Presentation on theme: "Business and Legal Strategies for Dealing with “Love Letters” Which Assert Infringement of U.S. Patents G & B Seminar 2006 Daniel Moon."— Presentation transcript:
Business and Legal Strategies for Dealing with “Love Letters” Which Assert Infringement of U.S. Patents G & B Seminar 2006 Daniel Moon
2 What is a Love Letter?
3 A Love Letter is… …A letter making your company aware that a U.S. patent exists, and that you need to pay for the privilege of using the patent, or that you must stop infringing activities.
4 Why do we care about Love Letters? It is simple…
5 Why? ¥ ¥ ¥ Money…Money
6 Exemplary Damages Awarded by U.S. Courts through the Years $56 million Pfizer v. International Rectifier 1982 $205 million Smith Int’l v. Hughes Tool 1986 $873 million Polaroid v. Kodak 1991 $96 million Honeywell v. Minolta 1992 $22 million Conair Rotron Inc. v. Matsushita 1994 $68 million Fonar v. General Electric 1997 $505 millionIGEN International Inc. v. Roche Diagnostics, GMBH2002 $521 million Eolas v. Microsoft 2003 $29.5 million MercExchange v. eBay 2003 $25 million St. Clair v. Sony 2004 $128 millionFreedom Wireless v. Boston Communications2005 $51 millionMedtronic v. BrainLAB AG2005 $54 millionNTP v. Research In Motion ($600 million settlement)2006
7 “SOFT” Love Letters A love letter can be soft, in the form of an offer to license a patent.
8 Sample “SOFT” Love Letter In this case, patentee has not likely risked the counterattack of a declaratory judgment action.
9 “HARD” Love Letters Or… a love letter can be hard, threatening an infringement lawsuit if you do not stop infringing and/or pay the money demanded by the patentee.
10 Sample “HARD” Love Letter In this case, patentee has likely risked filing of a declaratory judgment action.
11 “GRAY” Love Letters Or…a love letter can be somewhat “intermediate,” in other words, not hard or soft – a “gray” letter.
12 Sample “GRAY” Letter This letter puts the recipient on notice of Company A’s patent, and insists that the recipient stop infringing, but does not expressly mention that Company A will go to court to enforce its patent.
13 Love Letters… But whether the “love” letter that you receive is soft, hard, or gray, you can be certain about one issue when you receive it…
14 Money…Money…Money The patent owner wants… $ …¥ …€
15 Why Worry about Love Letters? Willful infringement Starts damages running if no marking Up to treble (i.e., triple) damages Attorney’s fees Injunctions against sales/manufacture/importation in U.S. Temporary Permanent DO NOT IGNORE !
16 SRI v. ATL Washington SRI International Awarded Damages In Patent Infringement Case MENLO PARK, Calif. (May 20, 1996)-SRI International, a nonprofit corporation, today announced that the U.S. District Court for Northern California has awarded SRI damages of $27.9 million, plus interest of approximately $4.5 million and legal fees, in a patent infringement lawsuit against Advanced Technology Laboratories (ATL). The court trebled the $9.3 million awarded in compensatory damages having found that ATL willfully infringed SRI's patent. Infringement Damages - $9.3 million Total Damages – $32.4 million
17 How Should Your Company Deal With/Respond to a Love Letter? I. Practical issues II. Legal issues
18 I. Practical Issues You should… A. Evaluate risk B. Establish and flexibly execute strategy to minimize risk Remember — this is a business matter!
19 A. Evaluating The Risk 1. What does the letter say/mean? 2. Who is asserting the patents? 3. What is the value of the patents to your company?
20 1. What Does the Letter Mean? A. Details of letter B. Patent Owner’s Request C. Reading “between the lines” D. Any Relevant Information Revealed?
21 A. Details of Letter 1. Specific Patents identified? 2. Specific products identified? 3. Is it Notice of Patent for willfulness? 4. Is it sufficient actual notice for damages to start? 5. Does it provide a basis for you to file a declaratory judgment?
22 B. Patent Owner’s Request/Demand 1. Past damages 2. Future royalties 3. Immediate cessation of infringing activity 4. Information about process used – 35 U.S.C. § 295
23 C. Reading Between the Lines 1. Real meaning of letter 2. Tone of letter – “Scare Tactics” 3. Start licensing discussions? 4. Stopping sale of competitor’s products? 5. Desire cross-licensing of your patents?
24 D. Any Relevant Information Revealed? 1. Existing Licenses/Licensees 2. Related Litigation 3. Foreign Patents
25 2. Who Is Asserting The Patents? A. Types of Patent Owner 1. U.S. or foreign company (e.g., potential ITC issues) 2. Publicly traded company 3. Competitor 4. Manufacturer 5. Patent Licensing Company 6. University 7. Individual B. Original Assignee or Purchaser?
26 2. Who Is Asserting The Patents? C. Size of Owner D. Attorney Involved? If so, what type? 1. In-house 2. Contingency Fee Based 3. Hourly Fee Based 4. Previously Involved in Matter? E. Past Enforcement History 1. Aggressive 2. Negotiation-based
27 2. Who Is Asserting The Patents – Identifying The Owner’s Goals A. Royalty sought 1. Lump sum 2. Running royalty rate (i.e., per unit/volume) B. Market share 1. Injunction threat – possible change in law 2. ITC action
28 2. Who Is Asserting The Patents C. Study owner’s financial status 1. SEC reports (i.e., l0k) for publicly traded company 2. Analyst reports 3. News reports D. Relationship to your company 1. Customer? 2. Supplier? 3. Joint venturer?
29 3. What Is The Value of The Patents To Your Company? A. Patent Issues B. Valuation Issues
30 A. Patent Issues 1. “Vetting” the Asserted Patent(s)/Limitations on Possible Damages 2. Non-Infringement 3. Invalidity 4. Unenforceability
31 A.Patent Issues: “Vetting” The Asserted Patent(s) It is important to properly scrutinize an asserted patent, to ensure that it is in fact valid, that no problems or weaknesses have arisen during the procurement of the patent, and to check for any other factors which may weaken the asserted patent. A standard process for checking each of the most common such factors should be employed, using a checklist, for example:
32 A.Patent Issues – Vetting the Patent/ Limitations on Damages a. Maintenance fees paid? b. Terminal disclaimers filed? c. Reissues/Reexaminations filed?
33 A.Patent Issues - Vetting the Patent d. Litigation status (1) District Court (2) I.T.C. (3) Foreign Litigation e. Interferences? f. Certificates of correction? (1) Only effective before litigation starts – See, e.g., Southwest Software v. Harlequin Ltd., 226 F.3d 1280, 1294, 56 USPQ2d 1161, 1172 (Fed. Cir. 2000) and 35 U.S.C. § 254
34 A. Patent Issues – Vetting the Patent g. Status of foreign counterparts h. Continuing applications? i. Assignment/Ownership Status Correct? j. Patent extensions (e.g., pharmaceuticals) k. Patent Term Adjustment l. Licenses m. Previously asserted? n. Attorneys previously involved?
35 A. Patent Issues – Evaluating Infringement 2. Evaluating infringement a. Review product b. Review prosecution history c. Review relevant court decisions – especially Markman results which interpret claims d. Use U.S. standards to evaluate infringement
36 A.Patent Issues – Evaluating Invalidity 3. Evaluating invalidity a. Prior uses/sales/knowledge b. Foreign cited prior art c. Prior products/brochures d. Inventors’ own prior work e. Magazines/Tradeshows/Speeches f. Use U.S. standards g. Disclosure of Best Mode/Enablement – i.e., §112 problems h. Prior litigation
37 A. Patent Issues - Unenforceability 4. Unenforceability a. Duty of Disclosure Satisfied – 37 C.F.R. § 1.56 – What Information Can Be Used As Basis For Arguing Inequitable Conduct? 1) All Prior Art Known by Inventor 2) Previous Patents/Publications of Inventor or Company 3) Prior Sales/Sales Efforts in the United States 4) Work by Competitors Known by Inventor/Company 5) Joint Efforts with Other Companies 6) Prior Art Cited in Foreign Counterpart Applications
38 A. Patent Issues - Unenforceability 4. Unenforceability b. Failure to disclose best mode 1) Determine if actual product existed when application filed 2) If so, review application for missing features c. Bad Affidavits (§ 131, § 132) d. Specific Problems with Execution of Documents 1) Improperly Executed by Others 2) Misdating 3) Executed in Blank – no knowledge of obligations
39 B. Valuation Issues 1. Existing licenses a. When executed b.Royalty rate or payments c.Non-monetary “payment”, e.g., cross-licenses d.Type of existing licensees (e.g., competitors, suppliers) 2. Relevant litigation a.Impact on your decision/strategy 1) Waiting until decision reached — can increase/reduce payment 2) Settling during other litigation — more certain result obtainable b.Status c.Obtain owner’s arguments d.Jury Verdict(s) e.Expert Opinions
40 B. Valuation Issues 3. Possible time limitations on damages a. Patent marking – 35 U.S.C. § 287? b. Actual notice provided in love letter? c. Possible limits on past damages 1) Damages only due after actual or constructive notice 4. Expiration/Date Issues a. Continuing Applications-other patents with similar claims b. Terminal Disclaimers c. Extensions/Patent Term Adjustments d. Maintenance Fees – possible intervening rights – 35 USC § 41 e. Reissue Applications – possible intervening rights – 35 USC § 252
41 B. Valuation Issues 5. Laches and equitable estoppel – possible limit on past damages (1) When did patent owner become aware of your sales? (2) Did patent owner ever send earlier threat, and fail to follow up? What about previous owner? (3) Possible Effects of Laches/Equitable Estoppel a) No damages owed prior to litigation – Laches b) No damages owed at all – Equitable Estoppel
42 B. Valuation Issues 6. Importance of patent(s) a. Technically - Key component? b. Value-added - only a minor component? – Possible Change in Law c. Is design-around possible? (1) Timing issues (2) Cost issues
43 B. Valuation Issues 7. Past Damages – Can only recover for six years past a. 35 U.S.C. § 286 b. Except as otherwise provided by law, no recovery shall be had for any infringement committed more than six years prior to the filing of the complaint or counterclaim for infringement in the action.
44 B. Valuation Issues 8. Risk of injunction (temporary/permanent/ITC) 9. Other licensees in industry a. Similar components? b. Similar products? 10. Possibility of cross-license a. Value of your portfolio b. Covering your competitors’ products (1) Develop your own effective prosecution strategy!
45 C. Establish and Flexibly Execute a Strategy 1. Identifying your company’s goals 2. Negotiating with patent owner 3. Fighting against patent owner
46 1. Identifying Company’s Goals A. Minimize overall payment (1) Use lump sum: (a) Buy down royalty rate (b) One-time payment can allow unlimited (or fixed amount of) sales (c) Useful when “unexpected sales” increase occurs (2) Use running royalty: (a) When future sales are unpredictable/flat/lower (b) When “design around” to avoid patent is possible (c) When company wants/needs to “pay over time” for financial/business reasons
47 1. Identifying Company’s Goals B. Set precedent for future matters (1) Do not want to be viewed as “easy” target – typical U.S. view of Japanese companies (2) Fighting in court when you believe you are right (3) Becoming the “last domino” approached, if at all
48 1. Identifying Company’s Goals C. Timing of settlement – when many companies are being threatened 1. Advantage of being first a. The “Domino” Theory – Helping determine the outcome by settling early – bring the “first domino” b. Most favored licensee (i.e., market/price advantage) – getting the “best” deal (e.g., credit for later settlers) 2. Advantage of not being first a. Will never be a “lone” licensee b. Initial Price Advantage in sales/Possible Gain in Market Share 3. Needs of Patent Asserter a. End of Year/closing? b. Personal Goals of Negotiators
49 1. Identifying Company’s Goals D. Timing of litigation when many companies accused (1) Advantages of being first (a) “Untested” patent owner (b) Surprise factor (c) Court more open to defenses (2) Disadvantages of being first (a) Unknown claim construction (b) No benefit from other defendants efforts
50 2. Negotiating With Patent Owner A. Timing of initial response (1) Need enough time to adequately study issues and develop defense (2) Early Letter may “buy” time – inform patent owner that you are “engaged” for settlement discussions
51 2. Negotiating With Patent Owner B. Tone of initial response – Signals to be sent to patent owner (1) “Get lost” approach = Sue me a. Timing of Declaratory Judgment Action (2) Let’s talk approach = We may negotiate (3) Let’s talk, but you may have a “Tiger by the Tail” approach = We will settle, but only if patent owner is reasonable, and/or considers other issues raised by your company
52 2. Negotiating With Patent Owner C. Substance of initial response (1) Who will negotiate – effect on negotiation results (a) Corporation directly (b) Litigator (c) Other outside counsel – the negotiator (2) Defenses – How much information should you provide (a) Your products (b) Prior art (c) Your own patents/counterattack
53 2. Negotiating With Patent Owner D. Face-to-Face meetings (1) Selecting location (2) Who should attend (3) Purpose of meeting (a) Other licensee information? (b) Determine real goal of patent owner (c) Assert defenses? - case-by-case decision
54 2. Negotiating With Patent Owner D. Face-To-Face Meeting (4) Rule 408 Controls/Pre-meeting Agreement (5) Confidentiality (6) Should you suggest a settlement amount/number (a) Be flexible (b) Sending signals (c) Timing issues (d) Wait for offer (7) Preparation (a) Follow a “Script” (b) Be prepared to “Break” and “Change Course”
55 2. Negotiating With Patent Owner E. How many meetings? 1. U.S. v. Japanese style 2. Is litigation ongoing or threatened? 3. Is progress being made?
56 3. Fighting Against Patent Owner A. In U.S. Court 1. Importance of court location 2. Speed of court 3. Experience with patents B. In International Trade Commission (ITC) 1. Speed 2. Must have sufficient U.S. relationship – foreign plaintiffs may be able to use 3. Remedy – Exclusion Order prevents goods from entering U.S.
57 3. Fighting Against Patent Owner C. In U.S. P.T.O. 1. Reexamination a. Ex Parte (exclusive for patents filed before 11/29/99; possible for patents filed thereafter) b. Inter Partes (for patents filed after 11/29/99) 2. Protest 3. Citation of prior art 4. Interference 5. Future – proposed new law
58 3. Fighting Against Patent Owner C. Court or USPTO – where should you attack patent? 1. Issues involved a. Validity 1. Anticipation 2. Obviousness b. Unenforceability c. Infringement 2. Relevant speed of proceedings a. Depends on location of court (e.g., backlog and patent experience)
59 3. Fighting Against Patent Owner C. Court or USPTO? 3. Relative expense of proceedings 4. Effect on negotiations 5. Can you go to both? D. Negotiating while fighting 1. Benefits/Disadvantages 2. Court Involvement 3. Arbitration/mediation
60 3. Fighting Against Patent Owner E. Patent “Counterattacks” 1. Use your own patents – best defense is a good offense – (buy them if necessary) 2. Can litigate in same court or other court 3. “Raising the ante” for patent owner A. Puts patent owner at risk B. Only works against manufacturers/sellers C. Makes legal arguments more reasonable (cannot “play”both sides of the fence)
61 3. Fighting Against Patent Owner F. Business Counterattack 1. If customer, stop buying from patent owner 2. If supplier, raise price 3. Establish business-to-business contact, not (or in addition to) lawyer-to-lawyer contact – use different business channels to exert pressure 4. Make patent owner understand overall business effect resulting from patent association – the “whole” company effect
62 II. Legal Issues to Consider When Love Letter is Received A. When do damages begin? B. Possibility of Injunction C. Exercising due care to avoid willful infringement D. Dealing with multiple infringer/defendant situations E. Availability of declaratory judgment actions F. Trial issues
63 A. When Do Damages Begin? 1. To recover damages for patent infringement, a patentee must give an infringer notice of the patentee's patent rights 2. Cannot recover damages for infringement until notice is given, even if infringement has occurred.
64 A. When Do Damages Begin? 3. Two Acceptable Types of Notice a. Actual notice b. Constructive notice
65 A. When Do Damages Begin? 4. Actual Notice a. Must send letter to infringer / file a patent infringement lawsuit b. Letter should 1) Specify which patents are infringed 2) Specify which products are infringing 3) Relate specific patents to specific products 4) Allege infringement (no “ gray ” language)
66 A. When Do Damages Begin? 5. Constructive Notice a. Requires patent marking b. Patent numbers physically on article 1) Usually not effective on packaging or literature 2) Exception for “too small” articles, or pharmaceuticals c. Must be on substantially all articles, even if made under license
67 A. When Do Damages Begin? d. Not Required to Mark 1)If all claims are directed to method 2)If no product made under patent – Wine Railway Appliance Co. v. Enterprise Railway Equipment, Sup. Court 1936 (297 U.S. 387) 3)Important Practice Tip – Japanese companies should separate method claims from article claims in separate applications – why? a) Existence of all method claim patent will help protect against lack of marking.
68 A.When Do Damages Begin? 4. Example of Marking
69 A.When Do Damages Begin? 4. Example of Marking
70 B. Possibility of Injunction U.S.C. § 283 The several courts having jurisdiction of cases under this title may grant injunctions in accordance with the principles of equity to prevent the violation of any right secured by patent, on such terms as the court deems reasonable. (July 19, 1952, ch. 950, §1, 66 Stat. 812)
71 B. Possibility of Injunction 2. New General Rule —E-Bay Supreme Court Decision 3. Injunction Standards a. Discretionary with Court – Public Interest? b. Balancing of Factors c. Requires irreparable harm without it 4. Certain Patent Owners Less Likely to Obtain Permanent Injunction
72 C. Exercising Due Care to Avoid Willful Infringement 35 U.S.C. § 284 Damages Upon finding for the claimant the court shall award the claimant damages adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer, together with interest and costs as fixed by the court. When the damages are not found by a jury, the court shall assess them. In either event the court may increase the damages up to three times the amount found or assessed. Increased damages under this paragraph shall not apply to provisional rights under section 154(d) of this title. The court may receive expert testimony as an aid to the determination of damages or of what royalty would be reasonable under the circumstances. 35 U.S.C. § 285 Attorney fees The court in exceptional cases may award reasonable attorney fees to the prevailing party.
73 C. Exercising Due Care to Avoid Willful Infringement 1. Federal Circuit awards increased damages and attorney’s fees for increased culpability resulting from willful infringement/bad faith by an infringer. 2. Does not apply to damages between times of publication of application and patent date, but only to damages after patent issue date
74 C. Exercising Due Care to Avoid Willful Infringement 3. Elements of Willful Infringement a. Actual Knowledge Of Another’s Patent Rights b. Deliberate/reckless disregard of patentee’s rights (1) No strict rules — case-by-case determination (2) Infringer must exercise due care to avoid liability
75 C. Exercising Due Care to Avoid Willful Infringement 3. a. Actual Notice of Another’s Patent Rights 1)Requires awareness of a patent during time of infringement 2)Can obtain knowledge from, e.g., Official Gazette/Internal copies of Patents 3)Different from 35 U.S.C. §287 notice required to start damages – does not require notification from patentee
76 C. Exercising Due Care to Avoid Willful Infringement 3. b. Disregard of Patentee’s Rights a)If potential infringer has notice of patent rights he has an affirmative duty to exercise due are in view of totality of circumstances b)Cannot ignore a notice of infringement
77 C. Exercising Due Care to Avoid Willful Infringement 4. What is Due Care? a.Reasonable Belief in Invalidity/Unenforceability/Non-Infringement b.Can be designing around Patent c.Can be obtaining well-reasoned Attorney’s Opinion and relying upon same
78 C. Exercising Due Care to Avoid Willful Infringement a. Evaluate Infringement properly ( 1) Complete analysis of asserted claims (2) Should consider file histories of patent at issue (3) Should evaluate infringement under both literal and doctrine of equivalents standards
79 C. Exercising Due Care to Avoid Willful Infringement b. Should be timely – when is that? c. Should be based on all technical facts – complete and accurate d. Should be based on existing U.S. legal standards
80 D. Dealing with Multiple Infringer/Defendant Situations 1. Joint defense agreements 2. Attorney-client privilege issues
81 D. Dealing with Multiple Infringer/Defendant Situations 1. Joint Defense Agreements a.Relates to parties in similar positions, e.g…. 1) Received similar love letters 2) Suppliers/customers 3) Joint Venturers b.Only limited joint actions permitted 1) Antitrust concerns — No joint strategies or business decision-making permitted 2) Joint factfinding efforts and issue development usually permitted
82 D. Dealing with Multiple Infringer/Defendant Situations B. Attorney-Client Privilege Issues a. The Attorney-Client Privilege shields the following communications from disclosure to other parties: Communications from a client to his lawyer (or lawyer’s agent) that are made with the expectation of confidentiality and which relate to legal advice. The communications may not be in furtherance of a future crime or tort. b. Waiver likely if opinion provided to an unrelated third party without Joint Defense Agreement c. Ok to summarize position without reference to attorney
83 E. Availability of Declaratory Judgment 1. Jurisdiction is discretionary. 2. Two-prong test: a. Reasonable apprehension of litigation b. Infringing activity or concrete steps taken with the intent to conduct such activity
84 F. Trial Issues 1. Jury decides if willful infringement exists 2. Judge decides how much to increase the damages – up to three times 3. Judge can also award attorney’s fees in exceptional case – 35 U.S.C. § Awards at discretion of Court
85 F. Trial Issues 5. Privilege and Waiver in Litigation a.Choice between Waiver of Privilege or Relinquishment of Defense no longer required – see Knorr-Bremse decision b. Normally, opinion of counsel is privileged ( 1) No longer Adverse Inference if not produced c. Reliance upon opinion of counsel usually waives privilege (1) Try to limit scope of waiver
86 Summary When you receive a love letter… 1. Do not panic 2. Take time to evaluate the entire situation 3. Design a flexible strategy 4. Implement strategy and be prepared to react to “changes” in situation