IP Law Alert : Intellectual Property Lawyers & Attorneys : Gibbons Law Firm : Copyrights, Patent Infringement, Unfair Competition

On March 25, seed giants DuPont and Monsanto entered into technology licensing agreements that ended their ongoing patent and antitrust lawsuits. According to the terms of the agreement, DuPont will pay at least $1.75 billion in licensing and royalty fees to Monsanto from 2014 to 2023. These payments include fixed royalty payments from 2014 to 2017, totaling $802 million, and per-unit based royalty payments from 2019 to 2023, subject to annual minimums, totaling $950 million. DuPont and Monsanto also will dismiss their respective patent and antitrust lawsuits, including the August 2012 damage award of $1 billion against DuPont that have been pending since 2009. Further details on these agreements can be found in DuPont and Monsanto’s joint March 26 press release and DuPont’s March 26 Form 8-K.

Through these agreements, DuPont will have broad access to Monsanto’s Genuity® Roundup Ready 2 Yield® and Genuity® Roundup Ready 2 Xtend™ patented seed technologies. Monsanto, in turn, will have access to several of DuPont’s crop-disease resistance and corn defoliation patented technologies.

This truce is likely to help DuPont and Monsanto, both market giants, to remain dominant in seed markets. Collectively, DuPont’s Pioneer seed unit and Monsanto generated sales in excess of $20 billion in 2012.

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On Monday, the Supreme Court denied Rates Technology Inc.’s petition for writ of certiorari to hear whether a pre-litigation no-challenge provision is void under Lear, Inc. v. Adkins, 395 U.S. 653 (1969) as the Second Circuit found. We previously discussed the petition, the Second Circuit’s holding, and the no-challenge clause which prevents a licensee from challenging the validity of a patent.

The import of this denial is that at least in the Second Circuit’s jurisdiction, patentees will possibly negotiate through the courts rather than before litigation to improve the chances that a no-challenge clause will be found valid. That is, patentees may file first and ask questions later. Additionally, if patentees do in fact negotiate licenses before filing, they may seek higher royalties given the licensees will still have a valuable defense at its disposal or may seek other provisions to offset or slow down licensees from challenging the validity of a patent.

Andrew P. MacArthur is an Associate in the Gibbons Intellectual Property Department.

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The production of a party’s privileged documents is every lawyer’s--and client’s--worst nightmare because it provides additional facts (and avenues for discovery) as well as legal analysis of those facts that may not have existed. In layman’s terms, it is a game changer. A recent decision plays out this very scenario and shows that despite the production of privileged documents, they can be salvaged if the producing party acted properly before and after the disclosure.

In Inhalation Plastics, Inc. v. Medex Cardio-Pulmonary, Inc., 2:07-CV-116 (N.D. Ohio), the Court found the attorney-client (“A/C”) privilege was waived for 347 emails inadvertently produced, where the producing party, Medex, failed to provide any evidence of its review prior to production and failed to specifically identify the alleged privilege communications in a log as required under Federal Rule of Civil Procedure 26(b)(5)(B).

In a breach of contract lawsuit, Medex produced 7,500 hard copy pages (without any marked confidential under the protective order) of which 347 emails involved legal personnel as sender or recipient. These 7,500 pages represented a small amount relative to the 85,000 pages produced in the case by both sides. Medex did not assert any privilege on the 347 emails until Inhalation Plastics, Inc. (“IPI”) sought to depose those legal personnel. IPI brought a motion for a determination that the documents are not privileged and submitted them for in camera review.

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Two recent decisions highlight the importance of proper preparation during patent litigation, from the perspective of both plaintiffs and defendants.

In In re Bill of Lading, No. 2010-1493, 2012 U.S. App. LEXIS 11519 (Fed. Cir. June 7, 2012), the Court held that direct infringement only needs the same level of pleading as that outlined in Form 18 (which is a sample complaint for direct infringement) of the Appendix of Forms to the Federal Rules of Civil Procedure, while in contrast, indirect infringement needs to be pled in accordance with the higher standard delineated in Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) and Ashcroft v. Iqbal, 556 U.S. 662 (2009). In re Bill of Lading, 2012 U.S. App. LEXIS 11519, at *17-27.

Applying these legal standards, the Court found that the plaintiff properly pled direct infringement and inducement, but failed to plead contributory infringement because the plaintiff did not state why the defendants’ products have no substantial non-infringing uses. Id. at *27-37. Rather, the plaintiff actually pled allegations from which the Court determined there were substantial non-infringing uses. Id. at *35. In re Bill of Lading is a reminder to plaintiffs that boilerplate allegations of indirect infringement will not suffice, and that plaintiffs will have to ensure they conduct the proper fact gathering before asserting this type of infringement.

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In a recent order, a judge in the United States District Court for the Central District of California held that the defendants were misjoined because even though “some of the products incorporate the same wireless technology [it] does not alter the fact that Plaintiff brings suit against unrelated defendants for independent acts of infringement.” One-E-Way Inc. v. Plantronics Inc. et al, 2:11-cv-06673, at 2 (CD Cal. January 19, 2012).

Plaintiff sued several defendants accusing them of selling and manufacturing various products containing patented digital audio technology. Id. at 1. The Court issued an Order to Show Cause on January 4, 2012 why some or all of the defendants should not be dropped from the case as a result of improper joinder. Id. In response, the Plaintiff argued that the joinder was proper because all the Defendants incorporated allegedly infringing Bluetooth technology. Id. at 2. (It does not appear the Defendants were provided an opportunity to support the Court’s Order to Show Cause.)

The Court first outlined the permissive joinder standard and accompanying cases across various districts under Fed. R. Civ. P. 20(a). In undertaking this analysis, the Court determined that for joinder to be proper, the Defendants must have engaged in related activities or otherwise acted in concert. Id. The facts in this case, however, indicated that the Defendants were being sued for possible independent acts of infringement without any connection between them. Id. As a result, the Court held that the Defendants had been misjoined and thus dropped all--without prejudice--but the first-named defendant. Id.

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As anticipated, Eastman Kodak Co. filed a petition for Chapter 11 bankruptcy relief this morning in the United States Bankruptcy Court for the Southern District of New York. This development followed a recent flurry of patent infringement suits involving Kodak, and on the heels of Kodak’s unrequited efforts to license or sell off its substantial intellectual property (“IP”) portfolio.

Kodak recounted in its supporting affidavit its path of decline over recent years, citing, among other factors, liquidity challenges precipitated by difficulties collecting licensing fees from infringers of its intellectual property. The affidavit indicates that Kodak’s IP portfolio comprises nearly 9,000 U.S. patent and trademark registrations and applications, and over 13,000 foreign patents and trademarks registrations and applications. Thus, a critical component of its reorganization strategy is the sale of approximately 1,150 digital imaging patents. The patent portfolio has an estimated value of $2.2 to $2.6 billion, according to Kodak’s financing motion filed today. Kodak’s agreement with its lender, Citigroup, sets a June 30, 2012 deadline for Kodak to file a bidding procedures motion with the court with respect to the patent sale.

Between 2003 and 2010, Kodak generated approximately $450 million annually of licensing revenue from its digital-imaging patents. Last year, revenues shrank to $98 million. According to Kodak, the drop resulted largely from “infringers” employing a “strategy of delay in light of Kodak’s liquidity position.” Nevertheless, the digital-imaging portfolio is sure to generate significant interest. Readers should recall that last July, Nortel sold its patent portfolio in a bankruptcy auction. The sale of approximately 6,000 patents, including approximately 2,600 U.S. patents, yielded $4.5 billion in proceeds. According to one observer, Nortel represented the biggest skirmish to date in “a global commercial war being waged” wherein “patents have become the new lethal weaponry.”

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$12.5 billion for 17,000 patents! $4.5 billion for 6,500 patents! These purchases by Google and a group spearheaded by Microsoft and Apple represent a shift in the value of respective patents. However, valuing patents is not a simple task, but requires proper attorney diligence to ensure the purchase of patents is done in an efficient manner as not all companies have the resources of Google and the Microsoft group.

In the first deal, Google allegedly paid a premium for 17,000 patents of Motorola Mobility. Some speculate that this was done to ward off lawsuits from Apple, Microsoft, Oracle, and the like targeting the Android, including application developers and manufacturers for the phone. Or maybe it was because Google's chief legal officer believes that a smart phone is possibly subject to approximately 250,000 potential patent claims. (In a related patent deal, Google obtained 1,000 patents from IBM after the Nortel deal, which is discussed below, fell through.)

In the second deal, the Microsoft group purchased 6,500 patents from a Nortel bankruptcy auction at 4.5 times the seller's valuation. This purchase was possibly done with future patent litigation and/or licensing in mind.

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With the U.S. economy still reeling from the aftershock of what is now known as the “Great Recession,” companies large and small are evaluating cloud computing as a means of reducing IT costs. The National Institute of Standards and Technologies (“NIST”) and the Cloud Security Alliance have defined cloud computing as a model for on-demand network access to a shared pool of computing resources over the internet, namely software applications, data servers, networks and other services. Just as businesses and consumers now pay for gas, electricity and other utilities, cloud enthusiasts predict that the cloud will be sold on demand as a pure IT service.

The Silver Lining

Industry groups like ISACA recognize the silver lining in the cloud. For example, there are potential cost savings in the economies of scale that are achievable in a shared computing environment. The cloud also allows companies to scale without any major software or hardware investment. Thus, cloud users are able to deploy new services more rapidly than they could in a traditional IT model. Cloud computing also can accommodate changing business requirements in a flexible and scalable format. By relocating IT services to the cloud, moreover, companies are freed to focus on their core businesses, improve processes, innovate and increase productivity. In short, the promise of cloud computing is compelling – convert IT private networks to an on-demand, pay-as-you-go IT utility service that produces substantial savings for users.

Storm Clouds Gathering

While the benefits of the cloud are clear, the recent security breaches reported by Google highlight just some of the attendant risks. Google notified users that it inadvertently shared private Document and Spreadsheet materials with contacts that were never granted access to them. In response to cloud computing risks, The Electronic Privacy Information Center, an industry watchdog, has filed an FTC complaint to investigate the privacy and security measures of Gmail, Google Docs and Google’s other “cloud computing” services. Even John Chambers, Cisco Systems’ Chairman and CEO, has conceded that the computing industry’s move to an on-demand IT service on the Internet was “a security nightmare.” And, Microsoft now has joined the bandwagon and called on U.S. legislators to enact a “Cloud Computing Advancement Act.”

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