David C. Bohrer [email protected] (408) 938

David C. Bohrer
[email protected]
(408) 938-3883
Confluence Law Partners
60 South Market Street, Suite 1400
San Jose, CA 95113
Presentation for Global LPO Conference and Exhibition, New
York City, October 11-12, 2012
Why there is patent litigation:
From the earliest days at Apple, I realized that we thrived when we created intellectual
property. If people copied or stole our software, we’d be out of business. If it weren’t
protected, there’d be no incentive for us to make new software or product designs. If
protection of intellectual property begins to disappear, creative companies will disappear
or never get started. But there’s a simpler reason: It’s wrong to steal. It hurts other
people. And it hurts your own character.
- Steve Jobs, as told to Walter Isaacson in Steve Jobs (2011)
An illustration that shows the various possible outcomes in the lawsuit
and helps the parties evaluate the costs, risks and benefits of each
outcome.
Patent Litigation is Expensive and Complex:
In one 2010 report, the Federal Judicial Center determined that “Intellectual Property cases
had costs almost 62% higher [than other types of litigation], all else equal….”
- Chief Judge Randall R. Rader, United States Court of Appeals for the Federal Circuit, Report on the State of Patent
Litigation, 2010 E.D. Texas Judicial Conference, citing Emery G. Lee III and Thomas E. Willging, LITIGATION COSTS
IN CIVIL CASES: MULTIVARIATE ANALYSIS, Report to the Judicial Conference Advisory Committee on Civil Rules,
Federal Judicial Center, page 8 (March 2010).
Honest to God, I don't see how you could try a patent matter to a jury. Goodness, I've
gotten involved in a few of these things. It's like somebody hit you between your eyes with
a four-by-four. It's factually so complicated.
- Judge Alfred V. Covello, cited in Kimberly A. Moore, JUDGES, JURIES, AND PATENT CASES--AN EMPIRICAL
PEEK INSIDE THE BLACK BOX, 99 Mich. L. Rev. 365 n. 1 (Nov. 2000), citing Judicial Panel Discussions on Science
and the Law, 25 Conn. L. Rev. 1127, 1144 (1993) (statement of Judge Covello, U.S. District Judge, Dist. of Conn.).
Your trial lawyer: The chances of prevailing are “quite good,” but there
is still “some risk” we could lose.
•
Remove potential disconnect between trial lawyer’s view of
the case and what you think you are hearing.
•
Force your trial lawyer to develop a defensible assessment of
the case, one which is much more transparent to you.
•
Capture and quantify your trial lawyer’s expert opinion in a
way that makes the most sense to your CEO.
The vast majority of [patent] suits are resolved in advance of trial either
by the court on dispositive motion or by the parties themselves through
settlement.
- Kimberly A. Moore, JUDGES, JURIES, AND PATENT CASES −AN EMPIRICAL PEEK INSIDE THE BLACK BOX,
99 Mich. L. Rev. 365, 384 n. 79 (Nov. 2000).
•
Most patent cases settle, approximately 75%.
15% of the cases are resolved on the merits by summary judgment or trial
verdict.
•
o
•
It is extremely rare to go to trial, only 3-7% of cases reach this stage
based on national averages for patent cases.
Remaining 10% are consent judgments or procedural-based resolution.
- Primary reference is Mark A. Lemley, WHERE TO FILE YOUR PATENT CASE, AIPLA Q.J., Number 4, page 1 (Fall 2010),
who surveys comprehensive set of data on every patent lawsuit filed since 2000−more than 25,000 suits in all. (“While on
average only 2.8% of patent cases go to trial, a far higher percentage [between 7-12%] make it to trial in the District of
Delaware, the Eastern District of Texas, the Western District of Wisconsin, and the Eastern District of Virginia). Id. at 12; see
also Kimberly A. Moore, JUDGES, JURIES, AND PATENT CASES −AN EMPIRICAL PEEK INSIDE THE BLACK BOX, 99
Mich. L. Rev. 365, 383 (Nov. 2000) (“Surprisingly, few patent cases go to trial each year. For the period of the study [all patent
cases that went to trial in the period from 1983 through 1999 (seventeen years of data)], the percentage of patent suits going to
trial each year ranged from 3.3% to 11.9%. The percentage of suits going to trial for the entire period was 6.9%.”)
Let’s break this down!
•
Claim construction must come first
o Question of law decided by the court
o Narrower (non-infringement); broader (invalidity)
o Trial judge lament: “50/50 shot at getting this right”
•
“Some” of the typical summary judgment arguments:
o Patent holder has not met burden of proving by “preponderance of the evidence”:
•
Infringement
•
Direct
•
Indirect (contributory or inducement)
•
Related doctrines: Doctrine of Equivalents/Prosecution History Estoppel
•
Actual damages (reasonable royalty or lost profits)
o Accused infringer proves by “preponderance of the evidence”:
•
Patent misuse
•
Equitable defenses (Laches, Estoppel, Etc.)
o Accused infringer proves by “clear and convincing evidence”:
•
Patent is anticipated (not new) and is therefore invalid
•
Patent is obvious in view of “prior art’ and is therefore invalid
•
Patent is unenforceable due to inequitable conduct
•
Due to the subject matter, these motions usually brought later in the case – after all discovery has been completed.
•
For any reason: 1.3 years
•
Time to resolution by summary judgment: 1.5 years
•
Time to resolution by trial: 2.5 years
•
If appeal (to the Federal Circuit) add at least another 1.1 years until resolution
- National Averages: Primary reference is Lex Machina 2010 database, with other supporting references: Mark A. Lemley,
WHERE TO FILE YOUR PATENT CASE, 38 AIPLA Q.J., Number 4, page 1 (Fall 2010); David L. Schwartz, PRACTICE
MAKES PERFECT? AN EMPIRICAL STUDY OF CLAIM CONSTRUCTION REVERSAL RATES IN PATENT CASES, 107
Mich. L. Rev. 223, 246 (2008); and Legal Metric District Judge Report Northern District of California, April 2009.
Type of Activity
Through Summary
Judgment and Successful
Defense of Appeal
Through Trial and PostTrial Motions
1.
Lawyer Fees
Additional Costs
Total Fees and Costs
$4,000,000
$800,000
$4,800,000
$5,000,000
$1,200,000
$6,200,000
Assumptions:
- Single patent plus related patent (issued on continuing or continuation-in-part application.
- Patent holder practices the asserted claims.
- Patent holder suing a competitor operating company.
- No preliminary injunction or parallel action.
- Fact witnesses: 7-8 witnesses on each side.
- Expert witnesses: 1-2 technical liability experts and 1 damages expert on each side.
- Normal to limited number of documents exchanged (e.g., 2-3 GB per side).
- Few discovery motions.
- One summary judgment motion.
- Limited number of different types of products at issue.
- 1-2 partners per side: hourly fees $590 - $850 per hour
- 1-2 associates per side: hourly fees $350 - $495 per hour
- 1-2 paralegals per side: hourly fees $170 - $250 per hour
Type of Activity
Through Summary
Judgment and Successful
Defense of Appeal
Through Trial and PostTrial Motions
Lawyer Fees
Additional Costs
Total Fees and Costs
$4,000,000
$800,000
$4,800,000
$5,000,000
$1,200,000
$6,200,000
2.
In comparison, where there is $1-$25 million at risk, 2011 AIPLA Economic Survey reports total costs through end
of discovery for the 75th percentile in Northern District of California (San Francisco) and Southern District of New
York (New York City) of $2.475 million and $2 million, respectively. Where there is more than $25 million at risk,
these costs increase to $5 million in each of the jurisdictions.
3.
In comparison, where there is $1-$25 million at risk, 2011 AIPLA Economic Survey reports total costs inclusive of
discovery, motions, pre-trial, trial, post-trial and appeal for the 75th percentile in Northern District of California (San
Francisco) and Southern District of New York (New York City) of $4 million and $5 million, respectively. Where
there is more than $25 million at risk, these costs increase to $7.625 million and $10 million, respectively.
2
3
Type of
Award
Reasonable
Royalty 1
Lost
Profits 2
PV of
Injunction 3
Statutory
Costs 4
Increased
Damages 5
Accused
Infringer’s
Total Costs to
Outcome
Costs 6
Low
$4,050,000
$0
$8,000,000
$300,000
$0
$6,200,000
$18,550,000
Medium
$1,782,000
$13,400,000
$8,000,000
$300,000
$0
$6,200,000
$29,682,000
High
$1,782,000
$13,400,000
$8,000,000
$300,000
$15,182,000
$6,200,000
$44,864,000
1.
Assume 5.4 million accused units @$0.75 royalty.
2.
Assume patent holder, based on market share, would have recaptured 56% (3.024 million units) of infringing
sales at incremental profit margin of 16%. Reasonable royalty on remaining (2.376 million) units.
3.
Assume patent(s) expire 2 years after trial; present value of premium royalty stream (@$1.25) on same level
of accused sales.
4.
Under 28 U.S.C. §1920, the prevailing party is awarded specific types of costs that it incurred in the course
of the litigation, including some or all (depending upon the jurisdiction) of its ESI expense.
5.
If jury finds that infringement was willful, the court has discretion to increase the damage award up to 3x the
amount of damages awarded by the jury (35 U.S.C. §284), and, if court finds that the case is exceptional,
the court also has discretion to award the prevailing party its attorneys’ fees (35 U.S.C. §285). Here we
assume reasonable royalty and lost profit damages increased 1x (increased by $15,182,000).
6.
See previous slide: “Components of Accused Infringer’s Costs: Standard Rates.”
Outcome
3
Accused
1
Infringer’s Costs
Plaintiff’s
2
Recovery
Total Cost to
Outcome
Odds
Expected Cost
Per Outcome
Win Summary
Judgment
$4,800,000
$0
$4,800,000
89%
$4,272,000
Trial Verdict for
Accused Infringer
$6,200,000
$0
$6,200,000
3.63%
$225,060
Trial Verdict for
Plaintiff - Low
$6,200,000
$12,350,000
$18,550,000
3.69%
$683,568
Trial Verdict for
Plaintiff – Medium
$6,200,000
$23,482,000
$29,682,000
2.8%
$831,275
Trial Verdict for
Plaintiff – High
$6,200,000
$38,664,000
$44,864,000
.88%
$396,777
Weighted Estimate
of Cost to Litigate
to Conclusion
$6,408,680
1.
See previous slide: “Components of Accused Infringer’s Costs: Standard Rates.”
2.
See previous slide: “Components of Accused Infringer’s Costs in the Event it Loses Trial.”
3.
This is the calculation of the compound probability of each result. For example, the
compound probability of the path to trial verdict for plaintiff – low award is .11 * .67 * .5, or
.03685 (3.69%). Note that the sum of the compound probabilities equals 1.00 (100%).
•
The patent holder has a 91% likelihood of losing summary judgment on the merits.
•
But if the patent holder makes it to trial, there is a 67% likelihood of winning.
- Price WaterhouseCoopers (PwC) 2011 Patent Litigation Study at 12 and 16 (“In instances when a final
decision is reached at summary judgment, NPEs are successful only 2% of the time, as opposed to 9% for
practicing entities.”). PwC maintains a database of patent damages awards, collecting with specificity
information about patent holder success rates, time-to-trial statistics, and practicing versus non-practicing
entity (NPE) statistics (all from 1995 through 2010). This year’s study adds industry classification and
expanded NPE segmentation analyses. PwC studied 1,617 final decisions issued at two stages of the
litigation process: summary judgment (880 decisions) and trial (674 decisions). Dismissals that didn’t occur at
trial or summary judgment are not included in the breakdown.
Concern: High likelihood of success (89%) on summary judgment, but very high
($4,800,000) total cost to get to this outcome.
Solution: Use a flat fee arrangement:
•
Lawyer shares risk with client of adverse result.
•
Fees are predictable; removes uncertainty.
•
Lawyers incented to win, and win fast.
Type of Activity
Base
Bonus – Win*
Bonus - Fast
Total
Win Summary
Judgment in Less Than
1.3 Years
$2,500,000
$750,000
$1,000,000
$4,250,000
Win Summary
Judgment Within 1.31.7 Years
$2,500,000
$750,000
$750,000
$4,000,000
Win Summary
Judgment in More Than
1.7 Years
$2,500,000
$750,000
$500,000
$3,750,000
Lose
Summary
Judgment
$2,500,000
$0
$0
$2,500,000
Win Verdict
(Thru Post-Trial
Motions)
$3,500,000
$500,000
$0
$4,000,000
Lose Verdict
(Thru Post-Trial
Motions)
$3,500,000
$0
$0
$3,500,000
*Fees include services necessary to defend patent owner’s appeal of summary judgment for accused infringer; the
$750,000 success bonus for winning summary judgment apportioned $500,000 upon entry of judgment and $250,000
upon appellate court affirming judgment.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
0.25
0.25
0.25
0.25
0.25
0.45
0.45
0.45
0.45
0.45
0.3
0.3
0.3
0.3
0.3
0.7
0.3
0.3
0.3
0.3
0.89
0.11
0.11
0.11
0.11
0.89
0.11
0.11
0.11
0.11
0.33
0.67
0.67
0.67
0.5
0.38
0.12
0.33
0.67
0.67
0.67
0.5
0.38
0.12
0.33
0.67
0.67
0.67
0.5
0.38
0.12
0.175
0.02475
0.025125
0.019095
0.00603
0.4005
0.016335
0.0165825
0.0126027
0.0039798
0.267
0.01089
0.011055
0.0084018
0.0026532
Standard Fees
$3,800,000.00
$5,000,000.00
$5,000,000.00
$5,000,000.00
$5,000,000.00
$4,000,000.00
$5,000,000.00
$5,000,000.00
$5,000,000.00
$5,000,000.00
$4,200,000.00
$5,000,000.00
$5,000,000.00
$5,000,000.00
$5,000,000.00
Weighted
$665,000.00
$123,750.00
$125,625.00
$95,475.00
$30,150.00
$1,602,000.00
$81,675.00
$82,912.50
$63,013.50
$19,899.00
$1,121,400.00
$54,450.00
$55,275.00
$42,009.00
$13,266.00
Flat Fee + Bonuses
$4,250,000.00
$4,000,000.00
$3,500,000.00
$3,500,000.00
$3,500,000.00
$4,000,000.00
$3,500,000.00
$3,500,000.00
$3,500,000.00
$3,500,000.00
$3,750,000.00
$3,500,000.00
$3,500,000.00
$3,500,000.00
$3,500,000.00
Expected Value
of Standard
Fees:
$4,175,900.00
Expected Value of
Flat Fee and
Bonuses:
Difference:
Weighted
$743,750.00
$99,000.00
$87,937.50
$66,832.50
$21,105.00
$1,602,000.00
$57,172.50
$58,038.75
$44,109.45
$13,929.30
$1,001,250.00
$38,115.00
$38,692.50
$29,406.30
$9,286.20
$3,910,625.00
$265,275.00
Some, certainly not all, caveats:
•
As we all know, statistics can be misleading.
•
Decision tree analysis necessarily relies on very rough estimates about future
events. Don’t presume that percentages or dollar estimates are exact.
•
Decision trees do not consider a party’s aversion to risk. Monty Hall used to
offer people $500 or a one in three chance of winning a new car behind “one of
the doors.” It was not unusual for the risk averse to take the money instead of
the 33% chance of winning a new car.