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Alice in Wonderland: The Ongoing Impact of Alice Corp. v. CLS Bank Int’l on Computer-Implemented Inventions

Posted in Biotechnology, Development & Commercialization of Technology, Nanotechnology, Patent Counseling & Strategies

On June 19, 2014, the U.S. Supreme Court issued a unanimous decision in Alice Corp. v. CLS Bank Int’l (Alice)[i].  In Alice, the Court held that several patents that pertained to a computerized platform for eliminating risk in conducting financial transactions between two parties were ineligible for patenting under 35 U.S.C. §101[ii].  The Court reasoned that the patents were merely drawn to an abstract idea of intermediated settlement that utilized a “generic computer implementation.”

In response to the decision, the United States Patent and Trademark Office (USPTO) issued preliminary examination instructions to patent examiners for determining the patent eligibility of computer-implemented inventions involving abstract ideas (Guidelines)[iii].  The Guidelines indicated that patent examiners can utilize a two-part analysis for evaluating the patent eligibility of abstract ideas.  First, examiners must “determine whether the claimed invention is directed to an abstract idea.”  Second, if an abstract idea is present, the examiners must determine whether the claimed invention is sufficient to ensure that it amounts to “significantly more than the abstract idea itself.”[iv]

Since the issuance of Alice and the Guidelines, the USPTO and the lower courts have challenged numerous computer-implemented inventions.  For instance, the USPTO has withdrawn the notice of allowances for several patent applications that were deemed to be patent ineligible in view of Alice.  Likewise, several lower court decisions have relied on Alice to invalidate computer-implemented patents.  Some examples of these court decisions are summarized below:

  • Digitech Image Technologies v. Electronics for Imaging, Inc., et al., C.A. No. 2013-1600-1618 (U.S. Fed. Cir., July 11, 2014). A patent that utilized a computerized system to ensure that images displayed consistently on different kinds of devices (e.g., computer screens and printers) was held to be invalid because the computer-implemented processes were allegedly abstract ideas that could have been performed by human beings.
  • Planet Bingo, LLC v. VKGS, LLC, C.A. No. 2013-1663 (U.S. Fed. Cir., August 26, 2014).   Patents relating to the implementation of a bingo game on a computer were held to be invalid because the processes were allegedly directed to abstract ideas (i.e., mental steps) that could have been performed by human beings through the use of “pen and paper.”
  • Buysafe, Inc. v. Google, Inc., C.A. No. 2013-1575 (U.S. Fed. Cir., September 3, 2014).  A patent directed to methods and machine-readable media encoded to perform steps for guaranteeing a party’s performance of its online transaction was held to be invalid because the methods and media were allegedly directed to an abstract idea.
  • Dietgoal Innovations, LLC v. Bravo Media LLC, C.A. No. 13 Civ-08391-PAE (U.S. Dist. Ct., S.D.N.Y, July 8, 2014).  A patent relating to the use of a computer to plan meals and achieve diet goals was held to be invalid because the process was directed to an abstract idea that could have been performed by human beings.
  • Comcast IP Holdings, LLC v. Sprint Communications Company L.P., et al., C.A. No. 12-205-RGA (U.S. Dist. Ct., Del., July 16, 2014).  A patent relating to a computerized telecommunications system that checked with a user before deciding whether or not to establish a new connection was held to be invalid because the process was allegedly directed to an abstract idea that could have been performed by human beings.
  • CMG Financial Services, Inc. v. Pacific Trust Bank, F.S.B., C.A. No. CV-11-10344 PSGA (U.S. Dist. Ct., C.D.CA., August 29, 2014).   A patent on a method of paying down a mortgage early when funds are available and then borrowing funds as needed to reduce the overall interest charged by the mortgage was held to be invalid  because the process was allegedly directed to an abstract idea.
  • Loyalty Conversion Systems v. American Airlines, Inc. et al., C.A. No. 2:13-CV-655 (U.S. Dist. Ct., E.D.TX., September 3, 2014). Patents on computer-implemented systems for converting reward points from one store to another store was held to be invalid because the process was allegedly directed to an abstract idea without any significant additions.
  • Walker Digital, LLC v. Google, Inc., C.A. No. 11-318-LPS (U.S. Dist. Ct., Del., September 3, 2014).  Patents directed to systems and methods for controlling the release of confidential or sensitive information in anonymous communications was held to be invalid because the systems and processes were allegedly directed to abstract ideas.
  • Tuxis Tech v. Amazon, C.A. No. 13-1771-RGA (U.S. Dist. Ct., Del., September 3, 2014).  A patent directed to a computerized process for individualizing up-selling based on the identities of the purchaser and the product to be purchased was held to be invalid because the process was allegedly directed to an abstract idea.
  • Eclipse IP, LLC v. McKinley Equipment Corporation, C.A. No. CV-14-154-GW(AJWx) (U.S. Dist. Ct., C.D.CA., September 4, 2014).  Patents directed to computer-implemented systems for asking people to perform tasks and monitoring the performance of those tasks were held to be invalid because the systems were allegedly directed to abstract ideas.
  • Every Penny Counts, Inc. v. Wells Fargo Bank, N.A., C.A. No. 8:11-CV-2826-T-23TBM (U.S. Dist. Ct., M.D.FL., September 11, 2014).  Patents directed to methods and systems for automated saving or automated charitable giving were held to be invalid because they were allegedly directed to abstract ideas.
  • McRO (Planet Blue) v. Activision Blizzard, et al., C.A. No. CV-14-336-GW(FFMx), (U.S. Dist. Ct., C.D. CA., September 22, 2014).  Patents directed to computer-implemented methods of automatically animating lip synchronization and facial expression of animated characters were held to be invalid because they were allegedly directed to abstract ideas.
  •  Open Text v. Alfresco Software, C.A. No. 13-CV-04843-JD (U.S. Dist. Ct., N.D. CA, Sept. 19, 2014).  A patent directed to a computer readable storage medium for facilitating a network based dialogue with customers was held to be invalid because it was allegedly directed to an abstract idea.

The aforementioned developments could make it easier to challenge inventions directed to software, computer implementations, and business methods.  However, it is doubtful that all software, computer-implemented and business method inventions will be affected by Alice.  For instance, software inventions that improve the functioning of a computer may still be eligible for patent protection.  Likewise, software inventions that improve other technical fields may also be eligible for patent protection.  Nonetheless, the full effect of Alice remains to be determined.

[i] Alice Corporation Pty. Ltd. v. CLS Bank International, et al., 573 U.S. ___, No. 13-298 (June 19, 2014).

[ii] 35 U.S.C. §101 states that, “[w]hoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title.”  Judicial exceptions to what constitutes patent eligible subject matter have included “abstract ideas,” “laws of nature,” and “natural phenomena.”

 [iii] June 25, 2014 Memorandum issued by Andrew H. Hirshfeid, Deputy Commissioner For Patent Examination Policy, to the Patent Examining Corps, entitled “Preliminary Examination Instructions in view of the Supreme Court Decision in Alice Corporation Ply. Ltd. v. CLS Bank Illternational, et al.”  http://www.uspto.gov/patents/announce/alice_pec_25jun2014.pdf

 [iv] A prior WinTech blog post provides a summary of Alice and the Guidelines.  See: http://www.wintechblog.com/2014/07/are-computer-implemented-inventions-patent-eligible-go-ask-alice/

Adam Carolla Gets It On with Personal Audio Settlement

Posted in E-Commerce (Internet Agreements and Issues), Intellectual Property Litigation, Technology News & Events

As part of their settlement, Adam Carolla and Personal Audio LLC agreed to not make any public statements concerning their patent infringement lawsuit until September 30th.[1]  On Wednesday’s podcast, Adam Carolla and Mike August, a former attorney, discussed the lawsuit and the settlement that was reached between Carolla and Personal Audio.[2]

Personal Audio had filed their lawsuit against Carolla in January of 2013, and the trial was scheduled for this past September in the Eastern District of Texas.  Carolla and August revealed that when the discovery phase of the lawsuit started around March 2014, about $100,000 a month was spent on legal fees during the four months of discovery.

The approximately $475,000 that was crowdfunded through the internet for Carolla’s litigation expenses has since been exhausted.  Carolla estimates that about $650,000 to $675,000 has been spent on defending the lawsuit, and Carolla needs to raise an additional $200,000 to pay for the incurred litigation expenses.  If Carolla had allowed the lawsuit to go all the way to trial, August estimates that it would have cost an additional $750,000 to $1 million.

For both Carolla and Personal Audio, it was not in their economics interests to incur additional litigation expenses in light of the low amount of damages that was at stake.  According to August, Personal Audio was willing to dismiss the case if Carolla would “shut up” about their lawsuit because Carolla was “killing the jury pool” for Personal Audio’s other lawsuits filed in Texas against CBS and NBC.

Since the settlement was first announced, Carolla has been criticized for going against his words by settling with Personal Audio.  Carolla, however, explains that the “settlement” does not involve any payment to Personal Audio, and he considers the settlement to be a victory for him and other podcasters that are not economically desirable for Personal Audio to sue.  But even if the settlement is a victory for such podcasters, media companies with deeper pockets could still be targeted by Personal Audio under their currently valid patent, as recently seen in the September 15 jury decision determining that CBS is liable to Personal Audio for $1.3 million dollars.[3]

With the Carolla lawsuit dismissed, trollhunters will be keeping their eyes on a petition filed by the Electronic Frontier Foundation (EFF) to invalidate Personal Audio’s podcasting patent.[4]  The EFF petition is expected to be heard later this year by the Patent Trial and Appeal Board.  In the meantime, Carolla’s supporters can continue to get it on by donating to Carolla’s FundAnything campaign to help cover that $200,000 deficit from his litigation expenses.[5]

[1] Agreed Motion to Dismiss Claims without Prejudice, No. 2:13-CV-00013 (E.D. Tex. Aug. 15, 2014), available at https://www.eff.org/files/2014/08/18/ecf_272_-_mot_to_dismiss_pa-carolla.pdf.

[2] Rich Eisen, Eric Stonestreet and Mike August, The Adam Carolla Show (Oct. 1, 2014), http://adamcarolla.com/ rich-eisen-eric-stonestreet-and-mike-august/.

[3] Joe Mullin, Jury Finds CBS Infringes Podcasting Patent, Awards $1.3 Million, Ars Technica (Sept. 15, 2014, 7:23 PM CDT) http://arstechnica.com/tech-policy/2014/09/jury-finds-cbs-infringes-podcasting-patent-awards-1-3-million/.

[4] EFF v. Personal Audio LLC, Patent No. 8,112,504 (USPTO Mar. 4, 2009), available at https://www.eff.org/document/podcasting-petition-inter-partes-review.

[5] Save Our Podcasts Legal Defense Fund, FundAnything: Money for Your Dreams, http://fundanything.com/patenttroll (last visited Oct. 1, 2014).

USPTO to Host America Invents Act Roadshow in Seven Cities Nationwide

Posted in Biotechnology, Development & Commercialization of Technology, IP Counseling and Strategies, Technology News & Events, Technology Transactions

Forwarded by Robert Shaddox from the article of the same title. U.S. Patent & Trademark Office (08/26/14)

The U.S. Patent and Trademark Office announced that it will host seven roadshow events across the country to increase public understanding of the First Inventor to File (FITF) provisions of the America Invents Act. The roadshow events, which will be hosted between Sept. 16 and Oct. 9, will feature USPTO subject matter experts and stakeholders, and will focus on FITF provisions and updates since March 2013. Experts and stakeholders will speak specifically to inventors and their representatives about filing and prosecuting patent applications under the FITF system in an effort to raise public understanding of the provisions. Topics of discussion will include administrative processes, FITF statistics, the applicability of FITF to new patent applications, the statutory framework and its exceptions, and sample scenarios presented by experts to illustrate the FITF provisions. The roadshow events will be held in Concord, N.H., Madison, Wis., Dallas, Texas, Silicon Valley, Calif., and Atlanta, Ga. Two other roadshow events at USPTO campuses in Alexandria, Va., and Denver, Col., also will be webcast live on USPTO’s website.

Board Oversight of Cybersecurity

Posted in Biotechnology, Nanotechnology, Technology News & Events

 Cyber-attacks on U.S. companies have increased over recent years resulting in significant costs to companies.  According to surveys, U.S. companies have experienced a 42% increase between 2011 and 2012 in the number of cyber-attacks they experienced per week[1] and the average annualized cost of cyber-attacks for various U.S. companies surveyed in 2013 was $11.56 million, which represents a 78% increase since 2009.[2] Cyber-attacks may also expose companies to business disruptions, negative publicity, reputational harm and litigation.

SEC Commissioner Luis Aguilar addressed cybersecurity threats in his presentation at the “Cyber Risks and Boardroom” Conference held in June, 2014.[3]  At this conference, Commissioner Aguilar stressed the importance of board oversight of cybersecurity risks stating that “. . . ensuring the adequacy of a company’s cybersecurity measures needs to be a critical part of a board of director’s risk oversight responsibilities.”[4]  In addressing the oversight responsibilities of boards of directors, Commissioner Aguilar stated that, at a minimum, boards of directors should work with management to assess company policies with respect to cybersecurity to ensure that such policies are consistent with the National Institute of Standards and Technology’s Framework for Improving Critical Infrastructure Cybersecurity.[5]

Commissioner Aguilar stated that companies may consider implementing one of the following measures to help ensure that the board of directors have the ability to adequately meet their cybersecurity oversight responsibilities:

  • Require mandatory cyber-risk education for directors;
  • Have the board be adequately represented by members with a good understanding of information technology issues that pose risks to the company; or
  • Create a separate enterprise risk committee on the board.[6]

Commissioner Aguilar’s comments do not necessarily represent the views of the U.S. Securities and Exchange Commission.

[1] See 2012 Cost of Cyber Crime Study: United States, Ponemon Institute LLC and HP Enterprise Security (Oct. 2012) available at http://www.ponemon.org/local/upload/file/2012_US_Cost_of_Cyber_Crime_Study_FINAL6%20.pdf.

[2] See HP Press Release, HP Reveals Cost of Cybercrime Escalates 70 Percent, Time to Resolve Attacks More Than Doubles  (Oct. 8, 2013), available at http://www8.hp.com/us/en/hp-news/press-release.html?id=1501128.

[3] See Cyber Risks and the Boardroom, Commissioner Luis A. Aguilar (June 10, 2014) available at http://www.sec.gov/News/Speech/Detail/Speech/1370542057946#.U_8-Wz4o6Um.

[4] See id.

[5] See id.

[6] See id.

Personal Audio No Longer Trolling Adam Carolla

Posted in Intellectual Property Litigation, Technology News & Events

Adam Carolla has reportedly settled the lawsuit that was filed against him by Personal Audio LLC.[1]  The Agreed Motion to Dismiss Claims is available for review, but the specific terms of the settlement have not been disclosed—the parties have agreed to not make any public statements concerning the litigation until September 30th.[2]  Nonetheless, there are a few observations that can be made in light of the settlement.

As of today, Carolla has raised $475,352 through his crowdfunding campaign to help pay for his legal defense fees.[3]  If, however, the lawsuit had gone to trial and Carolla had prevailed on the merits, Personal Audio could have potentially been required to pay Carolla for his defense fees.  The payment of fees could have consequently been a huge deterrent to future litigation by Personal Audio.

Furthermore, Personal Audio’s patent remains valid because the lawsuit never went to trial, and Personal Audio could potentially sue other podcasters for allegedly infringing its patent.  According to Daniel Nazer from the Electronic Frontier Foundation (“EFF”), this is, however, unlikely to happen.  Personal Audio made a press release in July, stating that it had offered to drop the lawsuit against Carolla after learning through discovery that Carolla’s podcasting business does not generate a significant amount of revenue.  Nazer suggests that because Adam Carolla is one of the most successful podcasters in the business, it is unlikely that Personal Audio will sue other podcasters.[4]

Although the patent is currently valid, the EFF had filed a petition for inter partes review that is scheduled for a hearing in December with an expected ruling by April 2015.[5]  If the inter partes review is decided favorably for EFF, this could be the final nail in the coffin for Personal Audio’s patent and another victory for all of the trollhunters.

[1] Jefferson Graham, Adam Carolla settles podcasting lawsuit, USA Today (Aug. 19, 2014, 5:08 PM), http://www.usatoday.com/story/tech/2014/08/19/adam-carolla-settles-podcasting-lawsuit/14301105/.

[2] Agreed Motion to Dismiss Claims without Prejudice, No. 2:13-CV-00013 (E.D. Tex. Aug. 15, 2014), available at https://www.eff.org/files/2014/08/18/ecf_272_-_mot_to_dismiss_pa-carolla.pdf.

[3] Save Our Podcasts Legal Defense Fund, FundAnything: Money for Your Dreams, http://fundanything.com/patenttroll (last visited Aug. 20, 2014).

[4] Personal Audio, Adam Carolla Rejects Dismissal from Podcasting Lawsuit (July 29, 2014), available at https://www.eff.org/files/2014/08/18/personal_audio_press_release_7-29-14.pdf.

[5] EFF v. Personal Audio LLC, Patent No. 8,112,504 (USPTO Mar. 4, 2009), available at https://www.eff.org/document/podcasting-petition-inter-partes-review; see also EFF v. Personal Audio LLC, Electronic Frontier Foundation: Defending Your Rights in the Digital World, https://www.eff.org/cases/eff-v-personal-audio-llc (last visited Aug. 20, 2014).

Reviewing Potential Investments With Your Clients

Posted in Technology News & Events, Technology Transactions, Venture Capital, Private Equity and Other Financings

On August 4, 2014, the SEC issued an Investor Alert citing 10 Red Flags that should give investors an indication that an unregistered offering may be a scam.  If you are considering an investment in an unregistered offering or you are advising a client who is considering such an offering, you should consider the following Red Flags:

  1. Claims of High Returns with Little or No RiskAny offering, registered or unregistered, has risk.  Investors should be suspicious of any offer that claims it has no risk.
  2. Unregistered Investment Professional.  Investors should be wary if sales are being made by people who are not registered and licensed to sell securities, even if the they know the person personally.
  3. Aggressive Sales Tactics.   If the investment is pitched as a “once-in-a-lifetime” opportunity or you or your client is pressured to invest quickly without taking the time to research the investment, caution should be exercised.
  4. Problems with Sales Documents.  Failure to provide sales documents, such as a private placement memorandum, or provision of sloppy sales documents that contain typographical, spelling or other errors, are Red Flags.
  5. No Net Worth or Income Requirements.  In some cases, sales of unregistered securities may only be made to “accredited investors” – investors with over $200,000 (or $300,000 with his or her spouse) in income in the last two years and the expectation of the same level of income in the current year or investors with a net worth, exclusive of home, of at least $1,000,000.  If the offering doesn’t contain income or net worth requirements, skepticism may be warranted.
  6. No One Else Seems to be Involved.  Care should be taken if others, such as attorneys, accountants, brokerage firms or other third parties, are not involved in the offering or if the investor is told not to contact someone who is supposedly involved with the offering.
  7. Sham or Virtual Offices.  The investor should verify that the company has an actual operating or physical presence in the state in which it says it is doing business.
  8. Company Not in Good Standing.  The investor should check the applicable state office, usually the state Secretary of State, to make sure the company actually exists and is in good standing under the laws of the state in which it purports to be organized.
  9. Unsolicited Investment Offers.  The SEC advises that an unsolicited offer may be a sign that the investment is a scam even if the offer is from a friend, trusted co-worker or family member.  People engaging in a fraud often exploit the trust that exists in groups of people (“affinity fraud”).  An investor should be particularly wary if he or she is told to keep the possible investment confidential or a secret.
  10. Suspicious or Unverifiable Biographies of Managers or Promoters.  An investor should independently verify the claims of experience the management or promoters claim to have by asking for references and doing an Internet search.  Additionally, an investor should be concerned if an honest promoter has no relevant experience.

A careful review of these Red Flags might be just what is needed to prevent an expensive mistake.

Ongoing Developments in Patent Law: Claim Construction on Appeal, Indefiniteness, and PTAB Decisions

Posted in Intellectual Property Litigation

There are a few patent cases to keep track of in the future that may have an impact on claim construction, indefiniteness, and Patent Trial and Appeal Board (PTAB) decisions.  Here is a list of cases to watch:

  • The Supreme Court granted certiorari in the Teva Pharmaceuticals USA, Inc. v. Sandoz Inc. (Dkt. No. 13-854) to consider whether claim construction of claim terms should continue to be reviewed de novo or for clear error.  As noted in the petition:


Rule 52(a) of the Federal Rules of Civil Procedure provides that in matters tried to a district court, the court’s “[f]indings of fact. . . must not be set aside unless clearly erroneous.”

The question presented is as follows:

Whether a district court’s factual finding in support of its construction of a patent claim term may be reviewed de novo, as the Federal Circuit requires (and as the panel explicitly did in this case), or only for clear error, as Rule 52(a) requires.

  • In Nautilus, Ing. v. Biosig Instruments, Inc. (June 2, 2014, Dkt. No. 13–369 (Slip Opinion)), the Supreme Court noted that “the expressions ‘insolubly ambiguous’ and ‘amenable to construction,’ which permeate the Federal Circuit’s recent decisions concerning §112, ¶2′s … leave courts and the patent bar at sea without a reliable compass.” Thus, the case was remanded “so that the Court of Appeals can reconsider, under the proper standard, whether the relevant claims in the ’753 patent are sufficiently definite.”  Look for further guidance from the courts on evaluating whether claims are sufficiently definite in the future.
  • In SAP America, Inc. v. Versata Data Development Group (PTAB Case CBM2012-00001) SAP filed a petition seeking a covered business method patent review of Versata’s patent pursuant to section 18 of the Leahy-Smith America Invents Act (AIA).  The PTAB held “Versata’s claims 17, and 26-29 to be unpatentable under 35 U.S.C. §101.”  Versata has now appealed the PTAB’s finding of invalidity to the Federal Circuit, notably challenging the PTAB’s broadest reasonable interpretation (“BRI”) standard for claim construction.  As one of the early cases involving PTAB reviews under the AIA, it will be interesting to see what impact this case will have on such PTAB reviews in the future.

Is Your Purchaser Accredited? Clarifications from the SEC

Posted in Technology News & Events, Technology Transactions

Under Rule 506(c), companies can now engage in a general solicitation in conducting private placements but if they do so, they must verify that each purchaser is accredited.  The SEC has provided some safe harbors for verification and will also allow “principles based verification” if the verification is adequate.  On July 3, 2014, the SEC issued Compliance and Disclosure Interpretations, some of which deal with the issue of how to determine accredited investor status under Rule 506(c).  The questions dealing with this issue and the Staff’s interpretation follow:

  • In determining whether an investor is accredited when his annual income is not reported in US dollars, the issuer should use the exchange rate on the last day of the prior year or the average exchange rate for the prior year.  (Question 255.48)
  • Assets in an account or property held jointly with a person who is not the prospective purchaser’s spouse may be included in the calculation of net worth but only to the extent of the investor’s percentage ownership in the account or property. (Question 255.49)
  • Rule 506(c)(2)(ii)(A) provides a non-exclusive safe harbor to verify that a purchaser is an accredited investor by reviewing any IRS form that reports the prospective purchaser’s income for the two most recent years.  (These forms could include a Form W-2, Form 1099, Schedule K-1 or Form 1040.)  The CD&I provides that the safe harbor is not available if, because of the fact that a return for the most recent year is not available, the issuer relies on the two prior years.  However, the SEC states that the principles based verification method may be satisfied if the issuer relies on the two prior years that are available and also obtains written representations from the prospective purchaser that (i) an IRS form that reports his income for the recently completed year is not available; (ii) specify the amount of income he received for the most recently completed year; and (iii) he has a reasonable expectation of reaching the requisite income level in the current year.  The SEC cautions that if the issuer has reasonable grounds to question the information provided (such as if the prospective investor barely meets the income requirements), the issuer would need to take additional steps to verify accredited investor status.  (Question 260.35)
  • The safe harbor granted for issuers relying on US tax returns is not available to an issuer relying on foreign tax returns of a prospective purchaser who does not file US returns.  However, the principles based verification method may be satisfied if the issuer relies on foreign tax returns of a foreign jurisdiction that imposes penalties for falsely reporting information similar to those imposed by the IRS.  However, if after reviewing these forms, the issuer has reason to believe that the investor may not be accredited, the issuer must engage in additional due diligence.  (Question 260.36)
  • Rule 506(c)(2)(ii)(B) grants a safe harbor if the issuer reviews certain documents evidencing an accredited investor’s net worth as long as the documents are not more than three months old.  In the CD&I, the SEC states that this safe harbor is not available for verification of net worth based on tax assessments that are more than three months old.  Nevertheless, the principles based verification method may be satisfied if the issuer uses the most recent tax assessment.  If the issuer has reason to question whether the assessment reasonably reflects the value of the purchaser’s assets, it must take additional measures to verify that the prospective purchaser is accredited.  (Question 260.37)
  • The safe harbor provided by Rule 501(c)(2)(ii)(B) requires an issuer to review a consumer report from a national consumer reporting agency.  The CD&I provides that this safe harbor is not met by reliance on a report from a foreign consumer reporting agency.  However, an issuer could reasonably conclude that a purchaser is accredited under the principles-based verification method if it relies on a foreign report and takes other steps necessary to determine the purchaser’s liabilities such as a written representation from the purchaser that all liabilities have been disclosed.  (Question 260.38)

The Cost of Defending Against Patent Trolls

Posted in Intellectual Property Litigation, Technology News & Events

It should come as no surprise that defending against Non-Producing Entities—most of which are Patent Trolls[1]—is expensive, especially for small businesses and corporations. In support of his ongoing legal battle with the patent troll Personal Audio, LLC, Adam Carolla has currently raised over $445,000 dollars towards litigation through the crowdfunding website FundAnything.com.[2] Yet, unless Personal Audio decides to drop the litigation entirely, Carolla’s legal costs will certainly climb much higher.


Carolla estimates that defending against Personal Audio’s patent suit could cost around $1.5M. This number is a reasonable prediction based upon the average expenses of other defendants in patent infringement lawsuits brought by NPEs. In recent years, over half of plaintiffs in patent infringement claims have been NPEs. In 2013 alone, 67% of patent infringement cases were filed by NPEs.[3] The median litigation cost to defend against a patent infringement claim by a NPE where the amount in controversy is between $1M-$25M is a staggering $983,000 at the end of discovery and $1.75M after trial.[4] The mean litigation cost is even higher—$1.3M after discovery and $2.0M after trial. Predictably, the cost of litigating against a NPE rises as the amount in controversy rises. If Personal Audio pursues its case to a judgment, it will likely cost Carolla at least $1M in legal costs.


In his battle against Personal Audio, Carolla has determined not to settle and fund his legal defense out of pocket if necessary. Patent trolls are frequently criticized for pursuing settlement costs as a key source of revenue. Approximately 90% of patent infringement suits initiated by NPEs settle.[5] Of those that do not settle, many more are defeated at the summary judgment stage. Ultimately, only 26% of patent infringement claims by NPEs within the past few years have been successful.[6] Yet, of those patent infringement claims that do reach trial, 65% are successful. In light of the potential to be stuck with massive royalty damages and momentous litigation costs, it is little surprise that most defendants choose to settle. Personal Audio has previously offered to settle for $3M.[7] If, as Carolla believes, Personal Audio does not have a valid legal claim[8], there is a strong probability that he can win the case at the summary judgment stage.


 In light of high legal costs and the tendency of patent troll entities to pursue litigation for financial gain, there has recently been a movement to reform patent law by granting attorney’s fees to the prevailing party in a patent infringement suit. Federal law does allow parties to recover attorney’s fees, but only in “exceptional” cases.[9] Recently, the Supreme Court has adopted a broader interpretation of what is an exceptional case in Octane Fitness, LLC v. ICON Health and Fitness.[10] Previously, a case was only exceptional if it was brought in bad faith or was objectively baseless. Under the Supreme Court’s new interpretation, an exceptional case is one that stands out from other similar cases with regards to the substantive strength of a party’s litigating position or the unreasonable manner in which the case was litigated.

 In theory, Octane Fitness may assist defendants like Carolla, but the determination is ultimately left to the trial court’s discretion and its interpretation of the plaintiff’s claim. Current law may likely be insufficient to compel courts to apply cost shifting against NPEs and encourage defendants to litigate patent infringement claims to a final judgment. The most popular jurisdictions, in which NPEs file over half of their patent infringement claims, are the Eastern District of Texas and Delaware.[11] These two districts have two of the highest success rates for NPE claims which reach a final judgment.[12] Though the full impact of Octane Fitness remains to be seen, given that NPE litigation is concentrated within two favorable jurisdictions, shifting the costs from defendants to patent trolls in vexatious cases could require a further legislative push.

 In 2013, the Innovation Act (2013 H.R. 3309) passed in the House. This bill included a provision which allowed the prevailing party to recover reasonable attorney’s fees. But, previous attempts to pass patent reform targeted specifically at patent trolls through the Senate failed after Sen. Leahy (D-VT) pulled patent reform from the Senate’s agenda.[13] There were many bills being considered in the Senate, but the main bill was the Patent Quality Improvement Act (2013 S. 866). This compromise bill did not include a cost-shifting provision. Many news outlets have reported that the decision to pull patent reform was motivated by interests groups such as biotech, pharmaceuticals, universities, and law firms.[14] These entities, which rely on their ability to assert patent rights, oppose cost-shifting reform.


The current risk of defending against patent infringement claims is very high. Because of high legal costs and the difficulty of recovering reasonable attorney’s fees, defendants are motivated to settle even when faced with claims that a defendant believes will be unsuccessful. If patent trolls are to be deterred in the future, it must become more cost effective for defendants like Carolla to mount a legal defense. Otherwise, settlements will continue, and patent trolls will continue to dominate patent infringement litigation.

[1] See RPX Corp., 2013 NPE Litigation Report 39, available at http://www.rpxcorp.com/wp-content/uploads/2014/01/RPX-2013-NPE-Litigation-Report.pdf.

[2] Adam Carolla, Save Our Podcasts Legal Defense Fund, FundAnything.com, https://fundanything.com/en/campaigns/patenttroll (last visited July 17, 2014).

[3] Pricewaterhouse Coopers LLP, 2014 Patent Litigation Study 2, available at http://www.pwc.com/en_US/us/forensic-services/publications/assets/2014-patent-litigation-study.pdf

[4] Am. Intellectual Prop. Law Ass’n, Report of the Economic Survey 35 (2013).

[5] John R. Allison et al., Patent Quality and Settlement Among Repeat Patent Litigants, 99 Geo L.J. 674, 694 (2011).

[6] Pricewaterhouse Coopers supra note 3, at 11.

[7] Brian Lund, Can Adam Carolla Defeat a Patent Troll and Save Podcasting?, Daily Finance (April 9th, 2014, 12:24 AM) http://www.dailyfinance.com/on/adam-carolla-patent-troll-podcasting-lawsuit-stakes/.

[8] Michael Pham, Carolla Going after the Patent Trolls, WinTech Blog (July 8th 2014) http://www.wintechblog.com/2014/07/carolla-going-after-the-patent-trolls/.

[9] 35 U.S.C.A. § 285 (West, Westlaw through 2014).

[10] Octane Fitness, LLC V. ICON Health and Fitness, 134 S.Ct. 1749 (2014).

[11] RPX Corp., supra note 1, at 18.

[12] These numbers are based upon patent infringement suits litigated by NPEs in the period from 1995-2013. Pricewaterhouse Coopers LLP, supra note 3, at 18.

[13] Sam Gustin, This is How the Patent Trolls Won, Time (May 24, 2014) http://time.com/111639/patent-reform/.

[14] See, e.g., Erin Mershon & Tony Romm, Patent Reform Hits Dead End in Senate, Politico (May 21, 2014) http://www.politico.com/story/2014/05/patent-reform-senate-106968.html.

Authors: Michael Pham, Matthew Heller


Victims of Patent Trolls Get Re-Sharpened Weapon in their Defense

Posted in Intellectual Property Litigation, IP Counseling and Strategies, Technology News & Events, Technology Transactions

 Fee-shifting in patent infringement suits has been authorized by statute since 1952, for application in “exceptional cases.” [1] For the past nine years, that statute has not often been applied as a result of the Federal Circuits’ decision in Brooks Furniture, which requires the prevailing party in a patent infringement action seeking attorney’s fees establish either: (1) their opponent had committed an act independently sanctionable under federal rules; or (2) that the claim against them was objectively baseless and subjectively brought in bad faith. [2] Given that both tests were governed by a “clear and convincing” evidentiary standard, the fee-shifting statute was effectively neutered and the modern patent troll – a non-practicing patent holding entity hoping only to coerce a licensing fee via the threat of litigation – had little to fear when asserting their potentially dubious rights.

The Supreme Court has recently taken steps that may loosen the Federal Circuit’s “unduly rigid” definition of that fee-shifting statute in April’s Octane Fitness decision. In place of structured tests the Supreme Court returned to pure judicial discretion – “exceptional cases” in the post-Octane Fitness world are to be determined on individualized basis that factors in any and all aspects of the litigation the presiding judge finds relevant. [3]

In the Southern District of New York, Justice Denise L. Cote swung the sword handed to her in Octane Fitness. Cote awarded attorney’s fees to a plaintiff who had been met with threats of extensive litigation, including “all motion practice as well as protracted discovery.” The court didn’t just look at what the defendant’s said and did with regards to the plaintiff, but analyzed their behavior in general, finding they employed a “predatory strategy” that resulted in a number of nearly identical suits filed in a small time frame. The plaintiff had even continued to assert their claim despite leaving it undisputed that the defendant did not infringe the plaintiff’s patent. Without utilizing the term, Cote made it clear that the plaintiff was a patent troll and one who would be paying for his own day in court in addition to his opponent’s. [4] Other courts are following in Cote’s footsteps and using Octane Fitness to punish plaintiff’s bringing questionable patent infringement claims. [5]

The transition back to freer fee-shifting is undoubtedly a positive development in the fight against patent trolling. However, concerns still exist for defendants, namely that even should they prevail in an action the judge might not find the behavior of the opposing party offensive enough to grant fees, even under the relaxed Octane Fitness framework. For a litigant who fears the worst outcome, the same motivation to settle the suit early on in the judicial process still exists and the patent troll behavior isn’t curtailed.

At the least, however, Octane Fitness has freed courts’ hands from the Federal Circuit’s rules and Lumen View has given the legal world an idea of what behaviors will put those hands into motion. Given the broad grant of judicial discretion and case-by-case basis of application, different profiles of an “exceptional case” will emerge over the coming years and it will take a measured, focused, and sometimes brave approach to prove victorious in and help minimize vexatious patent litigation.

 [1] See 35 U.S.C. § 285.

[2] Brooks Furniture Mfg. v. Dutailier Int’l, Inc., 393 F.3d 1378, 1381-2 (Fed. Cir. 2005).

[3] Octane Fitness, LLC v. Icon Health & Fitness, Inc., 134 S. Ct. 1749, 1755-6 (2014).

[4] Lumen View Tech. v. Findthebest.com, 1:13-CV-03599, 2014 U.S.Dist. LEXIS 75209, at *5-*6 (S.D.N.Y. May 30, 2014).

[5] See Precision Links Inc. v. USA Prods. Grp., 3:08-CV-00576, 2014 U.S. Dist. LEXIS 85694 (W.D.N.C. Jun. 24, 2014).

Authors: Kyle Dugan* and Robert Shaddox

*BENJAMIN N. CARDOZO SCHOOL OF LAW, Candidate for Juris Doctor, June, 2015