Recent Court Cases Contesting Injunction: NPEs and Standards Essential Patents

1. Recent Court Cases Contesting Injunction:NPEs and Standards Essential Patents Kevin C. KunzendorfAIPLA / JPO MeetingTokyo, Japan April 9, 2013

2. Cases Discussed • NPEs • Sabatino Bianco v. Globus Medical, 2012 U.S. Dist. Lexis 163022, E.D. Texas, November 14, 2012 (denying Motion for Preliminary Injunction) • Clear With Computers v Hyundai Motor America, 2012 U.S. Dist. Lexis 186911, E.D. Texas, January 9, 2012 • Standards Essential • Microsoft v. Motorola Mobility, 871 F. Supp. 2d 1089, W.D. Wash., May 14, 2012 • Microsoft v. Motorola Mobility, 696 F.3d 872 (9th Cir. Sept. 11, 2012)

3. Standard for Preliminary Injunction • To be entitled to a preliminary injunction, patentee must show: • Likely to succeed • Suffer irreparable harm • Balance of equities favors; and • Public interest • The courts have held that after e-Bay, a party’s status as a non-practicing entity may be taken into account in evaluating the factors.

4. Bianco v. Globus Medical Facts 1 • Bianco is a neurosurgeon in private practice; Globus is a large privately held medical device company • Bianco and Globus had an agreement where Bianco would share his ideas and designs for medical devices, and Globus would evaluate for possible commercial exploitation. • Bianco submitted Invention Disclosure for an expandable intervertebral fusion device for use in minimally invasive spinal surgery; Globus not interested in developing or commercializing.

5. Bianco v. Globus Medical Facts 2 • Globus actively developing is own expandable intervertebral fusion device called Caliber. • Globus files a patent for the Caliber device, fails to name Bianco as co-inventor; patent issues • Bianco claims Globus used confidential information from Invention Disclosure and incorporated into the design, which has same functions and features. • Bianco seeks preliminary injunction to “return the parties to the last uncontested status quo.”

6. Factors 1 • Likelihood of Success • Court assumed arguendo that Bianco showed likelihood of success based on his Trade Secret Misappropriation, Breach of Contract, Correction of Inventorship, and Texas Theft Liability claims. • Balance of Equities • Bianco conceded Global may endure some hardship, but will not be “unfairly harmed”; Globus argued Caliber is cutting-edge tech that is well-received in market. • Court agreed with Globus; Globus invested substantial resources; product already on market; well-received. Bianco has invested nothing, thus no harm.

7. Factors 2 • Irreparable Harm • Bianco argued misappropriation deprives him of statutory right to exclude; Caliber could be established as “market leader” and prevent Bianco from ever commercializing his ideas. • Globus argued even if Bianco proves he is co-inventor, he can not exclude other co-inventors; Bianco is non-practicing entity, not a direct competitor; appropriate remedy is thus monetary damages. • Court agreed with Globus; Bianco failed to demonstrate why monetary damages not adequate; Bianco is not operating entity; Bianco and Globus are not competitors.

8. Factors 3 • Public Interest • Bianco argued strong public interest in protecting trade secrets and preventing misappropriation. • Globus argued taking Caliber off the market would be disservice to public and patients that benefit from its use. • Court agreed with Globus; strong public interest in protecting trade secrets and IP rights, but public interest is better served by not depriving the public of this medical advance, particularly where monetary damages can fairly compensate Bianco if he prevails. • Preliminary Injunction DENIED.

9. Clear v. Hyundai – Facts 1 • Clear sued Hyundai alleging that Hyundai infringed its patent. • After a jury trial, jury returned verdict that the patent was not invalid and was infringed by Hyundai, and awarded damages to Clear of $11.5m. • Both parties filed several Post-Trial Motions. • Clear’s Motion for Permanent Injunction, or Alternatively, Ongoing Royalty.

10. Legal Standard – Permanent Injunction • A party seeking a permanent injunction must show: • Irreparable injury from infringement • Monetary damages inadequate • Balance of hardships favors; and • Public interest not disserved

11. Factors 1 • Irreparable Harm • Clear argued irreparably harm because it cannot exclude Hyundai from practice of patent. • Hyundai argued Clear does not practice the invention, does not compete with Hyundai, licenses the invention on nonexclusive basis; has shown no loss of goodwill or brand recognition due to Hyundai’s infringement. • Court found factor does not support an injunction. • Monetary Damages • Clear argued monetary damages rely on “stale sales data” and infringement may change • Court – Clear is licensing entity; damages appropriate

12. Factors 2 • Balance of Hardship • Clear argued Hyundai can implement non-infringing alternatives shown at trial, but acknowledges that since patent will expire within 1 year, an ongoing royalty may be more appropriate. • Court – given the short remaining time of the patent, it is undue hardship to require Hyundai to implement non-infringing alternatives. • Public Interest • Clear only argued significant interest in protecting patent rights; Court noted that same argument for any IP right. • Permanent Injunction DENIED; royalty of $21k/mo.

13. AIA Strategies for Dealing With NPEs • New requirement to file a separate suit against each defendant where only common feature is the patent being asserted. • Increases filing costs for NPEs • Use of PGR/IPR system to attack patents-in-suit • Challenges the validity with lower standard of proof • Forces delays • Increases risks in contingency fee arrangements • Costs of USPTO proceeding 10-20% less than litigation • USPTO forum less familiar than courts • Stays the high-cost court proceeding

14. Anti-NPE Legislation • Saving High-Tech Innovators from Egregious Legal Disputes (SHIELD) Act of 2013 • Provides that party asserting invalidity or non-infringement may move for judgment by the court that adverse party is not one of the following: • An original inventor, joint inventor, or assignee • A party that can prove substantial investment in exploitation of patent through production or sale of an item covered by the patent • A university or technology transfer organization • If court judges adverse party is NOT one of the above: • Adverse party must post bond to cover “recovery of full costs” • Adverse party pays if it loses

15. Microsoft v. Motorola – Facts 1 • Microsoft & Motorola both members of IEEE and ITU standard setting organizations • ITU policy requires “Patent Statement and Licensing Declaration” declaring whether party will grant licenses on RAND terms. License has “worldwide” effect. • Motorola owns many patents related to ITU H.264 Video Coding Standard. • Motorola sent Microsoft letter offering to grant worldwide, non-exclusive license at 2.25% per unit for each H.264 compliant device (Xbox 360, Win 7); attached non-exhaustive list of patents.

16. Microsoft v. Motorola – Facts 2 • Microsoft – 2.25% is unreasonable royalty; filed complaint that Motorola is breaching obligation to ITU to grant RAND license, and seeking declaration that Microsoft entitled to RAND license. • Motorola counterclaims – 1) no breach, 2) Microsoft rejected benefits of Motorola RAND obligations, therefore Microsoft not entitled to license to H.264 patents. • Both parties asserted infringement claims.

17. Microsoft v. Motorola – Facts 3 • 6 months later, Motorola filed suit in German court alleging Microsoft infringed 2 European patents. • Seeks injunctive relief prohibiting Microsoft from offering products (Xbox, Win 7, etc.) in Germany that infringe the patents. • Both patents are essential to H.264, and were listed in non-exhaustive list with US letter to Microsoft. • Back in US case, Microsoft filed motion for preliminary injunction to prohibit Motorola from enforcing any injunctive relief that it may receive in the German case (anti-suit injunction) related to the 2 declared-essential European patents.

18. Legal Standard • Where the injunction would prevent litigation of similar claims in a foreign court, the likelihood of success factor is modified: • Likelihood of success  court must weigh 3 factors: • Whether parties and issues same • Whether foreign litigation would frustrate policy of US court • Whether impact on comity* would be tolerable. • Suffer irreparable harm • Balance of equities favors; and • Public interest * “Comity” – legal reciprocity (German courts – US courts)

19. Three Factors Favor Injunction • Parties are same; Issues are the same • whether Microsoft is entitled to worldwide RAND license; whether Microsoft has rejected its rights; whether Motorola may seek injunctive relief re its standard essential patents; if there is a license, what the RAND terms are. • Frustration of policies weighs for injunction • Concerns of inconsistent judgments, and of forum shopping, and duplicative litigation given Motorola invoked German action on only 2 patents and before US court could adjudicate the issue. • Comity issues alleviated • Foreign court belatedly asked to adjudicate issue already before US court; scope limited to adjudicating duplicative dispute; court’s strong interest – two US companies, US documents; no international issues or foreign government involvement.

20. Injunction Factors 1 • Irreparable Harm • Microsoft may be forced to withdrawn Xbox, Win 7 from German market – causing Microsoft to lose sales, recent momentum, market share. Each difficult to gain back – hard to recapture shelf space, and third-party publishers of games likely to stop production for Xbox in favor of Sony, Nintendo. Diminished brand loyalty and affinity. • Microsoft software license agreements involve multinational companies who seek large scale agreements; Microsoft will have to alter business relationships with carve-out for Germany; Damage to Microsoft’s reputation for providing “broad IT solutions” that operate across borders. • Court found an injunction enjoining sale of Xbox, Win 7 in Germany will result in irreparable harm.

21. Injunction Factors 2 • Balance of Equities • If Microsoft enjoined – cease sale of Xbox and Win 7 in Germany incurring harm, or negotiate a license with threat of injunction looming. • Motorola faces little injury by anti-suit injunction – Motorola may later receive injunctive relief; it only must wait until US court adjudicates the issue; Microsoft is required to post $100m bond; 2.25% royalty request is admission that monetary damages adequate. • Public interest – served by Microsoft continuing business interests until court can adjudicate the injunctive relief issues. • Anti-suit Injunction GRANTED.

22. Thanks for your attention! Questions? Kevin C. Kunzendorf Partner Sughrue Mion PLLC 1-5-1 OtemachiChiyoda-ku, Tokyo-to 100-0004JAPAN +81-03 5220 0200 kkunzendorf@sughrue.com Kevin C. Kunzendorf