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Research Trends and Conclusions: Patents 2012

With the benefit of over 15 years of research and tens of thousands of votes from clients and private practitioners, Who’s Who Legal takes a closer look at developing trends in the patent legal marketplace worldwide.

The continuing instability of the foreign exchange, capital and real estate markets an unlikely new champion of liquidity has emerged: intellectual property. Who’s Who Legal canvassed thousands of lawyers from across the globe and their views on the patent market were various and diverse. On one point, however, they were in agreement – the protection and enforcement of its intellectual property rights have never been more fundamental to a company’s success. Also of note is the uniformity with which lawyers worldwide commented on the use of patents as a new kind of ‘tradable’ asset, bought and sold to make money, rather than to acquire technology. Patents’ rise to prominence has prompted a flurry of legislative and procedural change in this area, creating new challenges for the lawyers we canvassed.

LITIGATION TRENDS

Electronics and telecoms companies across the world continue to litigate aggressively and none more so than Apple and Samsung, whose multimillion-dollar smartphone battle is being waged in around 10 different countries. It seemed that almost every lawyer we spoke to had been involved in the case at one time or another, highlighting the mammoth scale on which this litigation is being conducted. Apple and Samsung’s very public dispute is an illustrative example of the change of attitude the electronics sector has undergone in recent years. Whereas formerly there was a tendency to settle disputes, the tendency now is to litigate them. Many of our sources attribute this turnaround to the attractiveness of a reasoned legal resolution that affords certainty to parties. In this increasingly competitive market companies want precedents laying down the boundaries of acceptable behaviour, allowing them to maximise their market share.

The prevalence of such high-stakes litigation has triggered a sharpening of skills on the part of advocates. Litigation has become highly strategic, with both claimants and defendants increasing the weapons in their armouries. Sources reported that a favoured tactic for claimants in Europe is to allege that a patent is standard-essential, prompting a transfer of the burden of proof from claimant to defendant. Defendants are retaliating by raising competition concerns in their pleadings, most commonly alleging that the claimant’s refusal to grant a licence, or the high price it is charging for such a licence, does not comply with the FRAND requirement (that owners’ exercise of their patent rights be fair, reasonable and non-discriminatory). Neither the US DoJ nor the European Commission found sufficient reason to stop Google’s $1.25 billion acquisition of Motorola, but the transaction was closely scrutinised on competition grounds, given Google’s prominent position in the market. Accordingly, many of the attorneys we canvassed stressed the increased importance of having a highly skilled and integrated antitrust group as part of their patent practice.

Perhaps the best example of what one source described as the “monetisation” of intellectual property is the proliferation of “troll” litigation, both in Europe and the US. American commentators reported that trolls are starting to find their feet in the International Trade Commission, a forum which has hitherto been avoided by non-practising entities due to the expense of bringing a case there. But US patent lawyers have noted that trolls are increasingly well funded, with many of them able to afford this litigation due to the backing of hedge funds. Germany is a favoured jurisdiction for this litigation, perceived by claimants to be cost-effective and efficient. One German lawyer who spoke to us opined that the difficulty in defining a “troll” and the unwillingness of the German courts to remedy the problem make it likely that such litigation will continue to grow. Attorneys from other European jurisdictions told a similar tale.

In September 2011 the US government passed the America Invents Act into law, bringing significant change to both the law and the procedure relating to patent litigation. It is no longer possible for claimants to sue all defendants in a single filing, prompting an increase in the number of suits being filed but the change has also forced plaintiffs to “pick their battles a little more carefully”, according to one source. The legislation gives no guidance on the calculation of damages and following the decision in Uniloc USA v Microsoft, which held that the widely used 25 per cent rule is a flawed tool for determining a baseline royalty rate, the courts are still to some extent fumbling in the dark with respect to damages. Interviewees reported an increase in the number of settlements of small to mid-level disputes as a result of the expense and uncertainty which now attaches to this litigation.

In the pharmaceutical sector litigation levels have continued to decrease, although those we canvassed did comment that the cases going to trial tend to be bigger and more significant. One popular explanation for this trend is that the sector is experiencing a gradual shift from small molecule litigation to biological litigation and many of our sources predict that biological litigation will eventually come to dominate this area. As companies who produce vaccines do not have the same generic competition issues as small molecule producers, this “research versus generics” litigation, the bread-and-butter work for many patent lawyers, is likely to tail off, prompting one interviewee to declare that lawyers who act exclusively for generics companies will soon have to look for new clients. In Europe, the current hot topic is Supplementary Protection Certificates, a mechanism which allows for the extension of patent protection by up to five years in cases where it has taken a long time to get market approval for a product. Such an instrument can be of enormous value to research companies. Unsurprisingly, they have generated a lot of work for lawyers, mostly in the form of references to the European Court of Justice, as the relevant law is not yet completely settled. For the meantime, then, many patent lawyers in the pharmaceutical sector are sufficiently occupied with such cases. When their numbers inevitably dwindle the market will be watching with interest to see which firms are successful in making the transition from small-molecule to biological work.

THE BATTLE OF THE FORUMS

Patent litigation means big bucks for the countries which host the hearings, and in Europe the competition to attract litigants is intense. In recent years the number of Asian companies seeking to enforce their patents in Europe has drastically increased and in these difficult financial times European nations are doing all they can to position themselves as the forum of choice for these disputes. Russia has set up a court specifically for the enforcement of IP rights, which it hopes will be up and running by February 2013. There are already five patent courts in Belgium but lawyers are keen to make them more specialised to increase their appeal to litigants. Germany continues to fare well in terms of international litigation on account of its claimant-friendly infringement action procedure. Even within Germany there is competition for cases, with sources reporting that Düsseldorf and Munich are the most commonly favoured locations. English lawyers were unanimous in their praise of the Patents County Court, a forum set up to provide a cheaper alternative to High Court patent litigation for small to medium-sized companies which would otherwise be unable to afford to protect their IP through the courts.

By far the biggest forum battle currently taking place relates to the proposal to create a European Patent Court (EPC). These plans have been in the pipeline for many years but finally seem to be gathering pace, with officials hopeful of a launch in June 2014. At the time of writing, however, further progress is delayed by the stalemate between Germany, France and the UK as to which country will host the central court. There is huge income potential for the successful nation and those who miss out stand to lose a significant proportion of their most lucrative patent litigation. The lawyers we spoke to had mixed feelings about the plans. Many smaller firms without pan-European footprints are concerned that their national litigation practices will fall through the floor if European patent litigation becomes a one-stop shop. Others think that the one-chance nature of the court will be their saving grace. Litigating in the EPC will be hugely expensive and gives large international corporations with highly valuable intellectual property a single opportunity for all of Europe to enforce their patents. Some of those we canvassed predict that companies will judge this to be excessively risky and are also concerned, following the ominous precedent of the European Trademark Court, about the quality of the decision-making of the new court. Consequently, it seems likely that even if the court does come into being in the next few years, many large companies will opt out of the system, choosing instead to lodge a greater number of national filings.

MONEY MONEY MONEY

In a climate where, in the words of one interviewee, patents are “traded like bricks and mortar” and troll litigation is more prevalent than ever, one would expect clients’ preoccupation with money to extend to the fees they pay for advice and representation. While interviewees generally agreed that this sector has not been hit by recession as severely as other practice areas (since it does not operate on the same cyclical basis), all businesses have tightened their belts in some respects over the last four years, and legal fees are a prime target for cost-cutting. In-house counsel are negotiating hard for fixed or capped fee arrangements, putting enormous pressure on lawyers to calculate the likely cost of a brief – a task which is nigh-on impossible in many cases. One lawyer even reported an instance of in-house counsel putting legal work out to reverse auction on the internet.

Worse still for private practitioners, it is not just in-house legal teams who are pushing for lower fees. Many lawyers have noted a marked increase in the number of insurance products on the market for patent litigation. This poses an additional challenge for lawyers, since often it is the insurance company which dictates the lawyer/firm to be instructed – and they drive an even harder bargain than corporate counsel. In an increasingly competitive legal market, the desire to secure work has led to “desperation cost-cutting” by firms eager to hold on to valued clients. Some of those we spoke to questioned the sustainability of such a tactic, but conceded that a failure by firms to make adjustments for this new class of “client” can and has led to a drop-off in levels of work.

Given the considerable changes, both past and predicted, taking place in the patent sector, it is no surprise that there has been considerable fluctuation in the legal market over the past few years. The graph below shows the numbers of lawyers and firms listed in this publication since 2007. Both have increased overall, but the graph reveals a sharp spike in the number of lawyers listed in 2010 and a decline in the number of firms. A lawyer who spoke to us in the course of our research commented on the “flight to quality”, by both clients and lawyers, that took place in the darkest days of the economic downturn and it seems likely that the unusual figures for 2010 reflect this. Lawyers seeking to protect themselves from the worst effects of recession concentrated themselves in the most reputed and successful firms to ensure a steady supply of work in a stable environment. As a result of financial constraints, fewer new boutiques emerged into the market, giving a smaller number of firms their pick of the legal talent and allowing them to dominate the market.

Lawyers and Firms

Since 2010 the thriving patent market and the demise of Howrey LLP has triggered a diversification of the legal sector, with a greater number of lawyers striking out on their own and joining a wider variety of firms. The relatively constant figures for the past couple of years suggest a maturation and stabilisation of the legal market.

Best represented firms

This graph shows the firms with the highest number of lawyers listed in the publication since 2007. The chart highlights the success of specialist firms over general full-service firms. One source attributed this trend to the ability of firms with an IP specialism to attract the brightest and the best candidates, many of whom have scientific as well as legal backgrounds, bringing an additional level of expertise to their practices. The graph also acts as a further illustration of the diversification of the highest echelons of the legal market since 2010, with Powell Gilbert, Hoyng Monegier, Kilpatrick Townsend and Simmons & Simmons having a significant impact on the market in the last two years.

The patent market is evolving as fast as the technology it protects and our research identifies the lawyers who are skilled at keeping up with clients’ ever-changing demands. The increase in aggressive, high-stakes litigation has placed a premium on excellent advocacy, while those with scientific or technological expertise are taking the lead in pharmaceutical work. The advent of the America Invents Act and the spectre of a European Patent Court looming on the horizon are sure signs that practitioners will continue to be met with new challenges over the next few years. For lawyers of calibre listed in the following pages, though, one suspects that these trials will act only to showcase their outstanding ability.

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