Military vet battles government over intellectual property –
Patent Monetization Inc. is often asked by our clients to advise them if the best strategy for monetization of their patent assets, where they believe that infringement is present, is through litigation or sale. The ultimate value of a patent is what another party is willing to pay to acquire the patent or the amount that the courts ultimately award as a result of patent litigation, and the amount that the patent owner ultimately collects, after all challenges and appeals have been exhausted by the infringing party. While it may seem obvious but the highest value of a patent comes from the successful conclusion of litigation but clearly this choice also presents the greatest risk to realizing that value.
PMI has written this article to help C level executives and boards of directors understand the risk/reward tradeoff between these two monetization choices and to help them set realistic expectations of the potential payoff of each. Patent owners with inventions in competitive markets that assume there will never be a validity issue, do not understand the exact wording of their claimed invention as it relates to infringers products and simply apply a back of the envelope % of a targeted infringers sales revenue often create an unrealistic expectation of the value of their patents in a potential sale transaction. Additionally if they are considering litigation as a monetization strategy they over-estimate the potential value of an early settlement to their litigation because they don’t realistically discount the value for a series of identifiable litigation risks. Further many patent owners do not see the need to invest the time and financial resources necessary to mitigate these risk factors which if invested will result in significantly enhancing the value of their patent assets and help them make an informed decision if monetization through litigation or sale is the best strategic monetization alternative.
Intellectual Asset Management (IAM) has recognized PMI principals as members of the IAM 300 World Leading IP Strategists. PMI principals have relevant litigation experience in successfully navigating each of these risk factors. PMI also understands how to develop a strategy to minimize these risks and maximize your return from your chosen patent monetization alternative.
The following is an outline of litigation risk factors that C Level executives and board of directors should consider when trying to put a value on their patent asset whether they are considering monetization through litigation or sale.
Risk of Contested Proceedings at the USPTO
The American Invents Act (AIA) provided new avenues for defendants in patent litigation, or for that matter anyone at any time, to contest the validity of patents. As of September 16, 2012 any party can file a petition for an Inter Parties Review (IPR) or a Covered Business Method (CMB) review by presenting evidence, usually in the form of prior art, and paying a fee to request that the PTO conduct a patent validity review before the newly formed Patent Trial and Appeal Board (PTAB). This new review process can be costly to the patent owner since it takes the form of a trial before an administrative judge from the PTAB and involves the participation of the requestor of the review. Patent owners will need to retain specialized litigation attorneys to be successful defending their patent rights when challenged in this manner. In the 1st year of these new procedures there were 1,100 petitions filed and the PTAB had issued Final Written Decision after the trail process in 19 proceedings. In all but three of these Decisions the PTAB cancelled all claims in the patents that were subject to the proceeding resulting in extinguished or reduced rights for the patent owner. While only a small sample size early in the history of these proceedings, it clearly outlines new risks to patent owners. These new Contested Proceedings also allow for an appeal before a panel of PTAB providing the requestor of the petition another “bite at the apple”. An additional risk as a result of these new proceedings is the high probability that the District Court will stay patent litigation during the pendency of an IPR or CBM petition adding time and cost to a patent litigation case with the potential for the case to become moot and dismissed pending the outcome of the petition.
Risk at Markman Ruling
The Markman or claims construction hearing is a key milestone in any patent litigation. This hearing is before a judge only and the intent is to define the meaning of usually no more than twenty key terms or phrases in the patent claims so that at trial the jury does not have to interpret them. The defendants usually propose a meaning that if adopted will suggest that the accused product(s) do not infringe the patent and the plaintiff will propose their interpretation which if adopted will indicate infringement. The judge then decides to either adopt the defendants meaning, the plaintiffs meaning or to create the courts own meaning when it publishes its Markman Ruling. If the judge sides more with the defendant on its interpretation of the claims then the chances of getting a non-infringement ruling at trail or on Summary Judgment are greatly enhanced. If the plaintiff is successful in all of its interpretations then a finding of infringement at trail is enhanced.
Risk at Summary Judgment Ruling
Another key milestone in patent litigation is the Summary Judgment that allows the court to adjudicate and dispose of those claims that do not present a genuine issue as to any material fact and for which a jury trial would be unnecessary. For example, the court could adjudicate a position of non-infringement based upon briefs submitted by the defendant and based upon the courts position as a result of the Markman Ruling.
Risk at Trial
A patent trial is inherently risky due to the fact that the decisions on the validity of your patent, the act of infringement by the defendants and the damages awarded are made by a jury of usually eight (8) people who will likely have no experience with patents nor any technical expertise related to your specific field of invention. Their role is to weigh the evidence as presented and to pass judgment. Jurors are picked from the same jury pool available to the court for its criminal docket and many intangible factors can influence the outcome such as the credibility of the inventor and the various expert witnesses, the performance of respective litigation counsel and the presentation of key documents or testimony obtained in discovery and depositions. Below is an analysis of each of these risks factors
Subject to certain limitations that may be imposed on the defendant if they chose to initiate an IPR at the USPTO, trial represents another opportunity to attack a patents validity. Many defendants, especially those with deep pockets will spend significant financial resources scouring the globe for patent and non-patent prior art that they can present to the jury and have their validity experts opine at trial that the prior art that they have found shows that each step outlined in the claim language of the patent had been disclosed to the public before your patent application was filed (in some instances you may have a 12 month grace period) or that a combination of two or more pieces of prior art would have made your invention obvious to someone skilled in the art of your invention at the time you filed your application. If the defendant’s presentation of this prior art resonates with the jury more so than the plaintiffs ability to demonstrate that it is not applicable and non-obvious and the jury believes that the defendant has met the clear and convincing evidence standard then the patent will be ruled not valid extinguishing or greatly reducing the value of the patent.
During trial the defendant will call on professional technical experts who will opine for the jury that the terms and key phrases in the claims of the patent as determined by the court in the Markman Ruling do not map to how the defendant’s product or services operate. The plaintiff’s technical experts will attempt to show how they indeed do map. The evidentiary standard for a finding of non-infringement is a perponderence of evidence. A finding of non-infringement by the jury will diminish the value of a patent.
Again at trial damages theories tend to become a battle of dueling expert witnesses where the defendants experts will opine that even if the patent is found to be valid and infringed that the damages related to the infringement are minimal where the plaintiffs expert witnesses will try to convince the jury that a significantly higher award is required. Provided that the jury finds the patent valid and infringed they will either pick the defendants damages amount, the plaintiffs damages amount or somewhere in between. Many recent precedential higher court decisions have had an impact on damages theories and how damages are currently calculated.
Risk at Final Judgment
After the jury verdict is entered, the judge will review post trial motions from both sides and will bring down the final judgment of the District Court. The judge has the ability to overrule the jury if he believes that they did not properly interpret his instructions or if he believes that the damages award was not based on reality. The judge can also enhance the damages based on willful infringement by the defendants, sanction either side for litigation abuse, award attorney’s fees to the defendant if they are successful in defeating the plaintiff and the case is deemed exceptional, increase the award for pre and post judgment interest, determine if a permanent injunction against the defendant is warranted and prescribe a go forward royalty rate should post judgment infringement still occur. Once Final Judgment is entered by the District Court either party has 30 days to appeal the decision to the Court of Appeals for the Federal Circuit (CAFC).
Risk of Appeal to the CAFC
Defendants if unsuccessful with jury trials often appeal District Court decisions to the CAFC which is a specialized patent court consisting of nine judges with deep patent expertise. The appeal process usually takes 12 to 18 months and is limited to a review of the trial proceedings and appeal briefs and culminates in a one-hour hearing in front of three CAFC judges. Usually within 30 to 90 days after the hearing an opinion is rendered by the CAFC that could affirm the District Court decision, reverse the District Court decision or return the decision to the District Court for retrial based upon the ruling of the CAFC. General statistics indicate that defendants who are unsuccessful at the District Court have a 50% chance of getting the District Court decision reversed or the case retried as a result of a positive CAFC ruling.
Risk of En Banc Review by CAFC
If a defendant does not agree with the decision rendered by the CAFC, they have the option of further appealing the decision to an En Banc hearing of all nine CAFC judges. Only a very small percentage of En Banc requests are granted, which in effect gives the defendant a second bite at the appeal apple.
Risk of a Petition for Writ of Certiorari
If a defendant remains unsuccessful with appeals to the CAFC and they can identify a question of patent law that their fact profile could challenge they can petition to the US Supreme Court for a Writ of Certiorari. Each year the Supreme Court is asked to review thousands of cases across all facets of law and usually accepts around 75. However in the past few years they have heard more and more patent cases. If the Supreme Court does not grant the Writ of Certiorari then the decision of the CAFC stands and the litigation is concluded.
Risk of Supreme Court Hearing
Should the Supreme Court decide to hear a patent case based upon a challenge to existing patent law then again it is a review of the record and briefs that culminates in a hour hearing before the nine Supreme Court judges. Usually within 30 to 90 days the Supremes provide their decision. If the Supreme Court rules in favour of the defendants patent law challenge then the case is either sent back to the CAFC or the District Court to be retried with consideration giving to the Supreme Courts ruling. Should the Supreme Court decide not to change the patent law based upon the defendants question then the case has no ability to be further appealed and the District Courts decision stands.
Ongoing Risks of Precedent Decisions by the CAFC and Supreme Court
Patent owners, particularly those in litigation proceedings should be cognizant of major precedential decisions handed down by the CAFC and the Supreme Court as they can impact the value of a particular patent or provide additional risk to the successful outcome of a patent litigation case. For example in the 1st six months of 2014 precedent decisions have:
- Provided for Attorney Fee Shifting adding an additional financial risk to plaintiffs (and defendants) in patent litigation. For any case that the District Court judge deems exceptional the Court has the ability to rule that the losing party pays the attorney fees of the successful party.
- Provided for “divided infringement” that a defendant cannot be held liable for inducing infringement of a patent method claim when no single entity has directly infringed the claim, even if all steps of the claim are performed by multiple entities.
The above are only a few examples of precedent decisions over the last few years that have added risk to patent litigation.
Litigation Risk Summary
C level executives and board of directors should appreciate that that to maximize the value of a patent asset through litigation that as the plaintiff you must defeat every challenge or potential risk outlined in this article. As a defendant in a patent litigation suit you only need to be successful in any one of these challenges to get a patent suit dismissed. The sale of a patent asset allows you as the patent owner to completely mitigate these litigation risk factors but it comes at a price as these risks are now transferred to the buyer and they will discount the value to compensate for the risk.
Minimizing Litigation Risk and Increasing Patent Value
Fortunately for patent owners there are a number of strategies that can be employed prior to embarking on a monetization strategy that while not eliminating the risks, can minimize or mitigate these risks and therefore maximize the value of your patent assets whether you choose to litigate or to enter into a sales transaction.
PMI is well qualified to help you minimize the risks and maximize the value of your patent assets. For more information contact:
As the litigation finance industry grows in prominence, funders and their investors are increasingly turning their attention to patents
– by Jack Ellis
In 2011, the US Supreme Court handed down its historic decision in Microsoft Corp v i4i Ltd. The justices ruled in favour of the Canadian software company and in so doing ended Microsoft’s hopes of lowering the standard needed to invalidate a US patent. David had defeated Goliath… [ read full article ]
Toronto, June 9, 2011 – In Washington DC today, the Supreme Court of the United States has ruled unanimously in favor of i4i in the long‐running i4i v Microsoft patent infringement lawsuit. The Supreme Court did not accept Microsoft’s request to lower the standard of proof, for challenges to the validity of a properly issued patent, from clear and convincing evidence to a preponderance of evidence. As a result of this decision, i4i has won its patent infringement case against Microsoft. At trial the jury ruled in favor of i4i and awarded $200 million in damages (now upwards of $300 million with enhancements and interest). The Honorable Judge Leonard Davis entered judgment on the verdict and issued a permanent injunction against Microsoft.
Loudon Owen, Chairman of i4i, says, “Microsoft tried to gut the value of patents by introducing a lower standard for invalidating patents. It is now 100% clear that you can only invalidate a patent based on “clear and convincing” evidence.” Owen adds, “This is one of the most significant business cases the Court has decided in decades. Affirmation of the Federal Circuit on a ruling in favor of patent holders is virtually unprecedented. While this ruling maintains the prevailing standard, the innovation community must be ever‐vigilant to defend its property rights.”
Michel Vulpe, founder of i4i and co‐inventor, says, “This has been a 16‐year journey with a clearly defined purpose – to build a world leader in managing data. It is an important stepping stone for i4i and we can now continue to build our company the way we intended.” Vulpe adds, “Our army was small but mighty and we are grateful to our team, partners, investors, legal counsel, those who filed amici briefs, and everyone supporting the rights of patent holders. Naturally, we are particularly appreciative of our shareholders who continue to support us.” i4i’s legal team includes WilmerHale, McKool Smith, Finnegan Henderson, and Sterne Kessler.
In March 2007, i4i sued Microsoft for willful infringement of its patent. On May 20, 2009, the jury found i4i’s patent to have been willfully infringed, and ordered Microsoft to pay damages to i4i. On August 11, 2009, the Honorable Judge Leonard Davis issued a final judgment against Microsoft that included (a) an award of damages in excess of $290 million USD to i4i (including enhanced damages, interest and post‐ verdict damages), and (b) a permanent injunction, which took effect on January 11, 2010. Microsoft unsuccessfully appealed to the Federal Circuit Court of Appeals in late 2009, and also unsuccessfully sought a rehearing in early 2010. This was the largest patent infringement judgment ever upheld by the Federal Circuit. The case was heard by the eight Associate Justices of the Supreme Court of the United States on April 18, 2011.
i4i is a global technology company headquartered in Toronto, Canada. For more information on i4i v. Microsoft, selected court documents can be found on www.i4iLP.com.
For further information, please contact:
Loudon Owen – email@example.com or 416‐307‐3271
Melony Jamieson – firstname.lastname@example.org or 416‐518‐6355
A real-life David and Goliath story played out in the U.S. Supreme Court Thursday when the high court upheld a previous ruling that tech heavyweight Microsoft pay $290 million to a Canadian software company for patent infringement… [ read full article ]