April 15, 2014
Law360
By Lionel M. Lavenue; R. Benjamin Cassady
Authored by R. Benjamin Cassady, Lionel M. Lavenue, and Andrew G. Strickland
In February 2014, one of the most active forums for patent disputes, the Eastern District of Texas (EDTX), issued a general order implementing an alternative case management procedure for patent cases. The order, entitled "The Track B Initial Patent Case Management Order," provides for a very fast initial case schedule with the goal of facilitating the "just, speedy, and inexpensive" determination of patent cases. Track B streamlines cases by outlining an aggressive, front-loaded schedule whereby the parties must exchange infringement and invalidity contentions, as well as initial discovery regarding sales figures and alleged damages, within the three months after a defendant files an answer.
The goals and approach of Track B may sound familiar. Some of the pending patent litigation reform bills in the Senate and House share those same goals.1 Both Track B and the pending patent reform litigation attempt to reduce patent litigation by cutting it off at its source—that is, by making the prospect of filing a patent infringement complaint unattractive in the first place and forcing parties to address the substance of their claims from the get-go.
Notably, this early resolution option may be an especially unattractive prospect for nonpracticing entities that serially file a large number of suits against many defendants in an attempt to collect small settlements from each. In fact, some of the early commentary regarding Track B focused on how it might be "bad news"2 for some nonpracticing entities taking that approach. A deeper dive, however, reveals that, while Track B might benefit parties accused of infringing a patent in some situations, in others, it might even benefit parties asserting their patents.
A case management schedule following Track B arises either on agreement of the parties or by court order. The table below shows the key deadlines for plaintiffs and defendants under Track B, starting from the date on which the defendant files the answer, assuming the parties do not meet any of these deadlines early (which would accelerate the deadlines):3
As shown in the table above, under Track B, the plaintiff must put forth its substantive theories sooner than the defendant: the plaintiff must serve its infringement contentions only two weeks after the defendant answers, and the plaintiff only has two weeks to prepare a good-faith damages estimate after receiving the defendant's summary sales information. But defendants must move quickly as well. For example, defendants must gather sales information quickly and serve the information only 44 days after the answer (and only 30 days after the plaintiff's infringement contentions identify the accused products).
Defendants will also have to develop invalidity cases less than three months after filing an answer, which is much shorter than the typical EDTX case management schedule (or any other district court schedule, for that matter), and which is barely enough time to complete a prior art search. Finally, both parties begin Markman efforts less than three months after the defendant serves its answer, which is again much quicker than is typical. Therefore, given the extraordinary burden on all parties to move fast under Track B, both plaintiffs and defendants need to consider whether Track B is the right approach.
One benefit Track B gives to a plaintiff is that it has a "first mover advantage." Typically, a plaintiff prefers forums with quick dockets because, while it can take its time preparing a case before filing a complaint, a defendant is usually not aware that a suit would be filed against it. Thus, a docket that moves quickly once the complaint is filed puts a defendant at a disadvantage: A defendant can be rushed in preparing a defense (especially invalidity arguments), collecting the necessary documents for responding to typical discovery requests, and identifying and preparing witnesses.
Track B is thus advantageous to a properly prepared plaintiff because it can use Track B to even further accelerate an already fast docket and put even more pressure on a defendant to quickly collect sales information and prepare defenses. Any plaintiff considering Track B should have its infringement and damages theories as fully developed as possible (or at least be in a position to develop its theories quickly once the defendant files its answer).
Of course, Track B is most attractive for a plaintiff when it prepares its infringement allegations, in full, prior to filing the complaint. For example, a plaintiff asserting patents directed to commercially available mechanical devices or business methods with publicly verifiable steps can develop infringement theories in full prior to filing the complaint. In such cases, under Track B in the EDTX, the 14-day deadline to serve infringement contentions is less onerous.
Conversely, it follows that a plaintiff should avoid Track B when it is asserting patents with limitations that are difficult to prove without discovery. For example, litigation involving software method claims with hidden limitations, such as data structure limitations, server processing limitations, or source code variables, will make poor candidates for a plaintiff considering Track B. Yet, because Track B allows for limited discovery before the case management conference, Track B could still be attractive, even when a plaintiff cannot fully develop infringement theories prior to filing a complaint, provided the plaintiff can fill in any gaps with limited and targeted discovery.
A plaintiff also needs to consider damages calculations. Since a plaintiff only has 14 days to determine damages once summary sales information from a defendant has been received, Track B can be attractive when damages calculations are relatively straightforward. For example, when a plaintiff's infringement theory potentially reads claims on a product as a whole, and not a portion of the product, damages can be relatively easy to calculate, and a potential damages estimate can be determined quickly. A plaintiff asserting patents in industries with well-known, established methods of determining royalty rates, or a plaintiff with patents that have already been licensed by a number of entities, may also find Track B particularly attractive.
One other strategy consideration for a plaintiff is the possibility that the defendant will seek a stay pending the outcome of a Patent Trial and Appeal Board proceeding, such as an inter partes review, post-grant review or covered business method review. Courts regularly consider the progress of the litigation when considering whether to grant a motion to stay pending those proceedings.4 While it is unclear how Track B will ultimately affect a court's willingness to grant a stay in the EDTX (where stays for any reason are spare anyway), the accelerated schedule of Track B will likely be a factor further weighing against a stay. Thus, if a plaintiff thinks the defendant will seek to challenge the validity of the patent through a PTAB proceeding and move to stay the case, Track B could become more attractive for that plaintiff.
According to the early press reports, Track B allegedly has defendants in mind, offering defendants an option to dispose of baseless claims, perhaps particularly baseless claims by nonpracticing entities. When a plaintiff's case appears weak on its face, a defendant typically wants to know the exact infringement and damages theories as soon as possible, so the defendant can get a handle on the exposure to risk. By getting the plaintiff on record early in the case (on infringement, damages, and other critical issues), a defendant can potentially be in a position to put pressure on the plaintiff to terminate the case early, well in advance of incurring the significant expenses with full-blown discovery. But Track B puts a number of significant burdens on the defendant as well, so it must consider both the pros and cons before pursing Track B.
To start, a defendant might want to consider Track B in cases that have circumstances that are exactly opposite to those identified above where Track B would be beneficial to a plaintiff. For example, Track B may be especially attractive for a defendant that can clearly show noninfringement, especially if based on publicly available information. In such cases, a Track B schedule gets the plaintiff's inadequate infringement positions on record to set up an early summary judgment motion or favorable settlement.
Track B can also be attractive to a defendant when sales information is easy to collect and produce, especially when the potential damages are low. For example, a defendant may want to consider Track B when the accused product has low sales volume, the claims of the asserted patent could only read on a component or minor feature of the accused product, the asserted patent could only read on a component or feature that is not highly valued by consumers, or the time period for which the plaintiff can collect damages is low (e.g., accused product has not been on the market long and/or the patent has expired or soon will expire).
Another situation ripe for a defendant to pursue Track B is when there is reason to believe that the plaintiff has accepted low settlement amounts in previous litigations where it asserted the patent, or that the plaintiff has previously licensed the patent for a low amount. For example, when a plaintiff has employed a strategy where it has previously sued a large number of defendants, and those previous suits ended quickly either through settlement or voluntary dismissal, the defendant may assume that each of the settlements was small.
Since Track B requires a plaintiff to disclose prior settlements as part of the initial disclosures (only 14 days after the defendant files its answer), a defendant can get a realistic approximation of how much is at risk early in the case. Also, with this early knowledge in the case, a defendant may also use early disclosed settlement information to prevent a plaintiff from leveraging a threat of a much larger demand during settlement negotiations.
Yet, despite the advantages, the largest burden on a defendant under Track B is the rapid turnaround time for preparing invalidity contentions. Thus, a defendant may want to consider Track B only when invalidity contentions seem relatively easy to develop and prepare. For example, cases with patents of few claims, or few unique elements in the claims, could make excellent candidates for a defendant to pursue Track B. In addition, when a defendant discovers anticipatory prior art before answering the complaint, it may want to consider Track B, as preparing invalidity contentions for anticipatory references is less complicated than preparing contentions for combinations of references that render the claims of the asserted patent obvious.
Another consideration for a defendant considering Track B is the need for a special protective order, for example, to protect disclosure of source code or schematics. One wrinkle of Track B is that the court will enter its standard protective order for the Track B portion of the schedule (i.e., up to Markman). If the defendant thinks it may need a customized protective order early in the case, Track B may not be a good option, although this may be remedied by an early request for court assistance.
Regardless of whether Track B is the best strategic option for a party, parties litigating in the EDTX need to be prepared for it because the court can order a Track B schedule even if only one, or neither, party agrees. Thus, before filing a suit in the EDTX, a plaintiff should make every attempt to finalize infringement contentions and conduct a prior art search to anticipate potential invalidity arguments. A plaintiff should also gather any extrinsic evidence they may need for claim construction. Finally, a plaintiff should gather any evidence supporting potential damages theory before filing suit or at least very early in the case.
And preparation for Track B in the EDTX is also important for a defendant, as it will have to move quickly once it learns it is facing a patent infringement lawsuit in the EDTX. A defendant should conducting a prior art search as soon as possible and develop invalidity positions early and before filing an answer, if possible. A defendant should also prepare by collecting sales information before filing an answer, and develop non-infringement theories early (and secure the necessary technical documents).
While much of the early commentary focusing on Track B was that it would be bad for plaintiffs and good for defendants, our view is that Track B in the EDTX could be strategically employed by either plaintiffs or defendants. Accordingly, both sides of a patent dispute should consider the advantages and disadvantages of a Track B schedule when they are litigating a patent dispute in the EDTX. Through proper preparation, Track B can be a benefit for either party.
1 Innovation Act (H.R. 3309) (includes provisions that require plaintiffs to identify asserted claims in complaints and for limited discovery until claim construction); Patent Abuse Reduction Act or 2013 (S. 1013) (same); Patent Litigation and Innovation Act (H.R. 2639) (same): Transparency in Assertion of Patents Act (S. 2049) ("sets minimum requirements for a notice of patent infringement and authorizes the Federal Trade Commission to enforce those requirements").
2 Prochilo, Dan, "East Texas Launches Fast Track For Patent Cases" Law360, February 26, 2014.
3 Like most case management deadlines, Track B triggers the next deadline based on the service of the previous deadline. If one party serves early, it will move up the deadline shown in the table.
4 A factor courts in the Eastern District of Texas consider in deciding motions to stay pending PTAB proceedings is "whether discovery is complete and whether a trial date has been set." See Soverain Software LLC v. Amazon.Com, Inc., 356 F.Supp.2d 660, 662 (E.D. Tex. 2005). And, courts in the Eastern District of Texas are less likely to stay a case if the parties have engaged in substantial discovery and exchanged contentions. See, e.g., Unifi Scientific Batteries v. Sony Mobile Commc'ns, Case No. 6:12-cv-224, Dkt. No. 81 (Order Denying Motion to Stay), at *6-7 (E.D. Tex. Jan. 14, 2014).
Originally printed in Law360 (www.law360.com). Reprinted with permission. This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm's clients.
June 10-12, 2024
San Francisco
Lecture
Patent Protection for Software-Related Inventions in Europe and the USA Training Course
June 5, 2024
Hybrid
10th Annual Georgia Asian Pacific American Bar Association Gala
May 29, 2024
Atlanta
Due to international data regulations, we’ve updated our privacy policy. Click here to read our privacy policy in full.
We use cookies on this website to provide you with the best user experience. By accepting cookies, you agree to our use of cookies. Please note that if you opt not to accept or if you disable cookies, the “Your Finnegan” feature on this website will be disabled as well. For more information on how we use cookies, please see our Privacy Policy.
Finnegan is thrilled to announce the launch of our new blog, Ad Law Buzz, devoted solely to breaking news, developments, trends, and analysis in advertising law.