Richard Linn Inn of CourtJanuary 23, 2013

“Practice Makes Perfect?” – NPE IP Litigation

Jurisdiction and Venue

* Chris Barry et al., 2012 Patent Litigation Study, PWC.com, Chart 9a (2012), http://www.pwc.com/us/en/forensic-services/publications/2012-patent-litigation-study.jhtml.

District Court

NPE Success

Rate

Decisions Involving

NPEs

Total Identified Decisions

NPE % of Total

Decisions

Middle District of Florida

57.1% 7 28 25.0%

Eastern District of Texas

46.5% 43 115 37.4%

District of Delaware

41.2% 17 168 10.1%

District ofMinnesota

40.0% 10 45 22.2%

District of Massachusetts

35.7% 14 72 19.4%

District court where patent holders have the highest “win” rate (1995-2011)*

District court where patent holders have the highest “win” rate (1995-2011)*

District Court Overall Success Rate

Median Damages Awarded

Median Time to Trial (years)

Middle District of Florida 57.1% $151,392 1.74

Eastern District of Texas 55.7% $8,782,738 2.17

District of Delaware 41.7% $20,636,247 1.90

Northern District of Texas 38.7% $1,756,750 2.42

Eastern District of Virginia 34.1% $36,025,989 0.97

* Chris Barry et al., 2012 Patent Litigation Study, PWC.com, Chart 8 (2012), http://www.pwc.com/us/en/forensic-services/publications/2012-patent-litigation-study.jhtml.

NPEs and the ITC

Source: www.rpxcorp.com

1) Very fast: Time-to-hearing is typically 9-to-12 months. By statute, 337 investigations shall conclude at the “earliest practicable time.” 19 U.S.C. § 1337(b)(1).

2) Threat of injunction: If there is a violation of IP rights, then the articles concerned shall be excluded from entry into the U.S. 19 U.S.C. § 1337(d)(1).

3) No AIA joinder rules: “Proposed respondent means any person named in a complaint . . . .” 19 CFR § 210.3

4) In rem jurisdiction over imported products (no personal jurisdiction requirement): If the ITC determines that a violation has occurred, it can issue an order precluding articles from entry. 19 U.S.C. § 1337(d)(1).

5) Not possible for Respondent to transfer to another forum: The ITC is the only forum that hears Section 337 complaints.

NPEs at the International Trade Commission

Damages In NPE Litigation

Year Case District Amount Status

2007 Lucent Tech. Inc. v. Gateway, Inc., et al. (Microsoft Corp.)

S.D. Cal. $1.53 billion Reversed/Settled

2012 Carnegie Mellon University v. Marvell Technology Group Ltd., et al.

W.D. Pa. $1.17 billion Post Trial Motions Pending

2010 Mirror Worlds, LLC v. Apple, Inc. E.D. Tex. $626 million (Jury awarded $208.5 for each of 3 patents)

Reversed

2011 Saffran v. Johnson & Johnson, et al. E.D. Tex. $593 million Appeal Pending

2003 Eolas Tech. Inc. v. Microsoft Corp. N.D. Ill. $521 million Settled

2008 Saffran v. Boston Sci. Corp. E.D. Tex. $501 million Settled

Largest Initial Damages Awards in NPE Litigation in the Last Decade

• Georgia-Pacific factors still apply (Georgia-Pacific Corp. v. U.S. Plywood Corp., 318 F. Supp. 1116 (S.D.N.Y. 1970))

• Royalties received for licensing the patent, proving or tending to prove an established royalty.• Rates paid by licensee for the use of other similar patents.• Nature and scope of the license.• Whether there is a policy of maintaining a patent monopoly by granting licenses only under special conditions.• Commercial relationship between patent holders and licensees.• Effect of selling the patented specialty in promoting sales of other products; existing value of the invention as a generator

of sales of non-patented items; and extent of such derivative or “convoyed” sales.• Duration of the patent and term of the license.• Established profitability of the patented product, its commercial success and its current popularity.• Utility and advantages of the patent property over old modes or devices.• Nature of the patented invention, its character in the commercial embodiment owned and produced by the licensor, and

benefits to those who used it.• Extent to which infringers used the invention and any evidence probative of the value of that use.• Portion of profit or selling price that is customary in the particular/comparable business.• Portion of realizable profit that should be credited to the invention as distinguished from any non-patented elements,

manufacturing process, business risks or significant features or improvements added by the infringer.• Opinion testimony of qualified experts.• Amount the two parties would have agreed upon at the time the infringement began if they had reasonably and voluntarily

reached an agreement.

Method of determining reasonable royalties in NPE cases

• Rule of Thumb (25%) Rule (Overruled in Uniloc USA, Inc. v. Microsoft Corp., 632 F.3d 1292 (Fed. Cir. 2011))

• Nash Bargaining (Rejected in Oracle Am., Inc. v. Google, Inc., 798 F. Supp. 2d 1111 (N.D. Cal. 2011); used as a reasonableness check to the Georgia-Pacific factors in Mformation Techs., Inc. v. Research in Motion Ltd., No. 08-04990, 2012 U.S. Dist. LEXIS 56784 (N.D. Cal. Mar. 29, 2012))

Method of determining reasonable royalties in NPE cases

NPE Copyright Litigation

What is a Copyright NPE?

“[A copyright NPE] operates by obtaining an assignment… of one or more legal rights in another’s creative work, which it then uses to threaten and bring actions for infringement against others.” Shyamkrishna Balganesh, The Uneasy Case Against Copyright Trolls, 86 S. Cal. L. Rev. at *8 (forthcoming May 2013).

Righthaven LLC

• Righthaven’s business model:• (1) search the Internet for parts of newspaper stories posted online by

individuals, nonprofits, political organizations and others; • (2) obtain an assignment of the right to sue for copyright infringement of that

work in exchange for a 50% cut of all the settlements and jury awards;• (3) file copyright infringement suit against the entity that reposted the work;

and• (4) offer to settle for $2,500-$3,500.

Righthaven LLC v. Democratic Underground LLC, 2011 WL 2378186 (D. Nev., June 14, 2011)

• The court determined that Righthaven lacked standing to pursue copyright infringement claims based on assignments of the bare right to sue, reasoning that: “pursuant to Section 501(b) of the Copyright Act, a plaintiff ‘must have a legal or

beneficial interest in at least one of the exclusive rights described in § 106’ to bring a copyright infringement action. Id. Thus, ‘only copyright owners and exclusive licensees of copyright may enforce a copyright.’“ Righthaven LLC v. Democratic Underground LLC, 2011 WL 2378186 at *6 (D. Nev., June 14, 2011) quoting Sybersound Records v. UAV Corp., 517 F.3d 1137, 1144 (9th Cir. 2008).

• Righthaven was ordered to pay attorney’s fees and sanctions totaling $323,128, rendering the company insolvent.

Avg. settlement in NPE copyright cases

Copyright NPEs:Righthaven (news articles): $2,500-$3,500

Other mass copyright litigation:P2P (various entities; motion pictures and pornography): $1,500-$3,000US Copyright Group (motion pictures): $1,500-$2,500

Number of suits filed by copyright NPEs

Copyright NPEs:Righthaven (news articles): 276

Other mass copyright litigation:P2P (various entities; motion pictures and pornography): 220,000Adult Copyright Company (pornography): 22,000US Copyright Group (motion pictures): 16,200

Most significant factor that induces settlement in copyright NPE litigation• Threat of high statutory damages (up to $150,000)

• “Most settlement letters typically cite the possibility of statutory damages of up to $150,000 available to a successful plaintiff. “ James DeBriyn, Shedding Light on Copyright Trolls: An Analysis of Mass Copyright Litigation in the Age of Statutory Damages , 19 UCLA Ent. L. Rev. 79, 86 (2012).

• High cost of trial• Greg Sandoval, ‘Hurt Locker’ Lawyer: Illegal Sharing Must End (Q&A), CNET(Sept. 29, 2010), http://news.cnet.com/8301-

31001_3-20018004-261.html(suggesting the settlement amount may be closer to $2900). Plaintiffs are aware that defendants often lack the means to pay large judgments, so by using private settlement services, plaintiffs can assure low overhead as well as expect most defendants to accept the settlement terms.

• Threat of exposing defendants’ identities

• Mike Masnick, More Porn Companies Filing Mass Lawsuits Against File Sharers, TECHDIRT (July 21, 2010), http://www.techdirt.com/articles/20100719/17330710283.shtml (suggesting that many defendants will settle the matter if it relates to pornography to avoid embarrassment) (last visited Jan. 19, 2013).

Ethical Considerations In Multi-Defendant NPE Litigation

• Many clients consider hiring a single firm to represent a joint defense group that is sued by an NPE

Pros Cons

Reduced litigation costs Ethical issues: conflicts of interest

Streamlined settlements Unequal settlements

Sending a strong message to the NPE

Clients upset with lawyers when one or more is left “holding the bag”

May prevent defendants from settling a baseless suit

Difficulty in retaining experts

Multi-defendant NPE litigation

NPE and joint defense agreements: ethical issues

• Complete conflicts check of all defendants• Are any involved in other litigation you are handling as an

adverse party?• Access to confidential information of the joint defendants

• Need for a screen?• One counsel presents the position of multiple defendants

• Who is the client?

Applicable rules

• What rules apply?• Your local bar rules• The rules of the forum state• The rules of the PTO

• Important rules• Rule 1.6 – Confidentiality of Information• Rule 1.7 – Conflict of Interest: Current Clients• Rule 1.9 – Duties to Former Clients

• Rule 1.7 - IL Rules of Professional Conduct : Conflict of Interest, Current Clients

• (a) Except as provided in paragraph (b), a lawyer shall not represent a client if the representation involves a concurrent conflict of interest. A concurrent conflict of interest exists if:

(1) the representation of one client will be directly adverse to another client; or(2) there is a significant risk that the representation of one or more clients will be

materially limited by the lawyer’s responsibilities to another client, a former client or a third person or by a personal interest of the lawyer.

• (b) Notwithstanding the existence of a concurrent conflict of interest under paragraph (a), a lawyer may represent a client if:

(1) the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client;

(2) the representation is not prohibited by law;(3) the representation does not involve the assertion of a claim by one client against

another client represented by the lawyer in the same litigation or other proceeding before a tribunal; and

(4) each affected client gives informed consent

Multi-defendant NPE litigation

• Rule 1.7 [Comment 29] : Special Considerations in Common Representation:• In considering whether to represent multiple clients in the same matter, a

lawyer should be mindful that if the common representation fails because the potentially adverse interests cannot be reconciled, the result can be additional cost, embarrassment and recrimination.

• Ordinarily, the lawyer will be forced to withdraw from representing all of the clients if the common representation fails.

• In some situations, the risk of failure is so great that multiple representation is plainly impossible. . . .

• Moreover, because the lawyer is required to be impartial between commonly represented clients, representation of multiple clients is improper when it is unlikely that impartiality can be maintained. . . .

Multi-defendant NPE litigation

• Rule 1.7 [Comment 30] : Special Considerations in Common Representation:• A particularly important factor in determining the appropriateness of common

representation is the effect on client-lawyer confidentiality and the attorney-client privilege.

• With regard to the attorney-client privilege, the prevailing rule is that, as between commonly represented clients, the privilege generally does not attach.

Multi-defendant NPE litigation

• Rule 1.7 [Comment 31] : Special Considerations in Common Representation:• As to the duty of confidentiality, continued common representation will almost certainly

be inadequate if one client asks the lawyer not to disclose to the other client information relevant to the common representation.

• This is so because the lawyer has an equal duty of loyalty to each client, and each client has the right to be informed of anything bearing on the representation that might affect that client’s interests and the right to expect that the lawyer will use that information to that client’s benefit.

• The lawyer should, at the outset of the common representation and as part of the process of obtaining each client’s informed consent, advise each client that information will be shared and that the lawyer will have to withdraw if one client decides that some matter material to the representation should be kept from the other.

• In limited circumstances, it may be appropriate for the lawyer to proceed with the representation when the clients have agreed, after being properly informed, that the lawyer will keep certain information confidential.

Multi-defendant NPE litigation

Suggestions

• Include a “no disqualification” provision in the JDA.• Handle conflict waivers carefully – written or oral?• Consider screen with respect to confidential information.