Beyond Hourly Podcast

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The following episode of Beyond Hourly was recorded before the merger of IMF Bentham and Omni Bridgeway.

Sarah Tsou:
Thank you for tuning in to the Beyond Hourly podcast, hosted by Bentham IMF (now known as Omni Bridgeway). As one of the world's most experienced commercial litigation funders, Bentham has invested nearly two decades into providing litigation finance and investment capital to plaintiffs and law firms. We offer law firms and their clients a risk sharing partnership and a proven record of success as a leading, global litigation funder.

Episodes of this podcast can be found on our website, www.benthamimf.com (now at www.omnibridgeway.com), and on iTunes, Stitcher, and SoundCloud. I'm your host today, Sarah Tsou. Prior to joining Bentham's New York office as an investment manager and legal counsel, I spent over 12 years at Kirkland & Ellis LLP litigating intellectual property cases. At Bentham I assess investment opportunities in the IP space and beyond and act as a strategic resource for the parties we fund throughout the funding relationship. We have a very exciting guest here today, Steve Cherny.

Steve is a partner at Quinn Emanuel in its Boston and New York offices. Steve has nearly three decades of high profile patent litigation under his belt and has won some of the most important patent cases in the last decade. Steve also serves as a lecturer at the University of Chicago Law School and is a former member of the District of Delaware IP advisory subcommittee. I'm also proud to say that I had the privilege of working closely with Steve for a number of years when we were both at Kirkland.

Steve, Chambers and Partners has described you as brilliant and very good in front of juries and very good with judges. I have no doubt you will also be very good on our podcast today.

Steve Cherny:
I hope so.

Sarah Tsou:
Thanks so much for joining us and welcome to the Beyond Hourly podcast.

Steve Cherny:
Thanks Sarah. Happy to be here.

Sarah Tsou:
Just for starters, can you tell us a little about your practice?

Steve Cherny:
Well I think you captured it with the three decades, which means I've been doing this for a while, and I guess means I'm kind of old, but basically, I'm a patent litigator or a patent trial lawyer. I know sometimes people say IP, but to be fair, I've done a lot more patent litigation and some trade secret in various courts than any other type of IP, so I think you can call me a patent trial lawyer and leave it at that.

Sarah Tsou:
Great. Well, you hold the record for collecting the most money from a single patent infringement judgment ever, more than two billion dollars.

Steve Cherny:
That's correct.

Sarah Tsou:
I'm referring to the hard fought battle between your client Bard, and its competitor W. L. Gore on patents on artificial blood vessels. In 2015, which was a full 12 years after this lawsuit began, the National Law Review referred to the case as the apparently never ending story. Can you tell us a little about the case, and tell us has this story finally come to an end?

Steve Cherny:
Well I'll answer the second question first, which is, I'm pretty sure it's come to an end. It was a never ending story that started probably around 1974. First, as a fight between W. L. Gore and an inventor, a doctor, named David Baulfer who shortly after 1974 ended up in a business agreement, licensing agreement, with my client C. R. Bard. They spent a lot of years, decades, fighting over who would control this very fundamental patent on this very important, pioneering medical technology of artificial vascular grafts. After fighting over who would own the patent for 28 years, Bard and Dr. Baulfer ended up with the rights. It then transitioned to litigation, which was where Bard offered Gore a license under this gold bar patent. They couldn't come to an agreement, and then litigation ensued in the District of Arizona, and that's where I came in, because that's what I do. I'm a litigator. I was a fair bit younger when it all started back in 2003, and it culminated in a two month trial in the District of Arizona in front of Judge Murguia, who's now on the Ninth Circuit.

We won a big judgment, willful infringement, attorney's fees, and also a very substantial ongoing royalty going forward. When you put it all together, it's gone over two billion dollars for Bard and now the company that bought Bard, Becton Dickinson.

That wasn't the end of it. There was a second trial—where Gore sued Bard in the District of Delaware on the same technology—and we tried that case two years ago and won for Bard again. After two losses, and the fact that Bard is now part of Becton Dickinson, I think Gore probably has moved on. Maybe, I mean who knows, you can never tell.

Sarah Tsou:
Never say never.

Steve Cherny:
Never say never, but I think that the saga is probably over after, I guess now, 35 years. 45 years.

Sarah Tsou:
45 years. We see lots of big patent damages, verdicts, and awards, but in this case, you actually collected the judgment, right?

Steve Cherny:
Yes, yes.

Sarah Tsou:
Is that unusual in patent cases?

Steve Cherny:
It is unusual. I mean, first of all, one can see it's unusual just by looking at the amounts of money that have actually been collected. There's been a number of large judgments over the years. I remember there was the Alcatel-Lucent Microsoft judgment, over a billion dollars. There was the Carnegie Mellon and Marvell case. There's been a number of other ones, and it certainly is notable and worthy of respect that people have gotten these large judgements with no juries, but the Federal Circuit has been somewhat vigilant about really looking at those cases and so, there haven't really been any other ones that have over a billion dollars that have stuck.

Sarah Tsou:
What are the biggest hurdles that are faced today by claimants hoping to win big patent awards?

Steve Cherny:
Well probably the largest hurdle is the fact that the law hasn't really changed because it's based on old Supreme Court law. But the Federal Circuit has reinvigorated that law—kind of what we call apportionment—and so for many years you had large awards being successfully based in an argument that whatever the patent was involved, or invention in that case was worth, some large measure of the whole product  was at issue, and the Federal Circuit has really pushed back on that and reinvigorated the doctrine of apportionment. Which means if I have, for example, a WiFi chip with 3,000 patents estimated, just on this little chip, the Federal Circuit has forced people to value it at trial, and the district courts have followed along to value a specific technology in the context of having thousands involved in a particular product. I think that's probably been the largest—I mean there are other issues—for example the rise of IPR's. Maybe some of this stuff is in the patent law of section 101 developing the way it has. But from my perspective, probably the largest obstacle to getting large patent judgment awards now is apportionment.

Sarah Tsou:
How has apportionment come up in the cases you've tried?

Steve Cherny:
It comes up in most cases because it's necessary. The courts require it, but it actually has come up in terms of a bit of a contrast. When I'm doing medical device cases, on which I do a lot, like the Bard and Gore case, it's a little less present because the inventions tend to be less compound, and so you've got a stent, you might have some number of patents involved related to a stent, but there's only so many, it tends to be a structure, a device, maybe a method.

Sarah Tsou:
Not so many moving pieces?

Steve Cherny:
Correct. Where it does tend to come up is high tech. In one case that I did where it came up in a big way was Cisco versus Innovatio, where I led a bench trial that was on valuing 19 patents that were being asserted against Cisco, and in fact the whole industry of people that use WiFi—and that was in Chicago. A We had a bench trial and a big part of it was valuing these patents that Innovatio had purchased from Broadcom, and Judge Holderman was there and his decision—which is quite long and quite detailed, both well known for the way it deals with standard essential patents, but also for dealing with apportionment—essentially went through the fact that on a single WiFi chip, which was the technology at issue there, the estimates were that there were 3,000 different patents approximately involved in a WiFi chip. He took a look at it and said you start with the premise that a WiFi (chip) costs a dollar or two dollars in the marketplace and that leaves about 40 cents of profit.

Again, I'm just approximating, and the judge took a hard look and said, "Okay, well we've got to divide up that 40 cents between all these various and sundry innovations and contributions, and so, it certainly was a big deal in Innovatio. Ultimately in that case, the judge valued those 19 patents at nine and half cents per chip—which Cisco viewed as a great victory because there'd be one or two chips in each of their access points—and so Innovatio had been asking for a license of $200 per access point and they ended up getting like nine cents or twenty cents per access point. So there, apportionment was a big deal.

Sarah Tsou:
You mentioned some other changes in the patent law landscape, and I know you led a number of cases where new law was made. What, in your view, are the key changes in patent law over the past several years?

Steve Cherny:
Well, obviously, we have a whole new statute—AIA. People are starting to get used to that. I just had my very first trial on a post-AIA patent. It was kind of interesting having to re-learn all the things I had known for twenty-something years.

Sarah Tsou:
I feel kind of lucky getting out of practice before that happened.

Steve Cherny:
It was very odd. All of a sudden, to not be able to talk about one or two G—and I'm sure people that are listening aren’t interested in hearing about all the sections of the patent statute—but you know there are all these things and buzz words in areas of invalidity, for example, that we all just kind of knew, and now it's collapsed down to only a small number and we're much more focused on first to file. So, I think that's probably going to be the biggest, and will be the biggest, change for a while. As we move towards more of a first to file system, where we're spending less time worried about who conceived and produced a practice and invention versus who filed it, and also looking at the impact of provisional application.

So, I did this trial this summer in Boston, on 3D printing.  This was a big, big difference. That was kind of odd having to re-learn the patent law a little. You know there are other areas people have been cognizant of how the impact of IPR is on that litigation section 101, it keeps going up and down. Even though the Supreme Court has addressed it a couple times—I think as you noted, I teach at the University of Chicago and we sometimes talk with our students about how there are some areas of the law where you're looking at a statute and they're interpreting what to do with it—but for example with section 101 it doesn’t actually say anything. What happens is that the courts keep vacillating between, you know, to left to right, in terms of what is or is not patentable.

I think they’re having a hard time. It probably is a worthwhile thing for Congress to get involved at some point. Until that time, 101 is a moving target. Those are probably some of the bigger, and of course apportionment as I said earlier, these are all some of the bigger changes that affect litigation.

Sarah Tsou:
Seems like pretty uncertain times when it comes to filing a patent case and seeing it all the way through.

Steve Cherny:
I think its always uncertain times. I think it's just probably as of late, the winds are a little against the plaintiff a little, not entirely, but I think what you're seeing is a reaction of venue being another big change in the law. Obviously, that has changed the dynamic in terms of cases in the District of Texas that now probably won't go there anymore. I think what we had was a generation or two that was pretty pro-plaintiff in terms of the law, and that caused a bit of feedback from the Federal Circuit. I think we're now on that swing in terms of response to, you know, the non-practicing entities that developed over the last couple of decades, started with Mr. Lemelson probably. I think we're on the side now of reaction, but I think we're seeing it kind of go back the other way a little. There's always some uncertainty, it's just a matter of like anything else, like the stock market or anything else, is just getting the sense of where things are at, at this time.

Sarah Tsou:
When you're advising your clients on claims they're considering bringing and the value of those claims, what are the key considerations you look for?

Steve Cherny:
First consideration is always the story, because ultimately, most of these things go to a jury. If you have a good story—I mean jurors do the best they can and they're very good at a number of areas—but they also tend to focus, as most human beings do, on the story.  They're there for a couple of weeks or longer in a court.

If you have a good story that makes them feel that somebody has accomplished something to solve the problem—done something they care about—they're much more likely to value it, than if it was something that seems to be very incremental. Or if, for example, you don't really have a connection to the invention. Meaning that, you know you purchased it from someone who purchases from someone else who purchased it. It doesn't tell us the story. So ultimately to me as a trial lawyer, the story is the most important. Then, you start looking at the technology as well, because I mean, with a good story,…Medium technology can be worth a lot, and with a bad story plus great technology it isn't worth that much, because again the jurors have to connect with it. You think about whether you can teach the jurors about it or whether it's something they'll be interested in. Obviously, when you're talking about an artificial blood vessel, they kind of feel it. You know, they feel themselves when you're talking about all the problems it solved. That’s a little more connected that way than when you're talking about something that saves power in their iPhone. Although I tell you a lot of times when my phone is running out of power, I feel that too.

Sarah Tsou:
Yes, I've seen that.

Steve Cherny:
It's the story that is most important. Then the technology and the issues that we discussed earlier. For example, is this something where you're going to have to face a lot of headwinds relating to apportionment because it's one of thousands of inventions that people are arguing are included in a device? I’m not saying which way it should go, you just know the arguments that people are going to make and so you have to be prepared for IPRs.

You have to be aware of how much time and money is going to go into getting past that—and that has gotten less now that the patent office is speeding back a little from what they used to call the Death Squad. Those are the most important things. Once again to me, always the story is the most important. And also having witnesses that, you know, on the same exact patent on the same exact invention, is a big difference if you got an inventor who can get up there and tell a story, versus just an expert or, you know, an expert comes up and tells a slightly dryer rendition of what happened

Sarah Tsou:
You mentioned non-practicing entities and we’ve all seen in the patent litigation world cases brought by companies that don’t practice the patent. First of all, do you think it's required to practice the patent in order to get a meaningful outcome?

Steve Cherny:
No, I don't think it's required. Certainly not legally it’s not required.  For each individual case I think the judge and jury is charged with valuing it so even if someone doesn't practice a patent... a perfect example is a university. Universities often aren’t practicing but they are important generators of ideas and technology. In that example, and maybe with a specific University, I could see them getting a very substantial outcome, and in fact that's what happened with Carnegie Mellon and Marvell. It's not surprising.

On the other hand, it comes down to the story. That is a different story than somebody whose set up patents out of bankruptcy. Although you can get a decent outcome there, you just have to find a way to kind of get the jury to understand why those patents and those inventions are of great value to the defendants, and why it is essentially they shouldn't be allowed. It's all fact specific but there's no reason why being a non-practicing entity means you can't get a decent job. It just sounds like something that you have to work with. It's certainly not as compelling as hearing a story from a company that's actually making something and you could talk about the impact on their business of infringement.

Sarah Tsou:
It seems like it's so critical to have a good storyteller representing you in these cases.  In my new position it struck me how important choice of counsel can be when it comes to evaluating a case’s chances of success. What should litigants be thinking about when they're deciding who should represent them in these important cases?

Steve Cherny:
I think exactly what you said. I would say this even after I get out of this business, so this is not a matter of advertising.  When I teach my students, I teach patent litigation at Chicago, in fact I was just there yesterday teaching. It really is about finding a way to connect with the jury. It's not about understanding technology because the jury is not going to understand the technology. It's about teaching the technology. So I always say, get someone who's like Neil deGrasse Tyson, or you know, the types of people who can take quantum physics and boil it down to 45 minutes, so that the jury walks away feeling like they understand and learned something. So, the trial I did this summer on 3D printing, you could tell the jury really appreciated learning something about 3D printing, how it works. Also, the story of, in that case, my client Greg Mark, who was a 37 year old.

He had started a company of 31, and that company is now about over a billion dollars in valuation. So, it really always comes back to the story. Whether it’s the technology, the economics, whatever. You can find plenty of people who can understand technology or who can talk to you about biotech or whatever. You're talking about winning a trial—you want someone who could connect with the jurors, tell them a story at a level they can understand and where they want you to win. I don't know if that comes through, but that's always been my perspective is that you're talking to about six to twelve people who are probably a little bored, try to do the best they can, and if they walk away saying, “you know something, I understand a little more about 3D printing,” for example, or artificial blood vessels and why this is important, they're much more likely to go your way.

Sarah Tsou:
It's always been so interesting to me that such technological cases and such potential big damages awards can be decided by a group of lay people, but I've also heard it said that the jury generally gets it right. Would you agree with that?

Steve Cherny:
Yes, I think the jury gets it right often. Obviously, we have judges to review things and I think our system works pretty well. It's hard to know often times what it means to get it right with these. They tend to be digital decisions, but I think that, they do have a nice sense of balancing where I think they can get a sense, you know, from listening to the facts of what's important, or what's incremental. I think that they have a decent measure of witnesses and getting a sense of who is telling the truth and who is not and at least from my perspective, one of the things they do, and judges do a great job at bench trials as well, but the jury is a little less jaded. Judges have spent a lifetime listening to lawyers and they also carry with them the baggage, they don't want to, of the last hundred cases. I think it's probably hard for them not to kind of keep in mind how this reminds them of some prior case or set of facts which are really not relevant.

The jury tends to have the benefit of getting people from multiple walks of life, and their experiences, and the fact that they are coming at it fresh. Do they always get it right? Probably not, but that's why we have judges and the court of appeals to try to work on it, but they do a pretty good job.

Sarah Tsou:
Steve, I want to thank you again for appearing on Bentham’s "Beyond Hourly Podcast" and sharing your perspective. There is still so much to discuss. We’re going to break here but we invite our listeners to tune into our next episode for the rest of our interview with Steve.

As I mentioned at the outset, episodes of the "Beyond Hourly Podcast" can be found on our website: www.benthamimf.com (now at www.omnibridgeway.com) and on iTunes, Stitcher, and SoundCloud.

We'll be back soon with another episode focused on advancements and legal services that drive economic value for law firms and the clients they serve. Until then, I would like to thank our audience for listening in and invite you to follow up with me, Sarah Tsou, at [email protected] and provide any feedback or ideas you have for topics we should cover. Thank you and be well.