1. Alternatives to IP Litigation July 13, 2012 Dan R. Gresham

2. Why Seek Alternatives to Litigation? Cost Even relatively straightforward patent infringement actions can cost more that $1M More complicated cases can cost much more Potential Waiver of Sovereign Immunity States immune from suit in Federal Court under 11 th Amendment Immunity can be waived if state brings suit in federal court Time Patent infringement litigation can take years Use of rocket dockets can reduce time, but increase costs Finality Final District Court rulings appealed to Federal Circuit Federal Circuit review claim construction de novo High percentage of reversals Confidentiality Concerns Courts are generally open to the public Increasing reluctance of judges to seal records and trials

3. Why Seek Alternatives to Litigation? Difficulty of Obtaining Injunctive Relief Injunction almost always granted prior to May 2006 upon finding of infringement NOT ANY MORE eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006): Unanimous Supreme Court (8-0, Alito not participating) held that the four factors generally applicable to injunctions must also be applied in patent cases: Irreparable injury Remedies available at law, such as monetary damages, are inadequate to compensate – almost impossible to meet if goal is to license patents Balance of hardships warrants injunction Public interest would not be disserved by permanent injunction

4. What Are Some Potential Alternatives to Litigation? Direct communication and negotiation Alternative Dispute Resolution (ADR) – Mediation ADR – Arbitration International Trade Commission (ITC) proceedings under Section 337 of the Tariff Act of 1930 (19 U.S.C. § 1337) Action in Court of Federal Claims for Infringement by U.S. Government Challenging validity of patents before the USPTO

5. Direct Communication and Negotiation Advantage Useful and much less expensive than litigation if goal is to license patents and both parties are willing to negotiate a license in good faith Disadvantages Potential for delay if opposing party does not believe a license is necessary or does not negotiate in good faith For non-state actors, significant risk of the other party filing a declaratory judgment action in view of MedImmune, Inc. v. Genentech, Inc., 127 S. Ct. 764 (2007) and SanDisk Corp. v. STMicroelectronics, Inc., 480 F.3d 1372 (Fed. Cir. 2007). Prior to MedImmune and SanDisk, patent owners could approach potential licensees by writing letters identifying patents and inviting participation in licensing negotiations.

6. Direct Communication and Negotiation Disadvantages (continued) In view of MedImmune and SanDisk, virtually any communication from a patent owner suggesting that the potential licensee needs a license can potentially create a basis for the other party to file a declaratory judgment action. Patent owners often file lawsuits to protect against being sued for declaratory judgment in unfavorable forum. If suit is filed, can delay service of complaint if potential exists for fruitful negotiations.

7. Mediation Mediation usually involves a third-party neutral to facilitate licensing negotiations and settlement discussions Can be voluntary or court-ordered Encouraged and even required by many courts Typically involves a common session with both sides and the mediator where each party states its position Followed by break-out sessions between the mediator and each side on ex parte basis – shuttle diplomacy

8. Mediation Advantages Successful mediation is generally much quicker and less expensive than litigation Can choose a private mediator knowledgeable in a particular technology, as opposed to a District Judge who typically lacks such knowledge Or, if mediation is conducted as part of a court proceeding, can save money by using a Magistrate Judge as mediator as opposed to a private mediator Good mediator can take an active role, pointing out strengths and weaknesses of both sides positions

9. Mediation Disadvantages Non-binding, absent agreement of the parties Requires good faith on both sides in attempting to reach compromise Can be used as delaying tactic Largely dependent on skills of mediator

10. Arbitration Formal process where an arbitrator or panel of arbitrators acts as fact finder and makes decisions Generally requires an agreement to submit dispute to arbitration Arbitrators generally have authority to issue subpoenas for attendance of witnesses and other orders attendant to the conduct of the arbitration, such as pre-hearing discovery Hearings are generally less formal than a court trial, and arbitrators have more discretion Rules of the American Arbitration Association (AAA) are commonly used

11. Arbitration Advantages Arbitration decisions are essentially final; can be overturned in court, but showing is very stringent Can choose an arbitrator knowledgeable in a particular technology, as opposed to a District Judge who typically lacks such knowledge Disadvantages Can be expensive based on amount of discovery Ability to compel attendance of third-parties and enforce subpoenas may be limited Experienced arbitrators are typically highly compensated on hourly basis

12. International Trade Commission (ITC) Proceedings Under Section 337 of the Tariff Act of 1930 (19 U.S.C. § 1337) Procedure Under Section 337 of the Tariff Act of 1930 (19 U.S.C. § 1337), the ITC conducts investigations into allegations of certain unfair practices in import trade, including patent and trademark infringement. Section 337 investigations are initiated by the ITC following the receipt of a complaint; notice announcing the investigation is published in the Federal Register. When an investigation is instituted, the ITCs Chief Administrative Law Judge assigns an ALJ to preside over the proceedings and to render an initial decision (referred to as an Initial Determination) as to whether Section 337 has been violated.

13. International Trade Commission (ITC) Proceedings Under Section 337 of the Tariff Act of 1930 (19 U.S.C. § 1337) Procedure (contd) Following a hearing on the merits of the case, the ALJ issues an Initial Determination (ID) that is certified to the Commission along with the evidentiary record. Parties: The complainant(s), the respondent(s), and the Commission Investigative Attorney. Section 337 investigations are conducted in accordance with procedural rules similar to the Federal Rules of Civil Procedure; supplemented by ALJs Ground Rules Formal evidentiary hearing on the merits conducted by the ALJ under the Administrative Procedure Act (5 U.S.C. §§ 551 et seq.).

14. International Trade Commission (ITC) Proceedings Under Section 337 of the Tariff Act of 1930 (19 U.S.C. § 1337) Procedure (contd) The Commission may review and adopt, modify, or reverse the ID or it may decide not to review the ID. If the Commission declines to review an ID, the ID becomes the final determination of the Commission. Upon determination of a Section 337 violation, Commission may issue an exclusion order barring the products at issue from entry into the United States, as well as a cease and desist order directing the violating parties to cease certain actions. Exclusion orders are enforced by U.S. Customs and Border Protection. Appeals of Commission orders entered in Section 337 investigations are heard by the U.S. Court of Appeals for the Federal Circuit.

15. International Trade Commission (ITC) Proceedings Under Section 337 of the Tariff Act of 1930 (19 U.S.C. § 1337) Advantages Much faster than litigation Injunctive relief granted almost automatically Disadvantages ITC cannot award damages Speed of proceeding may lead to additional costs Only applicable to imported products Subject to appeal to Federal Circuit

16. Infringement by the U.S. Government Redress Must be Sought in the United States Court of Federal Claims 28 U.S.C. § 1498(a): Whenever an invention described in and covered by a patent of the United States is used or manufactured by or for the United States without license of the owner thereof or lawful right to use or manufacture the same, the owners remedy shall be by action against the United States in the United States Court of Federal Claims for the recovery of his reasonable and entire compensation for such use and manufacture. Reasonable and entire compensation shall include the owners reasonable costs, including reasonable fees for expert witnesses and attorneys, in pursuing the action if the owner is an independent inventor, a nonprofit organization, or an entity that had no more than 500 employees at any time during the 5-year period preceding the use or manufacture of the patented invention by or for the United States. (emphasis added).

17. Infringement by the U.S. Government Advantages Only potential remedy for infringement by U.S. Government Independent inventors, nonprofit organizations, and small entities (<500 employees) are granted their costs and fees for attorneys and expert witnesses Disadvantages Can only be used for infringement by U.S. Government

18. Challenging Validity of Patents Before the USPTO Ex parte Reexamination Applicable to any patent currently in force Any person (including the patentee) can request the USPTO to take another look at the patentability of the patent; most often filed by party accused of infringement. Request limited reexamination of patent in view of prior art patents and printed publications If the USPTO grants the request, a third-party requester cannot further participate in the proceedings; participation limited to the patent holder and the patent examiner.

19. Challenging Validity of Patents Before the USPTO Advantages Inexpensive – typically less than $100k, sometimes much less USPTO uses preponderance of evidence standard in reexam, as opposed to clear and convincing standard applicable to validity challenge in litigation Disadvantages Filing party only has one chance to argue – in the initial filing Ex parte communications between patent holder and examiner increases likelihood that at least some claims will survive reexamination Patent holder can amend claims during reexamination If patent survives reexamination, it will be stronger

20. Challenging Validity of Patents Before the USPTO Post-Grant Review (PGR) New challenge permitted under the America Invents Act -- Applicable only to patents with effective date on or after March 16, 2013 Procedure Third party may petition to institute a post-grant review to cancel claims as failing to comply with a requirement for patentability May be satisfied if petition raises a novel or unsettled legal question that is important to other patents, not limited only to review in view of prior art patents and printed publications Must be filed no later than 9 months after grant of the patent and identify all real parties in interest Patent owner may file one motion to amend the patent to (1) cancel claims or (2) for each challenged claim, propose a reasonable number of substitute claims Any settlement agreement between the parties must be filed with the USPTO

21. Challenging Validity of Patents Before the USPTO Advantages Intervening Rights exist for any amended or new claims Relatively quick -- Final determination must be made within 1 year (but USPTO may give one 6 month extension) USPTO applies preponderance of evidence standard Disadvantages Petitioner may NOT assert in litigation that a claim of a patent is invalid on any ground that the petitioner raised or reasonably could have raised during the post grant review.

22. Challenging Validity of Patents Before the USPTO Inter Partes Review (IPR) Another option under America Invents Act – effective on September 16, 2012 as to any patent Procedure After effective date, third-party may petition to institute an inter partes review of any issued patent Request to cancel claims must be based only on novelty/obviousness grounds under 35 U.S.C. § 102 or 103, and only on basis of prior art patents and/or printed publications (narrower than PGR) Must be filed after the later of either: Nine months after the grant of the patent (to allow for potential PGR); or The termination of a PGR Patent owner may file one motion to amend the patent: (1) to cancel claims or (2) for each challenged claim, to propose a reasonable number of substitute claims

23. Challenging Validity of Patents Before the USPTO Procedure (contd) Additional motions to amend may be permitted upon joint request by the petitioner Cannot broaden claims or introduce new matter Any settlement agreement must be filed with the USPTO Advantages Can result in automatic stay of litigation involving the patent under certain conditions USPTO can invalidate claims based on preponderance of evidence standard, as opposed to clear and convincing evidence applicable in patent litigation Disadvantages The petitioner in a IPR may not assert in a civil action that a claim is invalidity on any ground that the petitioner raised or reasonably could have raised in the IPR Limited only to prior art patents and printed publications, and not other grounds for asserting invalidity