Proposed Patent Legislation - Remedies

1. Proposed Patent Legislation - Remedies David A. Edsenga November 29, 2005

2. Overview • Patent Trolls • Injunctions • 35 U.S.C. §283; Committee Print, Sec. 7 • Smith v. Hughes; MercExchange v. eBay • Testimony before the Subcommittee • Damages • 35 U.S.C. §284; Committee Print, Sec. 6 • Testimony before the Subcommittee • Class Comments • Current State of Proposed Legislation

3. Patent Trolls • Own patents, but do not manufacture or invent anything. • Famous Trolls • Lemelson • NTP (Blackberry) • Eolas Technologies (Internet Explorer)

4. 35 U.S.C. §283: Injunctions • The several courts having jurisdiction . . . • may grant injunctions • in accordance with the principles of equity • to prevent the violation of any right secured by patent, • on such terms as the court deems reasonable.

5. Smith Intl. Inc. v. Hughes Tool Co. • Hughes owns ‘928 and ‘195 patents • Smith files suit seeking declaratory judgment of invalidity for ‘928 patent • Hughes counterclaims for infringement of ‘928 and ‘195 • Smith admits selling/making devices within claims of ‘928 and ‘195 patents, but claims invalidity for both • Ninth Circuit reversed district court finding of invalidity • On remand, Hughes moved for judgment in its favor and sought a preliminary injunction. • The district court denied the preliminary injunction to determine the extent of Smith’s infringement.

6. Smith v. Hughes Contd. • Congress has the power to award “inventors the exclusive right to their . . . discoveries.” U.S. Const., art 1, §8, cl. 8. • Patent statute provides the right to exclude others from making, using, or selling the invention. • Preliminary Injunction: normally issue for purpose of • preserving the status quo • protecting the rights of the parties pending final disposition. • Usual requirement: Probability of success on the merits • Generally must be beyond question that patent is valid and infringed. • Must demonstrate that will suffer immediate irreparable harm

7. Smith v. Hughes Contd. • Preliminary Injunction Contd: • Court should take into account • possibility of harm to other interested persons • the public interest • Holding • Infringement is established beyond all question • Smith admitted that it intended to continue to make and sell the infringing bits • No burden to show the extent of infringement • Validity and continuing infringement have been established, then immediate irreparable harm is presumed.

8. MercExchange v. eBay • Jury found that eBay and Half.com willfully infringed MercExchange’s patent • District court refused to enter a permanent injunction • General Rule: permanent injunction issues once infringement and validity have been adjudged. • Injunctive relief has been denied in rare instances to protect the public interest • Public health (i.e. Milwaukee Sewers) • General concern about business method patents isn’t an important public need for denying injunction

9. MercExchange v. eBay Contd. • Concern about future litigation isn’t a sufficient basis for denying an injunction • A willingness to license should not deprive of the right to an injunction • Injunctions aren’t reserved for those who intend to practice patents, as opposed to those who choose to license • The right to exclude is available to both groups equally • Leverage in licensing is a consequence of the right to exclude • Failure to move for a preliminary injunction has no bearing on permanent injunction

10. Proposed Legislation Timeline • April 14, 2005: • Committee Print is created • April 20/28, 2005: • Testimony before the Subcommittee on Courts, the Internet, and Intellectual Property • June 8, 2005: • H.R. 2795 is created • July 26, 2005: • H.R. 2795 is amended, eliminating Sec. 7 (Injunctions) • October 20, 2005: • H.R. 2795 is amended

11. Committee Print, Sec. 7: Injunctions • (a) In General: (Identical to 35 U.S.C. §283) • (b) Grounds for Granting Injunction • A court shall not grant an injunction under this section • unless it finds • that the patentee is likely to suffer irreparable harm • that cannot be remedied by the payment of money damages.

12. Sec. 7, Contd. • In making such a finding, the court • shall not presume the existence of irreparable harm, but • shall consider and weigh evidence that establishes or negates any equitable factor relevant to a determination of the existence of irreparable harm, • including the extent to which the patentee makes use of the invention.

13. Testimony before Subcommittee • Richard J. Lutton Jr.; Business Software Alliance (BSA) • Pro Committee Print • The law says to balance equities before issuing an injunction. • “may grant an injunction in accordance with the principles of equity” 35 U.S.C. §283 • Granting of injunction has become nearly automatic • Leverage is exploited by patentees who don’t desire injunctive relief • Jeff Hawley; Intellectual Property Owners of America (IPO) • Anti Committee Print • Patent is an exclusive right, coming from availability of permanent injunction • Irreparable harm is a preliminary injunction concept • Considering use is similar to a “working requirement” • Want leverage to PO to encourage settlement by taking licenses • AI can often redesign to avoid patent

14. Testimony Contd. • Jeffrey P. Kusham; Genetech • Anti Committee Print • Long established precedent that PO is presumed to be irreparably harmed by infringement • Capacity to prevent unauthorized use is essential to patent’s character as a property right • Current law places burden on AI to show why injunction should not be granted. • Committee Print alters this burden • Courts currently contemplate factors in Committee Print • Courts often stay injunctions pending appeal • Other legislation for PO’s not in the market of AI

15. 35 U.S.C. §284: Damages • Upon finding for the claimant • the court shall award the claimant • damages adequate to compensate for the infringement, • but in no event less than a reasonable royalty for the use made of the invention by the infringer, together with interest and costs as fixed by the court. • When the damages are not found by a jury, the court shall assess them. In either event the court may increase the damages • up to three times the amount found or assessed. • Increased damages under this paragraph shall not apply to provisional rights under section 154(d) of this title [35 USCS §154(d)]. • The court may receive expert testimony as an aid to the determination of damages or of what royalty would be reasonable under the circumstances.

16. Committee Print, Sec. 6: Damages • (a) AWARD OF DAMAGES [Identical to §284] • (b) ROLE OF THE COURT; TREBLE DAMAGES[Identical to §284] • (c) EXPERT TESTIMONY[Identical to §284] • (d) BASIS FOR INCREASED DAMAGES • (1) WILLFULNESS - For purposes of determining whether to increase damages under this section, the court may consider the willfulness of any infringement. The absence of an opinion of counsel shall not create an inference that the infringement was willful. Increased damages may not be awarded based merely • upon the knowledge of a patentor its contents by the defendant prior to suit. • (2) OTHER FACTORS – Increased damages may be awarded for any infringement • (A) occurring after the defendant receives from the plaintiff written notice that – • (i) contains a charge of infringement,

17. Sec. 6, Contd. • (ii) identifies the • -specific patent, • -claims, and • -allegedly infringing products or processes infringed, and • (iii) is sufficient to give the defendant an objectively reasonable apprehension of suit on such patent, Unless the defendant had an informed good faith belief that a court would reasonably hold that the patent is invalid, not infringed, or unenforceable; • (B) in which the defendant intentionally copied the patent subject matter with knowledge that it was patented, • unless the defendant had an informed good faith belief that a court would reasonably hold the patent is invalid, not infringed, or enforceable; or

18. Sec. 6, Contd. • (C) if the patent was asserted against the defendant in a previous judicial proceeding in a Federal court, and the present infringement is more than colorably different from the conduct asserted to be infringing in the previous proceeding. • (e) DETERMINATION OF ROYALTIES OR DAMAGES FOR COMPONENTS – Whenever the invention • -is incorporated into, or • -is made part of, • a method or apparatus otherwise known in the art, or • is an approved method or apparatus including within it elements otherwise known in the art, then any award of a reasonable royalty or other damages shall be based only upon such portion of the total value of the method or apparatus as is attributable to the method, apparatus, or elements • otherwise known in the art or • contributed by the infringer or its licensors.

19. Testimony Before Subcommittee • Jeff Hawley, IPO • Pro Committee Print • §284 makes some companies wary of allowing employees to read competitor’s patents for fear of being put on notice of infringement • Sec. 6 will reduce litigation costs and discourage unwarranted suits • Richard J. Lutton Jr., BSA • Mostly Pro Committee Print • §284 allows knowing of a patent to be the basis for an allegation of willfulness • Should make clear that punitive damages are imposed where there is evidence of reprehensible conduct • Committee Print may still allow well-drafted notice letter to give rise to a charge of willfulness

20. Testimony Contd. • Jeffrey P. Kusham, Genetech • Mostly Pro Committee Print • Supports Sec. 6 (A,B,C) only: these scenarios should be the only that warrant a finding of willful infringement • Makes explicit what constitutes willful infringement • Sec. 6 needs additional measures • Preclude question of willful infringement until patent has been found infringed • Willfulness should only be addressed by court, not by jury • No discovery of opinions of counsel until after infringement is established • Nathan P. Myhrvold, Intellectual Ventures • Anti Committee Print • Committee Print goes too far in reducing conditions for willfulness • Large companies will infringe at will without increased financial penalty • Would increase the volume of litigation and motivate companies to infringe

21. Class Comments • Question 1 • Shui: If PO proves infringement, court issues injunction • The right to exclude takes precedence. • There are other ways to correct the problems. • Cohen: Court orders injunction unless • public interest is sufficient; court orders cease to infringing activity, equitable defenses limit scope of injunction. • Still reasonably compensate; AI must prove conditions for exception • Ko: Presume irreparable harm, grant injunction, unless evidence to rebut presumption • Stay injunctions pending appeals • Gives time to design around

22. Class Comments Contd. • Yates: Permanent injunction unless exceptional circumstances • Don’t want compulsory licenses; commercialization doesn’t matter • Cleary: Permanent injunction unless evidence outweighs presumption • Question 2 • Olin: Trolls = Bad: Take into account the extent which PO intends to make use • Weigh equitable factors. • Distinguish between real and fake trolls. • Pearson: Trolls = Bad: Rebuttable pesumption, unless PO possessed for 4 years and intentionally failed to market. Then reasonable royalty • Purpose is to promote progress of science and useful arts

23. Class Comments Contd. • Kolb: PTO = Broke: PTO fees to PTO. Increase federal funding. Additional examiners and training. • Better patents will result in less trolling • Heller: Trolls = Bank Robbers: No injunction if PO isn’t inventor or doesn’t practice, AND seeks injunction in bad faith/to harass, or PO isn’t likely to suffer irreparable harm • Murshak: Trolls = Bad: No injunction unless AI is direct competitor or PO intends to exclude • Need an intent to exclude rather than gain an overpriced license

24. What’s the current state of H.R. 2795? • Sec. 6 • (a) AWARD OF DAMAGES [added to end of paragraph 1] • In determining a reasonable royalty consideration shall be given to, among other relevant factors, the portion of realizable profit or value that should be credited to the inventive contributions arising from the claimed invention as distinguished from contributions arising from features, manufacturing processes or improvements added by the infringer and from the business risks the infringer undertook in commercialization. • (b) WILLFUL INFRINGEMENT • (3) LIMITATIONS ON WILLFULNESS • (B) An informed good faith belief within the meaning of subparagraph (A) may be established by reasonable reliance on advice of counsel

25. Current H.R. 2795 Contd. • Sec. 6 Contd. • (4) LIMITATION ON PLEADING • Prior to the date that a determination has been made that the patent in suit is not invalid, is enforceable, and has been infringed by the infringer, a patentee may not plead, and a court may not determine, that an infringer has willfully infringed a patent. The court’s determination of an infringer’s willfulness shall be made without the involvement of a jury.

26. Sec. 9, Venue • 35 U.S.C. §281: Remedy for Infringement of a Patent • A patentee shall have remedy by civil action for infringement of his patent. • Sec. 9 Transfer of Venue [added to §281] • (c) TRANSFER OF VENUE. - A court shall grant a motion to transfer . . . to a judicial district . . . • where the action could have been brought and • that is a more appropriate forum for the action, which includes any judicial district . . . where a party to the action has substantial evidence or witnesses, if – • (1) the action was not brought in a district . . . • (A) in which the patentee resides or • maintains its principal place of business,

27. Sec. 9, Venue Contd. • (B) in which an accused infringer maintains its principal place of business, or • (C) in the State in which an accused infringer, if a domestic corporation, is incorporated • (2) at the time the action was brought, neither the patentee nor an accused infringer had substantial evidence or witnesses in the judicial district in which the action was brought, and • (3) the action has not been previously transferred under this subsection. • (d) For purposes of section (c), use or sale of allegedly infringing subject matter in a judicial district shall not, by itself, establish the existence of substantial evidence or witnesses in such a judicial district.