Lawyers Sanctioned $8.5 Million and Reported to State Bar Over Failure to Produce Electronic Evidence

January 12, 2008

When I was a new lawyer, working at Howrey in Washington, D.C, the firm ‘s client, Litton Industries, was sanctioned in the amount of $10 million for discovery misconduct – the failure to produce relevant documents during discovery. But for the sanction, Litton would have been entitled to an award of its costs and attorneys fees in the litigation, which it had won. I suspect, however, that Litton (and Howrey) took this with good graces – Litton had been awarded $277 million in damages. See Litton Systems, Inc. v. AT&T, 91 F.R.D. 574 (S.D. N.Y 1981), aff’d, 700 F.2d 785 (2nd Cir. 1983). Ironically, the documents in question (which were produced very late but before trial) were ruled inadmissible at trial, and therefore the defendant suffered no prejudice as a result of the late production. Even though I was not involved in this case while at Howrey, this painful episode for the firm and the lawyers directly involved left a lasting memory upon my young and impressionable mind, and I recalled it as I read about the pickle in which a group of California lawyers have found themselves in the patent case Qualcomm v. Broadcom. In the Qualcomm case a key issue was whether Qualcomm, which accused Broadcom of patent infringement, had participated in the Joint Video Team (“JVT”), a standards-setting body. Broadcom aggresively sought discovery from Qualcomm on its…

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Angel Financing Could Do With A Little Streamlining

November 15, 2007

Investments by angel groups have become too complicated. As groups get more aggressive in pursuing profits, and seek more protection against downside risk, their deals have become as complex as venture capital deals. This complexity costs time and money, reducing the benefit to both investors and companies. By streamlining the transaction structure, angel groups could simplify negotiations, shorten the time it takes to do a deal, reduce transaction costs, put more money to work building new companies and ultimately improve their own returns. Click here to continue reading this article, by my partner Bill Contente, which was published in the November 9, 2007 issue of the Boston Business Journal. And, as long as I’m shamelessly showing off all the brilliant people I’ve been able to surround myself with, here is an article recently published by my partner Andy Updegrove in the October 26, 2007 issue of Mass High Tech: How often have you heard it said that “patents foster innovation?” That phrase rings true in pharmaceuticals, where investment requirements are enormous and failure common. But does it also apply in areas such as software? Does it really take the promise of a legal monopoly to motivate a typical founder or CTO to innovate? And what about the advantages patents give big companies over emerging ones, simply because the former can credibly threaten expensive patent litigation while the latter cannot? Click…

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"If I owned Texas and Hell, I would rent Texas and live in Hell"

November 14, 2007

This quote, attributed to General Phillip Sheridan in 1868, describes how many patent defendants feel about Texas, and particularly Marshall, Texas, which has become a patent litigation black hole, sucking in unwilling defendants from around the nation. A blog, titled the Patent Troll Tracker, closely follows events in Marshall. Here is an abbreviated excerpt from a recent post concerning patent litigation in Marshall: This is really the year of the patent troll. Last year, approximately 6,000 defendants were sued nationwide in about 2,800 patent cases. This year, the 6,000th defendant was sued sometime in early October. With the number of cases up nationwide probably 5% over last year, we’re still projected for at least a 30% increase in the number of defendants sued. More on that data in a later post. Why? It’s because of the numerous multi-defendant patent litigation cases being brought by non-practicing entities and patent trolls in the Eastern District of Texas. . . . Think about it. When else in our nation’s history have we experienced a 30+% increase in the number of patent claims in one year? Now think about why we are currently experiencing this extreme uptick in patent litigation. It’s simple: patents, at least in the eyes of the market, are overvalued right now. Damages are being awarded in patent cases without basis in reality, and out of proportion to the actual value…

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That, Sir, Depends What You Mean by "Willful"

October 15, 2007

Patent Law. Patent lawyers and their clients spend a lot of time worrying about willfulnesss. If a patent is infringed and the infringement is “willful,” the consequences can include treble damages and liability for the patent owner’s attorneys fees. The idea of paying the other side’s legal fees can be a terrifying prospect for most patent infringement defendants. Think of it as writing a blank check to your opponent’s lawyers. To avoid this fate, a lot of time and money is spent before the fact on “clearance opinions”, that is, an opinion of a patent lawyer that a particular item or process does not infringe pending or issued patents. A good opinion (meaning an opinion by competent counsel, who is given all relevant information, and who conducts the analysis in advance of any legal claim or threat) is often viewed as an insurance policy when it comes to wilfullness. After all, if reputable counsel has told you that your product doesn’t infringe a patent, what more could you possibly do to establish that you have not willfully infringed? Of course, many infringement actions are brought against defendants who have not bothered to obtain such an opinion (either due to cost concerns or ignorance), in which case the risk of willfulness can be a major factor in the risk analysis of the lawsuit. But just what is “willfulness”? Until just a…

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Lies, Damn Lies, and Statistics

October 19, 2006

I’ve been meaning to post some statistics reported by Price Waterhouse Coopers at the MCLE 9th Annual Intellectual Property Conference earlier this year. PWC has done a rigorous study of patent and trademark cases in the Federal District Courts and at the Court of Appeals for the Federal Circuit (CAFC) over the last 25 years. A few highlights and trends: In 2005, 4% of patent cases and 1.5% of trademark cases went through trial. (Presumably the balance were resolved via settlement or summary judgment). Juries award more damages in patent cases than bench trials. On the other hand, bench trials are more popular in trademark cases. The CAFC is a tough court: only 30% of damage awards are affirmed by the CAFC. Patent damage awards far exceed trademark damage awards. Patent awards’ fastest growth has been in the computer business services and electronics components sectors. Reasonable royalties (rather than lost profits) has become the most frequent measure of damages awarded in patent cases. (This may reflect the fact that more plaintiffs are nonpracticing inventors (sometimes referred to as “patent trolls“).

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Do Software Patents Discourage Innovation?

September 21, 2006

Patents. Over the last 20 years the conventional wisdom has been that patents are inimical to software innovation in the U.S. Many prominent software developers and industry luminaries have argued this position. Here is a link to a paper by Professor Robert Merges of the University of California Law School at Berkeley arguing the contrary view: that software patents have had a negligible impact, if any, on innovation in the industry. Here is the abstract: In the late 1980s and early 1990s, people in the software industry often said that the coming of patents would spell doom, particularly for small companies. The entry of new firms – the seabed of growth in the industry – would dry up, and only large, bureaucratic and decidedly non-innovative firms would remain. This paper concludes that these predictions were wrong. New firm entry remains robust, despite the presence of patents (and, in some cases, perhaps because of them). Successful incumbent firms have adjusted to the advent of patents by learning to put a reasonable amount of effort into the acquisition of patents and the building of patent portfolios. Patent data on incumbent firms shows that several well-accepted measures of “patent effort” correlate closely with indicators of market success such as revenue and employee growth. Whatever the effect of patents on the software industry, this paper concludes, they have not killed it. Here is a…

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Supreme Court Swats "Patent Trolls"

May 16, 2006

Patents. “Patent trolls” or “patent litigation firms” — companies which buy patents not to produce a product or service, but solely to enforce them in the courts — must be quaking under their bridges this morning. In yesterday’s decision in eBay v. MercExchange the Supreme Court appears to have bought the anti-troll argument whole hog, giving the federal trial courts the discretion to enjoin a patent infringer, and to include in its decision factors such as whether a patent holder practices the patent, is a self-made inventor or university researcher (factors favoring an injunction) or instead has purchased the patent from the inventor to obtain license fees (a factor disfavoring an injunction). Before this case there was a more-or-less presumptive rule that a patent owner successful in proving infringement was entitled to stop continued use by the defendant, regardless of the identity of the patent owner. The eBay decision abolishes that rule; instead, the courts have been instructed to apply the traditional four-factor test for permanent injunctions, which weighs various equitable factors. This decision will make it much more difficult for a patent litigation firm to obtain a permanent injunction against an infringer, especially in cases where the threat of an injunction is used as a holdup device by patent holders who exploit the leverage they have when a patent covers only one component that is part of a multi-component…

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Surprise Victory for eBay

May 15, 2006

In what comes as something of a surprise decision, the Supreme Court today ruled in favor of eBay in eBay v. MercExchange, holding that judges do not have to automatically enjoin companies from using patents that they have been shown to have violated. This decision shifts the balance of power in patent litigation away from patent enforcers in favor of defenders. The decision comes as a surprise because, based on comments by the Justices during oral argument, it appeared that the Justices were leaning in the opposite direction. A link to the decision is [here]. An article discussing this case that I wrote for the April 28, 2006 issue of the Boston Business Journal while the case was pending is linked [here].

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Of eBay, "Patent Trolls" and the Right to an Injunction

May 5, 2006

Patents. I wrote an article under the above title [link] which was published in the Boston Business Journal on April 28, 2006.

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Oral Argument in eBay v. MercExchange (updated)

March 31, 2006

Patents. Here is a summary of the oral argument before the Supreme Court earlier this week, in the eBay v. MercExchange case, discussed earlier in this blog. [link] The summary of oral argument (which apparently gave no clear clues to the outcome) is on the excellent SCOTUSblog [link]. UPDATE (April 18, 2006): Here is a link to the transcript of oral argument before the Supreme Court [link] The argument contains a humorous exchange between Carter Phillips, counsel for eBay, and Justice Kennedy: Phillips: [references “patent trolls” in his argument] Justice Kennedy: Well, is — is the troll the scary thing under the bridge, or is it a fishing technique? I– I want — (laughter)

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Oral Argument Upcoming in eBay v. MercExchange

March 22, 2006

Patents. On Wednesday, March 29, 2006, the Supreme Court of the United States (SCOTUS) will hear oral argument in eBay v. MercExchange. The issue is whether the owner of a patent (in this case MercExchange) has the right to enjoin (or stop) an infringer (eBay) from selling an infringing product or service – in this case eBay’s popular “Buy It Now” (or, to eBay aficionados, “BIN”) purchase feature. A jury has already found that eBay infringed MercExchange’s patent on this technology, and MercExchange is attempting to invoke the general rule that a successful patent plaintiff can shut down an infringing product, pending appeal. It was just this threat — the threat of a shut down — that led to Research in Motion paying a $612.5 million settlement to NTP in February. eBay is asking SCOTUS to modify the traditional rule and permit it to continue to use this service pending appeal. In patent circles this is a very big deal, and the outcome is expected to be a “landmark case.” For an interesting discussion of the patent policy issues underlying this dispute see the article by Sam Williams in the MIT Enterprise Technology Review [link]. For a primer on software injunctions, and links to many of the briefs filed in the case, see this article in the “Patently O” patent blog [link].

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Supreme Court Weighs in on Patents, Antitrust and Market Power

March 20, 2006

Patents, Antitrust. Suppose that you live in a small farming community, Village 1, that relies entirely on its own members for food supplies. I have the only farm that grows corn. Whenever you come to me to purchase corn I tell you that I will only sell you my corn if you also buy a pound of cauliflower for every pound of corn you purchase. Cauliflower is plentiful, and you don’t want to buy my cauliflower (in fact you don’t even like this vegetable), but since you (and your fellow citizens) need corn you have no choice. Assume that you move to a new community, Village 2. You still need corn, but you discover that there are several purveyors of corn in your new town. You go to the closest of these, and you discover, to your dismay, that this farmer also insists that if you buy his corn, you must also buy his cauliflower. Before purchasing you check around, and learn that the other corn vendors do not require that you purchase cauliflower as a condition to purchasing corn, and you happily proceed to do business only with them in the future. You later learn, to your satisfaction, that the corn farmer that you first encountered in Village 2 has gone out of business. Thie simple example illustrates one of the more complex and vexing doctrines of U.S. antitrust…

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