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Jan. 23, 2019

Intellectual Property Roundtable

An update on the PTO's new guidelines for subject matter eligibility, the Federal Circuit's ruling in Berkheimer v. HP Inc., and the latest developments in the law of damages.

Thomas J. Friel

King & Spalding LLP

601 California Ave, Ste 100
Palo Alto , CA 94304-1101

Phone: (650) 422-6741

Fax: (650) 422-6800


G. Hopkins Guy III

Baker Botts LLP

1001 Page Mill Rd, Ste 200
Palo Alto , CA 94304-1007


Matthias A. Kamber

Partner, Keker, Van Nest & Peters LLP

633 Battery St
San Francisco , CA 94111

Phone: (415) 391-5400

Fax: (415) 397-7188


Fabio E. Marino

Polsinelli PC

1661 Page Mill Rd Ste A
Palo Alto , CA 94304-1209

Phone: (650) 461-7706


Matthew D. Powers

O'Melveny & Myers LLP

2 Embarcadero Ctr 28th FL
San Francisco , CA 94111

Phone: (415) 984-8700

Fax: (415) 984-8701


Jeffrey G. Kichaven

Mediator, Jeff Kichaven Commercial Mediation

515 S Flower St, Fl 18
Los Angeles , CA 90071-2221

Phone: (310) 721-5785


Change is afoot in the Section 101 landscape, making waves in the patent practice area. The Federal Circuit issued its highly anticipated ruling in Berkheimer v. HP Inc. Meanwhile, the U.S. Patent and Trademark Office kicked off the new year announcing revised guidance for determining subject matter eligibility. Our panelists discussed these issues as well as developments in the law of damages, including extraterritoriality and willfulness in the standard-setting context. Participating are Thomas J. Friel of King & Spalding; G. Hopkins Guy, III, of Baker Botts; Matthias A. Kamber of Keker, Van Nest & Peters; Fabio E. Marino of Polsinelli; and Matthew D. Powers of Tensegrity Law Group. The roundtable was moderated by independent mediator Jeff Kichaven and edited by Rye Murphy of Goldfarb & Lipman.

JEFF KICHAVEN: Let's start with patent eligibility under Section 101, which continues to be an important and fastchanging subject. What are some recent developments in the area?

MATTHIAS A. KAMBER: One development is the new subject matter eligibility guidelines that the PTO issued recently. I am a little surprised that they make the subject matter eligibility determination an even narrower filter with this new Step 2A process. I recognize that a driving force is the idea that that PTO doesn't want many 101 rejections of applications. Whether that does any favors down the line for patent holders or the courts I have some doubts. I'm not sure that it will ultimately resolve some of these 101 issues and may just leave it to other parts of the system to address the thorny issues.

MATTHEW D. POWERS: The guidelines are a really interesting attempt to create a top down approach to abstractness as opposed to a bottom up approach. The bottom up approach is sort of a traditional legal analysis where you say which one of these cases is most like the other. The problem with that is the case law is all over the map. So if you have inconsistent case decisions on the same facts, a bottom up approach doesn't work. A top down approach is more likely to produce more consistent decisionmaking. This was the PTO's attempt to actually discern an analytical framework from the existing Federal Circuit and U.S. Supreme Court law. So it's not meant to be a change in law. It's meant to be a distillation of the law. It will be interesting to see what effect it has on the courts.

G. HOPKINS GUY, III: Some of the early PTAB comments were interesting. One number stood out in particular. They're trying to create consistency over 8500 examiners. And I think they're trying to remove what are clearly abstract issues. I think that's basically what the new suggestions are: guidelines.

THOMAS J. FRIEL: The justification for the new guidelines was that there are too many cases for the examiners to look at to do the weighing process. On the other hand, the courts have been following stare decisis, and they are trying to make enough case law such that practitioners--whether it's a lawyer, inventor, or someone in the Patent Office--can compare the claims in question to what's been decided before as either patentable subject matter or not. The two approaches are totally at odds. I agree with what Matt [Powers] said. I think it remains to be seen whether this approach correctly ends up distilling more general guidelines that the courts would respect and be willing to follow or whether the courts are someday going to come up with their own formulation of what the rules are once they have enough case law.

KICHAVEN: The PTO guidelines talk about practical applications of abstract concepts. Does that formulation help clarify things or make them more confusing?

FABIO E. MARINO: It is an interesting attempt at classifying what an abstract idea is. My reaction was, "Great, we have an abstract exception to patent eligibility, but what is an abstract idea?" There is no definition available anywhere in a Federal Circuit opinion or even a district court opinion that I've read. So, it's remarkable; it's the first attempt to define what an abstract idea is at the Patent Office. However, the proof is in the pudding. Are courts going to give it any credence? Are they going to start applying this? Are they going to give it any weight? Thus far most of the district court decisions that I have read have shown zero or very little deference to the PTO's determination on patent eligibility, which is a little strange if you think about it. The Patent Office, of course, is the first part of the government that has a say on patent eligibility because they have to decide whether to grant the patent in the first place. So it's going to be interesting to see if the district courts and Federal Circuit follow the Patent Office's more thought-through
analytical approach to patent eligibility, or if they will continue to ignore it and come up with their own rules.

POWERS: I think there's a decent chance that district judges will look to this for guidance because district judges are intensely frustrated by the current state of the law. They have the same trouble applying it that lawyers do advising. This is a pretty serious attempt to give them help, and we'll see if they take it.

GUY: I think there are two things in parallel. One of them is Berkheimer v. HP Inc., 881 F.3d 1360 (Fed. Cir. 2018), and the idea that we're beginning to understand better what the abstract idea step might be, but suddenly we have this thing coming up that the inventive concept second step suddenly is a triable issue of fact. One of the things that these guidelines seem to be addressing is that the PTAB and the PTO were not in the business of doing fact-finding, at least in examination stage. So that makes sense. There's not a whole lot of stare decisis in saying that's a triable issue. And that actually is a problem. So we keep reading this is an issue of law with "fact-y" stuff that can be tried. I think we're still looking for the best procedure for dealing with that. I just had an order come out less than a week ago in which the judge did exactly that. Nine pages on why it was an abstract idea, one paragraph on why it was a triable issue and motion to dismiss denied. But I think you're going to get that split. And I saw a parallel between what that judge did and exactly what we're seeing the PTO guidelines do here.

FRIEL: Does anyone think it's a little bit like the struggle we had over how to interpret claims?

POWERS: It's Teva all over again.

KAMBER: That's what struck me in reading Berkheimer on that particular issue. It felt a lot like Teva. But ultimately Teva--albeit an important case--had almost no effect in practical application. And I'm wondering if Berkheimer might be a similar type of situation because I think judges might be a reluctant to send that kind of a fact question to a jury. I haven't seen what a jury instruction on that would even look like.

POWERS: Judge Schroeder recently had a jury trial on 101 and I'm aware of two other cases where they're drafting jury instructions. The rubber is going to meet the road for the Federal Circuit when they're reviewing jury instructions on 101. The district judge is forced with either just doing the top level, conventional, well understood, or routine out of the case with no help, and then the jury really has no guidance on what that means; or they can try to craft specific instructions that are actually useful--however, those are probably going to get reversed because you can't predict what the Federal Circuit will do about them as they've never really given guidance on that. It's fascinating.

MARINO: That's a very interesting question because from a more practical case management view, what made 101 very appealing to district court-level judges was the ability to get rid of the case in an early stage of the proceedings. I think what you're going to see, if there is a shift and a substantial portion of cases go to juries, I think judges will become less and less interested in deciding 101 issues in a patent case. I think that's the debate we're going to see play out in the district courts.

POWERS: I think once 101 gets to the trial, it disappears from relevance due to obviousness. And if the factual question is whether something is routine, well understood, or conventional, that's going to be subsumed within obviousness and become irrelevant.

GUY: I think, though, it is a slightly different standard. It's not exactly a super obviousness standard, but you have the obligation to show certain elements within a claim as being generally known.

FRIEL: You may also have an issue on burden of proof. You have subsidiary factfindings, but it may be that the jury makes those findings and then the judge makes the ultimate decision. But there wouldn't be a burden of proof issue on the facts. There might be on the ultimate issue that probably the judge would decide because of the mixed legal and factual issues.
It's interesting too that the proposed guidelines of the PTO treat it as though if it's not one of the three listed exceptions, the burden's on the examiner to say that it's an abstract idea and explain why. That's an interesting formulation, but I think it may be that these burdens of proof become different for obviousness under 103 versus 101. We could see a number of different interesting decisions on that.

KAMBER: I want to circle back to one other thing briefly. Looking at Berkheimer and Finjan, you see the problem with the bottom-up approach. I looked at the claims at issue in both cases and it's hard to decipher why some were deemed subject-matter eligible in Finjan but not in Berkheimer. So I appreciate the problem that the PTO is trying to grapple with because just those two cases highlight the very difficult task that examiners, district court judges, Federal Circuit, and others face.

KICHAVEN: What are the lessons to be drawn by attorneys who are drafting the claims and prosecuting them?

FRIEL: Be careful how you describe the prior art. Don't make admissions about what's in prior art, what's routine, or what's conventional because that's an admission that is used against you and takes that fact off the table.

GUY: In prosecution, I hear people say that describing the prior art got them in trouble. But if you describe your invention as a minor change to a piece of conventional hardware, then all of a sudden in claim construction, you're going to be limited to that as being an aspect of your invention. So in some ways you're trading a validity issue for an infringement problem on claims construction. So we go back to whether you want the presumption or not. You don't have a presumption of infringement, you have a presumption of validity.

KAMBER: I would be curious to know the current rate of 101 rejections and whether and to what extent it changes under the new guidelines. I would expect it goes down. And certainly the guidelines would arm any prosecutor for mapping out the arguments to deal with 101 rejection. But, again, then it will be up to the courts.

KICHAVEN: Here we are five years after Alice. If courts follow the PTO guidelines, when deciding motions for summary judgment, can we anticipate declarations with conclusory language about "practical applications that are not well understood, routine, or conventional"? Can people readily get past summary judgment and give their cases tremendous settlement value given the high cost of going to trial?

POWERS:I think you're going to find many more motions to dismiss either not being filed or being denied, and summary judgment then being denied because if there's a disputed fact on obviousness, there's surely a disputed fact on conventionality. And then, I think it will go to trial and get subsumed within all the rest of the invalidity parts. That does not mean there is immediate settlement leverage. It just means the case doesn't go away. It had whatever settlement leverage it had before Alice. If the case is not worth very much, then maybe it's going to have some settlement value it didn't have before, but it wouldn't affect a larger case at all.

KAMBER: I tend to agree. There's selection on the front-end by plaintiffs, which is already influenced by where the law is, and those claims you're not seeing litigated quite as much. Therefore, the claims that are being litigated aren't as likely to be dismissed on the pleadings at the outset or by summary judgment towards the end. It could become a triable issue, but I don't see many people trying this issue. And for that very reason I don't think it necessarily becomes a big lever in terms of settlement discussions either.

MARINO: So far, putting in declarations by experts to try and create the 101 factual dispute, I think, has been almost universally rejected by courts if the court independently didn't consider the patent to be one that created the disputed issue of fact. So courts aren't shy in dismissing an expert declaration that is conclusory basically saying it's conclusory. Based on the decisions that are out there today, it's very much an "I know it when I see it" kind of test. If the judge thinks this is an abstract idea that really should not be patent eligible, they find a way to get rid of it long before summary judgment. I don't think this is really going to change the profile of summary judgment. It will, however, give patent owners another argument. And an argument could be quite powerful for the judge, which is it is an actual disputed issue of fact, in which case it gives you a tool to survive the motion to dismiss. At that point I don't know many people will do the summary judgment motion, to be on honest.

GUY: I'd like to add a point on settlement value and summary judgment. Like you see in Berkheimer, often the claim strategy is to include an independent claim that is actually very broad and arguably abstract and doesn't exactly clearly define an inventive step other than in the most conventional ways; and then there's a dependent claim structure that follows that. In Berkheimer, they claim that they did not waive the dependency, and that they could pick and choose and raise it on appeal. And then as you go up to trial if your dependent claims narrow the claim to the point that there's no infringement and you really are relying on the breadth of the lead patent, you could win all the way through trial and just have the Federal Circuit flip it. There is settlement value in that.

KAMBER: I agree. I think Berkheimer will have an impact or will help those districts that are more reluctant to grant summary judgment or grant early motions to dismiss. It will be interesting to see what the impact is in other districts where, judges may try to dispose the claims on the abstract idea part of the Alice test and will perhaps avoid some of the potential factual issues.

FRIEL: So a couple times representative claim has been mentioned. And, Hop [Guy], you've also talked around it a little bit when you talked about claim drafting.

GUY: Right.

FRIEL: And I don't know if any of you have seen any developments in that. Early on the court would select what the representative claim was without regard to necessarily which claim or claims are alleged to be infringed. And they might take a representative claim that's in the complaint and use that rather than, shall we say, the dependent claims which intuitively are more likely to survive a challenge.

GUY: Well, you have the procedurally awkward problem that on a motion to dismiss you don't have the confirmed claims that will be asserted.

FRIEL: Right. GUY: So you can't focus on exactly dependent claims or all of the claims that are at issue. You pick out a representative claim, and then you go after all of them. And to the extent that the patent owner has the ability to pull out something in the dependent claims or some other claim and argue that, I think it's to their benefit. And certainly you don't waive it. You need to provide some evidence or argument as to each, but you don't necessarily have to have it particularized as to each and every claim. You can say this argument applies to Claims 1, 5, 6, 8 or whatever. So I do think it's a way in which a patent owner can preserve their position and continue to the battle on some dependent claims, particularly on the Alice Step 2.

POWERS: Tom [Friel], you're right. That issue has been handled pretty sloppily over the past several years where the patent owner would make vague allegations or arguments that the claim isn't representative, but not really provide the detail that Hop [Guy] is talking about. The courts would basically ignore some arguments made by the patent owner to make it easier to decide. The reality is you're finding invalid a set of claims or there's a presumption of validity, and you really can't do that. But they were doing it because it was the shiny new tool in the toolbox.

MARINO: There is the tool that the courts have been using to get around the issue of the narrower language of dependent claims where the statements in the specification basically say all of this is conventional. But let's assume a world in which those statements are no longer in every patent application. You're going to see a body of law developing where, actually, if you're going to raise 101 challenges, you have to address not the broad independent claims, but in fact at least those medium dependent claims which are more likely to survive. You're starting to see some of that in the PTAB where compared to regular patent prosecution, you'll see the examiner looks at the broadest claim and rejects based on that. And then he gives the back of the hand to all of the dependent claims. Well, the PTAB doesn't do that anymore. So whenever you have a PTAB trial, you will address all of the dependent claims separately. It's not just going to be back of the hand on the dependent claims. That's something that we have seen develop. 101 might go in that direction, particularly if practitioners stop writing patent specifications with Mayo in mind and do not include language that lets the courts dispose of the dependent claims. So that would be an interesting development in 101 jurisprudence and I think may very well happen.

KAMBER: I think Berkheimer is a great road map for patent owners in this respect because there the Federal Circuit found certain claims invalid and certain claims valid under 101--and the dependent claims were found valid. It makes it all the more difficult for district court judges to use a Rule 12 motion, for example, to dispose of all of the claims right up front. If a judge is reluctant to do that or perhaps dismisses some, but there are remaining claims and/or factual issues found under Berkheimer, I think the likelihood of that being an issue further on in the case drops dramatically. So I do think Berkheimer is going to have a big effect for a patent holder that way.

POWERS: I agree with that, but I think it's also important to note that given the way claims have been drafted for the last 10 or 15 years, a likely outcome of a Berkheimer trend over the next two or three years is that broader, more useful, more infringed, more valuable independent claims go down and narrower, maybe not as infringed, maybe not as valuable dependent claims survive. So the value of the patent still goes down, though infringement still remains in play perhaps. I think you're going to see a lot of dependent claims surviving and broader independent claims perhaps not.

KAMBER: I think that's right. And there is another interesting consequence of dependent claims being more difficult to invalidate. Because they have an extra one or more elements added to them, it increases the likelihood that you must have an obviousness defense. So at the end of the day the patent holder may end up with a stronger claim, perhaps with a narrower infringement read, but if they're on target they've got a higher chance of prevailing.

POWERS: And that's often the claim that ends up getting tried anyway for that reason.

KAMBER: Exactly.

KICHAVEN: Let's talk about developments in the law of damages. What have been some of the key developments since we were last together?

GUY: One issue is extraterritoriality. I was the lead trial attorney in Power Integrations, Inc. v. Fairchild Semiconductor Int'l, Inc., 711 F.3d 1348 (Fed. Cir. 2013), concerning whether or not you could collect damages for foreign activities. But that case was decided under 271(a), (b), (c) analysis. In that case the trial judge allowed in all the evidence of all damages worldwide and then in post-trial granted remittitur of 85 percent saying 85 percent had been extraterritorial and there was no indication of any related US activity that caused it directly. On appeal it was knocked down even further to something in the sub $200,000 gross revenue range. That theory was premised on Rite-Hite Corp. v. Kelley Co., 56 F.3d 1538 (Fed. Cir. 1995) (en banc) which basically said under a convoy sales theory that you were entitled to lost profits for both infringing and non-infringing products if they were somehow related or causally connected in terms of the loss. The U.S. Supreme Court's recent ruling in WesternGeco LLC v. ION Geophysical Corp., 138 S.Ct. 2129 (2018), looks at extraterri toriality under 271(g) and gets into an area in which they can tag something as being domestic infringement but then look to damages and harm outside of the United States. It changes the stakes in infringement cases. An exporter of something that is not infringing in the US and is a critical component or a series of components that could be assembled outside of the US suddenly is now subject to infringement. And they are subject to lost profits of the profits they lost outside the US as a foreign sale.

MARINO: In the recent Power Integrations, Inc. v. Fairchild Semiconductor International, Inc., Civil Action No. 04-1371-LPS (Slip Op., October 4, 2018), Judge Stark actually took the WesternGeco decision and said "Wait a second. This case is still pending," because in the meantime it had been remanded to him. And he says, "The way I read WesternGeco, it applies equally to the other sections of 271." He applied it to 271(a). And then he recognized that the Federal Circuit was going to reverse him, so he certified it for appeal to the Federal Circuit. So the Federal Circuit is actually going to look at that specific issue. And we're going to get some decision by the Federal Circuit that's going to determine whether WesternGeco was limited to 271(g) and lost profits or whether it has broader applicability. If, in fact, the Federal Circuit agrees with what Judge Stark said, that it is actually broader than 271(g) and broader than lost profits, that is going to be a big change. The way the Supreme Court got around the extraterritoriality objection was to say so long as there is an act of patent infringement in the United States, then the extraterritoriality prong is met. Now, damages is a separate issue. It's a remedy for that infringement. So just like for convoy sales you can get civil damages for products that are not infringing, the argument would be here you can get civil damages for foreign sales that are in some way tied to infringement in the US. In that particular case, I think there was a contract where the exact same company was selling to clients the exact same thing in the US and abroad and there was evidence introduced that linked the sales to the ability to sell the product both in the US and abroad. If the Federal Circuit validates it, those of us who do this will be trying to find other analogous situations and broaden it. So it would be potentially a very big development.

KAMBER: Looking at WesternGeco, the headline was that a patent owner can recover lost profits for infringing sales outside the US. But reading the decision, it affirms the opposite principle. If you look at what Justice Thomas was saying in the decision, they're reaffirming that one cannot recover for infringement abroad. Rather, infringement has to be in the US. And I think it's relatively clear that one couldn't under that decision recover for 271(a), 271(b), 271(c) from extraterritorial behavior. It was allowed under 271(f)(2), but very much limited to the facts and the fact that Congress had specifically legislated for that type of a situation where one exported components. Congress did that because there was a bit of a loophole at the time. They tried to close that loophole. And in light of that being a domestic act of infringement, the Supreme Court allowed for extraterritorial recovery. But I don't read WesternGeco as opening the floodgates to extraterritorial damages. If anything, again, it just reaffirms the idea or principle that one couldn't get extraterritorial damages under the standard infringement act.
GUY: I think that was correct. But Gorsuch's dissent points out that basically the remedy is not tracking the harm. And I think that's really the point. If you hold the statute to exactly what it says, the lost profit has to be what is the value or lost profit of exporting either a critical component that's not a commodity or all of the components for assembly outside the US, what is the value of that versus, say, what the eventual value of it as combined and then in competition, say, as a service. So suppose I have the components. The components are worth $10 apiece and relatively very little lost profit from that domestic act, but then performing the service outside the territorial limits of the US might be worth 100,000. Do you get the 100,000 or do you get the 100? I think that Thomas said you get the 100,000, and I think that's wrong.

POWERS: It will be very interesting to see what the Federal Circuit does with Chief Judge Stark's decision. That's the key line. If they affirm, life will get interesting.

MARINO: I couldn't agree more. If it's limited to the current WesternGeco decision, it's an interesting footnote, but a footnote nonetheless. If Power Integrations the way I interpreted it is affirmed, it's a game changer.

FRIEL: It's likely to be limited to its facts. And I think looking back over the last 20 years, the trend has been to reduce damages in patent cases with some exceptions. The trend is to drive down the number and require more analytics to achieve the damage award and support it.

MARINO: I think that's right. The problem is the way the Supreme Court addressed the issue: they separated the two statutes. It's not easy to do that with that analytical framework.

KAMBER: I think that's why Power Integrations will be a lot more interesting, frankly, than WesternGeco. Ultimately.

GUY: Yeah. And even under Thomas's decision, the first thing is you look at a presumption against extraterritoriality. You go into it and look into whether or not it had any intent, and you can certainly see that in the intent of 271(f) that there are these components dealing with the edge of extraterritoriality. And then they said, well, it didn't cross the line. But then they took the damages and got there. So it's an interesting development because obviously you don't have anything like that with respect to 271(a), (b), and (c).

KAMBER: Right.

KICHAVEN: In the world of damages, what is going on in terms of allocation issues?

FRIEL: Willfulness in the standard-setting context. So, for instance, if there is a FRAND obligation for the patent--in other words, it's one of the essential patents--for it to practice the standard does the FRAND obligation ever preclude a finding of willfulness? Some of the courts are struggling with that difficult question.

KICHAVEN: What makes it difficult?

FRIEL: When you have a FRAND obligation, it's just a question of how much, not the right. Willfulness entails the right, as I see it. You don't have the right to use somebody else's monopoly. But in a FRAND context the patent owner has given up the right to the monopoly by saying that the patent owner will license.

KICHAVEN: By having become a standards essential patent?

FRIEL: Exactly. And that's where I think there are troubling issues. You can argue either side of it, but it's not exactly clear. And that has not been decided like so many issues surrounding standard-setting organizations. A related issue is that some courts have looked to evidence of concealment of infringement as a factor to show willful infringement. And I guess the question is if you say I'm practicing the standard, could you ever be concealing the fact that you're infringing or at least that you're using the standard essential patents? There has been some back and forth on that issue at the district court level.

POWERS: But that's a one-way rachet. Concealing is evidence of willfulness. Absence of concealing isn't evidence of non-willfulness. In the FRAND context where I think the rubber is going to meet the road is if there's evidence of holdout. So if the patent owner has made a FRAND offer and the putative defendant has refused to accept a genuine FRAND offer, at that point you could easily consider them a willful infringer because they have refused to take a license and are therefore now using without paying something where they have gotten an offer to pay FRAND. At that point I think there's a legitimate argument for willfulness in the FRAND context.

KICHAVEN: How genuine does the offer have to be? And how reasonable does the proposed royalty have to be?

POWERS: Well, that's one of the gnarliest issues in the FRAND and SEP contexts right now. But judges are now starting to make decisions whether an offer is FRAND or not. And that's a complicated thing that will vary by standard, offer, and negotiating history. At some point a judge will make a decision whether the patent holder's offer was FRAND or not. And if it was and if the defendant refused to accept it, at that point I think they're a willful infringer.

FRIEL: The facts become very slippery and difficult in that situation.

POWERS: They do.

FRIEL: And you can pose a number of examples to test the principle, but one of them might be if someone makes an offer for X and the case gets tried and the jury says, "Well, X is too high. Instead, it's going to be some fraction of X," that begs the question: was the original offer a FRAND offer? And is the recipient of the benefit of a FRAND obligation--the obligation to license--within its rights to say, "No, you're charging too much?" It's about the price, not about the use. So let's get that resolved. But, again, it does get caught up in the holdout analogy. Ultimately, you're not going to have a patent case over some small fraction of the royalty. It isn't worth it. That's why some courts will say, "I want teeth in it. I want to have willfulness in this context." There are consequences if you guess wrong.

KICHAVEN: Is there practical advice we can offer readers on this subject?

KAMBER: There has to be a FRAND offer. And then what is FRAND? Those are very factual questions. Is it fair? Is it reasonable? Is it nondiscriminatory? Those are all fact questions as to the offer. And as others have mentioned, it depends on who the parties are, the negotiating history, their respective positions. Those things ultimately become expert issues. So if you're in a negotiation like this, you try to create in the process the best record that you can as to the positions that you're taking and why you are demanding a higher number from one entity versus another entity. Down the line, that could help you to defend your position and put in testimony through either fact or an expert witness.

POWERS: And there still isn't agreement about what the "N" means in FRAND. "N" could just mean that you're not able to refuse to license a competitor. That's what "nondiscriminatory" originally meant. That was the whole purpose of a standard--if you're contributing a patent to a standard, you can't keep anyone from practicing the standard. That's what "nondiscriminatory" means. And then people were saying, "Well, 'nondiscriminatory' means it has to be the same terms," which obviously makes no sense. You wouldn't license Apple at the same rate you would license a mom-and-pop shop because that's not how the real world works. And then "nondiscriminatory" meant the terms have to be comparable. The law on that is still evolving and uncertain.

KAMBER: I agree with that. I think nondiscriminatory did initially mean you couldn't refuse anybody. And now it's become almost like a most favored nations-type clause where people argue, "I deserve to get whatever best deal you've given because otherwise you're discriminating against me." And I'm not sure that's quite right either because there are differences in negotiating power.

FRIEL: And now we're going to assess willfulness based on differences in philosophy of how it should be applied. As far as practical advice goes, Matthias said something that's very important: keep a record. If you're representing an accused infringer, make sure you make an offer and that it has some logic to it. If you're representing the patent owner, the demand should be consistent with your other licenses so you're not trying to ask for so much that your demand is out of line. As another practical matter, you want a record that can be used in the court. So be really careful about entering into NDAs. Be really careful about what they say because you might find yourself NDA'd out of the evidence that you need to prove you made the offer. And be careful about mediation. We have some states that have mediation privileges and mediation agreements that go even further than NDAs. You don't want to have your sole offer in this context be through a mediator that can't be admitted into trial.

KAMBER: That actually brings up one other complication with willfulness. An NDA would be pretty common in that situation for confidentiality. But you can't, then, have it be under FRE 408.

FRIEL: Right.

KAMBER: And if it is under FRE 408, then you probably will not be able to use it. There are, of course, some limitations on that and some allowances. But if it's under NDA and now you've been negotiating, that can't be used against you in willfulness because they'll say, "Well, you were looking to negotiate for this patent" and it could boomerang on you in that way.

POWERS: The NDAs point is a huge one because a defendant will often want to use what they showed the plaintiff in negotiations, for example, the prior art they showed them. They want to use the fact that they showed it to them to rebut willfulness rather than having to produce an opinion that has waiver consequences and implications. But the NDAs often preclude that, and you have to be very careful.

GUY: I'd like to add one other practical point: I think if you're a small company, you should stay as far away as you can from a standards body and don't participate if you want any value. In many cases if a start-up is touching on a standard, they may be using an existing standard but improving it, and the last thing they want to do is take that valuable patent and park it in a standards-setting context. I would just advise stay away from it.

POWERS: That's really good advice. The reality is the larger company is going to be driving the bus on the standard anyway, and all you do is get dragged behind them.

GUY: Right. And they get to set the price on your behalf.

POWERS: Exactly.


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