Is the U.S. Exporting NPE Patent Litigation?

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1 Is the U.S. Exporting NPE Patent Litigation? Chad Pannell, Kilpatrick Townsend & Stockton Presented to April 12, Kilpatrick Townsend

2 Roadmap NPE Litigation in the United States NPE Litigation in the Rest of the World Where is it going and what can be done? 2

3 The Short and Incomplete History of Non-Practicing Entities (a/k/a Patent Trolls ) 3

4 Who is a Non-Practicing Entity Corporations no longer in area The failed company exploiting its own patents The solo inventor Universities / Research Institutes Patent Assertion Entities 4

5 The Rise of Trolls 1980s strengthening U.S. Patent Law Uncertain Damages Injunctions Business Methods (State Street (1998)) Computer / Internet Revolution 5

6 The War on Trolls in the U.S. ebay v. Mercexchange end automatic injunctions. Bilski / Alice Strict 101 law. PTAB Review ( Patent Death Squads ) IPRs, CBM Petitions, etc. In re TS Tech, AIA, TC Heartland - Venue and case consolidation restrictions Highmark / Octane Fitness - Attorneys fees easier Proposed Legislation 6

7 Audience Question #1 In your experience or in your impression who is winning the war against Trolls? (A) Trolls (B) Accused Infringers (C) Outside Counsel (D) There are more Troll suits, but they are not as concerning to us as they were 10 years ago. 7

8 Who is winning the war? Accused Infringers Faster / Cheaper Resolutions PTAB 101 Motions to Dismiss Higher costs for NPEs Court Fees when cases no longer consolidated Possible Attorney Fees Better venues Although E.D. Tex. Still dominates. Smaller Settlements 8

9 Who is winning the war? NPEs SCOTUS not entirely anti-patent. i4i v. Microsoft Invalidity presumption Halo v. Pulse lower bar for willfulness NPEs filing shifting to proportionally smaller, less sophisticated entities that cannot afford the fight. 9

10 Who is winning the war? NPEs 40-60% of NPE cases still in E.D. Tex. PTAB trending away from Death Squad status 100% 90% 7% 13% 13% 25% 80% 70% 60% 14% 10% 24% 17% 18% 50% 40% 86% 73% 69% 63% 58% 58% 30% 20% Q3 '15 Q4 '15 Q1 '16 Q2 '16 Q3 '16 Q4 '16 All Claims Invalid Some Claims Invalid No Claims Invalid Source: Patent Litigation 2016: A Law360 Special Report, Law 360 (March 1, 2017) 10

11 Who is winning the war? NPE Litigation is still high Defendants Added to Patent Campaigns NPE Filings Operating Co. Filings Source: RPX Data Update: Patent Litigation Volatility Persists As Strategies Shift, RPX (Jan. 3, 2017) 11

12 Are NPEs moving Overseas? 12

13 Audience Question #2 Approximately what percentage of NPE Litigation is still in the U.S.? (A) 40% or Less (B) 50% (C) 75% (D) More than 90% 13

14 What Percentage of NPE Litigation Still in U.S.? NPE Suits ( ) United States * Most ROW cases filed in Past 2 years Rest of World 98% 2% NPE Cases outside US in past 5 years. BUT ¾ of those cases within last 2 years. Source: The Rise of Non-Practicing Entity (NPE) Cases Outside the United States, Darts-IP (March 2017) * Data from litigatiton in other countries can be limited, incomplete, and difficult to compare to data from U.S. Courts. NPE Litigation is likely somewhat higher. 14

15 International NPE Cases Accelerating Compared to U.S., NPE case activity is accelerating in the rest of the world year over year. 200% Year over Year Growth of NPE Cases 170% 150% 100% 50% 38% 21% 64% 53% 37% 87% 0% % -28% -50% ROW US Source: The Rise of Non-Practicing Entity (NPE) Cases Outside the United States, Darts-IP (March 2017) -38% 15

16 Most Popular Countries Over the past 5 years, Germany is by far the most popular for NPEs outside the U.S. NPE Cases Filed ( ) Germany France Japan Other UK EPO China Australia India Source: The Rise of Non-Practicing Entity (NPE) Cases Outside the United States, Darts-IP (March 2017) 16

17 Why is Germany so Attractive? Injunctions Unlike U.S., no special treatment if NPE v. PE Injunction fairly standard if infringement found. Bifurcation Infringement decisions takes 8-15 months Invalidity takes 25 months. Infringement court can enter injunction before Invalidity court finished. High Win Rate for Patentees 52% Low costs compared to US & UK Minimal discovery Bench trials take hours rather than days. 17

18 Why is Germany so Attractive? Large Economy Venue Shopping Available Courts have established experience with patent cases Can adapt patent claims during suit. It s not all good for NPEs though: Cases may require security 18

19 China Large Economy Bifurcated Court System Late 2014 began opening IP Courts Invalidity cases not as high High win rate 58% Some jurisdictions in 70% and 80% range. Injunctions granted 90 to 100% of time China is fast Reported average 125 days from filing to verdict in IP Courts. Compare 18 month avg. of European Suits, and 2.4 years in U.S. In 2015, China passed U.S. in # patents granted. 19

20 Where are we going from here? 20

21 Unified Patent Court Europe currently moving toward one unified court system. 25 countries would handle patent cases in one system. Economic size comparable to the United States. Injunctions Court has the power to grant injunctions Decision with months. BUT, Bifurcation may be limited. In a letter to be sent to European officials on Thursday, 14 companies outline their concerns about a coming change that will give most of Europe a unified patent court system for the first time. [T]he companies now fear that the new system could be vulnerable to what they call patent assertion entities, less politely known as patent trolls, which make a business of filing patent-infringement suits. In interviews, executives of some of the companies that sent the letter said one of their concerns was that court-shopping by patent trolls in some smaller European countries could turn parts of the Continent into the equivalent of the Eastern District of Texas. -Tech Giants Fear Spread of Patent Wars to Europe, New York Times (Sept. 25, 2013) 21

22 Standard Essential Patent (SEP) Possible tool against injunctions. About 50% of NPE suits outside of U.S. appear to rely on SEPs. Patent owner declared the patent essential to a technology standard. SEPs require owner to offer a fair, reasonable and nondiscriminatory (FRAND) royalty. European Courts Allow patent owners to seek injunction even on SEPs. U.S. Courts Largely deny any injunctions for SEPs Microsoft v. Motorola (9 th Cir.) affirms DCt. antisuit injunction that prevents Motorola from enforcing German injunction order on a SEP. 22

23 Other Thoughts Foreign Jurisdictions often have a loser pays system. Not quite the same as U.S. in amount to collect. Sometimes it backfires. Multi-track Enforcement Rest of World has faster decisions but limited discovery. U.S. has slower decisions but larger discovery scope. Starting to see cases where ROW enforcement and U.S. Discovery places huge burdens on accused infringers. Patent Portfolios may be more limited in ROW for now. 23

24 Conclusion United States 1980s U.S. Focuses on innovation and strengthening patent system. 2000s Rise of the NPE and Troll Europe & Asia 2000s Many European & Asian Countries Credit strengthening of U.S. patent system as key to innovation economy & growth in 1990s. Begin to follow model & strengthen their own patent system. 2010s and 20s This may be just the beginning. 24

25 Questions & Comments ATLANTA AUGUSTA CHARLOTTE DALLAS DENVER LOS ANGELES NEW YORK RALEIGH SAN DIEGO SAN FRANCISCO SEATTLE SHANGHAI SILICON VALLEY STOCKHOLM TOKYO WALNUT CREEK WASHINGTON D.C. WINSTON-SALEM