctly so, as an efficient and economical alternative to litigation. Today, mediators – often retired judges – are sophisticated in the business and technology fields involved, and are also well versed in the issues surrounding patents. This familiarity allows the participants to bore down to the real ‘issues’ without interference from lawyer argument, and also assists the participants in shedding any ‘emotional’ ties involved in the dispute, so that they can determine if a business resolution is truly possible. Modern day parties know what patents offer and what they can allow, so speedy, efficient negotiations are often preferred to litigation.
Donoghue: The range of options for resolving patent disputes has grown significantly since Obama’s AIA with the various Patent Office post-grant review proceedings. Those proceedings have only become more valuable and more effective, from a defence perspective, as the proceedings have been clarified by PTAB and Federal Circuit decisions. Additionally, the software patentability case law since the Supreme Court’s Alice decision – in particular the district court and Federal Circuit decisions favouring early decisions without significant discovery or claim construction – have made early resolution at the district court much more likely, at least in software and computer-based cases. ADR remains an important alternative in almost every case, but because of the complexities of patent litigation, parties rarely use binding ADR. And generally, for parties to effectively use ADR they need to have a reasonably good understanding of their case and their opponent’s case. So, ADR is most effective after initial contentions or, at least, substantive contention interrogatory responses have been exchanged. This makes ADR more valuable in district courts with local patent rules that require early exchange of, at least, infringement and invalidity contentions.
Sukduang: Because ADR resolution can be less expensive, less time consuming and can allow for continued collaboration between the parties, ADR continues to be a viable option. The appetite for ADR resolution, however, is not as large between companies that directly compete in a technology space and are not otherwise engaged in any collaboration. Thus, once litigation is pending, parties have been reluctant to set aside the district court litigation in favour of ADR. For this reason, parties who are engaged in licensing or collaboration activities would be wise to include ADR provisions in any contract, including the type of ADR proceeding, for example, binding arbitration and nonbinding mediation, the applicable laws governing the ADR proceeding, and steps the parties must engage in before resorting to ADR.
Hall: Given that the cost of litigating patent infringement lawsuits is high compared to other types of matters, it is important to determine whether mediation or arbitration would be preferable. The expertise of a financial professional can be helpful in assessing how much a case is worth, which may help guide the decision to litigate, arbitrate, mediate or settle. Further, while there may be benefits to ADR, such as confidentiality, flexibility, mutually beneficial results, and multiple jurisdictional resolutions, a thorough damages assessment is essential regardless of the setting. Such an assessment helps counsel and their clients sort through the document production and develop damages analyses suitable for presentation, whether in court, arbitration, or settlement discussions.
Rhodes: To what extent should companies include dispute-related clauses when drafting contracts, such as licensing rights, with other parties?
Donoghue: As with almost any issue, the more detail you can provide in a contract, the better – so long as the detail is clearly understandable. So, to the extent that a party prefers to require dispute resolution you want to add it to the agreement. We often employ a tiered dispute resolution approach in which notice of a breach or issue under an agreement sets a clock for a live business-to-business meeting to discuss resolving the issue. To the extent that meeting does not resolve the issue, there can be another step – for example, mandated mediation – or the parties may then be free to sue or go to binding arbitration, depending upon the dispute resolution preferences of the parties.
Hall: When drafting agreements, companies often seek to secure a ‘freedom to operate’ licence that ensures their commercial production, marketing and use of a product does not infringe on the patent rights of others.
Chiu: A good contract should always be directed at avoiding conflicts and litigation. However, at the same time, a good contract should also prepare for and clearly point at the most effective and efficient way of litigating any serious problem that arises under it. This implies that contracts should be as clear and understandable as possible. The jurisdiction over disputes and dispute resolution clauses are also essential. Generally the choice will be to litigate before the Chinese courts, as it is cheaper and quicker to execute, or to arbitrate in China or Hong Kong, mostly for complex interrelated agreements, as foreign judgments are simply not enforceable in China. Other clauses that are indispensable in China include confidentiality clauses, a clear list of IPRs with correct registration numbers and dates, employee invention clauses, clear representations and warranties and a well-crafted termination clause.
Ben-Ami: No one likes to go into a contractual relationship assuming the worst, but one must be realistic. Parties disagree and can become adversarial. Of course, providing for ADR in a licence is one strategy, but one must consider whether all issues or just some will be subject to ADR. One must consider what issues are truly material and may be a basis for termination and whether some disputes should not be sufficient to result in termination. One also may consider some type of penalty for not adhering to a contract, beyond legal damages. Moreover, the lesson in the Supreme Court decision in MedImmune is that a patent licensee can challenge the validity of licensed patents by seeking a declaratory judgment of invalidity or non-infringement without having to terminate or be in breach of its licence agreement.
Nemec: Oftentimes, the issue surrounds the unanticipated effect of ‘arising out of or relating to’ language in the ADR provision, which can sweep in a broader scope of subject matter than the parties expected. The need to obtain swift injunctive relief is another issue some contracting parties realise when it is already too late. Yet another scenario that frequently arises is concern over dissemination of confidential information in litigation – a concern that could be avoided entirely by using ADR. In my view, contracting parties are deciding whether to include ADR provisions more on the basis of their general preferences than based on a case by case analysis of the merits of ADR. Parties negotiating agreements should consider a variety of factors in assessing whether to include ADR provisions in agreements, including the types of disputes that might arise with their counterparty, the relief that might be required to rectify such disputes, the need for confidentiality over proceedings, and the importance of speed in resolving disputes.
Heusch: I think companies should always include dispute-related clauses when drafting contracts, so that they know in advance in which forum they will end up if things do go wrong.
“In China, both the administrative authorities and the courts themselves often actively propose and promote settlements in pending cases, where appropriate.”
Rhodes: How do you envisage the patent dispute resolution landscape over the next 12 months? Ultimately, what advice can you offer to companies in terms of ensuring their patents are effectively protected, their rights enforced, and that they have freedom to operate in their business spheres?
Ben-Ami: With the continued use of IPRs and the Supreme Court arguably ratcheting up the pleading standards for filing a complaint, we predict that the trend of overall decreased patent filings will continue in the next 12 months, with existing filings being concentrated in jurisdictions that have a history of patent experience. But as older patents written without the benefit of current law expire, we would expect filings to stabilise. Perhaps the best advice we can offer to maximise effective protection and enforcement of one’s patent rights is to thoroughly vet your claim, goal and strategy before filing.
Hall: From a damages perspective, I believe that we will continue to see the courts place more stringent requirements upon damages experts in terms of information relied upon, communications with or reliance upon technical experts, industry experts and company representatives, and the types of analyses presented. Courts will continue to require that damages analyses be tied to the facts and circumstances of a particular matter and that they reflect the value of the allegedly infringing features or technology – as opposed to the entire market value of a product. There may also be a significant shift in the near future in calculating damages for design patent infringement, should the Supreme Court determine that design patents are also subject to various apportionment requirements.
Heusch: I anticipate more FRAND arbitrations in future. In the IPR business, it is important that third parties’ intellectual property is respected, otherwise the incentive to invest in R&D is undermined. To that end, I would encourage market participants to respect IPR and to take licences when necessary. IPR owners should enforce their IPR when necessary.
Nemec: While the PTAB has stolen the show from the courts in recent years in many respects, the PTAB has no power to enforce patents. Thus, the courts continue to be the single most important venue for patent owners. Many district judges recognise this fact and have become more proactive in addressing substantive patent issues early in law suits, in part to streamline the litigation process and also to discourage the increasing resort to PTAB proceedings. In addition, patent owners always should keep in mind the power of the International Trade Commission (ITC) to quickly act on claims that infringing goods are being imported into the United States. While automatic injunctions are no longer available in court, the ITC is empowered to enjoin importation on a finding of infringement, and it can do so in a fraction of the time that it would take to reach judgment in a district court.
Sukduang: In the US, patent dispute resolution should remain on a steady course. We will continue to see cases brought before the US federal courts, but a significant number of those cases may be stayed as defendants attempt to invalidate those patents through IPR proceedings. I believe that as we enter year four of post-grant challenges before the US PTAB, we will see a levelling off of IPR proceedings, with an uptick in post-grant reviews. Patents in the life science area that have been subjected to IPR review have fared much better than patents in other technologies. For instance, approximately 44 percent of all IPR-instituted claims in the 1600 Technology Center for biotechnology and organic chemistry have survived, as compared to only 10 percent to 18 percent in other technology centres. Thus, a more thoughtful and careful approach should be taken when challenging life science patent claims in an IPR proceeding. Finally, there is no foolproof strategy to ensure that a company will prevail in a patent dispute or have complete freedom to operate. That said, sophisticated companies that engage in informed decision-making, whether directed to obtaining patents, enforcing patents or determining whether they have freedom to operate, stand the best chance of succeeding in a potential patent dispute. Companies achieve informed decisions by leveraging their own internal knowledge and supplementing that with trusted outside counsel.
Donoghue: We will continue to get more clarity on the patentability of software in the US, as well as the bounds of PTAB proceedings. That will help clarify the value of software patents and the choice between PTAB proceedings and district court proceedings. As that goes on, I expect to see even more patent disputes decided in the PTAB instead of in the district courts. I also expect to see more patent cases decided on indefiniteness grounds under 35 U.S.C. § 112. The Supreme Court’s recent indefiniteness decision provides an important opportunity for patent defendants to challenge the many claims that use vague, unclear language.
Chiu: Our main piece of advice is to devise a comprehensive IP strategy before entering the Chinese market, and to assess it several times down the road. For patents in particular, it is essential to identify the geographical extensions, scope of protection and expiry dates of your patent portfolio and to actively monitor what is being done by your Chinese manufacturer and your competitors. Put well-drafted contracts – including confidentiality, access to trade secrets, derivative inventions and ownership of moulds – in place with both your own employees and your Chinese manufacturers. Policing and monitoring IPRs is essential in today’s global marketplace, because companies run the risk of having their worldwide markets flooded with counterfeits – especially if they are already active in China. Chinese exit customs may help, but mainly focus on blatant copyright and trademarks infringements. For patents and other less clear-cut cases, a more proactive enforcement strategy on the ground in China remains necessary.
Kevin Rhodes is vice president and chief intellectual property counsel of 3M Company, and president and chief intellectual property counsel of 3M Innovative Properties Company in St. Paul, Minnesota, where he is responsible for managing the global intellectual property assets of 3M Company and its worldwide affiliates. Mr Rhodes currently serves as the president of the Intellectual Property Owners Association. He can be contacted on +1 (202) 507 4500 or by email: kevin@ipo.org.
Sanya Sukduang concentrates on patent litigation before federal district courts and the US Court of Appeals for the Federal Circuit, primarily in the areas of biotechnology, pharmaceuticals, biologics and medical devices. He has conducted all aspects of pre-trial, trial and post-trial proceedings. Mr Sukduang has extensive experience in cases arising from the filing of Abbreviated New Drug Applications (ANDA). He can be contacted on +1 (202) 408 4377or by email: sanya.sukduang@finnegan.com.
Dawn Hall is a managing director at FTI Consulting and is based in New York. The focus of Ms Hall’s experience has been in assisting clients with complex financial, accounting and damages matters. Her experience includes various business disputes across many industries. She has participated in cases involving patent infringement, trademark infringement, copyright infringement, trade secret and other types of business disputes. She can be contacted on +1 (212) 499 3662 or by email: dawn.hall@fticonsulting.com.
Georgia Chiu is a counsel in Hogan Lovells’ Intellectual Property, Media and Technology (IPMT) Practice Group. She is a Hong Kong qualified lawyer and based in the firm’s Shanghai office since 2005. Ms Chiu specialises in all areas of IP, with a focus on litigation, in particular enforcing clients’ different types of IP rights against counterfeiters and managing administrative, civil and criminal actions in China. She can be contacted on +86 21 6122 3800 or by email: georgia.chiu@hoganlovells.com.
R. David Donoghue is a trial attorney and the deputy practice group leader of Holland & Knight’s Intellectual Property Group, focusing his almost two decades of experience upon intellectual property litigation and particularly upon patent disputes. Mr Donoghue’s most recent trial experience includes a jury verdict finding of wilfulness, a full trebling of damages and a full award of attorney’s fees. He can be contacted on +1 (312) 578 6553 or by email: david.donoghue@hklaw.com.
Leora Ben-Ami is an intellectual property partner at Kirkland & Ellis LLP. Her practice includes all areas of technology, including biotechnology, medical devices, pharmaceuticals and chemistry, and mechanical devices. She has tried many jury trials as lead counsel and has extensive appellate experience, including arguing before the US Court of Appeals for the Federal Circuit and serving as a law clerk there. She can be contacted on +1 (212) 446 5943 or by email: leora.benami@kirkland.com.
Dr Clemens-August Heusch LL.M. is head of European litigation at Nokia, responsible for litigation and arbitration throughout Europe, Near East and Africa, with a strong focus on multinational IP litigation. Since 2008, Nokia has been involved in more than 200 patent cases worldwide. Before joining Nokia, Dr Heusch was an attorney-at-law at international law firm Bird & Bird LLP.
Douglas R. Nemec is a partner in Skadden, Arps, Slate, Meagher & Flom LLP’s Patent Litigation group. He concentrates on intellectual property litigation and related counselling, including providing intellectual property advice in connection with corporate transactions. He can be contacted on +1 (212) 735 2419 or by email: douglas.nemec@skadden.com.
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