Our Litigators of the Week are Paul Hastings partners Tom Counts and Liza Brann, who came out on top after a 14-year IP battle spanning three continents, the International Trade Commission, the U.S. Patent and Trademark Office, the Federal Circuit and U.S. District Court for the Southern District of Texas.

Their client: Align Technology, which makes Invisalign braces—clear retainers that gradually straighten teeth. 

The company had been locked in battle with competitor ClearCorrect Inc., which was bought by Swiss dental company Straumann 2017, over patent rights to the technology. Trial was scheduled to begin this week in Houston when the case settled.

ClearCorrect agreed to pay Align $35 million immediately, and the companies also signed a non-binding letter of intent for a 5-year global development and distribution agreement. If the deal doesn't come together within 90 days, ClearCorrect parent Straumann will pay Align an additional $16 million.

Analysts at Piper Jaffray called the deal “an immediate win for the company.” Investors liked it too—Align's stock promptly jumped 5 percent.

Counts and Brann discussed the case with Lit Daily.

Lit Daily: Who was your client and what was at stake?

Counts and Brann: Our client is Align Technology, the maker of the well-known Invisalign clear orthodontic aligners and the market-leading iTero intra-oral scanner. We have worked with Align, and its general counsel Roger George, since 2003.

At stake in this case was compensation to Align for a decade of patent infringement by ClearCorrect that essentially robbed Align of the second half of the bargained-for period of exclusivity provided by the U.S. patent system. Also at stake were various other patent skirmishes around the globe, including litigation in the U.K., an invalidity action in Brazil and an IPR (or inter partes review) proceeding at the Patent Trial and Appeal Board, or PTAB.

This was an unusually long-running case. Take us back to the beginning—when and how did you become involved?

This case actually can be traced back to 2004, when a co-founder of Align started a competitive clear aligner company operating out of Pakistan.

We were very familiar with Align and the co-founder as a result of a large arbitration matter we handled in 2003, so we were tapped to represent Align in what was, at the time, an existential threat from its own co-founder. One of Align's then-largest customers switched to the competitor and left a large account receivable at Align.

Align eventually sued in Houston to collect that debt, and we were assigned to Judge Vanessa Gilmore—the same Judge Gilmore who was scheduled to preside over our case this week. That collection action eventually settled, but when Align shut down the co-founder's competing company on the eve of an International Trade Commission hearing, the former customer ended up engaging the competitors' same workforce in Pakistan to make aligners for his new company called ClearCorrect.

After ClearCorrect's attempt to bring a declaratory judgment action was dismissed in 2009, Align then filed a patent infringement action against ClearCorrect in 2011.  Despite a couple of lengthy stays, that is the same case we were set to try this week.

What was your overarching theme in litigating the case?

We focused on Align's pioneering work on the technology and ClearCorrect's blatant copying. Their copying meant it was easy to prove that ClearCorrect infringed Align's IP—they had few, if any, credible non-infringement arguments.

Our firm belief in that infringement was borne out by the court's grant of summary judgment on that point. The blatant copying, together with the fact that the PTO rejected their obviousness defenses over the course of more than a dozen reexaminations, gave us a convincing rebuttal to their key defense of obviousness.

Of course, we would then need to convince a jury that those same facts meant a significant damage award to Align was appropriate.

Who was opposing counsel?

By the time we got to trial, ClearCorrect had assembled a team composed of lawyers from five different firms, including Susman Godfrey, Orrick, Texarkana-based Haltom & Doan and two local Houston firms.

This litigation involved multiple forums and jurisdictions. Tell us a bit about the fight at the International Trade Commission, which raised some interesting issues about jurisdiction over infringing products that are in digital rather than physical form.

At the ITC, you need to identify an imported article in order to qualify for the unique remedies available.  We successfully alleged that the imported article in our case against ClearCorrect was a digital treatment file generated by an infringing process in Pakistan performed by former Align employees. Those files were then imported and used to create infringing aligners using a 3D printer.

We established that ClearCorrect's manufacturing was structured in that manner specifically to avoid ITC jurisdiction. We pointed out that with the advent of 3D printing, an agency such as the ITC faced obsolescence if parties could avoid import scrutiny simply by importing a digital file representing the infringing product and then printing the product domestically.

The resulting Federal Circuit decision was certainly a disappointment, especially after achieving such a significant win at the ITC. Both the ALJ and the commission had found Align's patents valid and infringed, and the ITC issued (and unfortunately stayed) a cease and desist order that would have essentially eliminated ClearCorrect from the market.

To see our simple case about straightening teeth get turned into a high-profile vehicle for the larger battle about the ITC's jurisdiction over digital imports was frustrating. Although we enjoyed working with the ITC and amici concerned with digital rights (the Motion Picture Association of America, the Recording industry Association of America and others) against what seemed like the rest of Silicon Valley (the Business Software Alliance and open internet advocates such as the Electronic Freedom Foundation), the result sent us back to Houston in 2016 to re-start our long-stayed infringement case in district court.

There was also a PTAB battle that wound up before the Federal Circuit. What happened there and what made it significant?

By the time the America Invents Act went into effect, our case against ClearCorrect had been ongoing for more than one year, so they were unable to file IPR petitions against the patents-in-suit.

Apparently [ClearCorrect] was eager to obtain a ruling that an Align patent was invalid, so they petitioned for IPR of a patent with broader claims than the ones we asserted. They were initially successful and tried to use the PTAB's decision to argue that the asserted patents were also invalid.

The district court was not interested in that argument, though, because the relevant patent was not at issue in our case. Then the Federal Circuit vacated the PTAB's decision, further reducing their chances of using the IPR to their advantage.

On the international front, disputes were also pending in the U.K and Brazil. How did you coordinate with your overseas counterparts? And how did this affect your overall strategy?

We have great relationships with Ian Kirby at Carpmaels in London and Bruno Licks and his team in Brazil. Our counterparts are very familiar with Align's patent portfolio and operate as much more than local counsel—they are a true extension of our U.S. team. But the stakes in the U.S. cases were more significant and more immediate, so the U.S. issues—and the potential business relationship—were what primarily drove the settlement.

The case was barreling toward trial in the Southern District of Texas. How were you preparing and what would have been some of the key aspects of your presentation?

At the time of settlement, the entire team had gathered in Houston to prepare for trial together with our local counsel, Lee Kaplan and Karima Maloney of Smyser Kaplan & Veselka, who had also been involved in the case for more than a decade.

We felt that the facts and the law were both on our side (including a summary judgment finding of infringement regarding one of the asserted patents) so we were simplifying the issues as much as possible to make it easy for the jury to find in our favor and to compensate Align appropriately.

Our presentation would have focused on ClearCorrect's copying of Align's technology, the resulting infringement, and the PTO's resounding rejection of ClearCorrect's obviousness arguments during a series of failed reexamination petitions.

Align's market-leading position and pioneering technology would have helped us utilize the commonly known secondary considerations to show that the claims were valid. In other words, the prior artists are not nearly as well known or commercially successful as Align. If they in fact had invented such revolutionary technology, why weren't they more successful?  If Invisalign was so obvious, why didn't the prior artists enjoy the success that Align has enjoyed?

It can sometimes be tricky to determine who really came out ahead in a settlement, but here, your client's stock immediately jumped 5 percent. How did you hammer out the best deal for your client? Any lessons to share about reaching an optimal settlement?

This settlement had two distinct parts: the normal resolution of litigation(s) in exchange for money, and the more intriguing forging of a potential business relationship. Doing them both in the same room with the same people at the same time can be a challenge.

On the money side, the settlement provides for an immediate $35 million payment to Align. Then, if the parties do not enter into the potential Development and Distribution Agreement, Align will receive an additional $16 million payment (for a total of $51 million).

As the plaintiff, we are always comparing settlement value to a potential jury verdict. Mid-eight-figure jury verdicts are exceedingly rare (this settlement amount would have been among the top-five patent jury verdicts in 2018), so negotiating for a mid-eight-figure settlement is challenging. The risk/reward of a potential outsized verdict is omnipresent, but the uncertainty of a jury trial is always an equal opportunity motivator.

Luckily, the representatives from Straumann (a Swiss dental company who acquired ClearCorrect in 2017) are professionals who had developed a good relationship with the very creative Align in-house team, which resulted in a focused process and a very creative resolution.

While it is dangerous to judge a deal based on stock performance, here the analysts who follow Align and the stock market in general seemed to really like the deal and its potential upside for both parties.