Nota Bene Podcast Ep. 168
How Patent Disputes Affect the Semiconductor Industry
Thank you for downloading this transcript.
Listen to the original podcast released December 6, 2023 here:
https://www.sheppardmullin.com/notabene-535
In this episode, Harper Batts, partner in Sheppard Mullin Silicon Valley’s Intellectual Property Group and co-leader of its Semiconductor Industry Team, joins host Scott Maberry to discuss the different forums for patent lawsuits, the complex nature of resolving semiconductor patent disputes, the timing to resolve the lawsuits and more.
Guests:
About Harper Batts
Harper Batts is a partner in the Intellectual Property Practice Group located in the firm's Silicon Valley office. He is also the leader of Sheppard Mullin’s Post Grant Proceedings (PTAB) Group and Semiconductor Industry Team.
Harper has almost two decades of experience as an intellectual property litigator and client counselor. Harper has obtained institution on more than 90% of the IPRs he has filed – a number unmatched across the country. Numerous Fortune 500 clients have relied upon his experience to represent them in highly contentious patent disputes in venues across the country. He has been selected multiple times as a Top IP Attorney in California by the Daily Journal (including this year), and IAM Patent 1000 noted that Harper “performs adroitly in post-grant proceedings on both the patent owner and petitioner sides.” In 2022 and 2023, he obtained institution of numerous petitions for inter partes review, obtained numerous final written decisions finding all claims unpatentable, and obtained an exceptional case finding and an award of attorney’s fees in the Central District of California in 2020.
He focuses on immediately determining the most relevant and effective pressure points against an adversary to quickly resolve a dispute with minimal disruption and cost to a client.
Harper is one of the leading attorneys for handling complex PTAB challenges across a variety of technologies. Harper has represented patent challengers and patent owners in more than 80 CBM and IPR proceedings. He has extensive experience in cases before the Patent Trial and Appeal Board as well as related appeals.
About Scott Maberry
As an international trade partner in Governmental Practice, J. Scott Maberry counsels clients on global risk, international trade, and regulation. He is also a past co-chair of the Diversity and Inclusion Working Group for the Washington D.C. office, serves on the firm's pro bono committee, and is a founding member of the Sheppard Mullin Organizational Integrity Group.
Scott's practice includes representing clients before the U.S. government agencies and international U.S. Department of Treasury’s Office of Foreign Assets Control (OFAC), the Department of Commerce’s Bureau of Industry & Security (BIS), the Department of Commerce Import Administration, the Department of Homeland Security (DHS), the Department of State Directorate of Defense Trade Controls (DDTC), the U.S. Department of Justice (DOJ), the International Trade Commission (ITC), and the Committee on Foreign Investment in the U.S. (CFIUS). He also represents clients in federal court and grand jury proceedings, as well as those pursuing negotiations and dispute resolution under the World Trade Organization (WTO), North American Free Trade Agreement (NAFTA) and other multilateral and bilateral agreements.
A member of the World Economic Forum Expert Network, Scott also advises the WEF community in the areas of global risk, international trade, artificial intelligence and values.
Transcript:
Scott Maberry:
Welcome to Episode 168 of the Nota Bene podcast. I'm your host, Scott Maberry. My guest today is intellectual property lawyer, Harper Batts, and we're talking about patent disputes in the semiconductor industry.
Before I introduce Harper, I'd like to thank our listeners in over 100 countries worldwide. We're glad you're tuning in, and please do keep the feedback coming. It definitely influences our programming. You can email me directly with your comments and suggestions, and my email address is in the program description.
Disputes over patented intellectual property and who can use it can be complicated and intense, and sometimes who wins can have a material effect on both parties. As technology has accelerated, the stakes in patent disputes have only gone up. And the disputes have grown more and more complex. Our guest is well positioned to help us understand what's going on in this fascinating world.
Harper Batts is an intellectual property lawyer with the law firm of Sheppard Mullin. Harper has handled patent disputes for his clients for almost 20 years in venues across the United States and across continents. In addition to disputes in federal district court, he frequently appears before the Patent Trial and Appeals Board, or PTAB, which is an arm of the US Patent Office that handles patent challenges. Harper has one of the highest success rates of all attorneys practicing in that forum, so I like to pay attention to what he says on these topics.
Harper handles disputes in a variety of sectors including streaming software and hardware patent disputes, but one of his areas of focus is semiconductor patent disputes, and that's what we're talking about today.
Harper, welcome to the program.
Harper Batts:
Hey, how are you doing?
Scott Maberry:
I'm doing fine, thanks.
Scott Maberry:
First, I wondered if you'd just give us a little bit of background on patent disputes, particularly with respect to patents dealing with the semiconductor sector?
Harper Batts:
Sure. So I think patent disputes generally, there's all different types of inventions. It's federal court law, so you're dealing in federal courts with these sorts of assertions.
But there's a variety of different venues where the litigations can actually play out. Licensing negotiations are very frequent either before a suit or in lieu of a suit, and those obviously aren't in a particular forum. But in terms of where patent disputes play out, they typically play out in the district court at the PTAB, the Patent Office, in terms of trying to invalidate patents that are being asserted, eventually to the Federal Circuit Court of Appeals if there's an appeal of a district court decision, or an ITC proceeding, so the International Trade Commission is also a frequent location in the US for patent disputes.
And then maybe later we'll probably talk about the kind of growing use of international locations and patent disputes. So it's very common now for the more sophisticated plaintiffs to not only file in the US but that's just part of their overall strategy, and they'll be also going in Asia, in Germany, other locations that they view as pressure points or having favorable rules and procedures for where to assert patents.
Scott Maberry:
And so when we hear about a patent dispute reaching a federal court and getting into a judge deciding who owns the patent, that might be kind of the end game of a long dispute that might've started elsewhere, right?
Harper Batts:
Sure. And it's very frequent. There are all different types of litigation these days in patent litigation, but it's not uncommon to have negotiations prior to a lawsuit being filed, where the parties may whittle down the disputes they have. So you might see 20 patents being raised by a large company to another company, or even 50. And then by the time they actually file suit, there's really five or four or ten that they've more focused on for what they're going to assert.
District court, in patent cases they're still decided overwhelmingly by juries, people demand a trial by jury. And you can imagine for semiconductor disputes, it's pretty a deep in the weeds kind of technical issues that are at play, and you have to explain them both to a judge who may not have a technical background but is familiar at least with patent disputes because they see them enough as being a federal judge. But then you have to also be able to explain it to a jury in terms that they can follow or understand of not only is it a limited time monopoly ownership that you're trying to protect, but also trying to explain the underlying technology and how the products infringe. And very importantly, in a lot of these cases, what's the damages? So you're going to have one side saying, we're talking about a million dollars in damages. And the other side saying in the same case for the same exact patent, those damages are $500 million.
And imagine in comparison, when you have a jury dealing with let's say a personal injury case, when somebody has been hit by a car crossing the street, they had their legs broken, they missed work. There's a lot more experience and knowledge that a jury can bring to bear from their own background about what sort of damages would be appropriate in that sort of case.
Trying to understand for let's say an improvement on the power consumption of a semiconductor device, one company says it's trivial, the other one says it's very important. There are all these other features there. The volume of semiconductors being sold, even a small amount per semiconductor can be a very significant damage award.
So these are the type of cases that frequently have lots and lots of attorneys handling them because the exposure can be very high. And the complexity, especially for semiconductor cases, is extremely high. You have to have the technical understanding in addition to just being a good lawyer that can argue things.
Scott Maberry:
Right. Well, I want to come back to juries in a second because that part of it is really fascinating to me, and I hadn't thought of it before.
But go back and unpack it for our audience a little bit about the stuff that's going to be at issue broadly speaking in a case. And what I'm picking up is, part of it is kind about who owns the intellectual property. Part of it is kind of about how that's going to be allocated in the future with licensing, which you described as a limited time monopoly ownership right. And then part of it is if those have been misallocated over time, who owes whom what in damages? And I presume that's sometimes money damages and sometimes some kind of forced granting of a license.
But maybe you could unpack those, and if there are any other big picture elements of these disputes that I'm missing, to kind of set the stage for this.
Harper Batts:
Yeah. So typically ownership is not as frequently in dispute. Usually there has been a patent or patents granted by the patent and trademark office to an individual or to a company. So there can be disputes about who invented it or were there other in inventors or things like that.
But the three typical buckets that you would have in patent litigation are infringement, so whether you have claims in a patent that kind of define the contours of the invention of the patent. So whether you actually do what's in the claim as a defendant, there's going to be arguments for non-infringement and for infringement. The second bucket is whether the patent is valid. So can you establish as a defendant that somebody else came up with this invention before the plaintiff did, the patent owner did? Can you show that the patent is obvious? So even if somebody didn't do the exact thing, would it have been obvious to do that?
And you can imagine in today's day and age where you have hundreds of companies out there and the universities and professors and graduate students researching issues, that it's hard to find something that's patentable because you have to be able to say you were before all those of people and that you were the first one. And that can be a challenge. You could find just one thesis from one graduate student or a Japanese company that worked on a product but decided not to move forward on it. There's all sorts of areas. So that's the other big bucket for disputes.
And then as I mentioned, the last bucket is damages or relief. And so that really comes down to the forum you're in as well as the type of companies involved. So there's a litigation by patent owners. There's kind of three areas of litigation, I guess, in the broadest sense, which is where you're filing a litigation against the semiconductor company itself, for instance. And then you have litigation going after the customers of the semiconductor companies. And then the question of where are the proceedings for each of those buckets kind of taking place?
So for example, plaintiffs, when they're choosing where do they want to assert the patent for infringement, in terms of who they want to target? If you target a semiconductor company about a semiconductor patent, it's a more direct correlation to what they do. You can point to a specific product that's like a semiconductor device that they are manufacturing and selling probably thousands of different variations of that semiconductor device that has this functionality. And you get to go after the exact company that you're saying should be paying you the money to compensate you for the damages.
Scott Maberry:
Absolutely.
Harper Batts:
It's a more direct path to the litigation, and it's more direct path to discovery. So if you're trying to go after a company, let's say Intel, that has all these different processors that you might want to be accusing the infringement, you can ask directly Intel in the litigation to turn over the documents or the source code or the other materials, the witnesses that you want to depose, so you can obtain easier information about the products that you want to accuse, and you're more likely to negotiate directly with that company to get a license. Because at the end of the day, patent cases overwhelmingly settle before they ever reach a jury verdict or a determination by the judge of infringement.
But then on the flip side, you have litigation going after customers. And that's a very frequent tactic actually of plaintiffs. Because when you think about it, if you have a company, like a computer company that's selling laptops, they still are putting the chips into their computers for use, they're still getting a benefit from the functionality that you're accusing. So you're able to pressure these companies that have the products in them, they very well may go and ask for the suppliers to try to indemnify or to defend in the assist, but that's a very complicated process. There can be negotiations. What are the particular arrangements of any particular deal or the products that they received? And it's much easier to go for a higher damages base when you sue a laptop company over $1,000, $2,000 laptop, and you're asking for a per laptop pricing of the damages, than if you're going after a $5 device by a semiconductor company.
Scott Maberry:
But as a lay person, I'm curious, what's the legal theory that allows a plaintiff to go after the user of the device as opposed to the person who made the device itself?
Harper Batts:
Sure. So the statute that operates for patent infringement is make, use, sell, or offer for sale in the United States.
Scott Maberry:
Really? Okay.
Harper Batts:
So technically they could sue you. They could technically sue you as the individual using somebody's laptop that includes the semiconductor chip that was manufactured in Malaysia, for example. Shipped into the US and bought by you off of Amazon, even though you didn't actually buy it directly from the laptop manager. Now-
Scott Maberry:
So it's make, use, sell, or...
Harper Batts:
Offer for sale.
Scott Maberry:
Offer for sale. Right. And so of course the deepest pocket in that whole chain might be the manufacturer of the end product that incorporates the semiconductor, because they're the ones who are making kind of the high value add, high sale price article, and lots of them.
Harper Batts:
Correct. And then there's also different pressure points for those companies. So those companies might be willing to settle their dispute with the patent owner to have to not deal with a patent dispute and potential unknown damages, and the license would likely only cover that company and their use of the semiconductor device, whereas the remaining companies that also use that semiconductor device could still be sued separately, or the underlying chip manufacturer could still be sued separately.
Now, there's certainly doctrines that are supposed to limit the damages that you can get in a case, when we talk about the laptop company, for example. And you're supposed to limit it to the actual apportion to the value of what the functionality in that chip. But in practical terms, it's much easier to argue, including to a jury, if you're asking for $4 or $5 on a laptop, it's much easier for a jury to grasp to view that as a reasonable amount, versus asking for $5 on a $5 chip.
That's sort of its advantage pressure point to go after, not necessarily the direct manufacturer. And obviously if they sued you personally or me personally for having a laptop that has the device, the damages there are so trivial it doesn't make sense. So it's kind of where in the chain do you view the damages as worthwhile? And where can you apply pressure where a company might not want to deal with the cost, millions of dollars and litigating patent disputes, having unknown damages, where do you just simply enter into a license agreement and if the patent owner can get some amount of money back in the short term that might finance an overall campaign for that patent family?
Scott Maberry:
Makes sense when you think about it. But let me ask you another layperson question then that'll segue into something that relates to what you said. Does the legal bar in this field break down into plaintiffs and defendants? And do you have more of one than the other in your personal practice? How does that work?
Harper Batts:
Sure. So there's different types of patent assertions, and the most frequent type of patent assertions today are patents... Especially outside the life science area. Life science and pharma have their own kind of world of companies fighting with each other about patents. But once you leave that area, most patent litigation is by companies that just hold patents. They don't actually manufacture products. They've either bought the patents from someone else or maybe a defunct company that no longer has products, and they're looking to basically leverage or utilize their IP to get money.
So certainly there is a split normally across who handles plaintiff side and defendant side, especially because if you're doing these non-operating cases. So yes, I'm definitely more on the defendant side. I don't know the stats as of 2023, but I'm guessing around 5 to 10% of cases are competitor cases where they're both operating companies. And those cases, whoever wants to handle, if you have the experience or the capabilities to handle it, they're probably more complex cases even on top of what I'm discussing, because frequently both sides will start asserting patents against each other.
So the best example that most people know of is the Apple-Samsung disputes about the smartphones, the smartphone wars. Both companies were filing lawsuits in Germany and Korea and the US. Anywhere and everywhere where they were accusing each other of functionalities that were being infringed by each other's patents. And those cases are just a very different type of case in terms of the types of issues, as well as the potential relief. Because to your earlier question in terms of what can you get for a patent, you can get monetary damages for the damages that you've suffered as a patent owner. But in the case of a competitor case, if you can show competitive harm, you can enjoin the other party from being able to sell their product.
Scott Maberry:
Which is a huge lever if you can get it.
Harper Batts:
Huge lever, in particular you can imagine semiconductor cases, if you can say you have to shut down selling semiconductors entirely that have a functionality. In the semiconductor space, if you want to avoid a patent, let's say after you've been found to be infringing or you think you're going to be found to be infringing and you want to design around it, there's a harder bar to design around on a semiconductor where you have all the factors you have to consider for design specifications, what you've already made, changing the fab, how you're going to produce it, the standards requirements for power consumption or these other types of things that would have to go into it.
So you have a bicycle and you have a particular type of brake on a bicycle that may be infringing, and you need to swap out that brake for a different type of brake, the process is much more straightforward than having to change your fab structure and going back to completely redesigning your chip and testing it to make sure it would still operate in an acceptable manner.
Scott Maberry:
Absolutely. Because when you think about how semiconductors are designed and manufactured, they're some of the most complex machines that humans make, and they're some of the smallest machines that humans make. And there are dozens or hundreds of layers of thousands or millions of discreet little things, devices on that device, and they're all microscopic or atom scale things, and they all have to sit there together. And the process you use to create them or the multiple successive processes you use of etching and depositing and everything else, that is extraordinarily complicated. It's not like just taking a brake off and sticking a different one on.
Harper Batts:
Correct. And then in contrast, in software cases, you might simply be able to change your code and remove some infringing software, just create a different software that addresses the same issue in a different way.
You hit the point of, without even thinking about patents, just the design process for semiconductors is a years-long process frequently. So if you're having to add into that the complexity of trying to change functionality because of patent cases, even if you don't think you infringe the claims, just trying to avoid having to deal with the issue at all, it's not as simple as with other companies where you might just say, "Let's just take out this feature in our software because why bother with it? If the customers don't really care about it, then why not just remove it and be done with this?"
Scott Maberry:
So we've talked a little bit about the two main types of litigation in the space, going directly after the semiconductor companies and then going after makers of devices that use semiconductors in them. Is there anything else that's important about that distinction that we ought to cover?
Harper Batts:
Well, there's also in terms of the forum where the dispute is, yes, the types of cases can vary if it's a direct to semiconductor company case versus a downstream, like an end user, customer facing products kind of cases.
And so for example, there's the federal district court where typically a lot of these cases are filed in Delaware or in Texas, where there's a faster time to trial, that's one of the major factors. Or they're also familiar with patent cases, so the judges there have seen more, they're familiar with the process, they've established rules about how to handle patent cases. And then a kind of secondary market or a secondary location for those cases is in California, because for jurisdictional purposes, you're going to be able to find them in California, if not in Texas or Delaware.
But then the other alternative that's been a huge one for semiconductor disputes in the US is the International Trade Commission. And that's because the International Trade Commission has a speed of proceedings. By statute, you're talking about nine months to a determination of whether the patents are infringed or invalid, versus in district court you don't know for any particular case, but typically you're talking three to four years before you would get a jury verdict.
So there's an enormous speed to verdict advantage in the ITC, but there's also that speed to verdict requires that deadlines be much more tight, much shorter times to respond. Everything is just compressed. And compression in litigation usually means you have to spend more money because there's less efficiency as a defendant, and you have to involve more of the company itself, whether it's witnesses or collecting documents, everything has to be done sooner in tighter timeframes, which makes it harder for the company and more expensive for the company.
So as a plaintiff, you can exert a lot more pain on a defendant regardless of the patent allegations themselves. Just more pain in the process of having to defend in the ITC.
And then it's pretty typical for a lot of these patent disputes involving semiconductor companies that a plaintiff will sue 5, 10 companies and their customers at the same time. So an ITC case may very well have 15 to 20 defendants that are including the semiconductor companies, as well as customer companies that might use semiconductor chips from four, five, six of the semiconductor defendants.
Then you have to talk about coordination under very tight timeline and deadlines across companies that are at different levels of the food chain, as well as with competing interests or disagreeing approaches.
So plaintiffs really like to go to the ITC if they can, if they have the jurisdictional requirements there. They have to show domestic industry, but that standard has not been that high in recent years as much as it had been. So they go there for that pressure point. And then the remedy, there's no damages for money in IDC. So that's the huge difference is you're not going to get any money, but you get to potentially prevent the importation of infringing devices into the US.
Scott Maberry:
Right. So if the plaintiff is alleging against a non-US company, that's a death penalty at least insofar as the US market is important to them.
Harper Batts:
Correct. And when you say a non-US company, the reality is, is in terms of where semiconductor devices are manufactured and sold, overwhelmingly they're sold abroad and then shipped into the country. So whether they're shipped into the country as a semiconductor device or already in a computer or a cell phone or something else, they aren't starting in the US.
Now obviously Biden administration has been pushing for more manufacturing of semiconductors and having actual fabs and things like that in the US. But as of now, if you're an ITC case and you're suing a US company that manufactures in Ohio, there's no point. You're not getting any leverage. You're not going to get damages.
But if you're going after almost any semiconductor company, whether you think of it as a US company or as a non-US company, the reality is a very large percentage, if not all of their semiconductor devices, are being manufactured or sold abroad before coming into the US, so they would be subject to a potential importation ban.
Scott Maberry:
And I don't know what the current statistics are, but if you look at the number of fabs square feet, it's just overwhelmingly non-US. There are fabs in the United States, but not on the same scale by a long shot.
Harper Batts:
Correct. Few and far apart versus abroad. So that's why ITC is, in particular for a semiconductor patent dispute, is a very popular forum. Although the patent disputes don't usually hit the front pages, but this last month, Apple was hit now with an importation ban for the Apple Watch, which has gathered a lot of attention. Because once you get an importation ban from the ITC, it goes up to the administration and the president as to whether to go forward with that ban or not. So we have the potential for Apple Watches being excluded from the US.
So that's the type of thing where you can imagine, as a plaintiff, you can ask Apple for a ton of money to basically prevent that ban from taking place.
Scott Maberry:
To settle the case.
Harper Batts:
To settle the case so you can keep on importing the products in, especially depending on where you might manufacture a product or where components of that product that are relevant are being manufactured.
Scott Maberry:
So that's a subtle but profound point, is that although there are no money damages in that forum, there's so much leverage in certain cases in that forum. I'm guessing that a lot of settlements to get out of cases in that forum involve very high numbers in dollars.
Harper Batts:
They can. It varies all across the board depending on the strength of the patents, the strength for validity, for infringement, all types of issues. But I think certainly the semiconductor companies, along with other groups, including companies like Apple or Samsung, are very upset and unhappy with basically the ITC's jurisdiction allowing it.
The ITC was originally designed to stop counterfeits abroad from basically importing and dumping in the US. But in the patent realm these days, most companies that don't make products can still qualify to say that they should be a qualified plaintiff to ban products coming in.
Scott Maberry:
Could you spin that off for me a little bit? Because I took a note when you said they have to prove US industry. And been through this a little bit in some of the ITC cases, not in the patent sphere, but where there's a similar requirement. What does it mean and how does it play out in a patent case where the petitioner, or the plaintiff so to speak in this case, is an owner of a patent but not necessarily somebody who makes a bunch of stuff?
Harper Batts:
So domestic industry is not limited to actual products being made in the US. It seems kind of counterintuitive. But you can also point to your licensing. So if you license a company that does make products in the US, even a small percentage of products, then you can point to the fact that they're licensed products being manufactured by another company in the US, that then give you the jurisdiction.
So if you can think as a patent owner, if you and I would go off and buy 10 patents and start asserting them, if we assert and get a license with one company first that does manufacture and sell products in the US, and maybe get that license for a relatively low amount, just give them a well leveled license to get a license in, then you could have jurisdiction to go after massive companies in the ITC. That certainly wasn't what was contemplated, I don't think, when the ITC was formed for the anti-dumping issues, but that's the reality that semiconductor companies are facing today in ITC.
Scott Maberry:
Sure is, and that to me is fascinating. And that's a business model I'm sure now, and even as a non-patent practitioner I hear and have had since I started practice 30 years ago, the concept of the patent troll. I think that's kind of what we're talking about, although I'm not sure that's not a real pejorative term in the industry.
Harper Batts:
NPE is the most common term, so non-practicing entity, that's common. Some say troll, some say NPE. There's a variety. And there's all different types when we start talking about the different plaintiffs that come about that can be far more sophisticated or less sophisticated or that's their full-time business.
But I do think for the ITC, the other factor to consider then is also beyond the remedy, the one area we haven't really talked about yet for these disputes is the Patent Office itself, so the PTAB, that's where somebody who's being accused of infringement can go back to the Patent Office, back to the portion of the Patent Office called the Patent Trademark and Appeals Board, the PTAB, to ask that the Patent Office consider whether a patent is invalid.
But you go back, you're before three technically trained judges on a panel, so you have people that are familiar with technology and understanding technology. It's a procedure that takes about 18 months. So think about when I said ITC is nine months and this is 18 months, and the typical patent case in district court is three to four years, you get a sense of the different timings.
But a PTAB proceeding allows you to make very technical arguments to judges, and that's extremely important as you can imagine in semiconductor cases when you have to actually get into the nuts and bolts or the guts of the devices and the technology.
Scott Maberry:
When you're starting to talk about physics, you really need somebody who understands physics.
Harper Batts:
And there can be all types. There can be manufacturing, the actual process, like you mentioned the etching, the different types of processes for actually manufacturing, or it could be the functionality that's actually in the device. There's all the different types of technologies that PTAB judges will frequently, their full-time job is to basically handle questions of whether a patent is valid or not. So they're going to be familiar with the law, they're going to be familiar with the technology to some extent at least, they're going to hear from the experts.
So that's the forum where a lot of the battles are taking place today, because frequently defendants will file challenges in the PTAB as soon as they can after being sued in district court, and then they'll ask the district court to stay, the district court case, until after the PTAB decides.
And there's definitely splits of which course will do that or the timing, and it can be very fact specific. But a lot of district courts will stay if you've had the initial decision, which happens after six months, of whether the PTAB thinks there might be something here, whether there's a reasonable likelihood that the claims are invalid.
But on the ITC side, by the time you file, you're going to already have a decision on infringement and validity long before you ever get-
Scott Maberry:
Too many deadlines. They come really fast and furious. So that's interesting.
Harper Batts:
So one more reason for plaintiffs to file an ITC is, you can move faster than the PTAB can, and in that race, time matters.
Scott Maberry:
And boy, I noticed in cases before the ITC and other government agencies that have tight deadlines that I get involved in, again, not in the patent space, but when there are tight deadlines that are regulatory and enforced, that speeds up the proceeding and it jacks up the legal fees. It's a good way for a plaintiff, for a petitioner, to impose pain on the counterparty just by making them pay a lot of money. It goes back to the old adage with a lot of high-end services, including legal services, that you can kind of always have your choice of two of three major factors, fast, cheap, and good. And so if it has to be fast and good, it's not going to be cheap, and that really happens a lot in some of those forms. It happens a lot in any high-stakes dispute, but particularly where the deadlines are coming fast and furious like that.
Harper Batts:
Yeah. And you can imagine the frequency in which a personal injury case is going to reach a general counsel's table at a major Fortune 500 company is pretty low. Whereas if you have to go and report to the GC that you potentially will have all your semiconductor devices banned from being shipped into the US, it's going to get more head turning at the semiconductor company in terms of the management, not just the GC necessarily, management all the way up, depending on how far that case goes or what the threat might be.
Scott Maberry:
Yeah, that's a board level issue at a certain point.
Harper Batts:
Even if there's really no merit to the infringement breed.
Scott Maberry:
That's why so much frustration with the NPEs, like among your board and C-suite, because something maybe meritless can cause something maybe life-changing for the company.
Harper Batts:
Correct. And I think in Congress, even this past week, there's debates about whether to change the PTAB and these other things. You have these competing views of patents and the utility of patents and as property rights, how they should be used. And you're going to always have on one side the pharma life science companies where patents are essential to the investment that needs to be done. So you have to have innovation. The amount of time that takes and all the trials and testing to come up with a new drug and to get some profit out of that drug, patents are an essential part of that process.
But for a lot of tech companies, depending on where they are in their life cycle or whether they want to assert patents themselves, most of them are seeing the other side of the coin, which is people selling off patents and the patents being asserted either by smaller entities or much more sophisticated entities.
And really a fascinating development in the last few years has been a huge increase in litigation funding for plaintiffs. You have a lot more money that's just been around where people may not want to put it in the stock market or something else. They're looking, where can I get a rate of return? And you have a lot more sophisticated analysis and identification like affirmative identification of patents, trying to find patents, and contacting companies to buy patents to use.
And there was much more of a stigma probably a decade ago about selling off patents by companies, and a lot of companies now are willing to sell off patents knowing that why are they selling these patents? Who's buying these patents? What are they going to end up being used for? They're going to be used for assertion against others. So a lot of companies were loathed to do that before. I think a lot of legal departments don't want to be seen as a cost center. They want to be seen as a profit center, at least a break even center. And how can they show that ever? Well, in the patent realm, they might be able to sell off assets or even partner up with a non-practicing entity to assert the patents and get some share in the profits that might come out of that assertion.
So the contingency case framework has gone down in percentage, and the amount of litigation funding has gone up, which also allows plaintiffs to have more attorneys, to spend more time and money on assertions. They now typically hire specialized attorneys who specialize in PTAB proceedings to defend their patents. Because they know if they lose their patents there, it really doesn't matter if they have good attorneys in district court or not.
Scott Maberry:
That's amazing. That's a huge change. And I have dealt with some of the litigation funding organizations, and they've gone from being mom-and-pop shops with some money to spend years and years ago to being really sophisticated organizations, and they've got MIT number crunchers in there analyzing the industry that they're going after. I deal with it in certain types of cases, but it sounds like they're a big and growing player in your field too.
Harper Batts:
Yes. And I think there's also an increase in the number of universities, or licensing arms of universities, that are willing to assert patents now. So the university itself might not sue, but they might sell off patents or give patents over to a company that then will assert them and they get a piece of the revenue there.
So being able to go to a jury and say, "Hey, we're this university or these patents came from this professor or this university," can be a much more powerful story than just your typical patent. So that's certainly a change.
And then I think major operating companies themselves, there's been a shift more where even semiconductor companies are willing to sue each other, or they're willing to sue even their customers. Which sounds strange, but they're now willing to sue customers in certain situations.
Scott Maberry:
That's got to be an interesting and an evolving area, and something we should come back to as that evolves.
Well, that's all been really, really fascinating. And I'm so glad we had a chance to talk about this stuff and there'll be some stuff to follow up on when we get a chance to come back.
One last thing that you've mentioned that I want to put you on the spot a little bit about was to come back to the idea of litigating some of these types of matters before juries. I'm aware that, as you said, there's a district court in Delaware, there's one in McAllen, Texas, I believe, there's some in California where these things may come before a jury, and you may be describing some of the intricacies of a semiconductor to a jury of people like me who don't really know what a semiconductor is and how it works and why it's important.
What's that like? How do you approach describing some of that stuff to a jury? Because I know you've done a lot of that.
Harper Batts:
So I think as an initial matter, you have to understand the technology to the highest level possible, into the weeds, and to know that technology to be able to then distill that technology into something that's understandable to anyone who's coming across it, a teacher, a firefighter, whoever that might have never dealt with this technology before.
And so in the semiconductor space, you have to assume that the vast majority of the jury is not going to have dealt with semiconductors, they're not going to have dealt with manufacturing processes or anything like that. So you have to go back to having an expert in your case that can not only understand the technology, but convey it in simple terms that shows how either you're using that technology or you're not using that technology.
And a lot of times that's going to be combined with, you have to look at what else is in the case. Who are the companies that are involved? Do they know about the patent? You have emails that you can show that they were talking about the patent and decided, what the heck, we'll just go forward and use the patented technology and did not want to pay. Or can you show that another company came up with this technology years earlier, and maybe you have an engineer from another company that comes in and can demonstrate the exact thing that's supposed to be in the patent having been done five years earlier.
Because it's one thing to say it was done earlier. It's another thing if you can actually come in and show the jury something and show them that it's been done earlier.
But it is a very difficult task in these semiconductor cases to convey the information to jurors. So it's very typical people will use analogies on both sides, whether it's routing information down a network is like cars driving on a freeway when it gets congested and changing lanes, and things like that. There's going to be analogies, but your analogies have to be based off of a real understanding of the technology so your analogy doesn't fall apart under attacks by the other side.
Scott Maberry:
Fascinating area, and thank you for spending some time talking about it, Harper. This has been really useful and I'm looking forward to following up as things develop in this space.
Harper Batts:
Great. Thank you.
Scott Maberry:
Thanks for the time.
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