MAY 20-24, 2013

WRITTEN BY BRENDAN J. COFFMAN AND KOREN W. WONG-ERVIN PATENTS

Vermont Enacts The Nations First Anti-PAE Law

On May 22, Vermont Governor Peter Shumlin signed into law a novel measure aimed at protecting companies from bad-faith assertions of patent infringement by patent-assertion entities (PAEs). Specifically, section 4197 prohibits bad faith assertion of patent infringement, providing that courts may consider the following factors as evidence of bad faith: (1) the demand letter does not contain the patent number, the name and address of the patent owner and assignee, or factual allegations concerning the specific areas in which the targets products, services, and technology infringe the patent or are covered by the claims of the patent; (2) prior to sending the demand letter, the person fails to conduct an analysis comparing the claims in the patent to the targets products, services, and technology, or such an analysis was done but does not identify specific areas in which the products, services, and technology are covered by the claims in the patent; (3) the demand letter lacks the information described in (1), above, the target requests the information, and the person fails to provide the information within a reasonable period of time; (4) the demand letter demands payment of a license fee or response within an unreasonably short period of time; (5) the person offers to license the patent for an amount that is not based on a reasonable estimate of the value of the license; (6) the claim or assertion of patent infringement is meritless, and the person knew, or should have known, that the claim or assertion is meritless; (7) the claim or assertion of patent infringement is deceptive; (8) the person or its subsidiaries or affiliates have previously filed or threatened to file one or more lawsuits based on the same or similar claim and (a) those threats or lawsuits lacked the information described in (1), above, or (b) the person attempted to enforce the claim of patent infringement in litigation and a court found the claim to be meritless; and (9) any other factor that the court finds relevant. Section 4197 further provides that a court may consider factors such as whether the person has made substantial investment in the use of the patent or whether the person is the inventor or an institution of higher learning as evidence that a person has not made a bad faith assertion of patent infringement. Lastly, section 4198 provides that, 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, the court shall require the person to post a bond in an amount equal to a

good faith estimate of the targets costs to litigate the claim and amounts reasonably likely to be recovered. A bond ordered pursuant to this section shall not exceed $250,000. Source: Bill H.299, available at http://www.leg.state.vt.us/database/status/summary.cfm?Bill=H.0299&Session=2014.

Vermont AG Sues PAE Under Novel Consumer Protection Theory

The Vermont Attorney General has filed a complaint against patent-assertion entity MPHJ Technology Investments, LLC, alleging that it engaged in unfair and deceptive trade practices in violation of the Vermont Consumer Protection Act by sending a series of demand letters to businesses and non-profit organizations in Vermont threatening patent litigation if the businesses did not pay licensing fees. According to the complaint, MPHJ Technology operates in Vermont through forty wholly-owned shell subsidiary companies, and has sent hundreds or thousands of similar demand letters to businesses outside Vermont. (Compl. 3, 15.) The complaint further alleges that MPHJ Technology targeted small businesses in commercial fields that were likely unrelated to patent law. (Id. 36.) One Vermont recipient of the demand letters was Lincoln Street, Inc., a Vermont non-profit that operates on state and federal funding to bring home care to developmentally disabled Vermonters. Another Vermont recipient was ARIS Solutions, a nonprofit that provides fiscal agent services to Vermonters with disabilities to assist them with daily living tasks. The initial demand letters sent by MPHJ Technology allegedly required recipients to fill-out a questionnaire and produce extensive and burdensome documentation to prove that they was not infringing. (Id. 24.) The second and third demand letters claimed that, because the recipients did not respond to the first (or first and second) letters, it was reasonable to assume that the recipient was infringing the patents. Among those that settled, the actual average licensing fee negotiated by MPHJ Technology was less than $900. Sources: Complaint, available at http://www.atg.state.vt.us/assets/files/Vermont%20v%20MPHJ%20Technologies%20Co mplaint.pdf. Press Release, Vermont Attorney General Sues Patent Troll in Groundbreaking Lawsuit, available at http://www.atg.state.vt.us/news/vermont-attorney-general-suespatent-troll-in-groundbreaking-lawsuit.php.

EC Invites Outside Consultants to Prepare Report on How PAEs are Affecting Electronic-Chip Makers
The EC has invited outside consultants to prepare a report on how patent-assertion entities (PAEs) are affecting electronic-chip makers. The study would explore how the European and global semiconductor industry will manage its intellectual property over the next ten years in response to the changing regime for patents, which includes the way that companies earn money from their patents, the emergence of a single European patent, and different strategies for -2-

developing intellectual property. The study would also assess the competitiveness of the European chip industry and the effects of PAE behavior. Source: Magnus Franklin, EC plans to dig deeper into impact of patent trolls, MLex (May 21, 2013), available at http://www.mlex.com/EU/Content.aspx?ID=385031 (subscription required).

Congress Introduces the End Anonymous Patents Act

On May 17, Congressman Ted Deutch (D-FL), a member of the House Judiciary Committee on the Subcommittee on Courts, Intellectual Property and the Internet, introduced the End Anonymous Patents Act, which is intended to bring transparency to the patent system. Specifically, H.R. 2024 sections 2(e)(1)-(2) provide that upon either issuance of a patent or upon the payment of maintenance fees, the entity to which the patent is issued shall file with the [PTO] a disclosure of the owner of the patent and any real party in interest. Furthermore, under Section 2(e)(3), [w]henever a patent, any application for a patent, or any interest therein is sold, granted, or conveyed, the entity to which the patent, application, or interest is sold, granted, or conveyed shall, within 90 days . . . file with the [PTO] a disclosure of the sale, grant, or conveyance, and any real party in interest in the patent, application, or interest. The disclosures must include (1) any entity that has the legal right to enforce the patent through an infringement action, (2) any ultimate parent entity, and (3) any entity that has a controlling interest in the enforcement of the patent. According to Congressman Deutch, [t]he legislation aims to curb abuses and inefficiencies that stem from the systems current lack of transparency, such as the frequent use of shell companies by patent trolls to disguise ownership during litigation, or the difficulty potential licensees encounter trying to uncover the actual owners of patents. (Press Release at 1.) Sources: Bill H.R. 2024, available at http://teddeutch.house.gov/uploadedfiles/hr2024_end_anonymous_patents.pdf. Press Release, available at http://teddeutch.house.gov/news/documentsingle.aspx?DocumentID=334519.

House and Senate Judiciary Committee Chairmen Propose Comprehensive Legislation Aimed at Reducing Abusive Litigation Tactics By PAEs
Last week, House Judiciary Committee Chairman Bob Goodlatte (R-Va.) and Senate Judiciary Committee Chairman Patrick Leahy (D-Vt.) circulated a draft proposal of comprehensive legislation aimed at reducing abusive litigation tactics by patent-assertion entities (PAEs). The draft bill has not been formally introduced in Congress; instead, the senators stated that they were circulating the 38-page proposal as a discussion draft to start debate on how to address the issues. Among other things, the draft bill would: require the offeree of a settlement to pay the

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offerors costs and expenses if the judgment is not more favorable than the settlement offer; require entities that send 20 or more demand letters or file a patent infringement suit to disclose patent ownership information (including identification of each licensee); require entities to disclose RAND commitments; limit discovery; allow manufacturers of allegedly infringing products to intervene when their customers are sued, and allow customers to stay the action as against the customers; require the PTO to develop educational and other resources for small businesses to address patent infringement suits; and require the PTO to conduct a study on secondary market oversight for patent transactions to promote transparency and ethical business practices. The draft bill also proposes improvements and technical corrections to the LeahySmith American Invents Act. Specifically, Section 4 provides that any entity that sends 20 or more demand letters . . . shall, within 30 days after the date on which the first such letter is sent, submit to the [PTO] with respect to each patent that was the subject in each such letter the following: (1) identification of the patent and confirmation that the entity that sent the letter is the owner of the patent (or a representative of such person); (2) identification of the entity that has the right to license the patent, or the name of the exclusive licensee; (3) identification of each entity asserting a claim with regard to a patent in such letter; (4) an identification of each licensee; (5) identification of each obligation to license the patent on RAND terms, including a copy of each letter of assurance to each standard-setting organization with respect to such obligation, and the financial terms, including the rate, at which such patent has been licensed pursuant to such obligation; (6) identification of the ultimate parent entity of such entity; and (7) any required registration fee. (Draft Bill at 8-9.) Similarly, a patentee filing a civil action shall disclose to the PTO, the court, and each adverse party each person, parent corporation, or other entity that the patentee knows to have a financial interest in the patent, or any other interest that could be substantially affected by the outcome of the proceeding during the 6-year period ending on the date on which the action is filed. (Id. at 6-7.) Failure to comply with the disclosure requirements may result in monetary sanctions by the court, for an amount to be awarded to the adverse party that covers any costs incurred from the failure to meet the disclosure requirements, including any reasonable costs incurred to discover the correct and complete ownership information. With respect to discovery, Section 6 provides that parties are entitled to receive core documentary evidence, but no party shall be permitted additional discovery unless such party posts a bond, or provides other security for payment of the costs, unless the parties mutually agree otherwise. (Id. at 19.) Sources: Draft Bill, available at http://articles.law360.s3.amazonaws.com/0444000/444815/Leahy%20Trolls.pdf. Ryan Davis, Wide-Ranging 'Patent Troll' Bill Floated By Top Lawmakers, Law360 (May 24, 2013), available at http://www.law360.com/technology/articles/444815/wideranging-patent-troll-bill-floated-by-top-lawmakers (subscription required).

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Senators Urge ITC to Carefully Access Public Interest Considerations When Issuing Exclusion Orders for SEPs
On May 21, Senators Mike Lee (R-Utah), Amy Klobuchar (D-Minn.), Jim Risch (R-ID), and Mark Begich (D-AK) urged the ITC to carefully access the substantial public interest considerations that exist with regard to the availability of an exclusion order in cases involving standard-essential patents (SEPs). (Letter at 1.) According to the senators, [f]or the standards setting process to function effectively, companies that commit to license their SEPs on FRAND terms must seek to resolve disputes over their patents through royalty agreement or judicial determination of a reasonable rate. As these companies have pledged not to exercise exclusivity over such patents, they should not expect the grant of an exclusion order when they are in violation of an obligation to license the patents on FRAND terms. (Id.) The senators further stated that, any precedent that would enable or encourage companies to seek to secure an exclusion order despite a breach of their FRAND commitment would severely undermine broad participation in the standards-setting process, which would in turn threaten the meaningful benefits these standards provide for both industries and consumers. (Id. at 2.) Sources: Letter, http://articles.law360.s3.amazonaws.com/0443000/443820/142826966-ITCLetter-on-Standard-Essential-Patents.pdf. Melissa Lipman, Sens. Push ITC Against Import Bans Over Essential Patents, Law360 (May 22, 2013), available at http://www.law360.com/competition/articles/443820?nl_pk=0fee0e76-10d4-423a-8ed89c72767222e5&utm_source=newsletter&utm_medium=email&utm_campaign=competiti on (subscription required).

Court Orders Jury Trial on Breach of Contract Issues in Microsoft v. Motorola

On May 20, in Microsoft v. Motorola, District Court Judge James Robart held that Motorola is entitled to a jury trial on Microsofts breach of contract claims, under which Microsoft alleges that Motorola failed to comply with its RAND licensing obligations on standard-essential patents related to the 802.11 Wi-Fi standard and the H.264 video compression standard. In so holding, the court rejected Microsofts contention that Motorola waived its right to a jury with respect to the breach of contract claims. The court reasoned that, although Motorola could have been more clear in its jury demand, based on the complexity of this case, the parties apparent understanding that Motorola had not waived its jury right as to the breach of contract issues, and the fact that the court must give Motorola all reasonable presumptions against waiver, the court cannot conclude that Motorola waived its right to a jury by making a jury demand only on the issues under the Patent Laws of the United States. (Opinion and Order at 8-9.) The court further found that, even if the court were to find that Motorola waived its jury demand, it would not overcome the courts earlier determination that Motorola may reasonably rely on Microsofts jury demand on the breach of contract issues in the Motorola action that was transferred to [the Western District of Washington] and consolidated into this action. (Id. at 9.)

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Sources: Opinion and Order, available at http://articles.law360.s3.amazonaws.com/0443000/443518/Motorola.pdf. Bill Donahue, Motorola to Get Jury Trial in Microsoft FRAND Case, Law360 (May 20, 2013), available at http://www.law360.com/technology/articles/443518?nl_pk=d097feab-8757-48a9-81cbae34dd5937ce&utm_source=newsletter&utm_medium=email&utm_campaign=technolo gy (subscription required). PHARMACEUTICALS

Court Denies Motion to Dismiss Reverse-Payments Case Against Pfizers King Pharmaceuticals
On May 20, a Tennessee federal court denied a motion to dismiss multidistrict litigation alleging that King Pharmaceuticals LLC and Mutual Pharmaceuticals Co., Inc. kept generic versions of the muscle relaxer Skelaxin off the market. According to the plaintiffs, King filed sham FDA citizens petitions and patent infringement suits and entered into an agreement with Mutual under which Mutual agreed (1) not to enter the market with any generic metaxalone product, but instead (2) to aid King in its efforts to delay and obstruct other would-be generic competitors from gaining FDA approval and launching competitive generic products. The plaintiffs allege that King bought Mutuals allegiance by agreeing to pay Mutual $35 million plus at least 10% of the revenue from Skelaxin sales. The plaintiffs claim that King has paid Mutual in excess of $200 million total, and that the agreement caused Mutual to cease any efforts to launch a generic metaxalone product and instead assist King in delaying the entry of other generic competitors. The plaintiffs also contend that the defendants falsely maintained Kings patent infringement suit against Mutual, without informing the court of their agreement, for an additional five years as subterfuge to maintain their outward appearancesto the FDA, the FTC, and the public, as adversaries rather than conspirators. (Memorandum and Order at 15.) Lastly, the plaintiffs contend that Mutual and King collaborated to obtain a patent for Mutuals metaxalone metabolism data, which Mutual then licensed to King and King listed in the Orange Book. As with the other patents, the plaintiffs allege that the patent in invalid. Among other things, the defendants sought dismissal of the plaintiffs joint conduct claims contending that the plaintiffs failed to plausibly allege facts establishing antitrust injury. The court rejected the defendants argument, concluding that the plaintiffs sufficiently alleged the first element of antitrust injury by alleging that the defendants efforts to delay the entry of generic metaxalone in the market caused them to incur overcharges because they had to pay for Skelaxin, the higher-priced brand-name drug, rather than a lower priced generic. The court also found that the plaintiffs sufficiently alleged causation by alleging that the reverse-payment agreement had the effect and purpose of keeping Mutual from entering the market with generic metaxalone. In so holding, the court rejected the defendants argument that the plaintiffs could not plausibly plead injury because (1) the agreement never prohibited Mutual from entering the

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market, and (2) the plaintiffs could not establish that Mutual ever received tentative or actual FDA approval of its generic drug. While the court agreed with the defendants that the agreement did not contain any express terms prohibiting Mutual from entering the market with generic metaxalone, the court concluded that the agreement was suspect because of the alleged sum of payments received by Mutual and the relationship of the written agreement to the broader anticompetitive scheme. As Plaintiffs explained at the hearing, Kings payments to Mutual were so large that there was no need for the agreement to expressly tell Mutual to stay off the market. Mutual and King had essentially become copartners for an extended period of time and Mutual shared in Kings profits. (Id. at 28.) The court also rejected the defendants argument that the plaintiffs could not establish causation based on their allegation that King initiated baseless patent litigation against an applicant seeking approval to market a generic metaxalone. The defendants argued that the plaintiffs could not establish causation because the patent case was never subject to a thirty-month stay, and thus the case could not have delayed market entry. The court concluded that, not only did the defendants fail to point to any case law holding that a party is automatically foreclosed from bringing a sham litigation claim simply because the litigation is not subject to a thirty-month stay, but the plaintiffs actually do allege in their complaint that the [patent] litigation caused a delay albeit for a different reason. (Id. at 31.) Moreover, concluded the court, the Court can reasonably infer that the misuse of the litigation process can impose additional cost and time barriers on the generic manufacturer that could further delay it from entering the market. Thus, the absence of a thirty-month stay . . . is not so damaging at this stage that it inhibits Plaintiffs from plausibly alleging causation. (Id. at 32.) Sources: Memorandum and Order, available at http://articles.law360.s3.amazonaws.com/0443000/443327//mnt/rails_cache/https-ecftned-uscourts-gov-cgi-bin-show_doc-pl-caseid-64544-de_seq_num-58-dm_id-2235582doc_num-18.pdf. Kurt Orzeck, Pfizer Cant Shake Skelaxin Pay-for-Delay MDL, Law360 (May 20, 2013), available at http://www.law360.com/competition/articles/443327?nl_pk=0fee0e76-10d4423a-8ed89c72767222e5&utm_source=newsletter&utm_medium=email&utm_campaign=competiti on (subscription required). THE TECHNOLOGY SECTOR

Canadian Competition Bureau Notifies Google that It is Investigating the Companys Search Business
Less than six months after the FTC closed its investigation into Googles business practices concerning search, the Canadian Competition Bureau notified Google that it has opened an inquiry into Googles Canadian business practices.

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Source: Melissa Lipman, Google Faces Antitrust Probe From Canadian Watchdog, Law360 (May 20, 2013), available at http://www.law360.com/competition/articles/443144?nl_pk=0fee0e76-10d4-423a-8ed89c72767222e5&utm_source=newsletter&utm_medium=email&utm_campaign=competiti on (subscription required). UPCOMING PROGRAMS

Patent Pools
June 14, 2013 Noon-1:15 PM Eastern An in-depth discussion on patent pools, including analysis of the relevant DOJ Business Review letters, from the perspectives of government, economists, and private practitioners. For additional information and to register, please visit http://www.americanbar.org/content/dam/aba/marketing/20130614_at13614.authcheckdam.pdf

West Coast Networking Event with Tom Rosch and Kathleen Foote
June 18, 2013 6-8 PM Pacific Join us for a night of networking and good cheer as we learn about key antitrust and intellectual property developments from a distinguished panel of speakers. For additional information and to register, please visit http://www.americanbar.org/content/dam/aba/marketing/20130618_at13618.authcheckdam.pdf

International Licensing Issues in the U.S., India, and Japan

June 19, 2013 9:30-10:45 AM Eastern In this joint program hosted by the Intellectual Property and International Committees, panelists from the FTC, in-house, and private practice will explore licensing issues in the U.S., India, and Japan. The program will include an overview of existing law and new developments, as well as hypothetical questions aimed at providing a comparative analysis of the different jurisdictions. For additional information and to register, please visit http://www.americanbar.org/content/dam/aba/marketing/20130619_at13619.authcheckdam.pdf

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Visit our resources page at: http://www.americanbar.org/content/dam/aba/publications/antitrust_law/at315000_resources_arc hived.authcheckdam.pdf A special thanks to Debbie Bellinger for her weekly contributions to tidBITS.

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