Evolving IP Landscape As Technology And The Law Develop

Thursday, January 24, 2013 - 14:50

The Editor interviews Jonathan S. Caplan and Paul J. Andre, Kramer Levin Naftalis & Frankel LLP. Mr. Caplan is a Partner in the firm’s New York office and Deputy Chair of the firm’s IP Department. Mr. Andre is Managing Partner of the firm’s Silicon Valley office.

Editor: Please give us an overview of the firm’s bicoastal intellectual property practice.

Caplan: Kramer Levin is a full-service firm with just under 400 lawyers. In addition to the New York office, we opened an office in California a little over a year ago, and we have an office in Paris. Our intellectual property practice is the third largest group within the firm. We handle all phases of intellectual property, with an emphasis on patent litigation in all areas, including the electrical, computer and mechanical area and life sciences. We have about 45 lawyers in New York, and this team handles IP matters across the board, including litigation, prosecution, counseling and all the related issues that come up, such as M&A and diligence.

Andre: In California, we have a strong emphasis on patent and trade secret litigation. The technology areas we focus on are computer science, life science and mechanical. Our team is in the 12- to 15-attorney range, and we handle cases for both patentees and people accused of patent infringement.

Editor: Implementation of the America Invents Act (AIA) is now underway. What are some key provisions affecting your clients?

Caplan: Overall, the AIA represents a big change in the law. Of all its provisions, the first-to-file provision likely will not represent the biggest change: first, because it simply will bring U.S. practices in line with most other countries and, second, because U.S. interference practice, which dealt with disputes under the old law’s first-to-invent concept, was a specialty area and never a big part of U.S. patent practice compared to prosecution or litigation. So, while enacting the first-to-file model was a big change, it likely will not have as great an impact as some other AIA provisions.

One change that is of great interest to many of our clients is the ability to have trials in the Patent Office on an accelerated basis, through the Patent Trial and Appeal Board (PTAB). That’s a new proceeding and a big change as a result of implementation of the AIA. So parties now have the option to litigate in federal district court or to get a patent validity ruling from PTAB on a fairly expedited basis, essentially within a year or so. Such a ruling also has a strong estoppel effect – in other words, it can be binding on parties in litigation.

Editor: Are companies prepared for implementation of the AIA?

Andre: After extensive discussion over many years about the provisions of the AIA, most companies reviewed the proposed changes and prepared for them well in advance of implementation. When the AIA passed, not many companies were caught off guard, and, certainly, our clients are ready to go with it.

Editor: Multiple intellectual property cases will be heard by the U.S. Supreme Court this term. What accounts for the recent trend for the Court to hear IP cases?

Andre: The Federal Circuit is largely split on many opinions that have come down en banc. We are seeing less and less uniformity with decisions at this level – for instance, the last couple of en bancs were split courts with 6-5 or 6-4 decisions – so that’s one reason the Court has decided to weigh in on these issues.

Caplan: There also is a continuing evolution of IP from the traditional specialty areas of patent and trademark, where these issues often were considered a smaller aspect of the company’s business. In today’s environment, IP is a mainstream issue and in the news all the time. The Court is trying to keep pace with this evolution and with the large role that IP now plays, both within companies and in our economy as a whole.

Editor: What distinguishes the technology-related patent claims, such as those pertaining to smartphones, from claims arising from patents in other areas, such as life sciences?

Caplan: Based on commentary by various industry groups on patent issues and changes to the patent laws, there is an emerging tension of competing interests in terms of what different industries are looking for from the patent system.  

On the one hand, consider companies in the electrical, computer or mechanical industries, where innovation tends to be iterative and products can be brought to market relatively quickly. These companies are looking for patent protection that keeps pace with their technology as it’s developed and as it hits the marketplace. Depending on what side of the issue a party favors, you’ll hear complaints that there are either too many or too few patents being issued; however, companies in this space are focused more on getting quick protection from the Patent Office. They’re not interested in big delays, particularly because the lifecycle of their products might be only a few years. While a patent term can go up to 20 years, these companies are less interested in the latter portion of the available patent term because technology has usually moved on by then.

In contrast, companies in the life sciences area require a long lead time to develop new technology, and there are a relatively small number of innovations. For example, if you compare smartphones to drugs, there are a far greater number of smartphone innovations being patented than there are drug innovations. Also, there’s a long lead time with drugs, and they have to be thoroughly tested before they can be commercialized. Therefore, life sciences companies are looking for a patent term that goes out as far as possible, and they tend to realize a lot of their commercial opportunity toward the tail end of the patent term. This industry-driven tension will continue in spite of certain accommodations in the law.

Editor: Please talk about the USPTO’s plan to establish regional offices.

Andre: The USPTO will be opening offices in different regions across the country. The offices are not all up and running, but the process is underway. The obvious goal is to make the patent application process more expedient and efficient by opening offices in certain high-tech centers, such as Silicon Valley. Further, it is difficult to get enough qualified examiners in just one location, such as DC. So it stands to reason that by spreading offices around, the USPTO is looking to increase its pool of qualified examiners and issue higher-quality patents in a more efficient way.

Editor: What are the key antitrust and licensing issues pertaining to standard essential patents (SEPs)? What is the role of the standards organizations?

Caplan: The standards organizations have been around for a long time. Many companies – particularly those in the telecom area that are developing products, whether infrastructure-related products like wireless networks or the devices themselves – have been involved in the standard-setting organizations. These organizations are designed to standardize various technical issues so that multiple competing products can be made to work across different platforms.

So an issue that periodically comes up is that various companies will be members of the standard-setting organization, and they either will or will not timely disclose patents or pending applications they have in an area pertinent to adoption of a particular standard. Now, if a standard is adopted that ties in with those patent claims, the member companies that hold those patents obviously have gained leverage over their competitors, which is the opposite of what a standard-setting organization intends to create by having numerous industry members.

Then the concern turns to licensing and whether the company holding a patent that covers a standard – or arguing that their patent covers a standard – actually does license their competitors on fair and reasonable terms.

While this is not a new issue, it has been heightened by the advent of mobile devices like smartphones, the many patents directed to their features and the fact that there is so much convergence in this arena. Our antitrust laws were designed to address this situation, and my sense is that the system is working to address problems as they arise.

Andre: Along those lines, what is fair and reasonable in licensing is coming under fire. Patent holders used to require a very nominal fee to license these patents. Now, some are asking for higher fees given the number of patents that one license can cover, for example in connection with a smartphone. The question of what is fair and reasonable in those circumstances is being raised and bringing the antitrust issue to the forefront.

Editor: Please talk about developments in the technology space that may raise unique or groundbreaking IP issues going forward.

Caplan: One big issue playing out right now in the life science area concerns the determination of what is the proper subject matter of patents, and this debate will continue for awhile. As technology advances, including the ability to do more analysis on the basic building blocks of cells and other life science issues, it creates the need to distinguish between (1) what technology is naturally occurring in nature and, under our law, is not patentable subject matter and (2) what situations arise where technology is used to analyze a process or to make use of new, although basic, information – and whether patents rightly cover it.

This issue came up 20 years ago when the courts decided about the proper subject matter for software or business-method patents. I think that’s settled now, but we are seeing this issue shift to the life science area.

Editor: Given the proliferation of technology patents and the resulting patent wars, do you expect the bar will be raised for patent eligibility in this space?

Caplan: I don’t see the bar being raised. The courts have been reluctant to change our basic laws, but they will continue to do what courts always have done, which is to apply the laws in ways that make sense.

Andre: I agree. There won’t be a fundamental change in the law; however, various nuances will continue to present themselves as technology goes forward. The courts are doing their best to address those nuances by refining the concept of eligible subject matter and how it should be handled with respect to damages and other aspects of these matters.

Editor: What are the critical factors in a freedom-to-operate analysis for Internet-based companies?

Caplan: Keep in mind that patents are territorial – for instance, U.S. patents only apply in the U.S., and each country has its own patents. There are no international patents, though there are some international processes for applications. For a freedom-to-operate analysis, standard due diligence involves looking at each country, understanding what technologies are being implicated, and analyzing not only the total process or service at issue, but also some of its components. These are classic diligence issues, and they don’t really change for Internet-based companies.

Andre: In performing our freedom-to-operate analysis for an Internet-based company, our first examination is to look at those jurisdictions in which the company’s servers are located. If they’re strictly within the U.S., we’ll start there. Then we will look at the other major industrial centers, such as Asia and Europe, to do a complete patent search and understand what’s in the space before we make an analysis.

Please email the interviewees at jcaplan@kramerlevin.com or pandre@kramerlevin.com with questions about this interview.