June 11, 2014
Law360
Authored by R. Benjamin Cassady and P. Andrew Riley
No longer simply a machine to transport people from point A to point B, today's automobiles include modern electronics that can automatically plan a driver's route, make dinner reservations, parallel park, read road signs and perform a variety of other tasks. And while increased functionality sparks consumer demand, each amazing feature of the newest vehicles also catches the eye of patent-assertion entities ("PAEs" or, disparagingly, "patent trolls") looking to enforce their patent rights, usually by requesting a sizeable settlement demand.
Indeed, the consumer-electronic features now readily available in automobiles, such as voice command, touch-screen interfaces and GPS technology, have been the target of PAE litigation for more than a decade. And these cases have risen sharply over the last few years. According to a study by the White House, cases filed by PAEs increased from 29 percent of all cases in 2010 to an astounding 62 percent in 2012.1 Thus, for automobile manufactures, it is not a matter of "if" a PAE will attempt to collect its toll; it's a matter of "when." Fortunately, however, car companies and suppliers can use a number of strategies to combat PAE litigation and avoid unnecessary tolls.
Today's automobiles—incredibly complicated machines—use components and, often, entire systems from several different suppliers or original-equipment manufacturers ("OEMs"). Therefore, identifying the vehicle system implicated by the asserted patents and the OEM(s) that supply the system is one critical step after a PAE files a complaint. Understanding your supply chain is crucial for a number of reasons.
First and foremost, the OEM(s) will likely know the most about the implicated vehicle system and will have technical information you may need to prove your noninfringement positions. Moreover, as the OEMs often play a significant role in developing the technical system they supply, they often know of excellent sources for invalidating prior art. The earlier in the case you can identify and begin gathering their valuable noninfringement and invalidity information, the stronger a defense you can mount against a PAE.
Second, and nearly as important, your company may have an agreement with your OEMs indemnifying you against any allegations of patent infringement. Immediately after a PAE files a complaint, you should locate agreements with the suppliers of the accused systems and determine if they contain indemnity clauses. And, as soon as possible, you should inform your OEMs about both the litigation and any indemnity agreements. In those discussions, however, avoid contentiousness with your OEMs as their cooperation will help you best defend your company.
PAEs love to grab for low-hanging fruit, preferring to file lawsuits targeting systems or components they can easily investigate and accuse without significant technical analysis or expert involvement. As a result, in the context of automobiles, PAEs most often accuse vehicle systems that they can observe during a test drive or that are publicly described by owner's manuals or manufacturers' websites. Thus, PAEs frequently target the user-interface, lighting, acoustics, navigation and vehicle-monitoring systems.
Fortunately, this favored PAE strategy—accusing vehicle systems of infringement based on a superficial resemblance to the patent claims—often leaves a PAE's allegations vulnerable to strong noninfringement positions. For example, a fundamental principle of patent law requires that the accused product include every element of the claimed invention in order to infringe. Indeed, under the Federal Rules, a plaintiff should not even accuse a vehicle of infringing unless it has a good-faith belief that the vehicle infringes all elements of the claimed invention. Accordingly, even if a vehicle system becomes the target of a lawsuit because it includes some observable feature or functionality arguably similar to the asserted patent, the accused system may lack other required elements of the asserted claims, precluding the system from infringing. Moreover, because these cases deal with superficial, observable features, more often than not demonstrating their absence may be relatively straightforward.
Thus, after receiving a complaint, identifying the implicated vehicle systems, and collecting relevant technical information, you should closely compare the elements of the asserted claims to the accused automobiles or systems, starting with the broadest independent claims. Once you have compared your products to the asserted patents and, hopefully, have identified weaknesses in the PAE's claims, you can put pressure on the PAE to justify its infringement allegations.
More often than not, PAEs want to extract a quick, easy settlement from automobile manufacturers without investing much effort into the litigation. By taking the offensive at an early stage in the case, you can turn this strategy on its head, shifting the focus of the case from your supposedly infringing products to the PAE's flawed allegations. Additionally, by forcing the PAE to address substantive issues early on, you may effectively narrow the scope of the case, undermining the threats of lengthy litigation and costly discovery that PAEs often use to ratchet up their settlement demands. You can also put additional pressure on the PAE by challenging the validity of the asserted patent before the U.S. Patent and Trademark Office.
You can take the first step in shifting the pressure to the PAE by sending a letter as soon as possible, perhaps before you have filed your answer, explaining why your vehicles cannot infringe the asserted claims, and requesting that the PAE provide the basis for its allegations. Though the PAE will most likely skirt your request, refusing to substantively respond, if it responds at all, establishing your noninfringement positions early may help convince the court later that the PAE's claims lack merit and should pay for your company's expenses. This will be especially helpful if, as discussed above, you can easily demonstrate to the court why your autos do not infringe.
If the PAE fails to explain its infringement allegations and cannot rebut the noninfringement positions explained in your letter, you could turn up the pressure further by filing a motion to dismiss the complaint and/or a motion for Rule 11 sanctions.2 Both types of motions are appropriate if you believe the PAE has no reasonable basis for its claims. Generally, to succeed on a motion to dismiss, you need to show that no facts exist under which your vehicles can infringe. In other words, you will need to prove that your vehicles unquestionably lack limitations required by the asserted claims.
To succeed on a Rule 11 motion, you will need to show, not only that your vehicles lack these limitations, but also that the PAE's infringement arguments are objectively baseless. Notably, the burden of proof for both motions weighs against the defendant and favors the PAE. Nevertheless, you might succeed despite these difficult burdens if you can easily show that your vehicles differ significantly from the asserted claims.
Further, pressing the plaintiff to narrow and focus its infringement positions early in a case can also balance the cost burden. PAEs spend little to prepare and file a complaint and have little discovery to collect and produce. In contrast, defendants typically need to spend time, effort and money to understand the risks the suit presents; to prepare and develop noninfringement and invalidity positions; and to prepare, collect and produce discoverable information. To significantly reduce this imbalance, repeatedly press the plaintiff early to narrow the case by focusing on one or two claims from only one or two patents.
Indeed, the two most popular patent-litigation venues, the Eastern District of Texas and the District of Delaware,3 have recognized the advantages of forcing parties to immediately focus on the substance of the case, and have implemented methods to do so without requiring defendants to file early motions to dismiss or Rule 11 motions. These methods reduce the costs of patent litigation and thus undermine the main factor in a PAE's settlement demands.
For example, the District Court for the Eastern District of Texas implemented a "Track B" schedule in February 2014 for some patent litigations. That schedule contemplates limited, focused discovery on the substantive issues of damages, infringement and invalidity. For an automobile manufacturer defending a case against a PAE, Track B, like an early motion to dismiss or Rule 11 motion, could provide a number of advantages including reducing litigation costs, forcing the PAE to provide transparent infringement allegations, and, potentially, resolving the case early.4
Likewise, Judge Sue Robinson of the District Court for the District of Delaware recently announced a new scheduling order for patent cases, as well as new instructions for patent-scheduling conferences, citing the fact that "the very nature of patent law has changed" as the impetus.5 Like Track B, Judge Robinson's schedule should also increase efficiency by encouraging parties to focus on substantive aspects of the case early on.
For example, Judge Robinson now requires the parties to exchange substantive information about their claims before the Rule 26(f) scheduling conference, which occurs at the beginning of every case. Specifically, the parties must discuss the scope of discovery in terms of the "information plaintiff needs in order to identify accused products and prioritize the asserted patents, claims, and limitations" and the "information defendant needs in order to identify potential defenses and prioritize the prior art references and claim limitations." Judge Robinson also made significant changes to the structure of her cases, such as separating Markman and summary-judgment hearings and prohibiting any depositions (other than those noticed under Fed. R. Civ. P. 30(b)(6)) before the completion of document production.6 This new schedule—which forces PAEs to reveal their allegations early in the case—will help curb their favored strategy of obfuscating their claims and prolonging litigation as long as possible.
Further highlighting Judge Robinson's focus on efficiency, she announced in a recent decision that the District of Delaware "now allows no more than two patents to be presented to any one jury at trial." See Versata Software Inc. v. Callidus Software Inc., C.A. No. 12-931-SLR, D.I. 89, Memorandum (D. Del. May 8, 2014). This new policy also benefits automobile manufacturers targeted by PAEs because it will dissuade them from asserting an array of patents in a single case and using the volume of asserted patents to drive up settlement demands.
At this stage, and especially if you have been able to successfully encourage the PAE to provide some detail about the scope of its allegations, you should also consider whether to file a post-issuance challenge to the asserted patent(s) at the PTO. A post-issuance challenge will put additional pressure on the PAE, potentially forcing them to defend their patent(s) on two fronts. As another option, once you have challenged a patent at the PTO, you can request a stay of the district-court case pending the PTO's decision. Four main avenues for challenging a patent at the PTO exists: (1) ex parte re-examination, (2) inter partes review ("IPR"), (3) postgrant review ("PGR"); and covered-business-method-patent review ("CBM"). Each has advantages and disadvantages.
Ex parte re-examination offers the least expensive way to challenge a patent at the PTO. A petition for ex parte re-examination can assert patent invalidity as anticipated under 35 U.S.C. § 102 or obvious under 35 U.S.C. § 103. The PTO will initiate the re-examination if the petition raises a "substantial new question of patentability" about any one of the challenged claims.
Ex parte re-examination presents a number of advantages. First, the filing fees are less expensive than other post grant challenges ($12,000 v. $23,000+ for other options). Second, no estoppel provisions apply. In other words, no law prevents you from making the same invalidity arguments to the district court that you made in your ex parte re-examination petition. Third, no page limit restricts the size of the ex parte petition you submit. Fourth, any party at any time after the patent issues can file an ex parte petition. Ex parte re-examination carries some disadvantages, including that the process can take several years to resolve, and courts are less likely to stay copending litigation than if you challenge the patent at the PTO using another post grant review option (IPR, PGR or CBM).
Once you file an ex parte re-examination petition, however, you have no further involvement in the proceeding—only the PTO and the patent owner continue to negotiate the validity of the patent. This has the obvious advantage of limiting costs to those required to prepare and file the petition, but the disadvantage that you cannot respond to any of the patent owner's arguments.
The 2012 American Invents Act (the "AIA"), created IPR, PGR, and CBM proceedings—proceedings more involved than ex parte re-examination. Indeed, these AIA proceedings all involve a litigation-like proceeding between the petitioner and the patent holder, which the Patent Trial and Appeal Board oversees. Like litigation, they include limited discovery, depositions and hearings. The requirements for filing an IPR, PGR or CBM petition differ, as do the standards the petitions must meet in order for the PTAB to institute the proceedings.
For example, in an IPR, like an ex parte re-examinations, a petitioner can assert that a patent is invalid as anticipated or obvious. But unlike ex parte re-examinations, if the patent has been asserted against you, you must file a petition for IPR within one year of receiving the complaint. See 35 U.S.C. § 315(b).7 The PTO will grant an IPR petition, however, only if the PTAB finds that "there is a reasonable likelihood that the petitioner would prevail with respect to at least one of the claims challenged in the petition," a higher standard than that for granting a petition for ex parte re-examination.
IPRs have many advantages, including that the adversarial setting allows you an opportunity to respond to the patent owner's arguments and that the statute requires the PTAB to resolve the proceedings quickly, usually within 1.5 years of filing the petition. IPRs come with a number of disadvantages, which include a relatively expensive filing fee ($23,000+, depending on the number of challenged claims), costs to "litigate" the IPR, a PTAB-imposed limit of 60 pages for the petition, and, once the PTAB issues a final written decision in the IPR, estoppel provisions baring the petitioner and all other "real parties in interest"8 from making any arguments in district court that they raised or reasonably could have raised in the IPR.
A PGR allows a petitioner to challenge the validity of the patent on any ground under 35 U.S.C. §§ 282(b)(2) or (3), 101, or 112, except for failure to disclose the best mode—a stark contrast with an IPR, which allows only anticipation and obviousness challenges. A petition for PGR must be filed within nine months of the date the patent issued. The PTAB requires a minimum filing fee of $35,000 and limits the petition to 80 pages. Once instituted, a PGR proceeding has the same advantages and disadvantages as the IPR.9
Finally, if the asserted patent in a litigation involves a "covered business method,"—a patent related to "a financial service or product" (a definition the PTAB has interpreted broadly)—you have the additional option of filing a CBM petition. A CBM petition can raise the same invalidity grounds available in a PGR, but the PTAB will not accept a CMB when a PGR petition is still available. In other words, you can file a CBM petition more than nine months after the patent issued only if the patent owner asserts the patent against you in a litigation. The advantages and disadvantages of a CBM mirror those for filing a PGR, including the page limits and possible invalidity grounds available.10
Some automobile manufacturers have already used post issuance proceedings as a successful strategy against NPEs. For example, when NPE American Vehicular Sciences LLC filed a series of seven cases against Toyota in the Eastern District of Texas asserting a total of 24 patents, Toyota filed IPR petitions for 11 patents and moved to stay the cases involving those patents. After the PTAB granted Toyota's petitions for 103 of the 107 challenged claims, the court granted Toyota's motion to stay. Notably, the court did not stay the cases as to the other defendants who did not file for IPR.11
Those in the automobile industry who find themselves the target of a PAE should consider a four-part initial defensive strategy:
This strategy undermines the typical PAE goal of extracting a settlement as quickly as possible through the threat of protracted litigation without actually getting involved in the substantive issues of the case. Employing this type of strategy will help automobile manufacturers and suppliers avoid paying unnecessary tolls to PAEs.
Endnotes
1 "Taking on Patent Trolls to Protect American Innovation," http://www.whitehouse.gov/blog/2013/06/04/taking-patent-trolls-protect-american-innovation.
2 Before filing a Rule 11 motion, you should also research how the venue and the judge have received such motions in prior cases, as some jurisdictions and judges do not view them favorably.
3 See http://www.dlapiper.com/en/us/insights/publications/2013/12/is-delaware-the-newtexas-a-neckandneck-race-to-__/.
4 Generals discussion and strategies for using "Track B" can be found here: http://www.law360.com/articles/526357/a-quick-guide-to-east-texas-fast-track-forpatent-cases and here: http://www.finnegan.com/podcasts/PodcastDetail.aspx?pub=0573ac20-5a22-4dfd-ac19-0c1153183396.
5 See http://www.delawareiplaw.com/2014/03/judge_robinson_issues_new_pate.html.
6Id.
7 If the patent has not been asserted against you, you can file a petition for IPR any time after nine months from when the patent was granted, so long as you have not filed for a declaratory judgment of invalidity against the patent in a district court. See 315 U.S.C. § 315(a)(1).
8 A discussion of the definition of "real party in interest" under the AIA can be found here: http://www.finnegan.com/resources/articles/articlesdetail.aspx?news=cd1ffd8f-8311-41dca517-2ca3cf7e1a9f.
9 A complete discussion of the strategies for ex parte reexamination, IPR, and PGR can be found here: http://www.finnegan.com/resources/articles/articlesdetail.aspx?news=598696f7-7eba-4fcb-83b8-2369caa91dd3.
10 A complete discussion of the strategies for CBM can be found here: http://www.finnegan.com/resources/articles/articlesdetail.aspx?news=64c9f230-94ab-4d99-b256-9bff462cb8e8.
11 See American Vehicular Sciences, LLC v. Toyota Motor Corp. et. al., C.A. No. 6:12-cv-00404-MHS-JDL, D.I. 221, Order (E.D. Tex. Feb. 19, 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.
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