They think it's all over -- but the Comptroller can intervene

Kennametal Inc v Pramet Tools SRO, Associated Production Tools Ltd and Comptroller-General of Patents, Designs and Trade Marks, a Court of Appeal, England and Wales, ruling last Wednesday, is noted on subscription service Lawtel. It's a short case.

After Kennametal's UK patent was held invalid in earlier proceedings ([2014] EWHC 565 (Pat)), Kennametal did not seek permission to appeal against the revocation decision. Instead ,it applied -- and failed -- to get a stay of an order revoking the patent, pending the outcome of an application to amend which it had brought before the European Patent Office. Kennametal subsequently did appeal against the refusal to stay the revocation. Shortly before the date fixed for hearing this appeal, Kennametal and Pramet reached a settlement. The day before the hearing, the Comptroller received notice from Pramet that it intended neither to oppose the appeal nor to attend the hearing. At this point the Comptroller immediately served notice, stating its intention to intervene and to attend the hearing in order to oppose the appeal. The Court of Appeal ((the Chancellor, Sir Terence Etherton, together with Lords Justices Christopher Clarke and Vos) had to decide whether it was appropriate to adjourn in light of the recent developments.


Granting the Comptroller's application, the Court of Appeal held that the points raised in the appeal were important and of general application in relation to the revocation of patents. It was accordingly important that the appeal be argued properly and fairly. If that were to be done, it was perfectly clear that there was no alternative to adjourning the appeal in order to allow the important points of principle to be argued properly by the Comptroller.

This ruling serves as a warning that, while settlement of a dispute by mutual agreement between the parties is a desirable aim, it is not an end in itself and, in this case, it is not an end to the litigation either.

FTC announces settlement with patent assertion entity MPHJ

Almost a year ago, the Federal Trade Commission initiated an investigation into the conduct of MPHJ Technology Investments LLC, a patent assertion entity which allegedly employed deceptive tactics to persuade small businesses to acquire licenses for technologies related to networked scanning systems. The FTC examined in detail the modus operandi of the company, observing that MPHJ typically targeted small companies (having between 20 and 99 employees) in specific sectors (e.g. veterinary services, lawn and garden services, building maintenance services, etc.), employing a three stage process to induce such businesses to conclude licensing agreements:

1.  MPHJ sent a letter in the name of one of its subsidiaries, identifying itself as the licensing agent for a specific set of patents (known as the Klein patents), deemed to cover computer management systems capable of transmitting electronic images, graphics, and/or documents through a communications network from a network addressable scanner, digital copier, or other multifunction peripheral to external devices, files, and applications. The letter, sent to ca. 16,465 small businesses in the US, alleged that the recipient was likely infringing the Klein Patents by using common office equipment (e.g. a digital copier/scanner/multifunction equipment), and stated that MPHJ was willing to initiate licensing negotiations. The letter also contained some distinctive features, such as the indication of a positive response by the industry to earlier licensing requests made by the patent assertion entity ("most businesses, upon being informed that they are infringing someone’s patent rights, are interested in operating lawfully and taking a license promptly" and “[m]any companies have responded to this licensing program in such a manner"), and the identification of a fair price for a license ($1,200 per employee), allegedly based on prior licensing negotiations.


2. In case of no response, most of the targeted businesses (over 10,000 of the original 16,465) received a second letter signed by MPHJ's counsel, the law firm Farney Daniels. The letter stated that "our client [has] reasonably assume[d] you have an infringing system and need a license [and] has referred the matter to [Farney Daniels]"; the law firm added that its representation of MPHJ, or of one of the patent assertion entity's subsidiaries, could involve litigation, but reiterated the willingness to enter into a licensing agreement.


3. The third letter, sent to almost 5,000 companies, was again signed by Farney Daniels' attorneys and contained a draft complaint related to an action for patent infringement that the law firm threatened to initiate, on behalf of MPHJ, within two weeks.

In its complaint, the FTC took issues with the allegedly deceptive, false and/or misleading statements contained in the three letters mentioned above. In particular, the FTC noted that, at the time of the sending of 7,366 first letters, MPHJ had not yet sold a single license for the Klein patents (and had concluded only one licensing agreement by the time it sent the following 1,077). The FTC also observed that different versions of the same letter contained different statements concerning the fair price calculated on the basis of the (non-existent) prior licenses. Further, the authority added that neither MPHJ nor Farney Daniels were, at the time of the sending of the third letters, ready to initiate legal actions for infringement of the Klein patents against the targeted businesses, and did not intend to promptly initiate such litigation. Thus, the FTC's complaint argued that such false and/or misleading statements constituted deceptive acts or practices affecting commerce in violation of Section 5(a) of the Federal Trade Commission Act. MPHJ brought an action against the FTC in the Western District of Texas, alleging a violation of its First Amendment rights and of the Separation of Powers Doctrine; the action was dismissed in September. In the meanwhile, several states conducted parallel investigations into the deceptive tactics employed by MPHJ, employing different means to prevent the patent assertion entity and its counsel from persevering in such activities (see, for example, our previous posts here, here, and here).

On 6 November, the FTC announced that MPHJ and Farney Daniels have agreed to settle the charges. The FTC's proposed consent order, in addition to provisions on record-keeping, compliance reporting and notification, contains specific requirements meant to prevent the use of false and misleading statements in future letters sent by the respondents. In particular, the draft consent order would prevent MPHJ and Farney Daniels from making, in a patent assertion letter, any representation, expressly or by implication:

• that a particular patent has been licensed to a substantial number of licensees at particular prices or within particular price ranges, or any other representation concerning the results of licensing, sale, settlement, or litigation of a particular patent, unless such representation is non-misleading and based on reliable evidence, at the time the representation is made;


• about the licenses for a patent or the responses of recipients of a patent assertion letter, unless the representation is non-misleading and based on reliable evidence, at the time the representation is made;


• that MPHJ, its subsidiaries or counsel have taken any action with respect to the filing of a lawsuit, unless the representation is true and non-misleading;


• that MPHJ, its subsidiaries or counsel will take any action with respect to the filing of a lawsuit, unless at the time such representation is made, they have decided to take such action and possess and rely upon competent and reliable evidence sufficient to substantiate such statement.

Public comments on the proposed consent order are due, through this dedicated webpage, by Monday 8 December.

Homemade solutions against patent trolls - part 2: New York Advocate General reaches settlement with MPHJ

In July 2013, the Nebraska Attorney General chose a peculiar solution to prevent the spread of 'patent trolling' phenomena. Rather than directly targeting the patent holder, the AG filed a cease and desist order against the Farney Daniels law firm, which had sent demand letters on behalf of MPHJ, one of the companies most commonly associated with the allegedly deceptive behaviors which prompted the US House of Representatives to pass the Innovation Act in early December. The order issued by the Nebraska AG enjoined the law firm from initiating new patent infringement enforcement efforts within Nebraska, pending an investigation on the alleged violation of the Nebraska Consumer Protection Act, § 59-1601 seq., and the Uniform Deceptive Trade Practices Act, § 87-301 seq.

As I reported in mid December, Nebraska's homemade solution did not withstand the scrutiny of courts. The District Court for the District of Nebraska ruled that the cease and desist order, issued before the conclusion (and review) of a formal investigation into the conducts of MPHJ and Farney Daniels, was akin to a forbidden prior restraint of speech and association. Thus, the District Court granted a preliminary injunction which prevented the Nebraska Attorney General from enforcing the cease and desist order against the law firm. In a decision of 14 January, the same judge reiterated this conclusion, granting a motion for preliminary relief filed by MPHJ itself, allowing Farney Daniels to keep representing the patent assertion entity in Nebraska.

AG Eric T. Schneiderman

Possibly inspired by the failure of Nebraska's solution, the Attorney General of the State of New York took a different path. On 14 January, the AG announced that he was able to reach a 'groundbreaking settlement' with MPHJ. The agreement essentially requires the patent assertion entity (i) to make a serious effort to determine the validity of its allegations of infringement, before making an accusation, either directly or through an attorney, (ii) to provide the alleged infringer with detailed information on the patents at issue, as well as on the basis on which the infringement allegation is made, (iii) to disclose information about the patents' likely invalidity, or to refrain from trying to collect revenues if the patents have been held invalid, (iv) to state the factual basis for a proposed licensing fee, and (v) to disclose its true identity. The Attorney General, Eric T. Schneiderman, noted that the agreement is meant to serve as a blueprint for other AGs dealing with patent trolling phenomena:

So-called ‘patent trolls’ exploit loopholes in the patent system and have become a scourge on the business community [.] They drain critical resources from small and medium-sized businesses that would otherwise be available for reinvestment and job creation, which are sorely needed across New York. State law enforcement can’t cure all the ills of the federal patent system, but the guidelines established in today’s settlement will put an end to some of the most abusive tactics by placing the industry on notice that these deceptive practices will not be tolerated in New York.

The following is a summary of the main obligations imposed to MPHJ under the settlement agreement, properly known as 'Assurance of Discontinuance'. The patent assertion entity, in relation to infringement allegations concerning New York individuals or companies, agreed:

• to provide a written notice to any company which has already concluded a licensing agreement with MPHJ, informing the licensee that it has the right to void the license agreement, in return for a full refund;
• to refrain from asserting its patents against any individual or small business (with fewer than 50 employees) which previously received a demand letter from MPHJ or its attorneys;
• if making allegations of infringement, to make reasonable efforts to evaluate (i) the scope of the asserted patents, (ii) the specific product used or sold by the targeted company, which allegedly infringes the asserted patents, according to MPHJ's good faith assessment;
• if merely intending to inquire as to whether a company infringes one of its patents, to make reasonable efforts to identify reasonably available facts about the targeted business, the allegedly infringing products, and the likelihood of infringement;
• to describe with reasonable specificity the basis for the infringement allegation;
• to provide information on the existence of (i) relevant pending or completed litigation in which a court found the asserted patents to be invalid or non-infringed, or (ii) relevant findings by the USPTO which raise issues of invalidity, or (iii) a terminal disclaimer which terminates before the end of the proposed license term;
• on request, to provide a claim chart or equivalent document that explains the basis of MPHJ's good faith infringement allegations;
• when proposing a licensing fee, to provide factual support for any reason or justification adduced for the proposed fee;
• when asserting a patent through a licensing agent, to disclose MPHJ's relationship with the agent;
• when asserting a patent in which another person has a financial interest (5% or more), to disclose the identity of such person;
• to refrain from providing misleading information on license agreements reached with third parties;
• to refrain from requiring the alleged infringer to enter into a non-disclosure agreement which would restrict communications between the targeted company and other companies against whom MPHJ is asserting the same patents (unless the non-disclosure merely protects MPHJ's proprietary business information, trade secrets, or attorney work product);
• to refrain from making fraudulent statements, or from referring to previous communications, unless it includes copies of such communications or has documentation verifying that MPHJ actually sent them;
• to refrain from asserting its patents through a legal counsel, unless the above mentioned requirements are also met by the counsel (good faith basis, reasonable efforts to identify the scope of the patents, as well as the allegedly infringing products);
• to refrain from asserting any patents which has been held invalid in a final judicial decision.

The settlement also contains provisions which require MPHJ to disclose the partial or comprehensive nature of the proposed agreement, and the existence of a licensing agreement or covenant not to sue with the originator or manufacturer of the allegedly infringing products. Further, the agreement establishes fines for any violation of its provisions. The solution endorsed by the New York Advocate General positively addresses most of the issues raised by vague demand letters. It may not be a miraculous cure for the underlying issues that feed patent trolling, but, at least in the State of New York, it could restore fair play rules.

Mobile Wars: end of one battle

Busy days in the Mobile Wars. Nokia has announced today that it has entered into patent license agreement with Apple.

As we read in nokia's webpage, “the agreement will result in settlement of all patent litigation between the companies, including the withdrawal by Nokia and Apple of their respective complaints to the US International Trade Commission”.

No reference is made to the amount, but it may be significant since “this agreement is expected to have a positive financial impact on Nokia's recently revised outlook for the second quarter 2011 of around break-even non-IFRS operating margin for Devices & Services”.

Stephen Elop, president and chief executive officer of Nokia shows their happiness "to have Apple join the growing number of Nokia licensees”. Mr. Elop considers that "this settlement demonstrates Nokia's industry leading patent portfolio and enables us to focus on further licensing opportunities in the mobile communications market." Who will be the first target in these further licensing opportunities? A new battle may be shortly served.

US court refuses to dismiss appeal following settlement

In what may appear to non-US lawyers to be a curious turn of events, the US Court of Appeals for the Federal Circuit has denied a joint request by TiVo Inc. and EchoStar Corp. to dismiss an appeal after the parties reached a US$ 500 million settlement of a patent infringement action brought by Tivo in 2004. According to Law.com's Texas Lawyer

"On May 10, the Federal Circuit issued an en banc order in TiVo Inc. v. EchoStar Corp. denying the companies' joint motion to dismiss the appeal, which had led to a divided en banc ruling on April 20. The court noted that the parties did not inform it of any settlement before it issued that decision. 

In that April ruling, the Federal Circuit vacated a $110 million award against EchoStar Corp. for continued infringement of TiVo Inc.'s patents after a permanent injunction, but affirmed a $90 million award against EchoStar as a sanction for its contempt finding. On April 29, the companies reached a settlement whereby EchoStar and the Dish Network Corp [an EchoStar subsidiary] agreed to make an initial payment of $300 million to Tivo and $200 million in six annual installments between 2012 and 2017. ... TiVo will also give Dish and EchoStar licenses for the DVR technology, and EchoStar will give TiVo a license for certain DVR-related patents. The companies also agreed to dismiss all pending litigation with prejudice and to dissolve all injunctions against Dish and EchoStar. 

The seven years of litigation between the two companies was initially about whether EchoStar infringed TiVo's digital video recorder technology patent. It later centered on whether EchoStar's redesign of its technology still infringed and whether EchoStar's actions amounted to contempt of the district court's permanent injunction order. 

In the May 10 order, Judge Alan Lourie wrote that the parties clearly "did not settle before our decision." He was joined by Chief Judge Randall Rader, Senior Judge Haldane Robert Mayer and nine judges: William Bryson, Timothy Dyk, Arthur Gajarsa, Richard Linn, Kimberly Moore, Pauline Newman, Kathleen O'Malley, Sharon Prost and Jimmie Reyna.

According to Lourie, the companies informed the Federal Circuit on May 2 that they had settled the case on April 29 and asked the court to dismiss the appeal. 

"The parties did not inform us that they had settled the matter before issuance of our decision nor do they inform us that they had agreed to a disposition of the matter dependent upon our decision," wrote Lourie. "It is clear that if the parties had entered into such an agreement before issuance of our decision, it was counsel's duty to inform this court of the agreement." 

If the court granted the parties' motion at this stage, days before issuance of a mandate, the result would be modification or vacatur of the en banc judgment "which is neither required nor a proper use of the judicial system," wrote Lourie. He also cited 7th, 9th and 11th Circuit rulings supporting that conclusion. 

"The parties are of course free upon our remand to the district court to request that the district court dismiss the complaint and vacate its previously imposed sanctions because they have settled the underlying matter," Lourie wrote. "However, consistent with our sister circuits, we conclude that we should not dismiss the appeal after it has been decided." ...

TiVo's lead trial counsel, Morgan Chu, a partner at Los Angeles-based Irell & Manella, said the Federal Circuit's action does not affect the settlement reached by the parties. "The court's mandate will now issue in a few weeks, on the usual schedule," Chu said. "As the court's order stated, the parties will then be able to return to [Eastern District of Texas Chief] Judge [David] Folsom to have the cases dismissed." ... 

In its April 20 ruling, the Federal Circuit affirmed Folsom's $90 million sanction award against EchoStar. Folsom had found EchoStar in contempt of the disablement provision of the permanent injunction, which required it to disable the infringing DVR technology in its products, including those that were with customers.

That ruling also vacated Folsom's finding that EchoStar was in contempt of the permanent injunction's infringement provision, which ordered it to stop making, using or selling infringing receivers. Another order in the ruling vacated Folsom's $110 million award against EchoStar Corp. for continuing to infringe TiVo Inc.'s patents after a permanent injunction".

How do other jurisdictions handle these issues?

Source: "Federal Circuit Refuses to Dismiss Appeal After Tivo/EchoStar Settlement", Texas Lawyer, 13 May 2011

Does vigorous defence deter spurious suits?

Writing for Bloomberg.com today, Susan Decker ("Google Mounts Patent Claim Assault by Fighting More Lawsuits") raises the issue of whether overt aggression is the best form of defence, discussing Google Inc.'s current preference for litigation over settlement in order to deter frivolous patent infringement lawsuits. The background to Google's policy shift is that the number of patent challenges against Google rose to 14 last year, from 11 in 2007 and three in 2006. Another 24 US patent infringement cases are currently pending.

An examination of federal court dockets shows that Google didn’t settle any patent challenges in 2008, in contrast with its more conciliatory practice in previous years. Alan Fisch (Kaye Scholer) -- who is not involved in any Google patent infringement litigation -- observes that a court ruling can result in verdicts costing hundreds of millions of dollars, which often makes settlement a smarter solution, avoiding drawn-out cases and legal fees, adding "If you’re going to take a hard-line approach, you’d better back it up with victories".

Raymond Niro (who represented HyperPhrase Technologies in its unsuccessful action against Google, alleging infringement of its patent for a web browser tool-bar) says the new strategy will cause more litigation, not less:

"The typical reaction of litigation-oriented attorneys is there’s no sense talking to Google, you might as well just sue them. They want to project a very aggressive approach to litigation".

Google and Hyperphase are now locked in a post-infringement spat over legal costs, with Google chasing the unsuccessful plaintiff for half a million dollars. Google has said that it wasn't opposed to settling claims in an appropriate case, but it was anxious not to be seen as a soft touch.

Micron and MOSAID: when foes become friends

Canada Tech Info brings news of yesterday's settlement of patent litigation that has been rumbling on since July 2006 between NYSE-listed Micron Technology, Inc. and its Canadian adversary MOSAID Technologies Inc. 

Under the settlement, Micron will receive a 10-year licence to some of MOSAID's patents, including a life-of-patents licence for all such patents throughout a defined capture period and a fixed-term licence for subsequent patents. Micron's Dynamic Random Access Memory (DRAM), Flash, and other memory and image sensor products are reported to be licensed under the agreement. 

Micron will make a series of fixed cash payments to MOSAID, which will acquire title to 400 Micron patents, this portfolio consisting of patents related to DRAM, Flash memory, and semiconductor process technology. In the first four quarters after the effective date, MOSAID will make fixed payments to Micron, these payments being credited against future payment obligations to Micron under a royalty revenue-share scheme. Further terms of the deal remain confidential. The former foes will now bury the hatchet by filng a joint motion in the US District Court for the Northern District of California to dismiss with prejudice all claims.

Settlements that are as sophisticated as this constitute a category of dispute resolution outcome that is far beyond the scope of any court to order. However, without the direct and ever-present threat of patent litigation, the imperative commitment to devote the time and resources that are necessary to shape a deal such as this, not to mention the effort directed to the reconstruction of each party's business plans, would be lacking.

PatLit thanks Neil Wilkof (Herzog Fox Neeman) for the lead.

Crocs, Skechers worldwide pat-scrap settles

In a move that will disappoint many patent trial lawyers, shoe maker Crocs Inc and Skechers USA Inc have announced the settlement of all litigation between them in the action brought by Crocs. There's something to disappoint transactional lawyers too: the the settlement terms were not disclosed. The agreement covers all outstanding worldwide litigation and appears to be resulting in Skechers concentrating on its core styles in place of Croc-type molded footwear.