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Patent Basics

Overview of a Patent Litigation

As the debate over patent reform begins again, we thought it might be helpful to do some background posts for those of you who don’t live and breathe patent litigation and/or may not be intimately familiar with the proposed reforms.

In this post, I’d like to take a high-level look at what happens in a typical patent litigation brought by a patent troll.

A case can be settled by the parties at any time, even right in the middle of trial. Most cases never see all of the following stages, but it’s important to understand them.

These descriptions are not at all complete. In later posts, I’ll look at each stage in more detail, focusing on what’s relevant for the patent reform debate.

The Demand Letter

Typically, a business’s first interaction with a patent troll is receiving a demand letter. (Sometimes the troll skips the demand letter and goes straight to the complaint, which is described below.)

The purpose of a demand letter is to notify a business of a patent owner’s belief that the business infringes one or more patents. In theory, it should identify the patents and give a description of why the patent owner believes the business infringes.

Unfortunately, it doesn’t usually work that way.

Most patent troll demand letters are vague demands for payment. They sometimes identify the patent(s) and they sometimes identify what the business is allegedly doing that infringes (e.g., a particular product or service the business sells). But there’s no more information than that, leaving the business to figure out whether the patent owner has a legitimate claim.

It’s not unusual for a demand letter to identify only the patents but not any particular product or service that might infringe. And some trolls don’t even identify the patents.

If the business has no experience with patents of its own, this can be incredibly intimidating.

I’ll be discussing demand letters in more detail in a later post. For now, we’ll consider what happens if the business refuses to pay.

The troll might just go away, if it was just hoping for a quick payout. Or, it might go to the next step in the process, which is filing a complaint.

The Complaint

A complaint is the document filed with a court that starts a lawsuit. It’s supposed to provide a defendant with notice of the plaintiff’s claims with enough information for the defendant to be able to respond.

Due to an odd quirk in the rules, however, “enough information” is a pretty low bar in patent cases. It’s enough to name the patent and give a vague description of what the defendant is allegedly doing to infringe.

Regardless, the defendant is going to have to answer the complaint or risk a default judgment, unless it moves for a judgment on the pleadings.

Judgment on the Pleadings

It is possible to ask the judge to dismiss the case at this point, although it isn’t easy. A defendant has to persuade the judge that even if everything alleged in the complaint is true, the plaintiff still doesn’t have a valid claim.

In a patent case, generally the only way is to argue that the patent is unpatentable subject matter. While the Supreme Court’s decision in Alice Corp. v. CLS Bank made this easier than it used to be, this is still a long shot.

Scheduling

After the defendant files an answer, the court sets the schedule for the case. The judge will set the length of time for discovery, a target date for trial, and a few other deadlines. The judge will also set down some ground rules which determine whether the case is more or less expensive.

For example, some judges don’t like summary judgment motions (see below), so they set up hurdles that make such motions difficult.

Courts also have local rules, and a few courts have special local rules just for patent cases. A court might require parties to exchange their claim construction contentions (more below) at the beginning of the case, or put them off until after discovery.

Discovery

Discovery is where most of the action in a case happens. This is the period where the parties request information from each other, exchange documents, take depositions, and answer questions called interrogatories.

In general, if information is relevant, a party has to produce it unless it’s protected by some sort of privilege. Courts differ widely in how they interpret “relevant,” with some courts requiring production of nearly everything that’s even marginally relevant and others being more restrictive in what they allow parties to request.

Discovery also includes experts, who are critical in patent cases. It’s the experts who will argue about whether the defendant infringes and whether the patents in the suit are valid. And good experts don’t come cheap.

As you might expect, discovery costs can become enormous, often growing into millions of dollars if a defendant is a large company. A typical patent troll, however, doesn’t have a lot of documents and has few witnesses to depose, meaning that its discovery costs are usually a fraction of the defendant’s.

Claim Construction

If discovery is where most of the money is spent, claim construction is where most cases are decided. Claim construction is the process of deciding what the various terms of the asserted patent claims mean. Here’s a sample patent claim, in case you haven’t seen one recently:

1. A method for distribution of products over the Internet via a facilitator, said method comprising the steps of:

a first step of receiving, from a content provider, media products that are covered by intellectual-property rights protection and are available for purchase, wherein each said media product being comprised of at least one of text data, music data, and video data;

a second step … (and so on, for nine more steps, which are essentially just requiring an Internet user to watch an ad in order to stream media).

A patent claim is supposed to be read “in light of the specification,” meaning that you interpret the claims based on what’s in the application. For example, in the sample claim, what is a “facilitator” (see the first line)? Does the term include a website? Does it require some specific computer application? Does it include a mobile phone?

The parties will actually go through the claims and propose their definitions to each other. Typically, they’ll end up agreeing on a lot of the terms so that the judge only has to decide a few things. (Judges strongly encourage such agreement.)

Then, the parties write briefs and argue at a hearing to the judge to advocate their own meanings. The hearing is called a Markman hearing after the Supreme Court case that created this process.

For each term, the judge can adopt either party’s definition or neither party’s definition. Regardless, once the Markman opinion issues, it’s often clear whether the defendant infringes and whether the patent is valid.

If a case makes it this far, this is a common settlement point. If there’s no settlement, the parties will typically move for summary judgment.

Summary Judgment

The purpose of summary judgment is to let the judge resolve issues where there isn’t any dispute about the facts. For example, if everyone agrees that a product uses a particular standard, the only issue left might be whether the patent-in-suit covers the standard. If the judge decides that no reasonable jury could find that the patent covers the standard, she would grant summary judgment of non-infringement.

Summary judgment can be used to decide the entire case or parts of it. The goal is to simplify a trial or dispose of the case altogether.

Although moving for summary judgment isn’t cheap (it requires writing briefs and arguing in court), it’s still much cheaper than trial.

A few courts, unfortunately, frown on summary judgment motions. These judges tend to feel that patent cases will always come down to dueling experts, so summary judgment motions are generally a waste of the court’s time. In those courts, the parties typically have to ask permission to file a summary judgment motion, explaining what it will be in advance.

If the court allows the parties to file summary judgment motions, the court might delay trial until its ruling or might simply push ahead with the trial date anyway.

If summary judgment doesn’t resolve everything in the case, it’s on to trial.

Trial

You’ve probably seen trials on TV, whether real or fictionalized. They’re expensive and risky, with a lot of moving parts.

At the end of the trial generally comes a verdict. One side may win completely, or the result may be mixed.

The parties can ask the judge for a new trial and/or to grant a judgment as a matter of law on some or all issues.

And, if the parties still haven’t settled at this point, it’s probably on to appeal.

Appeal

Appeals involve a lot of writing, often by new counsel brought in who specialize in appeals. All patent cases are appealed to the U.S. Court of Appeals for the Federal Circuit.

A three-judge panel will hear the case, and can affirm what the lower court did, reverse some or all of what the lower court did (that is, the appeals court actually decides the issues the opposite way the trial judge did), or vacate some or all of the lower court’s results. If an order or verdict is vacated, the trial court will have to take another shot, this time with guidance from the appellate court. (It’s also possible to ask the U.S. Supreme Court to hear the case after the appellate court’s decision; these requests are rarely successful.)

Conclusion

As you can already see, litigation has the potential to be long and expensive. A patent case can go on for years and cost millions of dollars. That potential cost puts a lot of pressure on a defendant to settle.

The litigation reforms that have been proposed in Congress include attempts to reduce costs and relieve some of that pressure, without hampering a patent owner with a legitimate claim.

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