Author: Anthony H. Handal
I. PRELIMINARY CONSIDERATIONS
1. First Steps in Patent Cases
The starting point for developing a strategy is a solid assessment of the facts and surrounding circumstances. If you are faced with a lawsuit for infringement or contemplating bringing one under a utility patent to secure your position with respect to a particular technology, several preliminary questions need to be answered. Perhaps the first question is to understand the nature of your adversary’s interest in the technology and its economic means, and gauge that against the strength of its position and the amount at stake both in terms of past infringement and future liability. For example, if an entity is not practicing the invention, special approaches to litigation may be appropriate.
One can begin to get a sense of the strength of the case by analyzing the product accused of infringement against the patent claims. These appear at the end of the patent and define the scope of the patent monopoly. If the product does not appear to have all the elements recited in an independent claim, that is a claim that does not incorporate another claim, that particular independent claim is not infringed. Moreover, if the independent claim is not infringed, all the claims which depend from it and the claims which ultimately depend from them may also not be infringed.
However, this is only a preliminary assessment. It speaks to whether there is literal infringement of the claim in the common and ordinary understanding of the meaning of the words of the claim in the particular technology involved. However, the written description of the invention in the patent may define the words in a different manner and it may be necessary to make some judgments respecting the meaning of the words based on the written description. In addition, every patent has a prosecution history, usually consisting of claim rejections, amendments of the claims and arguments relating to patentability. This prosecution history will affect the meaning of the words of the claim. It may do this, for example, by implication, definition or estoppel. The result can either stand or narrow the scope of the patent claims.
Even if there is no literal infringement of the claims, the patent owner may have the opportunity to prove improvement by equivalence by showing that the product or method accused of infringement substitutes an equivalent for one of the elements of the claim. There is a complex body of case law governing the application of the doctrine of equivalence, but the general test is whether the substituted element does the same thing in the same way to achieve the same result. Notwithstanding a wealth of judicial opining on the subject of equivalence, the underlying law provides few bright lines and Supreme Court precedents underscores the importance of a flexible approach, leaving much room for advocacy and equity.
The prosecution history is publicly available from the United States Patent and Trademark Office. In the case of more recent patents, it is available online.
The next question is whether or not claims which might be infringed are valid and enforceable. A claim is not valid if all of its elements read on, for example, a single prior art patent or other prior art, such as a publication, public use, or the like. However, if the differences between the best prior art and the combination recited by the elements of the claim is an obvious one to a person of ordinary skill in the art, then the patent is also invalid. Such obviousness may be shown, for example, by showing it to more patent together show the elements of the claim and that combining them would be obvious.
It is important to find the best prior art available. While there is prior art in the prosecution history of the patent for the PTO, trying to invalidate a patent on the basis of prior art asked on by the patent examiner prior to the issuance of the patent is usually a difficult but not impossible case to make. While searching is often done in the United States Patent and Trademark Office, foreign patent offices, libraries and industry sources often turn up vital evidence. If the technology is particularly well developed in a foreign jurisdiction, it may be imperative to have searching done at various sources in that jurisdiction.
The question of what is obvious also leaves much room for advocacy. It may be a useful simplification to define obviousness as being provable by specific suggestions to combine found in the prior art or by common sense. Here again, the content of the prosecution history may be useful. In addition, there are so-called secondary invitation of non-obviousness, such as long felt need, commercial success, and prejudices of the technology.
It may also be important to consider the overall competitive picture. For example, anti-competitive behavior may render a patent unenforceable. Likewise, if there was a fraud in the procurement of the patent, such as withholding of known prior art, the patent may be invalid.
The perceived valuation by the parties is the key to settlement of every lawsuit. If there are products which the above analysis shows to be infringing a valid claim, you need to know how much is at stake. Past and future sales must be assessed. An estimation of what is likely to be found to be a reasonable royalty must also be made. With respect to future sales, the possibility of a design around which reports the claim and the costs associated with developing the change and incorporating it into the production line must also be determined.
The above costs must be assessed against the likelihood of success in enforcing the patent. Likewise, the likely cost of litigation, and the possibility of an early resolution need to be considered. Factors affecting this include the strength of the case, as well as the importance of the product line to the present and future businesses of the parties to the controversy.
There are a number of other issues which often have significant effect on the outcome of patent litigation. Whether or not the inventor named in the patent is the true inventor is one such issue. Obviously, if a patentee has derived the invention from another, the patent and not valid.
Many times, facts and personalities which are not strictly, or perhaps not at all, relevant may have an impact on the case. It is important that all such factors be reviewed, including the factors associated with your opponent, to the extent that they are known or come to be known.
First Steps in Design Patent Cases:
Generally, the analysis detailed above with respect to utility that supplies to design patents. The most important difference, however, is the assessment of the question of infringement and the mirror image considerations with respect to validity. A simplified but useful formulation of the test for design patent infringement is whether a theoretical ordinary observer, informed of the prior art would find the patented design and the design accused of infringement to be confusingly similar. This formulation may also be applied in assessing validity with respect to the prior art. In my view, this formulation speaks to these issues at the time that the design patent was filed. This likelihood of confusion test should not be confused with the test defined in similar terms in trademark cases. For example, a survey (common in trademark cases) is not likely to be found of much probative value with respect to the question of infringement in a design patent case.
2. Strategic Posturing
After a patent is issued, businesses usually take steps to ensure that it will be respected. Such a posturing strategy can be as important as the decision to file in the first place. Many companies have patents which have not been asserted for many years and which are substantially ignored by competitors. Of course, ignoring a patent can be quite perilous. Oftentimes, companies make substantial investments, albeit sometimes innocently, in technologies patented by others. All too often, when the patent owner brings suit, the defendant may be facing substantial liabilities in the form of damages payable on the prior six years of business in the affected products.
A successful posture strategy puts potential infringers on notice and may be as simple as marking products patented or putting more detailed information in literature associated with the same. On occasion, patentees may, in response to talk in the industry about the possibility of a competitor putting out an infringing product, engage in a letter writing campaign, advising possible infringers of the existence of patent rights and their intention to enforce the same.
Another technique is to file an action at the first sign of an infringement in order to signal the market about the existence of the patent and your intention to enforce the same. Such actions will turn up in a litigation search and may serve to fend off potential infringement. This added value may even rub off on other patents, because the market identifies the plaintiff as a company committed to preventing infringement of its intellectual property. The preventative value of such lawsuits may be enhanced by publicity surrounding such lawsuits.
In the life of many commercially important products covered by patents, there may come a time when a company must move from posturing to strategic action. Sometimes a patent holder will refrain from action waiting to see whether a particular product line from a competitor will be successful. In this way the patent holder would hope to avoid a lawsuit and allow the market to do the work of stopping the infringement.
However, such an approach has significant risks. For example, in the event that the infringer is successful in bringing his goods to market on a more than token basis, the infringer has substantial incentives to continue the infringement, thus promising a potentially long and expensive battle for the patent holder. For this reason it is usually better to move quickly with respect to potential infringements.
Most importantly, however, there are no general rules. The ideas presented here are meant to stimulate thought as opposed to being a recipe for conducting a lawsuit. Moreover, as uncertain events reveal their character and magnitude, the strategist must continually reassess the diminishing number of uncertainties and build a model to extrapolate into the future with increasing accuracy. The result is the making of better and more reliable decisions. Ultimately, if the strategist has done his job correctly, on the first day of trial the outcome of the lawsuit may very well be known with a very high degree of certainty. In such a circumstance, the importance of the strategist, because of the successful execution of the strategy, is greatly diminished as the strategy has substantially been done. For this reason, many cases settle on the steps of the courthouse, or a few hours into trial.
Thus, nothing here should be considered as a guide for action. Indeed, many of the strategies mentioned can be strategic blunders but are discussed for the purpose of enabling problem recognition and the implementation of effective countermeasures.
In any case, once the decision has been made, and a lawsuit filed against an infringer, a fundamental strategic change has occurred. Prior to the filing of suit, the strategic problem involved the assessment of potential actions and likelihood of success of the same as between the patent holder and one or a number of competitors and/or infringers. None of these parties has absolute control of the outcome.
3. Information Gathering
Strategic planning depends upon making accurate judgments respecting the likelihood of unknown factors and known factors with unknown likelihoods, which are likely to become known or better quantifiable in the future, and are thus likely to have a not insubstantial effect on outcomes. Successfully making judgments is facilitated by having fewer events to analyze and reducing the likelihood of an error in that analysis. A primary tool in reducing uncertainties is information gathering. While the litigation process provides very effective mechanisms for information gathering, such as written discovery and depositions, other information gathering techniques are valuable, should be employed before litigation, if possible, and this can often be crucial to achieving goals.
Most commonly, parties to a patent infringement litigation seek to avoid surprise and garner advantage in the process by searching the prior art. Searching is usually done before the institution of litigation. Plaintiffs are well advised to thoroughly search the prior art to enable the framing of a position on claim construction which will sustain an attack based on prior art. Likewise, defendants need to search the prior art to develop an invalidity position.
However, there are also other substantial opportunities for discovery that often have a determinative effect on the outcome of a lawsuit. Many other sources of information are available to litigants in addition to the patent and literature databases that are covered by the customary searches. For example, litigants often have extensive files on competitive products, and these may go back many years and point the direction toward, if not constitute themselves, important evidence. When involved in a patent action, such literature collections often show innovation as occurring in certain organizations or certain countries, suggesting targeted searching approaches in publicly available databases.
Other extrajudicial discovery mechanisms include attendance at trade shows and discussions with competitors and customers which often uncover activities of an opposing party or third parties which may be useful in advancing a party’s position. Such activities may be as diverse as coercive market behavior, new product announcements, and sometimes even evidence needed to prove a position.
A wealth of information may also be obtained from employees and consultants associated with an enterprise. However, mining this information, while almost invariably a good strategic move, is not without its own effect. Damaging as well as helpful evidence may be uncovered. Moreover, if the principal actors in the litigation are involved in gathering this information, such information may be uncovered by the opposition during depositions.
Accordingly, the safest course of action is for such information to be gathered in conversations between counsel and the individuals most likely to have that information, ensuring that the flow of information, damaging and helpful, is controlled. In this manner, counsel can preserve the element of surprise (to the extent that this is consistent with federal rule 26) with respect to helpful information and lower the likelihood that damaging information will be uncovered by the opposition.
4. Protecting Information
Sometimes, in the course of litigation, the question arises whether certain information should or should not be produced. Certainly, in the United States, the system is heavily biased in favor of full disclosure. In addition to being fully responsive to written and oral discovery, most courts have rules which require voluntary disclosures of principal facts. Generally, the damage done by a strategic decision to withhold information, and the likely event of its later discovery, is more damaging than disclosure. Indeed, I have seen situations where decisions to withhold information were made with draconian consequences.
II. LITIGATION CONSIDERATIONS
1. General Considerations
Upon the filing of suit, the court becomes an actor in the strategic interplay between patent holder and infringer. Importantly, the court system does have absolute power, within the rules, to determine the outcome. Thus, the filing of suit involves ceding control to the court. As a practical matter, courts do not rush to exercise this absolute control. Initially, the parties will be left to their own devices to go through the process, perhaps gaining information from each other without substantial court involvement. However, in the event of a dispute, or where one party’s assessment that it has a likelihood of taking some advantage, motion practice takes over with the court being asked to limit the strategic options of one or both sides.
As a general rule, it can be said that as a lawsuit progresses, the court increasingly takes ultimate control of the matter away from the parties. However, during the course of the proceedings, parties usually gather information and evidence which give them control over various aspects of the presentation upon which the court will base its ultimate judgment. Because courts are bound to decide patent infringement cases in accordance with the statutes and precedent, while the parties have ceded power to the court, the process has also empowered them to, potentially, influence the outcome.
Other proceedings, such as reissue and re-examination involve other issues. Re-examination is particularly different, because although an accused infringer can often file such a proceeding, thereafter input is limited and the process is substantially unstoppable. These procedures are suitable vehicle for extending patent protection, correcting errors and increasing uncertainty which will have the effect of applying pressure toward settlement. However, for good or for, these procedures will often slow down the progress of the matter. For example, court proceedings are often stayed pending resolution of United States Patent and Trademark Office (“PTO”) consideration of the patent.
The question of when to bring a lawsuit, and potentially other proceedings, is complicated by other considerations. While a lawsuit may result in enforcement of a patent which has been upheld, and a substantially strengthened ability to police infringements, there is also the possibility that the patent may be declared invalid and/or not infringed. The existence of the patent is likely to have a deterrent effect which, in the event of a loss in court, may be eliminated, opening the market to competitors.
For these reasons, bringing an action near the beginning of the term of a patent which covers a successful product line has substantial risks. Conversely, where a patent is four or five years away from expiration, the risk may be relatively minimal. However, it is likely that the technology protected by the patent is in its most lucrative phase. Because of growth in the market, popularity of the technology, and other possible factors, the patented technology may have become very attractive to potential infringers, and the respect accorded the patent may be in jeopardy. Accordingly, near the end of the term of patent protection, filing a lawsuit is an easier decision to make as the action alone is likely to greatly enhance the infringement deterring effect (and thus the value) of a patent.
2. Avenues of Assault against an Intellectual Property Position
Be Wary of Sound Theoretical Approaches:
The assertion of a patent infringement claim against a party usually triggers a defensive strategy based on non-infringement and invalidity. A further response might be the assertion of a counterclaim. Intuitively, one might understand that the defenses which a defendant might assert have been considered by the plaintiff and against which the plaintiff has forearmed itself. It would also be reasonable to consider it likely that the plaintiff has looked at other modalities of action and has made its choice as to what would be its most likely claims to achieve its goals. While there may be situations where advancing an invalidity, noninfringement and counterclaim defense constitutes an appropriate and full response, such an approach is probably lacking for two general reasons.
First of all, this approach ignores the fact that the courtroom is a theater where judges and juries do not make up their minds in the context of complete information or complete understanding. Moreover, the legal tenets involve are rules which seldom do not entertain shades of gray interpretation and advocacy. What counts in the courtroom is not reality, but what appears to be the reality of the situation and the fairness of your proposed resolution. Sometimes, the objective may be to sell what appears to be the case as opposed to convincing the jury of what you believe to be the case and then convincing them that your proposed resolution is fair. In this sense, reality can even become largely irrelevant. I have seen a number of cases where I believe I know very well exactly what happened, and I’m a likely be correct. However, an adverse witness may testify to an alleged fact which may be difficult to deal with, as there may be no evidence available to contradict the assertion. In such cases, it is important to play the ball where it lies.
Moreover, many factors will color perceived reality. Likewise, the evidence will often not show principal facts clearly. The finder of fact is faced with inferring such facts, often on the basis of sometimes conflicting evidentiary accounts. The finder of fact, and jurors in particular, sift through a large array of very unfamiliar information during a patent trial. Their reactions to the parties involved are as important as anything. Jurors will pay attention to some personalities and zone out while others are speaking. Jurors will work hard to fit together facts which help a party to whom they feel an initial sympathy. Conversely, that effort may just not be there for the other party. Credibility, simple human reactions to other people and other factors may thus play an important part in the process. Any strategy which ignores these factors is doomed to underperform.
Think Outside the Box:
The second weakness of the conventional approach is that it ignores the overall picture and discounts the possibility of a rock-paper-scissors strategic analysis. If the plaintiff has a strong position on patentability, what other kinds of factors can trump that position? If the expected life of the product line in the marketplace or the remaining life of the patents is short enough, a strategy of delay may work to transition into non-infringing alternatives. If there is a long patent life, but no overseas protection, developing markets overseas may hedge against the possibility of loss and facilitate return on investment. If the return on investment is in equipment, that equipment can be moved to a jurisdiction where there is no patent protection and the size of the unprotected market is large enough to support the operation. I have seen situations where such objectives were achieved as easily as by setting up a line in the facility of an overseas manufacturer in a similar line of business.
In many cases, after a company makes the investment in developing a marketing and/or manufacturing operation for a particular product, that investment can be saved by switching operations to a non-infringing version of the product. A design around is sometimes the most effective strategy, even if there is some compromise and product quality or change and modality of operation, as it works to preserve goodwill associated with the accused product line.
Another approach to growing the investment which a company has made in a product line accused of patent infringement, and one which is substantially without exposure to a pending claim, is to implement line extensions.
A legal strategist I know once asked whether it was good business for the fish to go swimming in shark infested waters. The idea was that the sharks are there because there is plenty of food in that part of the sea. The analogy of the desirability of swimming in shark-infested waters may be particularly apropos here. I have seen numerous situations where fundamentally flawed patent positions have been respected allowing a patent holder to develop a relatively high profit business on a particular product. This attracted competitors who were completely new to the general field of the business and used the patented product as an entrée into building a brand. Here the lack of competition, created artificially by questionable patents, made the risk of infringement a good bet for the new entrant. I have seen more than one infringer happy to pay a relatively modest sum for the privilege of entry into a new field which was populated by far more products than those accused of infringement. This underscores the importance which prompt action to address infringement.
An old strategic aphorism is to turn a problem into an advantage. Viewed another way, having been confronted with a perhaps unanticipated claim for patent infringement, an infringer might console himself with the fact that a viable new product strategy may have been too take the risk of infringement for the purpose of market entry and mitigate the risk with line extensions.
III. POST-LITIGATION STRATEGY
In the event that patent rights are affirmed in a lawsuit, the patentee can adopt a very different strategy, given the high likelihood that any reasonable assertion of a patent is likely to result in a finding of infringement and validity. This strategy is thus likely to be a return to a pre-litigation posturing strategy and a higher rate of success may reasonably be expected, whether it take the form of licensing or a decision on the part of infringers to cease infringing activity.
Only a tiny percentage of intellectual-property lawsuits proceed through verdict. Accordingly, a primary part of any reasonable strategy may be to settle the case on favorable terms. Sometimes, usually in patent cases, this may not be possible because the defendant is unable to survive payment of any reasonable valuation of the claim asserted against it. Nevertheless, settlements may occur under the umbrella of bankruptcy protection. The result may be substantial devaluation of stockholder equity, but the orderly nature of the process does hold out the possibility of a continuing viable business. Indeed, restructuring will sometimes give the debtor substantial advantages above and beyond the uncertainty of a substantial patent claim.
The filing of multiple lawsuits against multiple infringers is likely to accelerate the process of settlement, particularly in the post litigation phase of the strategy. Such an approach increases the likelihood that a lawsuit can be brought to a successful termination, tending to average away the effects of unreasonable, unpredictable and counterproductive activities (from the standpoint of a plaintiff) of the opposition. While, the pursuit of multiple lawsuits can be an expensive and distracting burden for any enterprise, the likelihood of achieving momentum and the psychological advantages of an enforced patent drive some litigants in this strategic direction.
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