SKGF_Presentation_Patent Licensing in the Wake of MedImmune, eBay, KSR and Microsoft_2007

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Information about SKGF_Presentation_Patent Licensing in the Wake of MedImmune, eBay, KSR...

Published on May 9, 2009

Author: SterneKessler


Patent Licensing in the Wake of MedImmune, eBay, KSR and Microsoft Timothy J. Shea, Jr. – Director Sterne, Kessler, Goldstein & Fox P.L.L.C. Drafting and Negotiating Patent License Agreements West Legalworks - One Day Workshop Boston, MA June 14, 2007

Introduction • Several very significant decisions by U.S. Supreme Court in patent cases within the past year • Cases are changing the rules of the game for patent licensing • Reflects heightened interest of Court in patent cases 2

Introduction • Reasons for heightened scrutiny: • Increased value of technology and IP in U.S. economy • Increase in number of patents sought and granted • Increased public awareness of importance of patents – NTP v. Research in Motion (Blackberry case) • Rise of patent holding companies – NTP • Perception that patents are stifling innovation more than promoting it – FTC Report 3

Introduction • Common Themes: – Federal Circuit reversed – Traditional legal principles in areas such as equity and jurisdiction apply equally to patent cases • No special rules for patent disputes – Elevation of helpful guidelines to rigid rules by Federal Circuit is improper 4

Introduction • Result: – Elimination of bright line rules relied on by Federal Circuit is leading to greater uncertainty in areas such as permanent injunctions, DJ jurisdiction, obviousness – Incremental erosion of patentee’s power (or at least return to pre-Fed. Cir. Level) – Playing field shifting in favor of defendants and licensees 5

eBay Inc. v. MercExchange L.L.C • 126 S.Ct.1837 (May 15, 2006) – Unanimous decision (Thomas) • Issue: Does traditional four-factor test for permanent injunctive relief apply to patent disputes? • Background: – MercExchange in business of patent licensing – Patent at issue was business method patent for electronic market for sale of goods between private individuals – MercExchange sought to license patent to eBay • Had previously licensed it to other companies 6

eBay Inc. v. MercExchange L.L.C • No agreement 0 MercExchange filed suit • Dist. Ct. – Jury found patent valid and eBay had infringed – Permanent Injunction denied • D. Ct. concluded award of damages sufficient • Fed. Cir. Reversed – Applied “general rule that courts will issue permanent injunctions against patent infringement absent exceptional circumstances” 7

eBay Inc. v. MercExchange L.L.C • Supreme Court reversed Fed. Cir. – “well-established principles of equity” require plaintiff seeking permanent injunction to satisfy 4-factor test: 1. irreparable injury 2. remedies at law (e.g. money damages) inadequate 3. balance of hardships between plaintiff and defendant justify PI 4. public interest not disserved by PI NO SPECIAL RULE FOR PATENT CASES 8

eBay Inc. v. MercExchange L.L.C • Fed. Cir. erred in holding statutory right to exclude alone justifies presumption the injunction should be granted • Court looked to Patent Act – Injunctions “may” issue “in accordance with principles of equity” • Copyrights – Similar right to exclude, but no special rule for injunctions • Traditional rule applies 9

eBay Inc. v. MercExchange L.L.C • Neither Dist. Ct. nor Fed. Cir. Applied proper test – Dist. Ct. erred in concluding that MercExchange’s willingness to license and lack of commercial activity practicing patents meant could not show irreparable harm • Court notes universities and independent inventors who seek to license may still meet 4-prong test – Fed. Cir. Erred in concluding injunction should be denied only in exceptional circumstances • S. Ct. did not opine on appropriateness of injunction in this case 10

eBay Inc. v. MercExchange L.L.C • Roberts Concurrence (Scalia, Ginsburg) – Notes “long tradition” of granting injunctive relief in “vast majority” of patent cases – Suggests tradition should continue • Kennedy Concurrence (Stevens, Souter, Breyer) – notes tradition of granting injunctions but suggests recent developments may require change • Rise of licensing industry • Questions business method patents • Quotes FTC report on innovation 11

eBay Inc. v. MercExchange L.L.C • Kennedy concurrence – “When the patented invention is but a small component of the product the companies seek to produce and the threat of an injunction is employed simply for undue leverage in negotiations, legal damages may well be sufficient to compensate for the infringement and an injunction may not serve the public interest.” 12

Injunctive Relief after eBay • Survey of approximate two dozen post- eBay cases – Injunction granted in about 70% of cases • Very likely where direct competitors, competing products, loss of market share, harm to reputation – Injunction denied • More likely where plaintiff not practicing invention, established licensing program, significant harm to business of infringer – Finisar Corp. v. Directv Group, Inc. » Finisar not practicing invention » Injunction would put Direct TV out of market – Z4 Techs., Inc. v. Microsoft » No irreparable harm, hardship for Microsoft 13

eBay – Impact on Licensing • Injunctions no longer automatic • Risk to potential infringer mitigated • Injunctions even more difficult for patent “trolls” • Primary weapon of trolls (i.e., threat of shutting down potential infringer’s business) now less potent 14

MedImmune, Inc. v. Genentech, Inc. • 127 S.Ct. 764 (Jan. 7, 2007) – Scalia – 8-1 • Issue: Must a patent licensee terminate or be in breach of license before it can seek a declaratory judgment that the underlying patent is invalid, unenforceable, or not infringed? • Answer: No 15

MedImmune, Inc. v. Genentech, Inc. • Background • MedImmune entered into agreement with Genentech in 1997 to license “Cabilly” patent and application – Covered MedImmune’s product Synagis • Cabilly II issued in 2001 – Genentech sent letter to MedImmune stating royalties due on Cabilly II • MedImmune disputed validity, but paid royalties under protest rather than risk treble damages and injunction preventing sale of Synagis (80% of revenues) • MedImmune brought DJ action 16

MedImmune, Inc. v. Genentech, Inc. • Dist. Ct. dismissed for lack of subject-matter jurisdiction – Citing Gen-Probe v. Vysis, Inc. (Fed. Cir. 2004) • Held that patent licensee in good standing cannot establish Art. III case or controversy regarding validity, enforceability, or scope of patent because license “obliterate[s] any reasonable apprehension” that licensee will be sued • Fed. Cir. affirmed 17

MedImmune, Inc. v. Genentech, Inc. • Supreme Court reversed – Set forth standard for DJ jurisdiction • “[W]hether the facts alleged, under all the circumstances, show that there is a substantial controversy, between parties having legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.” – Court noted that no dispute that standard would be met if MedImmune had ceased making payments. 18

MedImmune, Inc. v. Genentech, Inc. – However, as long as payments made, no risk of suit by Genentech – Court analogized to constitutional challenge • Where threatened action by government is concerned, no requirement to expose self to liability before bringing suit to challenge basis for the threat • Subject matter jurisdiction not precluded simply because threat-eliminating behavior was effectively coerced 19

MedImmune v. Genentech – Cited earlier decision in Altvater v. Freeman, 319 U.S. 359 (1943) • Patent licensee’s failure to cease payment of royalties did not render nonjusticiable dispute over validity of patent • Fact paid under injunction does not render distinguishable 20

MedImmune, Inc. v. Genentech, Inc. – “The rule that a plaintiff must destroy a large building, bet the farm, or (as here) risk treble damages and the loss of 80 percent of its business, before seeking a declaration of its actively contested rights finds no support in Article III.” – Court rejected Genentech’s argument that common-law rule that a party to a contract cannot challenge its validity and, at same time, reap its rewards applies 21

Impact of MedImmune • Dramatic shift in balance of power between parties to existing license agreements – Little downside to licensee in challenging validity of licensed patent – More power to licensee to compel renegotiation – Increased uncertainty for licensors • No repose • Potential for sudden increase in litigation 22

Impact of MedImmune • Potential licensees now have incentive to take license to reduce exposure then seek DJ • Licensors must carefully examine existing license relationships – Where DJ more likely, determine if termination possible 23

Questions Unanswered by MedImmune • Status of Licensee Estoppel – “We express no opinion on whether a nonrepudiating licensee is similarly relieved of its contract obligation during a successful challenge to a patent’s validity – that is, on the applicability of licensee estoppel under these circumstances.” 24

Questions Unanswered by MedImmune • Legality of Contractual Limitations on Licensee Challenges? – Can licensors include provision that license will terminate if licensee challenges validity? • Not clear - presumption against restrictions on licensee’s right to challenge validity, but S. Ct. in MedImmune specifically declined to address Lear. – Other contractual provisions to consider: • Admissions that licensed patent examined and valid? • Escalated royalties/milestones in event of suit? • Forum selection clauses? • Notice of suit? 25

Post-MedImmune Cases • SanDisk Corp. v. STMicroelectronics (Fed. Cir. March 26, 2007) • Appeal of Dist. Ct. dismissal of DJ action • Background: – Parties are competitors in flash memory field – ST’s VP of IP and Licensing sent letter to CEO of SanDisk noting patents that “may be of interest” and seeking meeting to discuss cross-license – At cross-licensing meeting, parties discussed patent mapping and infringement analyses. However, parties said no plans to sue each other – Parties exchanged cross-licensing offers – A few weeks later, SanDisk filed DJ action 26

Post-MedImmune Cases • SanDisk con’t • D. Ct. granted ST’s motion to dismiss on ground SanDisk did not have reasonable apprehension of suit. – “studies and determined infringement analyses . . . Did not constitute the requisite ‘express charges [of infringement] carrying with them the threat of enforcement.” 27

Post-MedImmune Cases • SanDisk con’t. • Citing MedImmune, Fed. Cir. Reversed – Recognized MedImmune as rejection of Fed. Cir. reasonable apprehension of suit test – Mere knowledge of existence of patent of another, even if perceived to pose infringement risk, will generally not give rise to DJ jurisdiction absent some affirmative act by patentee 28

Post-MedImmune Cases • SanDisk con’t. – “We hold only that where a patentee asserts rights under a patent based on certain identified ongoing or planned activity of another party, and where that party contends that it has the right to engage in the accused activity without license, an Article III case or controversy will arise and the party need not risk a suit for infringement by engaging in the identified activity before seeking a declaration of its legal rights.” – Fed. Cir. Noted infringement analysis was essentially assertion of rights by ST based on specific, identified activity of SanDisk • Referred to infringement liberally at meeting • Asked for royalties • Statement that does not intend to sue does not moot actual controversy created by its acts. 29

Post-MedImmune Cases • Bryson concurrence – Worried about “broad implications” of decision – “Therefore, it would appear that under the court’s standard virtually any invitation to take a paid license . . . Would give rise to an Article III case or controversy.” – Predicts “sweeping change” in the law of DJ jurisdiction 30

Post-MedImmune Cases • Dilemma: – May be able to avoid DJ by sending general offer to license without specifying infringing activity – However, may not be enough to put on notice. – Incentive for licensor to file suit then seek to negotiate license • File but don’t serve 31

Post-MedImmune Cases • Teva Pharm. v. Novartis Pharm. (Fed. Cir. March 30, 2007) – Teva filed ANDA to market generic version of Novartis’ drug FAMVIR® • Para. IV cert. that did not infringe any of five patents listed by Novartis in Orange Book – Novartis sued Teva on drug patent only – Teva sought DJ on four nonasserted method patents 32

Post-MedImmune Cases • Teva v. Novartis • D. Ct. dismissed DJ for lack of jurisdiction • Fed. Cir. Reversed – Considered “all circumstances” and found actual case or controversy – Factors: • Listing in Orange Book – May not itself be enough for DJ but a factor • Teva’s submission of ANDA was act of infringement • Purpose of Hatch-Waxman – to obtain patent certainty • Existing litigation on drug patent 33

Post-MedImmune Cases • Teva v. Novartis – Patent owner may not be able to sue on only select patents listed in Orange Book covering same product – Concurrence suggests Orange Book listing alone should be enough for DJ jurisdiction 34

Microsoft Corp. v. AT&T Corp. • Decided April 30, 2007 (Ginsburg) • Background – AT&T has patent on computer used to digitally encode and compress recorded speech – Windows OS contains software code that enables computer to do this – Microsoft sells Windows to overseas manufacturers who then install on computers and sell to public • Key – Microsoft provides master disk from which manufacturers make copies that are installed on computers 35

Microsoft Corp. v. AT&T Corp. • AT&T sued Microsoft for infringement under 271(f) – 271(f)(1) • “Whoever without authority supplies or causes to be supplied in or from the United States all or a substantial portion of the components of a patented invention, where such components are uncombined in whole or in part, in such a manner to actively induce the combination of such components outside of the United States in a manner that would infringe the patent if such combination occurred within the United States, shall be liable as an infringer.” 36

Microsoft Corp. v. AT&T Corp. • D. Ct. found Microsoft liable • Fed. Cir. Affirmed • Supreme Court reversed – Because Microsoft did not supply actual copies loaded on computers, no 271(f) liability – Here “component” was copy of Windows, not Windows in abstract – Ease of copying not relevant to analysis – Presumption against extraterritoriality – To prevent copying abroad, must pursue patents abroad • Problem for software patents 37

KSR Int’l v. Teleflex Inc. • Decided April 30, 2007 (Ginsburg) • Patent on adjustable pedal assembly with electronic pedal position sensor attached to a fixed pivot point • Prior art taught – Pedal assembly with electronic sensor on pivot point – Sensors of type claimed – Location of sensor on fixed portion of pedal 38

KSR Int’l v. Teleflex Inc. • D. Ct. granted SJ of obviousness • Fed. Cir. Reversed – Said D.Ct. did not apply teaching, suggestion, motivation (TSM) test strictly enough • References needed to address precise problem facing inventors in order to be combined 39

KSR Int’l v. Teleflex Inc. • Supreme Court reversed (again) – Fed. Cir. applied TSM test in overly narrow, rigid manner • Graham test is flexible • Improvement must be more than predictable use of prior art elements • Not limited to references dealing with precise problem addressed – Any need or problem known in the field and addressed by patent can provide reason for combining elements • “Obvious to try” could be enough in some instances 40

KSR Int’l v. Teleflex Inc. • Impact of KSR – TSM test not dead • Still considered “helpful insight” but not overriding consideration – Return to flexible approach • Less difficult to make out prima facie case were combination of known elements – Concern about increased use of hindsight at PTO – Licensing • More leverage to licensees and potential infringers – Particularly in view of MedImmune and eBay 41

Patent Licensing in the Wake of MedImmune, eBay, KSR and Microsoft Thank You Timothy J. Shea, Jr. Sterne, Kessler, Goldstein & Fox, P.L.L.C. (202) 772-8679 42

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