A recent research report by Professor Catherine Tucker, titled The Effect of Patent Litigation and Patent Assertion Entities on Entrepreneurial Activityhas received wide publicity. The report purports to document suppression of Venture Capital (VC) investments due to litigation by so-called “patent trolls” – or Patent Assertion Entities (PAEs), which Professor Tucker identifies as “frequent patent litigators” – patentees that have caused more than 20 “instances of a patent being litigated” in a span of 17 years (p31-32). Professor Tucker arrives at a startling conclusion: VC investment would have been about $22 billion higher over the course of five years “but for litigation brought by frequent patent litigators” (p36) – suggesting that enforcement of patents can frustrate the goal of the Patent Act. In other words, the law of innovation ostensibly works against itself.
A footnote in the report’s front page discloses that the source of funding for this particular study was provided by an organization that has a substantial interest in the study’s outcome – the Computers and Communication Industry Association (CCIA). It may come as no surprise that Professor Tucker’s conclusions happen to fall in line with this organization’s previously-articulated beliefs that patents block new technology development. It is also noteworthy that Google, a prominent member of the CCIA, has also provided Professor Tucker with $155,000 of funding since 2009. In a June 2014 press release announcing this study, CCIA attorney Matt Levy proclaimed:
“For the first time, we have an economic model proving patent reform is not a zero sum game between protecting intellectual property and reducing abusive patent litigation … Professor Tucker’s research reveals the harms of skewing the patent system too far in favor of protecting low-quality patents.”
Recently I interviewed Ray Niro. Our wide ranging discussion touched on all things patent, we first discussed the announcement that Niro, Haller & Niro is now doing patent infringement defense on a flat fee basis. We wrap up our discussion of this new defense business model for the patent litigation industry below. We then transition into a discussion about fee shifting in patent litigation, first discussing the recently failed patent reform and then moving into a discussion of the Supreme Court fee shifting cases from the October 2013 term.
QUINN: How many lawyers do you have at your firm currently?
NIRO: 28. Between 28 and 31 most of the time. We are in the process of adding a few, so we’re I think 28 now; we’ll probably be 31 in the fall.
QUINN: Okay. And the reason that I ask that is because I suspect that as this word gets out that you’re doing this that you’re probably going to see a lot of interest. And how do you envision things developing? Are you going to be able to grow? Are you going to try and choose cases, which cases you can get involved with? What’s the mechanical process?
Ray Niro is one of the most well know patent litigators in the country. In some circles he may be referred to as “infamous,” and in other circles he may be simply referred to as famous. It all depends upon whether he is your attorney or whether he is the attorney on the other side. Regardless, he is well respected within the industry and has made a name for himself as a winner. But not only any kind of winner, but a champion for inventors who have patents infringed by some of the largest, most well funded companies in the world.
Over the past few years I have gotten to know Ray, he has written several op-ed articles for us, and about once a year we catch up with him in an on the record interview. What prompted this interview was seeing an announcement that he and his firm are now offering flat fee defense representation in patent litigation matters. Ray Niro defending a patent infringement case? I have to admit I didn’t realize he did defense work, so I wanted to talk to him about this new business model. He agreed.
In order to discussing his defense activities, we also discussed the failure of patent reform, the inevitable future patent reform efforts that are now a permanent feature of political activity in Washington, DC, and the recent Supreme Court patent decisions from the October 2013 term.
We usually think of two players in the patent system: the patentee and its competitor, assuming that competitors will represent the interests of end users. But, in my article – The Rise of the End User in Patent Litigation, which is forthcoming in the Boston College Law Review – I show that this is changing. Increasingly end users are becoming significant players in the patent system. What follows is an executive summary of this article.
Attention has recently turned to patent assertion entities that are suing vast numbers of customers using patented technologies in their everyday businesses. But, end users were also principal players in some of the main recent patent before the Supreme Court. In Bowman v. Monsanto, Monsanto sued farmers for re-using its patented self-replicating seeds. In Association for Molecular Pathology v. Myriad Genetics, patients and physicians sued to invalidate breast cancer gene patents. And, patients and drug stores repeatedly challenge pay-for-delay agreements between patentees and competitors, claiming they undermine patients’ interests in access to generic drugs. Finally, end users are likely to become even more prevalent in patent litigation, as the 3D printer becomes more popular, making it more likely that an individual or a small business will make an infringing item that will expose them to patent liability.
I define end users broadly to include those using a patented technology for personal consumption and those using it in business, but it is important to emphasize that they are strictly users. One would still be a user under my definition even if they incorporate the patented technology into a product or service they offer their customers they do not make or sell the technology itself.
In advance of his presentation next week I reached out to Lemley to discuss what is going on and what accounts for the rise in patent damages observed in the Lex Machina report that will be released in conjunction with the panel discussion. I reached him yesterday at his office, and our conversation lasted approximately 30 minutes.
My first question to Lemley was why are patent damage awards increasing? Is this in response to any particular case or event? “An interesting question,” Lemley responded. “There is not a recent case that extends the scope of damages; if anything most of the cases seem to be moving in the opposite direction, such as doing away with 25% rule, for example.”
I would have to agree. I don’t believe any Federal Circuit or Supreme Court cases over the last year or two have made it more hospitable for patent owners seeking hefty damages. Indeed, it seems that the Federal Circuit has seemed to make it more difficult to achieve high damage awards. Lemley agreed: “Even as we are seeing the law get tighter we are seeing an increase in damage awards.”
On March 26, 2014, RealD Inc. (NYSE: RLD) filed separate patent lawsuits in the United States District Court for the Central District of California against MasterImage 3D and Volfoni. The lawsuits RealD, Inc. v. Volfoni, Inc. et. al. (2:14-cv-02303) and RealD, Inc. v. MasterImage 3D, Inc. et. al. (2:14-cv-02304) allege that both the MasterImage 3D MI-Horizon3D products and the Volfoni SmartCrystal Diamond product infringes four patent owned by Real D. The lawsuits seek monetary damages as well as preliminary and permanent injunctive relief.
While intellectual property dates back to 2006, the RealD XL Cinema System was introduced in 2008 and today is the world’s most widely used 3D cinema projection technology with more than 15,000 units installed around the world. The XL Cinema System delivers twice the light efficiency of any other 3D cinema projection technology, and as a result, it provides a superior projected 3D image at a lower operating cost.
The world of U.S. patent litigation has changed dramatically in the last five years: total patent cases filed in district courts have more than doubled since 2008, the American Invents Act was passed in 2011 and took effect in 2012, and cases such as Apple-Samsung have captured headlines with eye-popping damages awards for patent infringement in widely used products.
Against this backdrop, Lex Machina had recently released a 2013 Patent Litigation Year in Review. The report draws on Lex Machina’s unique and rich Legal Analytics data on U.S. District Courts and judges, law firms, parties, patents, case merits decisions, damages awards, and International Trade Commission (ITC) investigations and Administrative Law Judges (ALJs).
In Brooks Furniture Mfg., Inc. v. Du tailier Int’l, Inc., 393 F. 3d 1378 (2005), the United States Court of Appeals for the Federal Circuit held that “[a] case may be deemed exceptional” under § 285 only in two situations: (1) “when there has been some material inappropriate conduct,” or (2) when the litigation is both “brought in subjective bad faith” and “objectively baseless.” The question put before the Supreme Court was whether the Brooks Furniture framework is consistent with the statutory text.
In unanimous decisions delivered by Justice Sotomayor, the Supreme Court ruled that the Brooks Furniture framework was too restrictive and inconsistent with the text of § 285. With Octane Fitness the Supreme Court makes it easier for district courts to sanction plaintiffs for bringing meritless patent infringement suits, while Highmark makes it more difficult for the Federal Circuit to reverse district court decisions under the statute. Both cases were closely watched as both the private sector and Congress have been making efforts to quash the dramatic uptick in patent cases filed by non-practicing entities.