January 23, 2015
THE RECORDER
By Patience Haggin
SAN FRANCISCO – The conventional wisdom was that the market would cool. After years of seeing firms throw money at patent litigators, the thinking was that the U.S. Supreme Court’s troll-curbing rulings last summer would chill new filings and, with them, a practice that’s been hot for years.
Filings dropped 29 percent in 2014 from the previous year, according to a report published by Unified Patents. But IP litigators are still a hot commodity. The past few months have seen a rash of high-profile IP hires. Last month Goodwin Procter poached partners from K&L Gates’ and Morgan, Lewis & Bockius’ IP practices to be its first two IP partners in the Bay Area, with designs on building up a strong IP presence in Northern California. In September, the same firm lured a five-partner New York IP team away from Kenyon & Kenyon. And in just the past two weeks, a patent litigator jumped from Latham & Watkins to Farella Braun + Martel, an Irvine-based IP boutique opened shop in Silicon Valley, and litigation boutique Kobre & Kim poached an IP lawyer from Kerr & Wagstaffe to establish a Northern California foothold.
Two 2014 Supreme Court decisions have prompted predictions that the traditional nonpracticing entity business model would lose some ground. In April, SCOTUS made it easier for courts to shift all attorney fees to the losing party in Octane Fitness v. ICON Health & Fitness. In June, the court ruled in Alicev. CLS Bank that a computer-implemented “abstract idea” is not patentable, prompting validity concerns over many software patents.
Patent lawyers and industry analysts say that top-tier litigation practices are unlikely to see demand slip. There will be fewer lower-value nonpracticing entity cases, but those are often handled at lower price points, either by large firms that essentially do them as favors for big clients, or by down-market practices handling what some see as a “commoditized” part of the practice.
That glass-half-full outlook plus a “wait and see” attitude among many in the practice adds up to a still churning lateral market, with firms trying to enter new areas and add patent bar-admitted practitioners. Predictions of a slowdown in patent litigation have not gone unheard. California legal recruiter Larry Watanabe said he was concerned when he first began hearing the death knell of patent litigation, as IP partners make up a significant share of the lateral partners he moves. But so far, he said, “demand for IP lawyers in California remains very consistent with the past. I haven’t seen a slowdown with any of my clients.” Practice heads say that the predicted decline doesn’t worry them, and that they are still eager to grow their IP litigation practices. Stephanie Skaff, chair of intellectual property litigation at Farella Braun + Martel, said Alice and Octane will mostly take a toll on suits brought by nonpracticing entities.
“We tend to get called and hired in cases that are a little bit more legally sophisticated and challenging,” Skaff said. Ask any IP practice head at a large law firm, and you might hear something similar. High-end IP shops tend to distance themselves from the stigma of defending NPE cases seen as low-paying and routine. But that doesn’t mean they aren’t handling them. “I think there are very few firms that are really just practicing in the realm of high- stakes litigation,” said law firm consultant Kent Zimmerman of Zeughauser Group. Rather, Zimmerman said, many large firms in fact handle low-stakes, run-of-the-mill NPE suits for clients whom they want to keep“and often have to accept low rates for them.
Large firms may be reluctant to discuss the prevalence of such suits in their IP litigation practices because of the reputation it has acquired as commoditized work subject to severe rate pressure, said Matthew Powers, a former cochair of litigation at Weil, Gotshal & Manges who left in 2011 to found his own plaintiffs-side firm, Tensegrity Law Group, in Silicon Valley. Numerous onlookers in the industry predicted that such commoditized low-stakes NPE cases would be hardest hit by new curbs.”I think those firms are going to be grateful not to have them around, because those cases aren’t profitable. Their clients are making them do them for very small amounts of money,” Powers explained. “You don’t want to have a large number of IP associates doing NPE cases where you have capped fees at some ridiculously low number.”
Stephen Korniczky, who cochairs Sheppard, Mullin, Richter & Hampton’s firmwide IP practice group out of the Del Mar office, echoed the point that the loss of this work would not hit large firms’ coffers hard. “Many of these NPE lawsuits are relatively minor in terms of the revenue they generate for IP practice groups,” Korniczky said.
However, there are both high- and low-stakes NPE suits, and high-stakes onesgenerate valuable business for large law firms. For example, Weil’s Edward Reines handled Adobe’s fight against a Texas-based NPE that demanded $50 million.
The other trend affecting the market for IP lawyers is the emergence of the inter partes review process that’s become a key part of virtually every patent dispute. The cases require a patent bar-admitted lawyer, which explains, for example, why Farella was eager to add one.James Day, Farella’s new partner, said he is eager to use his patent bar admission to help the firm keep more of its clients’ patent office work. “I’m hoping that here we can start up [inter partes review] as an adjunct to what is already a great IP litigation group.”
Meanwhile, Korniczky and Powers say that high-stakes NPE cases won’t be going away anytime soon.
“We focus on high-value, high-quality cases, and those aren’t going to get affected by anything,” Powers said. “There’s a lot of bad cases out there, and I think some of those are going to go away. That’s a good thing.”
So who will feel the crunch? Michael Moradzadeh, founding partner and CEO of Rimon PC, predicted that the downturn would shake out patent prosecutors and general litigators who tried to move into the patent litigation space during its heyday. The true patent litigation specialists would be fine, he said.
“I think the strong will get stronger in the market, and the weak will get weaker,” said Rodger Cole, litigation chair at tech-focused firm Fenwick & West. “For firms that don’t have a strong brand for IP litigation, I think investing in it might be a mistake.”
And it’s possible that a shakeout is already underway. Thomas Wallerstein, a San Francisco litigator at Venable, said some of the recent lateral moves among IP litigators may be moves down, as IP partners see their books of business go thin.
Still, other IP attorneys said that acting on the doom-and-gloom predictions for IP litigation may be shortsighted. Maulin Shah, managing attorney of the consultancy Envision IP, said the implications of Alice are still being worked out in courts around the country.
In other words, another sea change could be just around the corner.
“The likelihood that we will see something in the next couple or few years that changes how district courts are applying Alice is not insignificant,” said Yar Chaikovsky, a Silicon Valley patent trial partner at McDermott Will & Emery.