Patent Enforcement Strategies to Meet Business Objectives
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Patent Enforcement Strategies to Meet Business Objectives Go to: Litigating to Maintain Product Exclusivity and Market Share | Using Patents for Licensing Purposes | Acquiring Patents for Defensive Purposes Current as of: 10/23/2019 by Brian O’Reilly, DLA Piper A client’s business objectives are crucial when determining how best to enforce its patents. There are multiple aims when creating an enforcement strategy. For instance, a client may wish to use its patents to maintain or increase a product’s exclusivity and market share, to obtain revenue to fund research and development, to gain access to technologies through cross-licensing arrangements or patent pools, or to threaten suit as a defensive measure as an aid to settle ongoing patent litigation. This practice note discusses strategies that can be used to meet clients’ varying business objectives. Litigating to Maintain Product Exclusivity and Market Share To prevent copying by competitors and maintain market share, a client may assert its patents offensively to protect its most important products by filing lawsuits against suspected infringers. This is a standard strategy that is logical and important for many businesses. Nevertheless, there is a recent trend of accumulating patents as stand-alone assets unconnected to the products and services sold by the patent owner. Benefits and Risks of Litigation When pursuing an offensive strategy, it is important to weigh the benefits and risks of litigation. Enforcing a patent through litigation often extracts the highest potential value from the patent. Patent damage awards can be significant, with the possibility of treble damages if the infringement is found to be willful. Successful litigation can also serve to make future patent enforcement easier. It lets competitors know that a client is prepared to enforce its patent rights, thus reducing the risk of future infringement and strengthening a client’s bargaining position in future licensing negotiations. But litigation also carries high costs and high risks. Litigation is a lengthy, time-consuming process that may take years to complete, racking up significant legal fees and diverting both human and capital resources from your client’s business operations. Moreover, the alleged infringer will likely try to invalidate the patent by counterclaiming for a declaration of patent invalidity or by filing a post-grant proceeding before the Patent Trial and Appeal Board, such as a post-grant review (PGR) or inter partes review (IPR) proceeding. It is thus essential to thoroughly assess the validity and enforceability of your client’s patent prior to filing a lawsuit (e.g., is there additional material prior art, or any basis for an inequitable conduct defense in the prosecution history?). For a more detailed discussion on assessing the strength of your client’s case, see Pre-litigation Opinion on Patent Infringement and Validity. For a more detailed discussion on PGR and IPR, see Post-issuance Procedures for Challenging Patents: IPR, PGR, and CBM. Injunctive Relief Even if a client proves patent infringement, permanent injunctions are no longer obtained as a matter of course. See, eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006). Patent Enforcement Strategies to Meet Business Objectives Prior to eBay, the Federal Circuit generally “issue[d] permanent injunctions against patent infringement absent exceptional circumstances.” Id. In eBay, however, the Supreme Court decided that the traditional four-factor test for injunctive relief must be satisfied in patent infringement cases before a court can permanently enjoin an infringer. The test requires a patent owner to establish that: • It has suffered an irreparable injury. • Remedies available at law are inadequate to compensate for that injury. • Considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted. • Public interest would not be disserved by a permanent injunction. Since the Supreme Court’s decision in eBay, courts have drastically reduced the rate at which they awarded injunctive relief. Instead, many courts have ordered infringers to pay a royalty to the patent owner as compensation for ongoing infringement. See generally Chisum on Patents § 20.04. Factors that have tended to weigh in favor of injunctive relief include the parties being competitors, the patent owner’s loss of market share or difficulty in accessing a nascent market for the patented technology, and the central importance of the patented product to the patent owner’s business. Another factor that may support an injunction is the patent owner’s use of the patent system to enforce its patents, as opposed to licensing its patent portfolio outside the context of resolving litigation or entering into cross licenses. The latter factor, unlike the previous factors, is uniquely within a client’s control. Thus, if a client’s goal is to maintain product exclusivity and market share, it should ensure that it develops a coherent and consistent strategy of using its patents for this purpose, and that any licensing is not inconsistent with this strategy. Enforcement at the International Trade Commission A client may also offensively enforce its patent rights in administrative proceedings before the International Trade Commission (ITC) if infringing goods are imported from abroad and your client meets certain standing requirements. Such proceedings are referred to as Section 337 investigations or actions, as they are conducted pursuant to 19 U.S.C. § 1337. Benefits of ITC Proceedings There are many benefits to litigating at the ITC over a federal court. For one, ITC trials are relatively speedy— proceedings are typically concluded within 16 months, and the timetable for discovery is much more compressed than the typical federal court discovery schedule. An ITC complainant can also obtain broad injunctive relief without proving irreparable harm, as required by eBay. ITC injunctive relief includes exclusion orders (barring importation of infringing products from other parties as well) and cease and desist orders (barring sales of infringing products within the United States). It is also easier to litigate against suspected foreign infringers at the ITC because: • The ITC itself serves complaints on respondents. • ITC rules facilitate foreign discovery. • The ITC is the sole venue for Section 337 actions (thus, respondents cannot challenge venue). • Violations of exclusion or cease and desist orders are enforced by the ITC and/or U.S. Customs and Border Protection. • An adverse ITC decision will not have preclusive effect in subsequent district court litigation. Note also that the ITC, historically, has rarely granted stays where there are co-pending U.S. Patent and Trademark Office proceedings such as reexaminations—an advantage for an ITC complainant, as district courts routinely grant such stays. While many expected this trend to change with the post-grant proceedings established by the America Page 2 of 11 Patent Enforcement Strategies to Meet Business Objectives Invents Act (AIA) in 2012 because these proceedings are faster than traditional reexaminations, this has not been the case. See Certain Microelectromechanical Systems (“MEMS Devices”), 2013 ITC LEXIS 802 (May 21, 2013). Given these various advantages, Section 337 actions are attractive options for patent owners that wish to stop the importation of infringing products as quickly as possible—especially companies that sell products with short life cycles, such as fashion goods, toys, or electronic devices. But there are also certain disadvantages to litigating at the ITC. Disadvantages of ITC Proceedings The ITC’s pleading requirements are much stricter than district court requirements (even considering that Form 18 of the Federal Rules of Civil Procedure was abolished as of December 1, 2015). An ITC complainant must plead detailed facts of: • Specific instances of the alleged unlawful importations or sales • Infringement allegations (including claim charts) • The domestic industry affected (including domestic industry claim charts and facts showing significant investments in manufacturing facilities and equipment, labor or capital, or exploitation of the asserted patents through engineering, research and development, or licensing) For many clients based outside of the United States, satisfying the domestic industry requirement is viewed as a hurdle to bringing an ITC action. Fortunately, the courts have recently made the domestic industry standard more permissible by allowing claimants to rely on the activities of its licensee to meet the standard. See Storage Drives, Inv. No. 337-TA-1097, Comm’n Op. (June 29, 2018). It is important to note that the ITC’s jurisdiction is limited to unfair acts involving the importation of physical articles and does not encompass electronically imported data. See ClearCorrect Operating, LLC v. ITC, 810 F.3d 1283, 1289–90 (Fed. Cir. 2015). Yet the ITC cannot award monetary damages; relief is limited to exclusion and cease and desist orders. However, as a practical matter, many respondents may choose to settle a Section 337 action, including monetary relief, to avoid high litigation costs and the imposition of a broad exclusion order. Alternatively, an ITC complainant may file a concurrent action in federal district court to preserve its right to obtain monetary damages. Though district court actions are typically stayed during the pendency of a Section 337 proceeding, the prospect of a future damages award may further induce an