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Responding to Patent Demand Letters:
Leveraging State Laws on Bad Faith
Assertion of Patents Determining What to Include or Exclude in Response, Minimizing Risk of Litigation
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THURSDAY, MARCH 2, 2017
Presenting a live 90-minute webinar with interactive Q&A
Sharon A. Israel, Partner, Mayer Brown, Houston
Brian R. Iverson, Member, Bass Berry & Sims, Washington, D.C.
Baldassare Vinti, Partner, Proskauer Rose, New York
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Responding to Patent Demand Letters
Baldassare (Baldo) Vinti, Esq. Partner
PROSKAUER ROSE LLP
11 Times Square
NY, NY 10036
212.969.3249
March 2, 2017
March 2, 2017 Responding to Patent Demand Letters 5
Overview
• Legal considerations
• Strategic considerations
• Recent trends affecting strategy
• Void left by Congress and what’s next
March 2, 2017 Responding to Patent Demand Letters 6
Legal Considerations
in Determining Whether to
Respond to a Demand Letter
March 2, 2017 Responding to Patent Demand Letters 7
Contents of Demand Letter
• Identity of real party in interest
• Identification of patent and accused products
claim charts
draft complaint
• Allegation of infringement
• Offer to license
• Financial terms
March 2, 2017 Responding to Patent Demand Letters 8
Options
Option Pros Cons
Request More Info More time to gather info and
assess potential exposure
Denial of infringement may be preferable where
recipient has good faith basis to do so
Patentee need not respond to request for more
info
Do Nothing May be appropriate if patentee
sent a lot of letters with no
intent on filing a complaint
If patentee was not merely casting a wide net,
patentee might file a complaint, in which case
recipient was put on notice and has no response
on record
File for Declaratory Judgment Aggressive Cost
Seek to Invalidate the Patent Before the
USPTO (petition for IPR, Covered
Business Method, or Post Grant Review)
Aggressive Cost
Some petition procedures may be unavailable
License Possible cost-effective
resolution
Costs of license may outweigh costs of litigation,
especially if claims can be dismissed early
Threaten Fees for Bad Faith Assertion,
Violation of State Laws, Etc.
May lead to faster, less
expensive resolution
Shifting legal landscape; not always appropriate
March 2, 2017 Responding to Patent Demand Letters 9
Due Diligence
• Background research on assertion entity and affiliates
• Public filings
District courts
Federal Trade Commission
USPTO
• Talk with current/prior litigants
March 2, 2017 Responding to Patent Demand Letters 10
Assessment of Merits
• File wrapper and related patents
• Prior art search
• Opinion of counsel
March 2, 2017 Responding to Patent Demand Letters 11
Strategic Considerations
in Determining Whether to
Respond to a Demand Letter
March 2, 2017 Responding to Patent Demand Letters 12
1. Fee Shifting
35 USC § 285
• “The court in exceptional cases may award reasonable
attorney fees to the prevailing party.”
Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. Ct.
1749 (2014)
• District courts may determine whether a case is “exceptional”
in the case-by-case exercise of their discretion, considering
the totality of the circumstances.
March 2, 2017 Responding to Patent Demand Letters 13
Recent Fee Shifting Case Law re: Demand
Letters
Lumen View Tech., LLC v. Findthebest.com, Inc., 24 F. Supp.
3d 329 (S.D.N.Y. 2014), aff’d in part, 811 F.3d 479 (Fed. Cir.
2016)
• “prototypical exceptional case” in part because of Lumen’s
demand letter practices
Threatened expensive litigation w/ “protracted discovery”
Demanded immediate preservation of inaccessible ESI
Enclosed a complaint with merely conclusory allegations
Sent many letters in a short time-frame, which the court said
was a “predatory strategy” that should be deterred
March 2, 2017 Responding to Patent Demand Letters 14
Fee Shifting Considerations
• No categorical rule
• Litigiousness alone not always sufficient
Rates Tech. Inc. v. Broadvox Holding Co., LLC, 56 F. Supp. 3d
515, 533 (S.D.N.Y. 2014) (“If RTFs claims had merit, its status
as a hyper-litigious non-practicing entity should not prevent it
from bringing suit”)
• Risk in ignoring demand?
E.g., BMW of N. Am., LLC v. Eurocar Tech., L.L.C., 2014 WL
10748119 (M.D. Fla. July 15, 2014) (Lanham Act case), report
and recommendation adopted, 2014 WL 10742620 (M.D. Fla.
Aug. 5, 2014)
March 2, 2017 Responding to Patent Demand Letters 15
2. Venue
TC Heartland LLC v. Kraft Foods Group Brands LLC
• Issue: Whether the patent venue statute, 28 U.S.C.
§ 1400(b), which provides that patent infringement actions
“may be brought in the judicial district where the defendant
resides[,]” is the sole and exclusive provision governing
venue in patent infringement actions.
• S. Ct. will hear argument on Mar. 27, 2017.
March 2, 2017 Responding to Patent Demand Letters 16
Implication of Heartland
• E.D. Tex. continues to be the most popular forum for patent cases
(36.4%). But Heartland could limit forum shopping.
• PwC 2016 Study showed:
March 2, 2017 Responding to Patent Demand Letters 17
3. Enhanced Damages
• New willfulness standard may impact demand letter strategy
• In June ‘16, SCOTUS upended law on enhanced damages.
(Halo Electronics, Inc. v. Pulse Electronics, Inc. (2015)).
Eliminated “objectively reckless” standard.
Lowered the evidentiary standard (preponderance of evidence
v. clear-and-convincing).
• Demand letter may provide notice to allow patentee to seek
treble damages.
• On the other hand, response to demand letter may provide
recipient a platform to express subjective state of mind
March 2, 2017 Responding to Patent Demand Letters 18
4. § 101 Trends Post-Alice
• Alice Corp. v. CLS Bank Int’l, 34 S. Ct. 2347 (2014):
Two-step test:
Is the claim directed to an abstract idea?
Does the claim recite significantly more than just the abstract idea –
i.e., “inventive concept”?
• Success rate of § 101 motions declined after Alice:
2014: 71% | 2015: 57% | 2016: 44%
March 2, 2017 Responding to Patent Demand Letters 19
§ 101 Trends Post-Alice
• Immediately post-Alice, Federal Circuit decisions upholding
subject matter eligibility of software-related patents and
reversing the trial court below were rare.
• However, 2016 saw an increase in such decisions:
Bascom, 827 F.3d 1341
McRO, 837 F.3d 1299
Enfish, 822 F.3d 1327
• These decisions may embolden some plaintiffs in 2017.
March 2, 2017 Responding to Patent Demand Letters 20
5. Personal Jurisdiction
Demand letter may serve as a basis for declaratory judgment
jurisdiction
• Xilinx, Inc. v. Papst Licensing GmbH & Co. KG, 2017 WL
605307 (Fed. Cir. Feb. 15, 2017) (minimum contacts
satisfied where patentee sent multiple notice letters, traveled
to recipient’s home state to meet with recipient to discuss
alleged infringement and potential licensing arrangements,
and recipient’s declaratory judgment action related to these
contacts in a material way)
March 2, 2017 Responding to Patent Demand Letters 21
Void Left by Congress
and What’s Next
March 2, 2017 Responding to Patent Demand Letters 22
Legislative and Policy Developments
Various patent bills would have implications for demand letters,
including:
• Targeting Rogue and Opaque Letters Act (“TROL Act”)
(H.R. 2045)
• STRONG Patents Act (S. 632)
• Demand Letter Transparency Act (H.R. 1896)
March 2, 2017 Responding to Patent Demand Letters 23
Legislative and Policy Developments (cont’d)
Is Congress focused on abusive demand letter practices?
• Bob Goodlatte’s (R-Va.) House Judiciary Committee speech
on Feb. 1, 2017 set out 2017 agenda. Patent reformed was
briefly mentioned.
• Orrin Hatch (R-Utah), Chairman of the Senate Republican
High-Tech Task Force, set out the Senate’s innovation
agenda in a speech on Feb. 16, 2017. With respect to
patents, he focused on venue issues.
March 2, 2017 Responding to Patent Demand Letters 24
Views of the Executive Branch
Commentators are looking for clues as to what to expect from
the Trump administration.
• Trump:
thinks brands are very important; concerned about IP piracy in
China; might treat IP with a property rights view.
• Donald Trump Jr.:
has expressed concern for small biz patent holders.
• Ken Blackwell (Domestic Policy Chair):
“Patent reform is another example of crony capitalism”
March 2, 2017 Responding to Patent Demand Letters 25
Views of the Executive Branch (cont’d)
• Wilbur Ross (Secretary of Commerce nominee):
Said Trump would “crack[] down on currency manipulation,
intellectual property theft and other mercantilist cheating”
• Stephen Bannon:
Breitbart published an article opining that “[m]aintaining a strong
economy and a strong patent system are directly related to our
ability to provide a robust national defense and military
strength.”
March 2, 2017 Responding to Patent Demand Letters 26
How Will Gorsuch Approach Patent Issues?
• His views on patents are mostly unknown.
• He has been critical of Chevron deference.
• Less willing to defer to the PTO’s construction and
implementation of the AIA?
Thank You
Baldassare (Baldo) Vinti, Esq. Partner
PROSKAUER ROSE LLP
11 Times Square
NY, NY 10036
212.969.3249
March 2, 2017
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any information contained on them. Rather, the content is intended as a general overview of the subject matter covered. Proskauer
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encouraged to seek direct counsel on legal questions. © Proskauer Rose LLP. All Rights Reserved.
State Laws on Bad Faith Assertion of Patents
Sharon A. Israel
Mayer Brown LLP
February 2017
Overview
• Landscape
– Federal
– State
• Navigating The Growing Patchwork
• Thoughts on Best Practices
29
The Landscape of Patent Assertion Legislation: Federal
• Various proposals to address bad faith assertions of patent infringement prior to litigation in the 114th Congress
• H.R. 2045, the Targeting Rogue and Opaque Letters (TROL) Act - includes federal preemption
• H.R. 9/S. 1137: Limits ability to establish willful infringement if pre-suit notification doesn’t include specific information
• S. 1137: Clarifies FTC’s authority; no preemption (national uniform standards) provision or definition of bad faith
• S. 632, the Support Technology and Research for Our Nation's Growth (STRONG) Patents Act – includes provision similar to H.R. 2045 (TROL Act)
• H.R. 1896, the Demand Letter Transparency Act - Requires disclosure of information related to patent ownership
30
https://www.congress.gov/114/bills/hr9/BILLS-114hr9ih.pdf
The Landscape of Patent Assertion Legislation: Federal
• H.R. 2045, the Targeting Rogue and Opaque Letters (TROL) Act
• Proposes Federal Trade Commission address claims of patent infringement demand letters sent in bad faith
– Establishes that it is an unfair or deceptive act or practice under the FTC Act to engage in a pattern or practice of sending written communications that contain bad faith misrepresentations about patent rights and allows the FTC and State AGs to fine violators
– Requires such written communications to include key information, such as identifying the person with the patent rights, parent companies, contact information, and information on how the recipient is allegedly infringing the patent.
– Includes a preemption provision – establishing a national standard for enforcement of abusive patent demand letters
• Approved by Energy & Commerce Committee on April 29, 2015
31
The Landscape of Patent Assertion Legislation: Federal
• S. 632, the Support Technology and Research for Our Nation's Growth (STRONG) Patents Act
• According to Senator Coons the Act would strengthen our patent system and combat abuse by:
– Cracking down on abusive demand letters by empowering the Federal Trade Commission to target firms that abuse startups rather than invent anything
• Demand letter portion is similar to TROL Act
32
http://www.coons.senate.gov/newsroom/releases/release/coons-durbin-hirono-introduce-patent-reform-bill-to-protect-innovation-confront-abuse
The Landscape of Patent Assertion Legislation: State
• 33 States Have Passed Bills on Demand Letters
– Alabama, Arizona, Colorado, Florida, Georgia, Idaho, Illinois, Indiana, Kansas, Louisiana, Maine, Maryland, Michigan, Minnesota, Mississippi, Missouri, Montana, New Hampshire, North Carolina, North Dakota, Oklahoma, Oregon, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, Vermont, Washington, Wisconsin, Wyoming
• At least 10 States Now Have Had a Bill Introduced or Pending in a Current or Prior Session of the State’s Legislature
– California, Connecticut, Iowa, Kentucky, Massachusetts, Nebraska, New Jersey, Ohio, Pennsylvania, South Carolina
33
The Landscape of Patent Assertion Legislation: State
34
Signed by Governor Bill Introduced or Pending
in Current Session
Other State Bills Considered in
Prior Session No Bill Introduced
1. Alabama (SB 121)
2. Arizona (HB 2386)
3. Colorado (HB 1092)
4. Florida (HB 439)
5. Georgia (HB809)
6. Idaho (S. 1354)
7. Illinois (SB3405)
8. Indiana (HB 1102)
9. Kansas (SB 38)
10. Louisiana (SB 255)
11. Maine (SP654)
12. Maryland (SB585)
13. Michigan (SB 289/HB 4587)
14. Minnesota (HF 1586)
15. Mississippi (HB 589)
16. Missouri (SB706)
17. Montana (SB 39)
1. New Jersey (A310) 1. California (SB 681)
2. Connecticut (SB 258)
3. Iowa (SSB 1028)
4. Kentucky (SB116)
5. Massachusetts (SB 178)
6. Nebraska (LB 677/LR 534)
7. New Jersey (S1563)
8. Ohio (HB 194)
9. Pennsylvania (SB1222)
1. Alaska
2. Arkansas
3. Delaware
4. Hawaii
5. Nevada
6. New Mexico
7. New York
8. West Virginia
The Landscape of Patent Assertion Legislation: State
35
Signed by Governor Bill Introduced or Pending
in Current Session
Other State Bills Considered in
Prior Session No Bill Introduced
18. New Hampshire (SB0303)
19. North Carolina (SB 648)
20. North Dakota (HB 1163)
21. Oklahoma (HB 2837)
22. Oregon (SB 1540)
23. Rhode Island (SB 2542)
24. South Carolina (H 3682)
25. South Dakota (SB 143)
26. Tennessee (HB2117/SB1967)
27. Texas (SB 1457)
28. Utah (HB0117)
29. Vermont (Act No. 44)
30. Virginia (HB375)
31. Washington (SB 5059)
32. Wisconsin (SB498)
33. Wyoming (SF 65)
The Landscape of Patent Assertion Legislation: State
• Now dealing with a patchwork of state laws, which may be hard to navigate.
• Provides recipients of such certain patent-related communications with tools not previously available.
• Varies from state to state regarding scope of bills, tests used, who can enforce, remedies available.
• May impact legitimate enforcement efforts and offers to license.
36
Patent Assertion Legislation Among The States
• Assessing Who’s Law Will Apply
– Louisiana’s law can be used to highlight:
“Any person outside the state asserting patent infringement by an end-user in the state shall be deemed to be transacting business within the state within the meaning of R.S. 13:3201 and shall thereby be subject to the jurisdiction of the courts of this state.”
• Applies to “[a]ny person” and could subject a party’s counsel, in addition to the party itself, to jurisdiction under the law
• Provision is not limited to someone merely sending demand letters in the state
• While Louisiana’s law only applies to patent assertions against an “end-user”, the laws of other states are not so limited.
37
LA REV. STAT. ANN. § 51:1428 (West 2014) (emphasis added).
Patent Assertion Legislation Among The States
• Assessing Who’s Law Will Apply
– But note “target” language of some bills:
– “(3) 'Target' means a person:
• (A) Who has received a demand letter or against whom an assertion or allegation of patent infringement has been made;
• (B) Who has been threatened with litigation or against whom a lawsuit has been filed alleging patent infringement; or
• (C) Whose customers have received a demand letter asserting that use of such person's product, service, or technology infringes a patent.
38
HTTP://WWW.LEGIS.GA.GOV/LEGISLATION/EN-US/DISPLAY/20132014/HB/809
Patent Assertion Legislation Among The States
• For States With Balancing Tests
– Generally state: “[a] person shall not make a bad faith assertion of patent.”
– Statues list series of factors that courts “may consider” as evidence whether a person has made a bad-faith or good-faith assertion of patent infringement
– Final factor in each list generally directs that a court may consider “[a]ny other factor the court finds relevant”
– Gives courts wide latitude to decide what constitutes a bad-faith assertion of a patent
– No one factor may be dispositive of the outcome
39
VT. STAT. ANN. tit. 9,§ 4197 (West 2013)
Patent Assertion Legislation Among The States
• For States With Bright Line Rules:
– “A patent notification shall contain all of the following:”
• “The number of each patent or patent application that is the subject of the patent notification.”
• “A physical or electronic copy of each patent or pending patent.”
• “The name and physical address of the owner of each patent or pending patent and all other persons having a right to enforce the patent or pending patent.”
• “An identification of each claim of each patent or pending patent being asserted and the target’s product, service, process, or technology to which that claim relates.”
• “Factual allegations and an analysis setting forth in detain the person’s theory of each claim identified . . . and how that claim relates to the target’s product, service, process, or technology.”
• “An identification of each pending or completed court or administrative proceeding, including any proceeding before the U.S. patent and trademark office, concerning each patent or pending patent.”
• “No false, misleading, or deceptive information.”
40 WIS. STAT. ANN. 100.197 (West 2014)
Patent Assertion Legislation Among The States
• Determining Who May Be Affected
– Targets and Intended Recipients
• Some states liberally define “Target” to include both the entity that actually receives a demand letter or threat of litigation and the entity’s customers and end users that receive such a letter or threat
• Other states have attempted only to create liability when customers or end users are targeted with a demand letter or patent assertion
• Some (not all) bills have safe harbors
– E.g., 271(e)(2) exemptions
– E.g., Clarifying not a violation to notify another that patent is available for license
41
Patent Assertion Legislation Among The States
• Enforcement and remedies vary from state to state
– State’s attorney general
• The attorney general may commence an action in the name of the state to restrain by temporary or permanent injunction a violation . . . [and] to recover a forfeiture to the state of not more than $50,000 for each violation.”
– Private right of action/Remedies
• A temporary or permanent injunction
• An appropriate award of damages
• Costs and reasonable attorney fees
• Punitive damages not to exceed $50,000 for each violation or 3 times the aggregate amount awarded for all violations.
– Alabama’s statute includes criminal penalties
42
Patent Assertion Legislation Among The States
• Bond
– A number of states have potentially made a bond available
“Upon motion by a target and a finding by the court that a target has established a reasonable likelihood that a person has made a bad faith assertion of patent infringement in violation of this chapter, the court shall require the person to post a bond in an amount equal to a good faith estimate of the target’s costs to litigate the claim and amounts reasonably likely to be recovered under subsection 4199(b) of this chapter, conditioned upon payment of any amounts finally determined to be due to the target. A hearing shall be held if either party so requests. A bond ordered pursuant to this section shall not exceed $250,000.00. The court may waive the bond requirement if it finds the person has available assets equal to the amount of the proposed bond or other good cause shown.” (emphasis added)
43 VT. STAT. ANN. tit. 9,§ 4198 (West 2013)
The Landscape of Patent Assertion Legislation: State
• Writing Required? Demand required?
– Some bills use language: “Or other communication”
– Some say “letter, email or other written communication”
– Some not limited to patent assertion, e.g., “or that the actions of target would benefit from the grant of a license to a patent” or “or should obtain a license to a patent”
• Who can bring an action?
– “A target or a person aggrieved by a violation …”
– “Any person who suffers injury or damage as a result of a violation …”
– “A target of conduct involving assertions of patent infringement, or a person aggrieved by a violation ….”
• Relief – Possible Restitution:
– “Restitution of any person or persons adversely affected” by the violation – Georgia
– “An order requiring restitution to a victim for legal and professional expenses related to the violation” - Texas
44
Patent Assertion Legislation Among The States
• Considerations Going Forward
• Recipients of Communications: May consider whether the communication is actionable or whether they should report it to an appropriate state attorney general
• Patent Rights Holders: Need to consider to whom a demand letter is sent or patent assertion is made and what to include in letter/communication
45 VT. STAT. ANN. tit. 9,§ 4198 (West 2013)
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Responding to Patent Demand Letters
Brian R. Iverson
Member
Bass, Berry & Sims PLC
No “One Size Fits All” Response
Nature of the Demand Letter
Client’s Strategic Objectives
Client’s Place of Business
Ethical Considerations
48
No “One Size Fits All” Response
Nature of the Demand Letter
Client’s Strategic Objectives
Client’s Place of Business
Ethical Considerations
49
Nature of the Demand Letter
Who is the sender?
► NPE
► Competitor
► Supplier
► Purchaser
► Unrelated Business
Who are the attorneys?
50
Nature of the Demand Letter
What is the assertion?
► Single patent vs. portfolio
► Duration of alleged infringement
► Scope of alleged infringement
51
Nature of the Demand Letter
What is requested?
► Cessation of activities
► Lump sum payment
► Royalty payment
► Meeting to discuss
► No specific demand
52
Nature of the Demand Letter
What can you learn outside the letter?
► Term
► Assignment history
► Litigation history
► Licensing history
► Post-grant proceedings
53
No “One Size Fits All” Response
Nature of the Demand Letter
Client’s Strategic Objectives
Client’s Place of Business
Ethical Considerations
54
Client’s Strategic Objectives
Strategies Often Driven by Risk Level
► Strength of Infringement Allegations
► Prior Notice of the Patent
► Existence of Invalidity / Non-Infringement
Opinion
► Strength of Invalidity Arguments
55
Client’s Strategic Objectives
Resolve Without Litigation
► Continue or Discontinue Activity
► Willing or Unwilling to Pay
► Willing to Cross-License
► Creative Business Resolution
► Alternative Dispute Resolution
56
Client’s Strategic Objectives
Improve Litigating Position
► Gather additional information
► Self-serving statements
► Avoid disclosing too much
► Protections and limitations of FRE 408
57
Client’s Strategic Objectives
Make an Example
► Will not pay nuisance value to NPEs
► Will use new state legislation
► Will use post-grant proceedings at PTO
► Will leverage membership in trade
organization
58
No “One Size Fits All” Response
Nature of the Demand Letter
Client’s Strategic Objectives
Client’s Place of Business
Ethical Considerations
59
Client’s Place of Business
State anti-trolling statute
State deceptive trade practices statute
Attorney General interest
Proper venue for infringement action?
60
No “One Size Fits All” Response
Nature of the Demand Letter
Client’s Strategic Objectives
Client’s Place of Business
Ethical Considerations
61
Ethical Considerations
Activities Touching Other Jurisdictions
► Analyzing another state’s statute
► Where is the attorney?
► Where is the client?
► What is the most likely forum?
Unauthorized Practice of Law
Multi-Jurisdictional Practice Rules
Competence
62
Ethical Considerations
Criminal Prosecution
ABA Model Rules
► Removed specific prohibition on threats of criminal
prosecution solely for advantage in civil dispute
► Certain threats may violate other more general rules
Not All States Followed the Model Rule Change
► e.g., Alabama RPC 3.10 – “A lawyer shall not present,
participate in presenting, or threaten to present criminal
charges solely to obtain an advantage in a civil matter.”
63
Takeaways
No “one size fits all” response
Assess nature of the demand letter
Understand client’s strategic objectives
Analyze available state remedies
Stay within ethical bounds
64
