© Sheppard Mullin Richter & Hampton LLP 2016

Get the patent protection VCs crave, while cutting your patent-related expenses by 90%

Presenter:

William Ahmann, Partner

Sheppard Mullin Richter & Hampton LLP

Special Guest:

Matthew Gast, Director of Product Management

Mojio, Inc.

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Topics for Today

Protecting IP before you have an IP budget

Getting the most from your IP budget

Using patents

Patent infringement lawsuit defense

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Trade Secrets are your Friend

Everything goes in a “secret box”- Everything? Ask Mr. Ping

- Trade secret rights do not expire, but reasonable diligence is required• Follow implemented procedures

• Need-to-know

• Mark confidential

- Patent disclosure forms• When do we ask what is patentable?

Technology Audit of contents of secret box- List valuable ideas

- Prioritize list by “bar date”

- Sort into buckets• Number of “buckets” depends upon budget

• One might be a “put off until later” bucket

Technology Audit Results- Keep as Trade Secret

- Publish defensively

- Patent

What factors to consider when doing technology audit?

Mr. Ping(with a bowl of Secret Ingredient Soup)

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The Best Patent Prosecution

Traditional model: file on all inventions- Parallel filings

- Encourages haphazard portfolio building, low quality

- Foreign filings tend to be suboptimal• 80% go abandoned primarily for budgetary reasons

Better model is responsive to budget- Serial filings

- Budget-driven Alternative Fee Structure (AFS)

- Patents are business assets (ROI)• Portfolios should be aligned with business goals

Understand your market- Every market has an ideal associated budget for IP

- Some markets have more granular technologies

- Some markets are more litigious than others

- Standards impact IP strategy• Standards Essential Patents (SEP) are not a panacea

How do you get the most out of your budget?

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Uses of Patent

Valuation (patents often most valuable asset)- Encourage investment in your company

Inhibiting competitors- Discourage competitor lawsuits or investment

Leverage- Augment tech licenses (even without patent licensing)

- Licensing programs and cross-licensing

Design freedom / new market channels

Patent marking / advertisement

Create business relationships

How do you use your patents?

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Patent Litigation Defense

Lawsuit win rates include IPR and EPR- Win rate drops to 33% if the case makes it to trial

There is a reason law firms prefer litigation and IPR over EPR

Strategy Cost Kill Win Past Damages Win

3 Ex Parte Reexams $130,000 44% >67% 90%

Inter Partes Review $300,000 18% 40% 51%

Lawsuit $3,000,000 <44% 67% <90%

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11% invalidated; 65% amended; 24% unscathed(pretty consistent from 1981 to date)

50% stay (increased to 70% as 2012 approached)$40k (in today s $, pretty consistent to date)

45% invalidated; 43% amended; 12% unscathed (fluctuated a lot depending upon the year)

50% stay (increased to 70% as 2012 approached)$80k (in today s $)

40% win rate(down since 2012)

70% stay$300k

July 1981Ex Parte Reexam

November 1999Inter Partes Reexam

September 2012Inter Partes Review

Using Examples to Showcase EPR

EPRs can defer litigation risk until case is ready to settle- Airtight v. Aerohive

EPRs can narrow case & lower settlement value, while avoiding significant litigation expense

- Linex v. Aerohive

EPRs can be a second line of defense to litigation- Chrimar v. Aerohive

Sometimes all of the advantages are critical- Hon Hai (aka Foxconn) v. Lotes

What is your experience with litigation?

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EPR is the Best Way to Get a Stay

A stay can at least defer litigation risk

Faster to Institute EPR (2 months) than IPR (6 months)- 3 months minimum for EPR, but in my experience, it is more like 2

- If there is a defect, difference is even greater

Easier to Institute EPR (94%) than IPR (66%)- Petition to institute after refusal is possible for EPR

Decision to Stay Involves 3 Primary Factors1) Grant/Institution

• 57% if filed; 70% if granted/instituted

2) Institution of all claims• If EPR granted, all claims are reexamined

- 100% of claims (challenged or not) are instituted in EPR

• If IPR instituted, subset of challenged claims reviewed

- 56% of challenged claims are instituted in IPR

3) Patent owner is not a competitor

Importance of a stay when part of a campaign?

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Airtight v. Aerohive

EPRs were central to litigation & settlement strategy- Litigation stay deferred risk of adverse judgment / interim rulings

• PR & competitor FUD

- EPR process reduced settlement expectations to achievable level

• Original settlement demand high

- “Kicked the can down the road” – IPO• The key was to defer litigation risks

Work-around avoided future damages & injunction risk- No longer a competitive issue – “just about money”

- Claims amendment would eliminate past damages & value of case

Strategy was successful despite EPR failure- One examiner “got it,” but the PTAB didn’t

- We invalidated other claims in the portfolio

• File history estoppel would have been helpful at trial

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EPR Eliminates Past Damages

Amendments to claims narrow the case and lower settlement value, while avoiding significant litigation expense

You can usually show SNQ (94%)

You can usually change the claims (78%) - 13% kill + 65% amend = 78% at least partial win

- Killing all claims eliminates all damages

- Amending all claims eliminates past damages

- Amending some claims at least narrows the case (and may lower settlement value)

Why settle for eliminating past damages?- Maintain stay for 2nd EPR if 1st forced amendments

- Explain to judge amended claims have not been reexamined

- My odds on 2nd EPR request are as good as 1st

• Suggests higher win rate for two EPRs than for one IPR

Importance of eliminating past damages?

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Linex v. Aerohive

1st EPR was the basis for a stay of litigation- Judge was not statistically predisposed to granting a stay

- All claims of the two patents in suit were amended• The key was to narrow the case and lower economic value, while avoiding

significant litigation expense

2nd EPR was the basis for a continued stay- Argument: “Reexamination incomplete because claims amended”

- First of two patents has been invalidated in EPR

- Second of two patents has all claims amended and rejected

“We stopped spending money 18 months ago”—GC of Aerohive (several months ago)

Other defendants filed IPRs, which failed

Aerohive as part of a larger NPE campaign & affect on settlement

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Chrimar v. Aerohive

EPR as second line of defense to litigation- E.D. Texas: Request for transfer / stay denied

- Settlement unlikely

• Aerohive again part of a larger NPE campaign

• Plaintiff’s settlement demands not tied to Aerohive’s exposure

- Rocket Docket: This case was going to trial

We filed two EPRs (of four patents in suit)- Targeted sources of highest damage exposure

EPRs gave us a “second bite”- Possibility of adverse result at trial

- Favorable EPR ruling expected during pendency of post-trial appeals for first patent

- Second patent claims confirmed

Jury found for us (no infringement)- Odds of winning appeal statistically about 60%

- Previously filed EPRs likely to have beaten remand

• Odds of winning EPR appeal about 90%

- Chrimar did not pursue appeal

IPRs, filed by other defendants, are pending- If successful, we get the benefit of them, but without estoppel

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EPR is Safer than IPR

EPR results in no estoppel for requester

IPR limits options in litigation- “Could reasonably have been raised” in IPR

315(e)(1) Estoppel may prohibit EPR after IPR- If EPR already granted, 315(e)(1) is inapplicable

- IPR may stay EPR, but stay is lifted after IPR ends

- Estoppel harm ameliorated with amendments, so consider filing EPR request before filing IPR petition

CAFC upholds EPR decisions 90% of the time- Compare to trial court decisions (60%)

- IPR is largely untested, but probably >60% and <90%

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Hon Hai v. Lotes

There were 3 ways to win

1) Eliminating issues of licensing dispute (100%)

2) Eliminating past damages for old products (90%)

3) Eliminating potentially infringed claims (80%)

• One pending EPR of patent with no original claims

– Judge will postpone the trial pending resolution

– All claims rejected and on appeal

• Two patents are clearly not infringed

– A dependent claim survived in the first patent (dropped by π)

– All claims amended in the second patent (not dropped by π)

• One patent makes no sense

– A weakness of EPR is you can only invalidate with prior art; if a patent violates the laws of physics, there is usually no prior art

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Hon Hai v. Lotes (continued)

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10 patents reexamined- 4 of 10 patents invalidated

- 4 of 10 patents have all claims amended• No infringement of any of the claims at this point

- First and second patents are no longer relevant at this point

- Third patent is on appeal and will most likely be invalidated

- Fourth patent is still being asserted

• What were potential damages are now past damages

- Old product

- Work-arounds

- 2 of 10 patents have at least one surviving original claim• First patent has one surviving (originally) dependent claim

- Hon Hai has withdrawn its infringement contention

• Second patent makes no sense

Case has gone from $M’s to $K’s

General Observations

It is pretty easy to force claim amendments in EPR- Unless patent owner fights, this often takes about a year

- The tendency of easy examiners to allow amended claims can be frustrating, so ameliorate the impact with EPRs of patents in the patent family

Judges are now happy to stay litigation in favor of post-grant- The prevalence of IPRs has exposed judges to more post-grant proceedings

- One-and-done judges can be persuaded to maintain a stay after claim amendments if the rationale is properly presented

Don’t file an IPR unless you have to (rocket docket)- Let the big boys file their IPRs

If you might file an IPR, you should lead and follow with an EPR- File a first EPR immediately

• EPRs can quickly force file history estoppel from patent owners

• If it takes over a year, patent owner is likely facing all claims rejected (let it ride)

- IPRs that follow EPRs can address amended claims• IPR must be filed within a year, so your EPR needs to be filed ASAP

- File a second EPR right before IPR decision• IPRs frequently do not result in claim amendments, so file an EPR as insurance

• EPRs that precede judgment in IPR have no estoppel

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Questions?

William Ahmann

wahmann@sheppardmullin.com

Partner

Sheppard Mullin Richter & Hampton, LLP

379 Lytton Avenue

Palo Alto, CA 94301

www.sheppardmullin.com

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