Articles

Competitive Intelligence Through Patent Analysis:

A Promising But Risky Proposition

Carey C. Jordan

A means to gain competitive intelligence that has recently come into vogue involves analyzing U.S. patents in order to forecast industry technological trends, analyze competitor technical capabilities, unearth competitor patenting strategies, and discover competitor research interests (“patent analysis”). One type of patent analysis involves “patent mapping,” which is a technique that uses issued patents to create a graphical or physical representation of the relevant art pertaining to a particular technology area, which can be used to illustrate a competitor’s relative patent strength therein. Intelligence such as this may allow a corporation to plan research efforts strategically, evaluate the strength of its patent portfolio relative to its competitors, and identify potential licensing opportunities.

While patent analysis can have significant value for a company in understanding and predicting the development of the competitive technology landscape in its industry, it is inherently a risky proposition because knowledge of any patents identified in the analysis may create legal duties that, if not satisfied, carry serious consequences. In a patent infringement litigation, failure to have satisfied these legal duties can result in a finding of willful infringement, which may allow a judge to enhance actual damages up to three times. These findings also can support an award to an opposing party of its attorneys’ fees, which can be significant in a patent case. Given these potential consequences, corporations conducting such patent analysis must be mindful of how these legal duties arise and are satisfied.

An affirmative duty of care arises with respect to a patent when a corporation has “notice” of that patent. Recognizing when a company will be deemed to have legal “notice” of a patent sufficient to trigger such duties by virtue of the actions or knowledge of one or more persons within the corporation is not always an easy task, partly because the Court of Appeals for the Federal Circuit has not set out a clear test for determining when a corporation has actual notice. Despite the absence of a clear test, useful guidance may be discerned from existing case law.

The Federal Circuit has imputed an employee’s knowledge of a patent to an employer corporation for willfulness purposes when that employee is a corporate officer, Manville Sales Corp. v. Paramount Sys., Inc., 917 F.2d 544, 553 (Fed. Cir. 1990), or an in-house patent attorney, Stryker Corp. v. Intermedics Ortho., Inc., 891 F. Supp. 751, 834 (E.D.N.Y. 1995), aff’d, 96 F.3d 1409, 1415-16 (Fed. Cir. 1996) (awarding $26 million in enhanced damages based in part on the in-house patent attorney’s notice of the patent-in-suit through his routine perusal of the PTO’s Official Gazette). The Federal Circuit has also imputed notice to a corporation based on the actions of in-house engineers who are aware of their company’s products that related to the discovered patent. SRI, Int’l, Inc. v. Advanced Tech. Labs., 127 F.3d 1462, 1465 (Fed. Cir. 1997). Moreover, several cases indicate that the employee need not appreciate any potential infringement issues upon learning of the patent — knowledge of the patent and of the corporation’s related activity is enough. Id. Thus, if key business people, scientists, or intellectual property personnel are conducting patent analysis as a means to obtain competitive intelligence, their searching activities can impute notice of patents to their employer sufficient to trigger an affirmative duty of care by the corporation with respect to those patents.

The duty of care is a duty to determine whether or not the entity is infringing a patent as to which it has notice. Underwater Devices Inc. v. Morrison-Knudsen Co., 717 F.2d 1380, 1390 (Fed. Cir. 1983); see also Knorr-Bremse Systeme Fuer Nutzfahrzeuge v. Dana Corp., 383 F.3d 1337, 1343 (Fed. Cir. 2004). Satisfying the duty of due care will avoid a finding of willful infringement of the patent rights of another. Underwater Devices, 717 F.2d at 1390. Such an affirmative duty includes, inter alia, the duty to seek and obtain competent legal advice from counsel before initiating any possibly infringing activity. Id. A corporation’s duty is satisfied if it is proven that the corporation acted with a reasonable belief that its actions avoided infringement, e.g., because it reasonably believed either that the patent was invalid or not infringed. Crystal Semiconductor Corp. v. TriTech Microelecs. Int’l, Inc., 246 F.3d 1336, 1346 (Fed. Cir. 2001). An infringer need not be correct in its belief of invalidity or noninfringement, so long as its belief is reasonable. Gustafson, Inc. v. Intersys. Indus. Prods., Inc., 897 F.2d 508, 511 (Fed. Cir. 1990).

No hard and fast rules exist for determining whether an infringer has satisfied its duty of care — each case is different because a court must consider the “totality of the circumstances.” Knorr-Bremse, 383 F.3d at 1342-43 (citing Rolls-Royce Ltd. v. GTE Valeron Corp., 800 F.2d 1101, 1110 (Fed. Cir. 1986)). Although a judge and jury must consider the totality of the circumstances, usually the primary consideration is whether the corporate infringer, acting in good faith and upon due inquiry, had sound reason to believe that it had the right to act in the manner that was found to be infringing.

In sum, while competitive patent analysis may allow a corporation to monitor technological advances, evaluate developing trends, and assess competitors, serious legal risks may be created that must be managed. A corporation may later be deemed to have legal “notice” of any patents discovered during such an analysis, thus triggering an affirmative duty of care for the corporation with respect to those patents. Moreover, judges and juries enjoy wide (and possibly unpredictable) latitude in determining when a corporation has “notice” of a patent, and the Federal Circuit only reviews the correctness of that determination under a deferential “clearly erroneous” standard. Additionally, determining definitively whether the affirmative duty of care has been satisfied can be difficult, given that the totality of the surrounding circumstances must be considered in each case (again by sometimes-unpredictable judges and juries). Consequently, corporations conducting patent analysis must proceed cautiously, being careful to institute procedures and policies aimed at managing the potential risks arising from unmet duties.
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