Articles

Using Your Patent Portfolio To Defend Against A Patent Infringement Suit

Paula Heyman

I. Be Ready Before Any Attack

In recent years, the number of patent infringement lawsuits filed in the United States has steadily increased, and the visibility, number, and magnitude of large patent infringement verdicts and settlements has grown apace. Companies, both big and small, are facing ever-growing threats of patent assertion and litigation, and many consumer product and services companies, even those who have not previously regarded themselves as vulnerable to assertion of third-party patents, will need to become accustomed to being presumptive targets of increasingly-aggressive patentees. However, there are certain steps that companies may be able to take in order either to prevent a patent infringement suit from being filed or to be better prepared to put on a successful defense.

First, the business and technology leadership of a company should work with in-house and outside intellectual property counsel in order to assess and define the threat in the company’s market space, by, for example, identifying its competitors who actively operate in the same market space. Next, the identified competitors should be evaluated to determine the actual threat posed to the company, because the size of the competitor does not necessarily determine the size of the threat. For example, a smaller competitor that aggressively obtains and enforces a broad patent portfolio may pose more of a threat than a larger competitor whose management does not place a priority on building a large patent portfolio, or who takes a more conservative approach as to assertion of the patents it does obtain.

Once the competitors have been identified, a program should be put in place to track the patents issued to the competitors presenting the greatest threat to the company so that the company can respond by ensuring that it has patents in similar fields or has the ability to fill any identified gaps. A basic competitive monitoring program can be established by searching public databases of issued patents and published applications at a regular interval (e.g., every two or three months, or if extensive patent activity is noticed, on a more frequent basis). For example, the United States Patent and Trademark Office (“USPTO”) website1 may be searched for issued U.S. patents and published U.S. patent applications. In addition, the Patent Application Information Retrieval (“PAIR”) section of the USPTO web site provides status information about pending applications and, in some cases, allows the searcher to view the file history for a patent application before the application is an issued patent. The European Patent Office (“EPO”) website2 may be searched for European, Japanese, Patent Cooperation Treaty, and other international patents. A competitive patent monitoring program can be supported by employees, especially in the sales department or on technical staff, who have a good knowledge of the company’s patent portfolio such that the employees are vigilant in identifying company products that may be alleged to infringe one or more of a third party’s patents (or, conversely, identifying third-party products that may infringe the company’s own patents).

However, certain risks may be associated with researching and monitoring competitors’ patents, pending patent applications, and products. Under current patent law, potential infringers with actual notice of another’s patent rights have an affirmative duty to exercise due care in determining whether they are infringing.3 The law on whether a potential infringer has taken reasonable steps to respond to a known possibility of infringement is sufficiently subjective4 that companies may reasonably fear taking actions that will impute knowledge of multiple third-party patents to the company, for fear that the company’s failure to take the appropriate actions after identifying a third-party patent could be found to be a factor in determining that the company had willfully infringed the patent.5 Viewed from the “offensive” side, on the other hand, a company would need to be diligent in acting upon any identified infringement of its own patents by a third party. This is so because if a patent owner delays filing a lawsuit against a potential infringer for an extended period of time when the patent owner knows or should have known of the alleged infringement, the patent owner can be barred from collecting pre-suit damages.6

II. Should The Company, If Accused Of Infringement, Bring A Counterclaim Of Infringement Against The Third-Party Patent Asserter?

If the company is sued for patent infringement, the first step should be to determine if a counterclaim can be filed against the opposing party that initiated the original lawsuit. At least two questions should be answered in making this determination: (1) Does the opposing party manufacture, use, or sell a product that could be found to infringe a company patent?; and (2) How strong is the company’s patent portfolio? If the opposing party is a patent holding company (that is, a shell company formed solely or mainly to assert patents and collect royalties, as is increasingly common), or an individual inventor who does not manufacture, use, or sell a product or service, there will be no meaningful basis for asserting a counterclaim of infringement or obtaining any litigation leverage or damages offset from such counterclaim.

If the opposing party does manufacture, use, or sell a product or service, the company should analyze its patent portfolio to determine if it includes any patents that cover the opposing party’s products. If the company does have at least one patent that it believes is being infringed by the opposing party, the company should evaluate if there is a risk for a judge or jury to mis-value one or both of the parties’ patents and thus, to under- or over-assess damages exposure for one or both of the companies. The company, therefore, should evaluate the facts on a case-by-case basis and consider one or more of the following factors: (1) market share of each company; (2) any licenses each company may have in place for the respective patents; (3) the size of each company’s patent portfolio; and (4) whether the case is a “bet the company” case for either party.

If the company determines that it could bring a counterclaim of infringement against the opposing party, the company should evaluate whether it should assert its patents against the opposing party. By attacking the opposing party, the company can develop a reputation as a scrapper that fights back with every weapon in its arsenal, which may prevent others from suing the company in the first place. A retaliatory infringement suit may also raise the stakes in the original lawsuit so that the original plaintiff perceives that it may be better to settle on reasonable terms than to pay the costs associated with defending against a lawsuit, or face the possibility that its patents may be invalidated in the course of aggressive litigation in which the original defendant asserts its own patents (which may be prior art to the original plaintiff’s patents) in the same technological subject matter.

Initiating a counter-attack through an infringement action, however, may also have its disadvantages. The additional suit will necessarily increase the costs associated with the original lawsuit, because the company will not only need to defend itself in the original lawsuit but will also need to bear the costs of affirmatively asserting (and conducting extensive discovery regarding) its patents and the opposing party’s allegedly-infringing products or services. The additional suit will also open the company’s patents up to potentially-damaging scrutiny because the opposing party will now be able to challenge the validity and enforceability of the company’s patents. The company, therefore, should conduct a thorough infringement analysis in order to gauge the strength of its contemplated affirmative case before asserting any of its patents against the opposing party.

Once the company has decided to bring an infringement action against the opposing party, the company should decide if the infringement action should be brought as a counterclaim in the original lawsuit brought by the opposing party, or as a separate action in another court. If the infringement action is brought as a counterclaim in the original lawsuit, the additional costs associated with the counterclaim will likely be minimized. By contrast, bringing the infringement action as a separate lawsuit in a different court will greatly increase the costs associated with defending one suit in one district and prosecuting an entirely different suit in another district. However, selecting the venue for the affirmative patent assertion may be advantageous because factors such as the judge’s experience with patent infringement cases and claim construction, the jury pool’s anticipated level of familiarity with technical issues, and potential “home court advantages” can be considered and possibly exploited to tactical advantage to maximize the odds of succeeding on the company’s responsive infringement assertions.

III. Should An Interference Be Provoked In The USPTO Between One Of The Company’s Pending Patent Applications And The Opposing Party’s Patent?

In addition to considering a claim for infringement in the court system, a company that has been sued for patent infringement may pursue action in the USPTO. One option that the company may consider in order to put additional pressure on the opposing party is to provoke an interference with the opposing party’s patent or related patent applications in the USPTO. An interference typically is used to determine priority of invention, i.e., who invented first as between two rival claimants to the same subject matter.7 An interference can be provoked in the USPTO either between two pending patent applications or between a pending patent application and an issued patent.8 If the company does not have an application pending in the USPTO, a re-issue application may be filed (subject to certain time limits) based on one of the company’s issued patents, and then the re-issue application may be used in order to provoke an interference.

In order to provoke an interference with an issued patent or a pending patent application, the applicant must meet certain criteria. First, the claims of the patent application, also known as the count, must claim the same subject matter as (but do not need to be identical to) one or more claims in the issued patent. The patent application used to provoke the interference must be filed within one year of the issue date for the patent,9 or within one year of the publication date for the published patent application.10 The party seeking the interference must also file a petition to provoke an interference that explains in detail why his claims are supported by the patent application. If the filing date of the patent application being used to provoke the interference is more than three months after the effective filing date of the issued patent, the petition must also include a detailed explanation of why the patent application is entitled to priority (i.e., a recitation of facts tending to establish that the applicant was indeed the first to invent). The explanation should be supported by corroborating evidence that includes testimony from a non-inventor that is in writing at a time very close to the asserted priority date (usually, the alleged date of conception of the invention).

Once a request is filed to provoke an interference, the USPTO must make a determination as to whether to declare the interference. If the interference is declared, the parties will proceed to conduct discovery and present testimony during a hearing in front of the USPTO’s Board of Appeals and Interferences (the “Board”). The hearing is similar to a trial, and the Board weighs all evidence presented by the parties. The applicant or patentee whose patent application has the earlier filing date is referred to as the senior party and any other applicant is a junior party.11 In most cases in which an issued patent is being challenged in an interference, the patentee will be the senior party and the party filing the request to challenge the patent will be the junior party.

If the company determines that it either has a patent application pending in the USPTO or has an issued patent available to file a re-issue application, the company should weigh the advantages and disadvantages before attempting to provoke an interference. One advantage of an interference is that the USPTO has more experience in deciding priority of invention contests than do the district courts. The Board typically consists of individuals having technical degrees and, in some cases, legal degrees who are experts in the USPTO rules and procedures. On the other hand, very few federal district judges have technical degrees and are familiar with the USPTO rules and procedures. In some cases, an interference may also be the basis for a successful motion to stay a patent infringement lawsuit based on the patent involved in the interference, assuming that the lawsuit filed by the opposing party can be anticipated far enough in advance so that the interference will be well underway before the litigation has proceeded very far, and assuming (as will usually be true) that the lawsuit includes similar issues to the issues that could be raised during an interference (typically, validity of the patent).12 Additionally, the USPTO may cancel one or, in some cases, all of the claims in the opposing party’s patent and declare that the junior party is entitled to the invention, thus ending the litigation based upon the senior party’s patent.

However, as with any other type of legal proceeding, there are certain risks associated with provoking an interference, especially an interference with an issued patent. First, the heavier burden of proof will be on the junior party because the junior party is required to prove any issues relevant to conception and reduction to practice. Additionally, when an issued patent is challenged, the burden of proof for the party seeking the interference is one of showing clear and convincing evidence. Second, the company may risk having to pursue simultaneously both the interference and its defense in the litigation. If discovery in the lawsuit has progressed too far and/or the litigation and interference do not include substantially similar issues, the court may deny a stay, which would lead to increased costs for the company.13 Additionally, the company risks losing any rights it may have in the invention because the Board may cancel one or more claims of the company’s own pending application, and after such a determination, the original plaintiff may have even stronger arguments and a tactical advantage in the litigation.

IV. Should The Company Consider Reexamination Of Its Patents?

Another option available to a company that is about to be or has been sued for patent infringement is to seek an ex parte reexamination proceeding as to its own patents. While reexamination may be used as a mechanism to re-open the basic patentability issues as to an adversary’s patents (a tactic that we do not discuss in detail herein, except to note that there are pluses and minuses associated with such an attack on third-party patents through the USPTO’s reexamination proceedings), reexamination may also be used in a precursive attempt to bolster a company’s own patents, preparatory to asserting them as a counter to third-party infringement allegations against the company.

A request for ex parte reexamination is limited to patentability of the claims over prior art patents and printed publications under 35 U.S.C. §§ 102 and 103.14 Within three months of the filing date of the request, the assigned Examiner determines whether the submitted prior art raises a “substantial new question of patentability.” The grounds for reexamination may consist of patents or printed publications not cited in the prosecution of the patent, or of a new question of patentability based upon prior art that was cited in the patent’s prosecution. If the Examiner determines that there is no new question of patentability, this decision may not be appealed except by a petition to the Commissioner Of Patents within 30 days of the decision.15

Ex parte reexamination may be requested by the patentee or any third party.16 Examination of the claims of the patent during reexamination proceeds much like a regular patent application in the USPTO. However, the reexamination process is supposed to be expedited and extensions of time are generally not permitted. Additionally, the scope of the issued claims cannot be expanded and prosecution cannot be extended beyond a final rejection by the examiner. An appeal of an unfavorable decision can only be brought by the patentee. The appeal must first be brought to the Board and then to either the Federal District Court in Washington, D.C. or to the Court of Appeals for the Federal Circuit.

As is true of an interference proceeding, there are advantages and disadvantages that a company may wish to consider before initiating a reexamination of one of its own patents. First, reexamination may be used to strengthen a company patent over prior art that is expected to be introduced by the opposing party in litigation. For example, in cases in which the company can anticipate litigation by one of its competitors, the company can identify one or more company patents that can be counter-asserted against that competitor, and may then perform a thorough prior art search and submit the prior art to the USPTO in a reexamination of the company patent. If claim amendments are made carefully, or persuasive arguments distinguishing over the thus-submitted prior art are successfully submitted to the Examiner, a claim that might otherwise be invalidated in later litigation based upon the prior art may be sustained in reexamination and thus strengthened. This is so because a patent that has survived reexamination will almost always be afforded an increased presumption of validity in a civil action. Finally, a reexamination may strengthen the company’s position in licensing negotiations with the opposing party because of the opposing party’s knowledge that the reexamined patent has an increased presumption of validity during the lawsuit.

A reexamination procedure, however, also has several disadvantages. First, unlike in a civil action, the patent is not presumed to be valid during reexamination in the USPTO, and the Examiner will read the patent’s claims broadly against the prior art. The standard for the Examiner to show that the patent is invalid is only a preponderance of the evidence. Therefore, it is much easier for the USPTO to invalidate one or more claims of the patent than it is for a district court to do so. Additionally, an accused infringer could acquire intervening rights during the pendency of the reexamination if the claims are amended to avoid the prior art.17 Therefore, any amendments to the claims should be made with the opposing party’s products in mind and the company’s patent counsel should consult litigation counsel to determine the best strategy for the amendments. Finally, reexaminations may take up to two years or longer.18 Although pending litigation may be stayed in favor of the reexamination, all of the issues in the litigation may not be resolved by the reexamination and the company may have to continue with the litigation even after the patent has been reexamined.

As discussed above, mounting a counter-attack to a patent infringement suit by invoking the company’s own patent portfolio potentially carries both great risk and great reward. Although the options discussed herein are not exhaustive, each possible approach should be considered before the company begins its defense in a patent infringement lawsuit. The key to maximizing the effectiveness of the various options lies in identifying the company’s business plan and objectives and selecting the options that fit best with those objectives.

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1 http://www.uspto.gov.
2 http://ep.espacenet.com.
3 See Underwater Devices v. Morrison-Knudson Co., 717 F.2d 1380, 1389-90 (Fed. Cir. 1983) (“Where . . . a potential infringer has actual notice of another’s patent rights, he has an affirmative duty to exercise due care to determine whether or not he is infringing. Such an affirmative duty includes . . . the duty to seek and obtain competent legal advice from counsel before the initiation of any possible infringing activity.”). However, knowledge of the patent is just one factor in a totality of the circumstances analysis. Knorr-Bremse Systeme Fuer Nutzfahrzeuge GmbH v. Dana Corp., 383 F.3d 1337, 1342-43 (Fed. Cir. 2004).
4 See Braun Inc. v. Dynamics Corp. of Am., 975 F.2d 815, 823 (Fed. Cir. 1997) (finding no willfulness because, among other facts, the infringer’s lawyer discovered the patent through a search conducted at the infringer’s request) (citing Studiengesellschaft Kohle v. Dart Indus., Inc., 666 F. Supp. 674, 689 (D. Del. 1987)).
5 See Am. Med. Sys. Inc. v. Med. Eng’g Corp., 794 F. Supp. 1370, 1396 (E.D. Wis. 1992), aff’d in part, rev’d in part and remanded, 6 F.3d 1523 (Fed. Cir. 1993) (holding that infringement was willful even though an in-house patent attorney for the infringer’s parent corporation “learned of [the patent] through his own efforts . . . because he had a patent office subscription for the class of patents in which [the patent] appeared.”).
6 A.C. Aukerman Co. v. R.L. Chaides Constr. Co., 960 F.2d 1020, 1028 (Fed. Cir. 1992).
735 U.S.C. § 135(a).
8An interference between two issued patents cannot be brought in the USPTO. The patent laws, however, allow a federal district court to determine priority between two issued patents. 35 U.S.C. § 291.
9 35 U.S.C. § 135(b)(1).
10 35 U.S.C. § 135(b)(2).
11 37 C.F.R. § 1.601(m).
12 See NL Chem., Inc. v. Southern Clay Prods, Inc., 704 F. Supp. 299, 300-01 (D.D.C. 1989) (staying litigation because: (1) the interference was more advanced than the litigation; (2) the interference would resolve a substantial number of issues in the litigation; and (3) the non-moving party was not prejudiced by the stay).
13 See Chiron Corp. v. Abbott Labs., No. C-93-4380 MHP, 1996 WL 15758 (N.D. Cal. Jan. 3, 1996).
14 35 U.S.C. §§ 301 and 302.
15 35 U.S.C. §303(c).
16If reexamination is granted upon request by a third party, that party’s participation in the actual reexamination proceedings that follow may be limited. If the patentee decides to submit a response to the Examiner’s decision, the third party may file a reply to the patentee’s statement. Otherwise, the third party does not participate in the reexamination, but all papers exchanged between the patentee and the PTO must be sent to the third-party requester.
17 See Bloom Eng’g Co. v. North Am. Mfg. Co., 129 F.3d 1247 (Fed. Cir. 1997).
18 Paul Morgan & Bruce Stoner, Reexamination vs. Litigation - Making Intelligent Decisions in Challenging Patent Validity, 86 J. PAT. & TRADEMARK OFF. SOC’Y 441, 461 (2004). This article also includes general statistics for reexamination procedures. Id. at 457-462.

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