How IP Litigation Stole the Show in 2012

Jan Wolfe

The Litigation Daily

01-04-2013

The novelty of IP litigation being "hot" wore off long ago, but never did the practice dominate headlines quite as much as in 2012. Apple Inc.'s patent and trademark battle with smartphone rival Samsung Electronics Co. was probably the most-watched business lawsuit of the year. The three largest jury verdicts of the year were awarded in patent cases. Those headlines, meanwhile, placed unprecedented public scrutiny on the once-obscure patent system itself. To help keep track of it all, here's a rundown of some of the biggest IP developments of 2012.

PATENTLY PROBLEMATIC

• Tech companies have been complaining for years about the explosion in costly patent litigation. The mainstream press caught on in 2012. "One consequence of all this litigation, policy makers and academics say, is that patent disputes are suffocating the culture of startups that has long fueled job growth and technological innovation," The New York Times reported in a heavily trafficked feature from October. "It seems as if every time a high-tech company comes up with something new, another company files a patent lawsuit, saying they had it first," parroted CBS News in December.

Famed jurist Richard Posner of the U.S. Court of Appeals for the Seventh Circuit lent credibility to the patent skeptics, telling Reuters that "it's not clear that we really need patents in most industries." To make his point, he volunteered to hear one of Apple's key smartphone patent cases at the district court and then dismissed it before trial on the grounds that Apple couldn't show damages.

The U.S. Court of Appeals for the Federal Circuit, which helped to create the supposedly chaotic patent system, obviously isn't happy with the negative attention. Federal Circuit chief judge Randall Rader and his predecessor Paul Michel teamed up to defend their work at a conference in November. "For every dispute that's considered so controversial...thousands of agreements and market efficiencies are achieved by the patent system that far outweigh the inefficiencies of litigation," Rader said. Rader and Michel accused a handful of tech companies of distorting the national conversation about the patent system. They also assailed Posner's reasoning.

TROLLS RISING

In 2012 "patent trolls"--companies that acquire patents purely for leverage or litigation, rather than innovation--came under more scrutiny than ever before. One study concluded that trolls cost the U.S. economy $29 billion a year. Another blamed trolls--also known as non-performing entities--for 40 percent of all patent litigation.

Regulators started paying more attention. In December the Federal Trade Commission held a one-day workshop to discuss the impact of "patent assertion entities" on the marketplace, with the Justice Department's outgoing antitrust chief warning of "a possibility of competitive harm."

MASSIVE VERDICTS

All the furor over patent system didn't stop juries from returning huge verdicts against infringers.

Apple won $1.05 billion from Samsung in August, earning Apple's lawyers at Morrison & Foerster and Wilmer Cutler Pickering Hale and Dorr Litigator of the Week honors. Samsung's lawyers at Quinn Emanuel Urquhart & Sullivan were able to soften the blow by fending off Apple's bid for an injunction blocking Samsung from selling its infringing products. As we noted when we named Quinn Emanuel's John Quinn Litigator of the Week in October, Samsung's win could make it nearly impossible for gadget-makers to enjoin sales of a rival's devices.

The Monsanto Company won $1 billion from E.I. du Pont de Nemours & Co. in August in a dispute relating to genetically engineered seeds. (George Lombardi of Winston & Strawn was our Litigator of the Week for that win.) It later came to light that a judge sanctioned DuPont for "perpetuating a fraud against the court" by "intentionally ma[king] statements to the Court that are directly contradicted by facts."

The biggest verdict of the year came on Dec. 26, when Carnegie Mellon University won $1.17 billion from the semiconductor manufacturer Marvell Technology Group Ltd. Marvell's lawyers at Quinn Emanuel have already moved for a mistrial based on CMU's supposedly improper closing argument. We named Douglas Greenswag and Patrick McElhinny of K&L Gates Litigators of the Week for the stunning verdict, which we also covered here.

Small software companies also scored big, and their fluctuating fortunes highlighted the degree to which that risk-tolerant investors are now betting on patent litigation. Vringo Inc. won a verdict against Google Inc. in November that could be worth as much as $500 million. The same month VirnetX Holding Corp. won $368 million from Apple.

RED SOLES, BROADCAST WOES

• Patents dominated the national conversation, but there were also some major trademark and copyright litigation headlines this year. Indeed, one of the most buzzworthy IP cases of the year involved a trademark for red-soled shoes. Fashion designer Christian Louboutin, who has profited handsomely from the distinctive red outsoles on his $700 shoes, accused the clothing company Yves Saint Laurent America of infringing his registered trademark for the look. To Louboutin's dismay, a U.S. district court judge decided in 2011 that "a single color can never serve as a trademark in the fashion industry." The U.S. Court of Appeals for the Second Circuit reversed in September, ruling that Louboutin can claim trademark protection for the outsole, but not if the rest of the shoe is red. Both designers have claimed victory.

The recording industry's war on music-sharing sites died down in 2011, but 2012 brought a spike in litigation over digital television that kept copyright mavens busy.

Every major broadcaster joined forces to sue Aereo Inc., a potentially revolutionary start-up that streams live television to its subscribers' mobile devices for $12 a month, without paying a cent in retransmission fees back to the networks. Aereo and its lawyers at Winston & Strawn and Goodwin Procter prevailed in July, but the broadcasters and their lawyers at Jenner & Block have appealed to the Second Circuit.

One of the plaintiffs in the Aereo case, Fox Broadcasting, has also sued the satellite television company Dish Network Corporation over its new AutoHop feature, which lets users skip commercial breaks entirely. A judge denied Fox's bid for an early injunction in November.

Will IP cool off in 2013, as the major provisions of the American Invents Act go into effect? We're willing to go out on a limb and expect things to get even hotter.