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Idaho Initiative: Bad Faith Assertions of Patent Infringement - Legislative Briefing
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Idaho Initiative: Bad Faith Assertions of Patent Infringement - Legislative Briefing


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  • 1. LEGISLATIVE BRIEFING Idaho Initiative: Bad Faith Assertions of Patent Infringement John N. Zarian December 9, 2013 Garro Building, IACI Conference Room Boise, Idaho
  • 2. The Importance of Intellectual Property: One Lawyer’s Epiphany  Started with case involving securities, contractual issues, corporate control.  Ended with case involving patents, trade secrets and related IP claims.
  • 3. The Importance of IP to the U.S. Economy 1978 1997 % of U.S. corporate assets in tangible goods 80% 27% % of U.S. corporate assets in intangibles/IP 20% 73% Estimated value of U.S. intellectual capital 2005 Today $5 trillion $9-10 trillion % of wealth in largest U.S. companies 85% Annual patent filings worldwide over 2 million Sources:; WIPO 3
  • 4. The Importance of IP to the Idaho Economy Innovation and intellectual property are vital to Idaho’s economy. For many years, 1st in patents per capita. In 2007, 6th in “Innovation Capacity” In 2010, 10th in tech concentration. As of 2010, home to 1,335 highly specialized firms, with 36,400 high-tech employees.  BUT, job growth has LAGGED since 2007 …  The State of Idaho had adopted programs such as the Idaho Global Entrepreneurial Mission (IGEM) to steer Idaho to greater economic prosperity by increasing our knowledge-based economies.      Sources: U.S. Chamber of Commerce’s Global Intellectual Property Center (GIPC); Idaho Department of Commerce. 4
  • 5. Trends in Patent Litigation Source: 5
  • 6. Advent of the “Patent Troll”  Patent assertion entities (“PAEs”) are sometimes referred to as “patent trolls.”  Lawsuits filed by PAEs increased sixfold between 2006 and 2012.  In 2011, PAEs were responsible for at least 25% of all patent lawsuits.  In 2011, total filings went up 31%.  Between 2007 and 2011, PAEs sued nearly one-third of all defendants.  According to one study, suits filed by PAEs made up more than one-half of all patent cases filed in 2012. Sources: RPX; wikipedia; “Intellectual Property: Assessing Factors that Affect Patent Infringement Litigation Could Help Improve Patent Quality” (GAO) (Aug. 22, 2013). 6
  • 7. The Problem Posed by Patent Trolls  As of 2004, the average cost of defending against a patent infringement suit was at least $1 million or more before trial, and $2.5 million for a complete defense.  In 2011, businesses spent $29 billion in direct costs because of patent trolls & patent suits, 400% over 2005.  Patent trolls are now targeting smaller firms; in 2011, defendants’ median annual revenue was $10.3 million.  On June 4, 2013, the National Economic Council and the Council of Economic Advisers released a report entitled Patent Assertion and U.S. Innovation, that found significant harm to the economy from NPEs. 7
  • 8. The Practice of Sending Patent Demand Letters  Patent trolls regularly send patent demand letters to startups and small companies, demanding payment.  Patent trolls target small companies to establish favorable rates/licenses before going after larger entities.  Small businesses often lack the resources to respond.  In one recent study, almost one-third of small tech and startup companies had received a patent demand letter: 22% did “nothing”; 18% settled; and 35% fought.  The average settlement cost was $340,000; the average out-of-court cost of fighting was $168,000; and the average in-court cost of fighting was $857,000. Sources:; Chien, “Startups and Patent Trolls” (2012). 8
  • 9. Overview of the America Invents Act (AIA)  The America Invents Act (AIA) was passed by Congress and signed into law on September 16, 2011, representing the most significant change to the U.S. patent system since 1952. – Switched U.S. from a “first-to-invent” to a “first-inventor-to-file” system for patent applications filed on or after March 16, 2013; – Revised and expanded post-grant procedures, including retaining ex parte reexaminations, adding pre-issuance submissions by third parties, expanding inter partes reexamination (review), and adding post-grant review; – Gave the USPTO authority to adjust its fees; – Established additional USPTO satellite offices; – Eliminated most false marking lawsuits; and – Eliminated joinder of unrelated defendants. 9
  • 10. Vermont Legislation  Many frustrated by AIA’s failure to focus on patent litigation.  In 2013, Vermont enacted a first-in-the-nation law to combat patent trolls, (H.299, codified at 9 V.S.A. §§ 4195-4199), entitled “Bad Faith Assertions of Patent Infringements”.  Under the law, factors suggesting a bad faith patent assertion include: (a) not identifying the patent(s)-at-issue, the patent owner, and exactly how the recipient’s behavior violates the patent; (b) demanding too quick a response or too much money; and (c) making deceptive or meritless assertions.  The Vermont statute included remedies for victims of bad faith patent assertions (damages, attorneys fees), and authorized the Vermont attorney general to bring civil actions. 10
  • 11. States Taking the Lead  Idaho –Legislation has been drafted; similar to Vermont legislation; aimed at protecting Idaho companies; leadership from sponsors Lt. Gov. Brad Little and Rep. Luke Malek, and from Micron Technology, Inc.  Nebraska – AG Jon Bruning testified before Congress; supports a multistate coalition of attorneys general to combat patent trolls; plans to introduce legislation in Nebraska.  Virginia – Legislators considering similar legislation.  Utah – Legislators considering similar legislation.  Texas – Legislators considering similar legislation. 11
  • 12. Pending Reform in Congress?  Last week, a new set of proposed patent reforms entitled the "Innovation Act" (H.R. 3309) and introduced by Rep. Bob Goodlatte (R-VA) passed the House of Representatives by a vote of 325-91. Key provisions include: – Heightened pleading requirements for asserting patent claims. – At time of filing, a plaintiff must disclose patent ownership/interests. – Loser pays attorneys fees, if the claims were not reasonably justified. Also, Court may join a parent entity or investor to pay fees awarded. – At their discretion, courts may limit discovery during initial phases. – A manufacturer may intervene in a suit against its customer(s), and the suit against the customer(s) may be stayed pending manufacturer suit. – More transparency/disclosure would be required in demand letters.  Sen. Patrick Leahy (D-VT) and Sen. Mike Lee (R-UT) have introduced similar legislation in the Senate (S. 1720), titled “Patent Transparency and Improvements Act.” Prospects at this point are unclear. 12
  • 13. Thank You  John N. Zarian direct: (208) 562.4902 email:  Peter M. Midgley direct: (208) 562.4904 email:  L. Michael Bogert direct: (208) 562.4907 email:  Amy A. Lombardo direct: (208) 562.4895 email: 13