`
`No. 16-712
`IN THE
`Supreme Court of the United States
`_________________________
`OIL STATES ENERGY SERVICES, LLC,
`Petitioner,
`
`
`
`v.
`GREENE’S ENERGY GROUP, LLC, ET AL.,
`
`
`Respondents.
`_________________________
`ON WRIT OF CERTIORARI TO
`THE UNITED STATES COURT OF APPEALS
`FOR THE FEDERAL CIRCUIT
`_________________________
`BRIEF OF AMICUS CURIAE TAIWAN SEMI-
`CONDUCTOR MANUFACTURING CO., LTD.
`IN SUPPORT OF RESPONDENTS
`_________________________
`Mark S. Davies
`Michael Shen
`Willy Chang
`Counsel of Record
`Katherine M. Kopp
`TSMC, LTD.
`Jeremy Peterman
`8 Li-Hsin Rd.
`Randall Smith
`Hsinchu, Taiwan
`ORRICK, HERRINGTON &
`
`Bas de Blank
`SUTCLIFFE LLP
`ORRICK, HERRINGTON &
`1152 15th Street NW
`Washington, DC 10019
`SUTCLIFFE LLP
`(202) 339-8400
`1000 Marsh Road
`mark.davies@orrick.com
`Menlo Park, CA 94025
`Counsel for Amicus Curiae
`
`
`
`
`
`i
`
`TABLE OF CONTENTS
`
`Page
`TABLE OF AUTHORITIES ..................................... ii
`INTEREST OF AMICUS CURIAE .......................... 1
`SUMMARY OF ARGUMENT ................................... 2
`ARGUMENT ............................................................. 3
`I. NPEs Often Assert Worthless Patents
`Against Manufacturers’ Customers and
`Products. ............................................................. 3
`A. Some worthless patents are an
`inevitable feature of any patent
`system. ........................................................... 4
`B. Owners of worthless patents often sue
`manufacturers’ customers. ........................... 5
`II. To Promote Progress, Congress Has
`Provided Manufacturers With An
`Effective Mechanism To Defend Against
`NPE Suits. .......................................................... 9
`A. For many years, manufacturers could
`not defend their customers and their
`products from suits based on worthless
`patents. ........................................................ 10
`B. IPRs provide manufacturers with a
`mechanism to defend their customers
`and products from suits based on
`worthless patents. ....................................... 16
`CONCLUSION ........................................................ 19
`
`
`
`
`ii
`
`TABLE OF AUTHORITIES
`
`Page(s)
`
`Cases
`Adobe Sys. Inc. v. Kelora Sys. LLC,
`No. C 11-3938 CW, 2011 WL 6101545
`(N.D. Cal. Dec. 7, 2011) ......................................... 14
`Allied Mineral Prods., Inc. v. Osmi, Inc.,
`870 F.3d 1337 (Fed. Cir. 2017) .............................. 13
`
`Autogenomics, Inc. v. Oxford Gene Tech.
`Ltd.,
`566 F.3d 1012 (Fed. Cir. 2009) .............................. 14
`Benitec Australia, Ltd. v. Nucleonics, Inc.,
`495 F.3d 1340 (Fed. Cir. 2007) .............................. 13
`Bilski v. Kappos,
`561 U.S. 593 (2010) ................................................. 4
`Bridgelux, Inc. v. Cree, Inc.,
`No. C 06-6495 PJH, 2007 WL
`2022024 (N.D. Cal. July 9, 2007) .......................... 12
`
`Cisco Sys., Inc. v. Alberta Telecomms.
`Research Ctr.,
`538 F. App’x 894 (Fed. Cir. 2013) ......................... 11
`Cocona, Inc. v. Sheex, Inc.,
`92 F. Supp. 3d 1032 (D. Colo. 2015) ...................... 12
`Commil USA, LLC v. Cisco Sys., Inc.,
`135 S. Ct. 1920 (2015) ....................................... 2, 15
`
`
`
`iii
`
`Creative Compounds, LLC v. Starmark
`Labs.,
`651 F.3d 1303 (Fed. Cir. 2011) .............................. 11
`Dorman Prods., Inc. v. Paccar, Inc.,
`201 F. Supp. 3d 663 (E.D. Pa. 2016) ..................... 15
`Glenayre Elecs., Inc. v. Jackson,
`443 F.3d 851 (Fed. Cir. 2006) .................................. 8
`
`Innovative Therapies, Inc. v. Kinetic
`Concepts, Inc.,
`599 F.3d 1377 (Fed. Cir. 2010) .............................. 13
`
`Integrated Glob. Concepts, Inc. v. j2
`Glob., Inc.,
`No. C-12-03434-RMW, 2013 WL
`3297108 (N.D. Cal. June 28, 2013) ....................... 12
`Kahn v. Gen. Motors Corp.,
`889 F.2d 1078 (Fed. Cir. 1989) ................................ 7
`Kappos v. Hyatt,
`566 U.S. 431 (2012) ................................................. 4
`Katz v. Lear Siegler, Inc.,
`909 F.2d 1459 (Fed. Cir. 1990) ................................ 7
`KSR Int’l Co. v. Teleflex Inc.,
`550 U.S. 398 (2007) ................................................. 2
`Lear, Inc. v. Adkins,
`395 U.S. 653 (1969) ................................................. 4
`Lucent Techs., Inc. v. Gateway, Inc.,
`580 F.3d 1301 (Fed. Cir. 2009) ................................ 8
`
`
`
`iv
`
`Matthews Int’l Corp. v. Biosafe Eng’g, LLC,
`695 F.3d 1322 (Fed. Cir. 2012) .............................. 12
`Md. Cas. Co. v. Pac. Coal & Oil Co.,
`312 U.S. 270 (1941) ............................................... 10
`MedImmune, Inc. v. Genentech, Inc.,
`549 U.S. 118 (2007) ............................................... 10
`Microsoft Corp. v. DataTern, Inc.,
`755 F.3d 899 (Fed. Cir. 2014) .......................... 12, 13
`Microsoft Corp. v. i4i Ltd. P’ship,
`564 U.S. 91 (2011) ................................................... 4
`Microsoft Corp. v. LBS Innovations LLC,
`No. 12-CV-0848 CCC JAD, 2012 WL
`6028857 (D.N.J. Nov. 8, 2012) .............................. 13
`
`MPHJ Tech. Invs., LLC v. Ricoh
`Americas Corp.,
`847 F.3d 1363 (Fed. Cir. 2017) .............................. 18
`Ours Tech., Inc. v. Data Drive Thru, Inc.,
`645 F. Supp. 2d 830 (N.D. Cal. 2009) ................... 13
`Pennoyer v. Neff,
`95 U.S. 714 (1877) ................................................. 14
`Pope Mfg. Co. v. Gormully,
`144 U.S. 224 (1892) ................................................. 4
`
`Proofpoint, Inc. v. InNova Patent
`Licensing, LLC,
`No. 5:11-CV-02288-LHK, 2011 WL
`4915847 (N.D. Cal. Oct. 17, 2011) ......................... 12
`
`
`
`v
`
`SCA Hygiene Prods. Aktiebolag v. First
`Quality Baby Prods., LLC,
`137 S. Ct. 954 (2017) ............................................... 9
`Shuffle Tech Int’l, LLC v. Sci. Games Corp.,
`No. 15 C 3702, 2015 WL 5934834 (N.D.
`Ill. Oct. 12, 2015) ................................................... 13
`
`Spread Spectrum Screening LLC v.
`Eastman Kodak Co.,
`657 F.3d 1349 (Fed. Cir. 2011) ................................ 7
`Stern v. Marshall,
`564 U.S. 462 (2011) ................................................. 1
`
`Tegic Commc’ns Corp. v. Bd. of Regents
`of Univ. of Tex. Sys.,
`458 F.3d 1335 (Fed. Cir. 2006) ................................ 7
`Constitutional Provisions
`U.S. Const. art. I, § 8, cl. 8 ............................... 2, 3, 16
`Statutes
`28 U.S.C. § 2201(a) ................................................... 10
`35 U.S.C. § 271 ........................................................... 5
`35 U.S.C. § 271(b) ..................................................... 15
`35 U.S.C. § 284 ........................................................... 7
`35 U.S.C. § 303 ......................................................... 10
`35 U.S.C. § 305 ......................................................... 10
`
`
`
`vi
`
`
`Other Authorities
`157 Cong. Rec. S1036 (daily ed. Mar. 1,
`2011) (statement of Sen. Klobuchar) ................ 4, 16
`157 Cong. Rec. S1326 (daily ed. Mar. 7,
`2011) (statement of Sen. Sessions) ....................... 16
`Brian J. Love, Inter Partes Review as a
`Shield for Technology Purchasers: A
`Response to Gaia Bernstein’s The Rise
`of the End-User in Patent Litigation,
`56 B.C. L. Rev. 1075 (2015) ................................... 18
`Colleen V. Chien, Patent Assertion and
`Startup Innovation, New Am. Found.:
`Open Tech. Inst. (Sept. 5, 2013),
`http://tinyurl.com/ycp2dlv7 ..................................... 8
`Colleen V. Chien & Edward Reines,
`Why Technology Customers Are Being
`Sued En Masse For Patent
`Infringement And What Can Be Done,
`49 Wake Forest L. Rev. 235 (2014) ......................... 7
`Complaint, Godo Kaisha IP Bridge 1 v.
`Broadcom Ltd., No. 2:16-cv-00134-
`JRG-RSP (E.D. Tex. Feb. 14, 2016),
`Dkt. 1 ..................................................................... 17
`Joint Motion to Dismiss, Godo Kaisha
`IP Bridge 1 v. Broadcom Ltd., No.
`2:16-cv-00134-JRG-RSP (E.D. Tex.
`June 30, 2017), Dkt. 335 ....................................... 18
`
`
`
`vii
`
`Josh Landau, IPR Successes: A Bridge
`to Sovereign Patent Funds, Patent
`Progress (Oct. 9, 2017),
`http://tinyurl.com/ydew9j8g .................................. 14
`Order Denying Motion to Transfer
`Venue, Godo Kaisha IP Bridge 1 v.
`Broadcom Ltd., No. 2:16-cv-00134-
`JRG-RSP (E.D. Tex. Feb. 27, 2017),
`Dkt. 188 .................................................................. 18
`Samson Vermont, AIPLA Survey of
`Costs of Patent Litigation and Inter
`Partes Review (Jan. 30, 2017),
`http://tinyurl.com/ybnpne3 ...................................... 6
`Scott Partridge & David Mika, Looking
`Upstream: Weighing Proposed
`Changes to Customer Stays in Patent
`Litigation, 4 Houston L. Rev. 81
`(2014) ....................................................................... 6
`TSMC, 2016 TSMC Annual Report:
`Technology Leadership (Mar. 17,
`2017), http://tinyurl.com/y9gsvnr9.......................... 1
`USPTO, Ex Parte Reexamination Filing
`Data—September 30, 2016,
`http://tinyurl.com/y78r4mvc .................................. 10
`World Intellectual Property
`Organization, Re-examination
`Systems, http://tinyurl.com/y8brn54y/ .................. 16
`
`
`
`1
`
`INTEREST OF AMICUS CURIAE1
`Taiwan Semiconductor Manufacturing Co., Ltd.
`(TSMC) is the most advanced semiconductor manu-
`facturer in the world. Founded thirty years ago, sem-
`iconductors now made by TSMC include features that
`are 20 nanometers in size or as much as 5000 times
`thinner than the width of a human hair. To do this,
`TSMC employs thousands of engineers and spends
`billions of dollars a year to develop products with
`ever-decreasing size. And to maintain its industry
`lead, TSMC is expected to double its products’ compu-
`ting power every two years. Today, TSMC supplies to
`its customers the semiconductors that run many of
`the most popular electronic devices. TSMC believes in
`the value of patents that protect true innovation, and
`TSMC is now the company with the ninth most U.S.
`patents.2
`Aware of the extraordinary volume of paper be-
`fore this Court, TSMC writes to make specific points
`drawn from its deep experience with the American pa-
`tent system. TSMC agrees with the views of Respond-
`ent set out on pages 29-39 of its brief. Patent rights
`are “public rights, derived from a ‘federal regulatory
`scheme.’” Resp. Br. at 30 (citing Stern v. Marshall,
`
`
`1 The parties have consented to the filing of this amicus
`brief. No counsel for a party authored the brief in whole or in
`part. No party, counsel for a party, or any person other than
`amici and their counsel made a monetary contribution intended
`to fund the preparation or submission of the brief.
`2 See TSMC, 2016 TSMC Annual Report: Technology Lead-
`ership (Mar. 17, 2017), http://tinyurl.com/y9gsvnr9.
`
`
`
`2
`
`
`
`564 U.S. 462 (2011)). To minimize the amount of re-
`dundant argument, however, TSMC does not further
`directly address this question. TSMC instead offers
`this brief to aid the Court’s understanding of the sig-
`nificant problems invalid patents create for manufac-
`turers like TSMC and their customers. TSMC writes
`to explain why inter partes review (IPR) is critical for
`the patent system to promote the “Progress of Science
`and the useful Arts.”
`SUMMARY OF ARGUMENT
`
`A patent applicant is entitled to a patent only if
`the United States Patent & Trademark Office (Patent
`Office) determines that the applicant invented some-
`thing beyond “the results of ordinary innovation.”
`KSR Int’l Co. v. Teleflex Inc., 550 U.S. 398, 427 (2007)
`(citing U.S. Const. art. I, § 8, cl. 8). But making that
`determination is no easy task, and hundreds of thou-
`sands of patent applications are filed each year. The
`inevitable result is that among the many issued pa-
`tents are patents that “stifle, rather than promote,
`the Progress of useful Arts.” Id.
` “Some companies may use patents as a sword to
`go after defendants for money, even when their claims
`are frivolous.” Commil USA, LLC v. Cisco Sys., Inc.,
`135 S. Ct. 1920, 1930 (2015). Owners of worthless pa-
`tents, often non-practicing entities (NPEs), routinely
`sue manufacturers’ customers rather than directly
`sue manufacturers such as TSMC. NPEs do so to
`avoid challenges to the validity of the patent because
`an individual customer is less likely than a manufac-
`turer to pay the costs to litigate. NPEs also sue a man-
`ufacturer’s customers
`to
`inflate
`the damages
`
`
`
`3
`
`demands because customers incorporate a manufac-
`turer’s component into an end product with a higher
`price tag. And should an NPE decide to target a man-
`ufacturer for inducing the customer to infringe, an
`NPE is able to generate high damages claims by giv-
`ing notice of the patent and then waiting months or
`years to sue while the customer further commits its
`end product to the manufacturer’s component.
`IPRs are often the only mechanism for a manufac-
`turer to protect its customers and products from the
`cloud of infringement. Patent owners can engage in
`strategic pleading to deprive manufacturers of access
`to Article III courts to challenge the asserted patent’s
`validity under the Declaratory Judgment Act. Thus,
`for manufacturers, this case is not about the choice
`between contesting patent validity in Article III
`courts or contesting patent validity in IPRs. Rather,
`at stake for manufacturers is any mechanism to con-
`test the validity of a worthless patent asserted
`against the manufacturers’ customers and manufac-
`turers’ products.
`
`ARGUMENT
`
`I. NPEs Often Assert Worthless Patents
`Against Manufacturers’ Customers and
`Products.
`The framers empowered Congress to create a pa-
`tent system that “promote[s] the Progress of Science
`and useful Arts.” U.S. Const art. I, § 8, cl. 8. Today’s
`patent system “adjust[s] the tension, ever present in
`patent law, between stimulating innovation by pro-
`tecting inventors and impeding progress by granting
`
`
`
`4
`
`patents when not justified by the statutory design.”
`Bilski v. Kappos, 561 U.S. 593, 609 (2010). And for
`many years, companies, including TSMC, have sub-
`mitted patent applications and obtained patents pro-
`tecting inventions. But since at least the 1800s, this
`Court has also recognized that not all patents claim
`true innovations. “It is as important to the public that
`competition should not be repressed by worthless pa-
`tents, as that the patentee of a really valuable inven-
`tion should be protected in his monopoly.” Lear, Inc.
`v. Adkins, 395 U.S. 653, 663-64 (1969) (quoting Pope
`Mfg. Co. v. Gormully, 144 U.S. 224, 234 (1892)).
`an
`A. Some worthless patents
`are
`inevitable feature of any patent system.
`Given the prominent place of technology in to-
`day’s economy, the erroneous issuance of some pa-
`tents is unavoidable. As the Federal Respondent
`writes, “the patent examiner evaluating an applica-
`tion may be unaware of information that bears on
`whether the requirements for patentability are satis-
`fied.” Br. Federal Respondents at 3 (citing Kappos v.
`Hyatt, 566 U.S. 431, 437 (2012) and Microsoft Corp. v.
`i4i Ltd. P’ship, 564 U.S. 91, 108-112 (2011)). “[T]hird
`parties are often in the best position to challenge a
`patent application [and] [w]ithout the benefit of this
`outside expertise, an examiner might grant a patent
`for technology that simply isn’t a true invention.”3
`Thus, “while patent examiners generally are highly
`skilled in both technology and patent law, they do
`nevertheless occasionally make mistakes and issue
`
`3 157 Cong. Rec. S1036 (daily ed. Mar. 1, 2011) (statement
`of Sen. Klobuchar).
`
`
`
`5
`
`claims that should not have been issued.” Br. Amicus
`Curiae PTAB Bar Ass’n at 13; see also id. at 15 (“prob-
`lems are inherent in any examination system of pa-
`tents”).
`The presence of improperly-issued patents com-
`plicates inventing for TSMC. Such a patent claims a
`monopoly on an idea that already existed. A TSMC
`inventor that comes across the patent may reasonably
`believe the patent to be no impediment to a new and
`useful semiconductor product. But until rendered in-
`valid, the patent can be asserted against TSMC’s
`products. TSMC is thus confronted with a dilemma
`when facing a patent that it believes invalid: It can
`either risk patent infringement suits against its prod-
`ucts or pay for a license it believes it does not need.
`B. Owners of worthless patents often sue
`manufacturers’ customers.
`A patent owner can typically sue anyone down the
`supply chain for infringement. 35 U.S.C. § 271 (grant-
`ing patent owner right to exclude others from making,
`using, selling, or offering to sell an invention). NPEs
`take great advantage of their ability to pick their de-
`fendant: NPEs often sue manufacturers’ customers
`rather than manufacturers. NPEs have found that
`customers are more lucrative targets. The reason is
`both a matter of a customer’s diminished incentive to
`resist settlement pressure and the prospect of greater
`damages.
`
`Diminished Incentives to Contest A Worth-
`less Patent. When a manufacturer’s product is ac-
`cused of infringing a questionable patent, the
`
`
`
`6
`
`manufacturer has every incentive to challenge the as-
`serted patent’s validity. The infringement suit is in
`essence the plaintiff claiming that it invented the
`manufacturer’s product. And the manufacturer faces
`exposure for every product it sold to its customers and
`every product it may sell in the future. Until the man-
`ufacturer either settles or a court finds the asserted
`patent invalid or non-infringing, its product will re-
`main under a cloud of infringement and its business
`may be at risk. This gives manufacturers a strong in-
`centive to contest baseless patent claims with the in-
`dustry knowledge and expertise needed to do so.
`For customers, the incentives often look different.
`See Scott Partridge & David Mika, Looking Up-
`stream: Weighing Proposed Changes to Customer
`Stays in Patent Litigation, 4 Houston L. Rev. 81, 84-
`86 (2014). Defending against a claim of infringement
`is expensive.4 And an infringement claim based on a
`supplied component will sometimes target only a
`small part of the customer’s business. The customer
`may also have the option of simply switching to a new
`product for less than it would cost to fight. Or they
`may believe the manufacturer will foot the bill for any
`settlement. The result is that the customer has a di-
`minished incentive to defend against the infringe-
`ment allegations and will typically have an incentive
`
`4 According to the American Intellectual Property Law As-
`sociation, in cases where between $1 million and $25 million is
`at risk, a patent owner should expect to spend more than $2 mil-
`lion to litigate a patent through trial and appeal. In high stakes
`litigation the median cost is $5,000,000—which means half of
`such suits cost even more. Samson Vermont, AIPLA Survey of
`Costs of Patent Litigation and Inter Partes Review (Jan. 30,
`2017), http://tinyurl.com/ybnpne3c.
`
`
`
`7
`
`to settle even if they believe they would ultimately
`prevail. See Colleen V. Chien & Edward Reines, Why
`Technology Customers Are Being Sued En Masse For
`Patent Infringement And What Can Be Done, 49 Wake
`Forest L. Rev. 235, 243 (2014).
`Indeed, for this reason, the Federal Circuit even
`recognizes “that, in certain patent cases, ‘litigation
`against or brought by the manufacturer of infringing
`goods takes precedence over a suit by the patent
`owner against customers of the manufacturer.’” See
`Spread Spectrum Screening LLC v. Eastman Kodak
`Co., 657 F.3d 1349, 1357 (Fed. Cir. 2011) (quoting
`Katz v. Lear Siegler, Inc., 909 F.2d 1459, 1464 (Fed.
`Cir. 1990)); see also Tegic Commc’ns Corp. v. Bd. of
`Regents of Univ. of Tex. Sys., 458 F.3d 1335, 1343
`(Fed. Cir. 2006). This is because of “the manufac-
`turer’s presumed greater interest in defending its ac-
`tions against charges of patent infringement; and to
`guard against possibility of abuse.” Kahn v. Gen. Mo-
`tors Corp., 889 F.2d 1078, 1081 (Fed. Cir. 1989).
`Inflated Claims of Damages. Plaintiffs target
`customers rather than manufacturers for a second
`reason: They can demand greater damages from the
`manufacturer’s customers than they can reasonably
`seek from the manufacturer even though the alleg-
`edly infringing component is identical in both cases.
`The reason is how patent damages are measured.
`Typically, a plaintiff that proves infringement is enti-
`tled to a “reasonable royalty” for its contribution. 35
`U.S.C. § 284. The reasonable royalty is determined by
`a hypothetical negotiation that seeks to tease out
`what an infringer would have paid for a license. See,
`
`
`
`8
`
`e.g., Lucent Techs., Inc. v. Gateway, Inc., 580 F.3d
`1301, 1324-25 (Fed. Cir. 2009).
`But because the customer uses the accused prod-
`uct in a more lucrative consumer electronic, plaintiffs
`can persuade juries that the customer would have
`paid far more for a license than the manufacturer.
`See, e.g., Glenayre Elecs., Inc. v. Jackson, 443 F.3d
`851, 861 (Fed. Cir. 2006) (plaintiff “succeeded” at
`“steer[ing] the jury away from the relatively low roy-
`alty base of $40 million to the relatively high royalty
`base of $250 million, which was based on cus-
`tomer use.”). For example, as one lawyer for a startup
`targeted by an NPE explained, the “patentee [did] not
`sue … [the manufacturers] because they … wanted
`the damages base to be the $400/500 price of a phone
`rather than the $25 price of a chip or the price (some-
`times zero) of the software.”5 The plaintiff can con-
`tend the customer would have paid more to license its
`patent than TSMC, notwithstanding that the alleg-
`edly infringing product is identical. And the customer
`may have a large profit margin that can help it absorb
`the costs of a settlement. That creates an incentive to
`sue the customer and not the manufacturer.
`Although some NPEs may sue the customers
`early, others may increase settlement demands by
`waiting to file suit against a customer until a product
`becomes successful. “Once a business chooses to rely
`on a particular technology, it can become expensive to
`
`
`5 Colleen V. Chien, Patent Assertion and Startup Innova-
`tion, New Am. Found.: Open Tech. Inst. 13 (Sept. 5, 2013),
`http://tinyurl.com/ycp2dlv7.
`
`
`
`9
`
`switch, even if it would have been cheap to do so ear-
`lier.” SCA Hygiene Prods. Aktiebolag v. First Quality
`Baby Prods., LLC, 137 S. Ct. 954, 972 (2017) (Breyer,
`J., dissenting). This is particularly true for end prod-
`ucts made up of multiple components supplied by oth-
`ers, where each component is like the piece to a
`complex jigsaw puzzle. The NPE just waits until the
`customer has assembled the intricate puzzle and then
`strikes at a key piece. This dynamic gives “a patentee
`[a] considerable incentive to delay suit until the costs
`of switching—and accordingly the settlement value of
`a claim—are high.” Id.
`
`* * *
`By suing customers rather than manufacturers,
`NPEs decrease the risk to their patent from a validity
`challenge and increase the likelihood of a lucrative
`settlement. In the event the customer decides to fight,
`the patent owner can settle inexpensively with one
`customer and keep the strategy going with others.
`Furthermore, NPEs often benefit from delaying suit
`until the customer has committed to the manufac-
`turer’s product.
`II. To Promote Progress, Congress Has
`Provided Manufacturers With An Effective
`Mechanism To Defend Against NPE Suits.
`In 2011, Congress created inter partes review—a
`targeted administrative mechanism that enables the
`Patent Office to find, with the benefit of adversarial
`presentation, those worthless patents that stifle inno-
`vation. TSMC’s experience illustrates the effective-
`ness of Congress’s actions.
`
`
`
`10
`
`A. For many years, manufacturers could
`not defend their customers and their
`products from suits based on worthless
`patents.
`For many years, the only avenue open to a manu-
`facturer seeking to defend its products from a strate-
`gic suit against its customers was to seek a
`declaratory judgment. See 28 U.S.C. § 2201(a).6 But
`that option often did not work. To have standing to
`bring a declaratory judgment action a manufacturer
`must show “a substantial controversy, between par-
`ties having adverse legal interests, of sufficient imme-
`diacy and reality to warrant the issuance of a
`declaratory judgment.” MedImmune, Inc. v. Genen-
`tech, Inc., 549 U.S. 118, 127 (2007) (quoting Md. Cas.
`Co. v. Pac. Coal & Oil Co., 312 U.S. 270, 273 (1941)).
`The lower courts have consistently held that injury
`from a patent owner suing a customer for using a
`manufacturer’s product is not enough.
`The case law is replete with instances where pa-
`tent holders have brought infringement suits against
`
`6 Although a manufacturer may also have requested an ex
`parte reexamination by the Patent Office, 35 U.S.C. § 303, the
`manufacturer has no right to participate in an ex parte reexam-
`ination once the proceeding begins. Id. at § 305. Moreover, the
`proceeding is “conducted according to the procedures established
`for initial examination.” Id. Given the high volume of issued pa-
`tents and the difficulty of the patent examination process, supra
`4-5, a process that effectively repeats a process that already is-
`sued a worthless patent may well just repeat the error. Moreo-
`ver, ex parte reexamination can take years to resolve validity.
`See USPTO, Ex Parte Reexamination Filing Data—September
`30, 2016, http://tinyurl.com/y78r4mvc.
`
`
`
`11
`
`the customers of an upstream manufacturer and
`made clear that these suits were based on the custom-
`ers’ use of the manufacturer’s products, yet the man-
`ufacturer was deemed to lack declaratory judgment
`standing. In one case, a patent holder brought suit
`against several customers of Cisco, a manufacturer of
`components for telecommunications networks. Cisco
`Sys., Inc. v. Alberta Telecomms. Research Ctr., 538 F.
`App’x 894 (Fed. Cir. 2013). The patent holder “pro-
`vided claim charts to the defendants which tie[d] [its]
`infringement contentions to the … defendants’ use of
`Cisco products, identified by model number, and
`quote[d] Cisco’s product literature to describe the al-
`legedly infringing functionality made possible by
`those Cisco products.” Id. at 895. Yet the court con-
`cluded that, while it was “understandable that Cisco
`may have an interest in saving its customers from in-
`fringement contentions premised … on their use of
`Cisco products[,] … that interest is simply insufficient
`to give rise to a current, justiciable case or controversy
`upon which federal declaratory judgment may be
`predicated.” Id. at 898.
`In other instances, even where a patent holder
`has explicitly threatened litigation against a manu-
`facturers’ customers, courts have found that the man-
`ufacturer lacked declaratory judgment standing. In
`one case, the manufacturer lacked standing even
`though the patent holder sent letters to its customers
`“alleging that [the product] would infringe” its patent.
`Creative Compounds, LLC v. Starmark Labs., 651
`
`
`
`12
`
`F.3d 1303, 1316 (Fed. Cir. 2011). 7 In another, the
`manufacturer lacked standing despite the manufac-
`turer’s claims that a patent holder “launched a bad
`faith whispering campaign” in the relevant market-
`place “by making accusations and veiled threats to po-
`tential customers” and despite statements from the
`manufacturer’s customers that they were “reluctant
`to buy” the manufacturer’s products “because of the
`accusations made by” the patent holder. Matthews
`Int’l Corp. v. Biosafe Eng’g, LLC, 695 F.3d 1322, 1327
`(Fed. Cir. 2012).
`Indemnification is not a ready solution to secure
`standing either. As an initial matter, manufacturers
`should not be put to the choice of indemnification or
`being able to challenge infringement contentions lev-
`eled at their products. But even if a manufacturer is
`willing to indemnify, that is not always enough.
`Courts have held that an indemnification demand
`from a customer alone is not sufficient. See Microsoft
`Corp. v. DataTern, Inc., 755 F.3d 899, 904 (Fed. Cir.
`2014); Proofpoint, Inc. v. InNova Patent Licensing,
`LLC, No. 5:11-CV-02288-LHK, 2011 WL 4915847, at
`
`
`7 See also Cocona, Inc. v. Sheex, Inc., 92 F. Supp. 3d 1032,
`1041 (D. Colo. 2015) (no standing to seek declaratory relief based
`on “generalized concern about potential lawsuits against its cus-
`tomers and licensees”); Integrated Glob. Concepts, Inc. v. j2
`Glob., Inc., No. C-12-03434-RMW, 2013 WL 3297108, at *4 (N.D.
`Cal. June 28, 2013) (no standing to seek declaratory judgment
`standard even though patent holder sent cease and desist letter
`to supplier’s customers); Bridgelux, Inc. v. Cree, Inc., No. C 06-
`6495 PJH, 2007 WL 2022024, at *9 (N.D. Cal. July 9, 2007) (no
`standing to seek declaratory judgment despite claims that pa-
`tent holder threatened litigation against plaintiff’s customers).
`
`
`
`13
`
`*5 (N.D. Cal. Oct. 17, 2011). And even when the man-
`ufacturer accedes to such indemnification demands,
`courts have sometimes found that interest insuffi-
`cient to convey declaratory judgment standing. See
`Ours Tech., Inc. v. Data Drive Thru, Inc., 645 F. Supp.
`2d 830, 840 (N.D. Cal. 2009); see also Shuffle Tech
`Int’l, LLC v. Sci. Games Corp., No. 15 C 3702, 2015
`WL 5934834, at *8 (N.D. Ill. Oct. 12, 2015) (“Volun-
`tary involvement in the indemnified party’s litigation
`does not give the indemnitor the type of adverse legal
`interest … necessary to satisfy MedImmune.”).
`The upshot is that patent holders are empowered
`to act strategically to defeat manufacturers’ standing
`while continuing to threaten and actually initiate in-
`fringement suits against the manufacturer’s custom-
`ers. In case after case, courts have concluded that a
`patent holder could thwart a manufacturer’s standing
`simply by avoiding threatening the manufacturer
`with an infringement suit. Allied Mineral Prods., Inc.
`v. Osmi, Inc., 870 F.3d 1337, 1339-40 (Fed. Cir. 2017);
`Microsoft Corp., 755 F.3d at 905 (no standing where
`claim charts mentioned Microsoft’s product but did
`not accuse Microsoft of infringement); see also Benitec
`Australia, Ltd. v. Nucleonics, Inc., 495 F.3d 1340,
`1343, 1348 (Fed. Cir. 2007) (dismissing declaratory
`judgment action even though plaintiff was motivated
`to “prevent the district court from declaring the … pa-
`tent invalid”).8
`
`
`8 See also Innovative Therapies, Inc. v. Kinetic Concepts,
`Inc., 599 F.3d 1377, 1382 (Fed. Cir. 2010); Microsoft Corp. v. LBS
`Innovations LLC, No. 12-CV-0848 CCC JAD, 2012 WL 6028857,
`
`
`
`
`14
`
`The problem is compounded by the rise of foreign
`NPEs and sovereign patent funds. Josh Landau, IPR
`Successes: A Bridge to Sovereign Patent Funds, Pa-
`tent
`Progress
`(Oct.
`9,
`2017),
`http://ti-
`nyurl.com/ydew9j8g. A foreign NPE can always
`consent to personal jurisdiction by filing suit in
`United States courts. See Pennoyer v. Neff, 95 U.S.
`714 (1877). But these entities are otherwise generally
`not subject to personal jurisdiction until they file suit
`in the United States. See Autogenomics, Inc. v. Oxford
`Gene Tech. Ltd., 566 F.3d 1012, 1021 (Fed. Cir. 2009)
`(holding that foreign patent holder was not subject to
`personal jurisdiction in a declaratory judgment ac-
`tion). So foreign NPEs can and do threaten manufac-
`turers and their customers with
`infringement
`litigation without putting their patents at risk by ac-
`tually filing an infringement suit. Thus, even if a
`manufacturer like TSMC could establish standing, it
`might still be unable to file a declaratory judgment
`action against a foreign NPE because of the court’s
`lack of personal jurisdiction.
`And the NPE problem for manufacturers does not
`necessarily end with suits against its customers. It
`
`at *1 (D.N.J. Nov. 8, 2012) (supplier lacked declaratory judgment
`standing because, although patent holder sued several of its cus-
`tomers for infringement, patent holder did not explicitly allege
`infringement “based upon their use of any product or service pro-
`vided by [supplier]”); Adobe Sys. Inc. v. Kelora Sys. LLC, No. C
`11-3938 CW, 2011 WL 6101545, at *4 (N.D. Cal. Dec. 7, 2011)
`(patent holder defeated declaratory judgment standing because,
`although it sent letters to supplier’s customers alleging infringe-
`
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