Patent Defenses and Remedies

Intro to IP – Prof Merges

2.2.12

Defenses

1.Research Use

2.Inequitable Conduct

3.Patent Exhaustion

• Remedies in patent infringement cases

• Injunctions (eBay)

• Damages

Kingsdown Med. v. Hollister

• Note the remedy or effect of a finding of inequitable conduct: patent is UNENFORCEABLE

Rationale

• Examiners are busy; patentee benefits greatly from examiner oversight

• Place strong penalty on patent applicant for nondisclosure or misrepresentation in patent prosecution

A Potent Defense

• Made more attractive when other defenses fail, when patent damages are very high

Prosecution history, p. 348

• All these complex interchanges are grist for the mill under inequitable conduct

• All amendments, communications with PTO can and will be scrutinized

What was the mistake here?

• The applicant said, incorrectly, that claim 43 corresponded to allowed claim 50 in another (now issued) application

• Claim 43 was in fact broader than the allowed claim 50

Standard for Inequitable Conduct

“Inequitable conduct resides in failure to disclose material information, or submission of false material information, with an intent to deceive . . . .”

-- p. 349

Materiality and Intent

• Materiality: relevance, importance (established here)

• Intent: not established here

Intent

unknowing

accidental reckless

deliberatelack of

due care

Legal Standard?

[T]here is nothing improper, illegal or inequitable in filing a patent application for the purpose of obtaining a right to exclude a known competitor’s product from the market; nor is it in any manner improper to amend or insert claims intended to cover a competitor’s product the applicant’s attorney has learned about during the prosecution of a patent application. – p. 350

Therasense v. Becton, Dickinson

• 649 F.3d 1276

• Fed. Cir. 2011

• En Banc

Therasense - holding

A misrepresentation or omission by a patent applicant that amounts to gross negligence or negligence under a ‘‘should have known’’ standard does not satisfy the inequitable conduct intent requirement—a finding that ran counter to a number of prior Federal Circuit cases.

Therasense (cont’d)

The two requirements of intent and materiality must be independently satisfied, a holding which has the important effect of placing evidence of intent at the center of inequitable conduct analysis. And the specific intent to deceive must be the single most reasonable inference able to be drawn from the evidence of the applicant’s behavior.

• Inequitable conduct • materiality• intent

• Duty of Candor

Inequitable Conduct

• Examples : • failure to disclose prior art• failure to disclose rejection of claims• misleading partial translation• characterizing prophetic examples as real experiments• false claim of small entity status• failure to disclose all true inventors

US PatentClaimsTerm: 20

years fromfiling

InformationDisclosure Statement

Patent Exhaustion

• To exhaust: to run out of, use up

• What is “used up”? The “power” of a patent

• When is it used up? When an item covered by the patent is sold on the market

Quanta v. LG Electronics

• Schwartz patent (purchased by LG from Wang Computer)

• Asserted against Quanta by LG

• LG defended on grounds of exhaustion

LG Electronics (Patent Owner)

Intel (Licensee)

Computer Cos.

LG Electronics (Patentee)

Intel (Licensee)

Master License (required non-coverage notice to Intel Customers)

Specific product license (no customer restrictions)

Intel (Licensee)

Computer Cos.

LG’s right toSue?

End Users

LG Electronics (Patentee)

Intel

Intel (Licensee)

End Users

License?+

LG Sued End Users – Bizcom, Quanta, etc.

• End Users defended by claiming that they were protected against suit by virtue of the LG-Intel license agreement, and Intel’s sale of chips to them

District Court

• LG argued that end users were not protected by exhaustion, since the chips sold by Intel did not completely embody any claims in the asserted patents

• District Court disagreed: held, sales of chips by Intel exhausted LG’s rights vis-à-vis end users

Federal Circuit

• Partial reversal

• No exhaustion: LG did not license Intel to authorize end-users to combine Intel products with non-Intel products

Quanta Computer, Inc. v. LG Electronics, Inc.

• 128 S.Ct. 2109 (2008)

• Held: licensee's sale of component computer parts that substantially embodied method patents held by patentee was “authorized” by patent holder, and had effect of exhausting patent holder's patents.

Supreme Court: Holdings

1. Method claims are subject to exhaustion

2. Embodiments substantially containing claimed technology exhaust a patent

3. Sales in this case were “authorized sales” under the licensing arrangement in this case: so patents were exhausted

Supreme Court: Holdings

Most wide-ranging aspect of holding:

Sales in this case were “authorized sales” under the licensing arrangement in this case: so patents were exhausted

Third holding: important for future cases

• We can learn from the LG – Intel – End User arrangement

Basic exhaustion principles

• “Exhaustion is triggered only by a sale authorized by the patent holder.” –> 128 S.Ct. 2109, 2121

Two elements here

• [1] SALE only

–> Licensing is outside this holding–> Creative licensing arrangements are

still permissible

• [2] Authorized by the patent holder

–> Principles of implied licensing come into play

LG Electronics (Patentee)

Intel (Licensee)

Master License (required non-coeverage notice to Intel Customers)

Specific product license (no customer restrictions)

No restriction on customers’ use of patented technology

“[T]he provision requiring notice to Quanta appeared only in the Master Agreement, and LGE does not suggest that a breach of that agreement would constitute a breach of the License Agreement. Hence, Intel's authority to sell its products embodying the LGE Patents was not conditioned on the notice or on Quanta's decision to abide by LGE's directions in that notice.” -- 128 S.Ct. 2109, 2121-2122

Patentee

Licensee

Quanta strongly suggests that effective restrictions/not-ice in license agreement might bind downstream users End users

LG Electronics (Patentee)

Intel (Licensee)

Specific product license WITH requirement to restrict customers; to give notice of no license

Remedies in licensing agreement

“We note that the authorized nature of the sale to Quanta does not necessarily limit LGE's other contract rights. LGE's complaint does not include a breach-of-contract claim, and we express no opinion on whether contract damages might be available even though exhaustion operates to eliminate patent damages.” – 128 S.Ct. at 2122

Important issues post-Quanta

• Contractual remedies for Licensee’s breach of license, including unauthorized infringement by Licensee’s customers

Patentee

Licensee

End users

Remedies

Issuance Complaint filed in District Court

Preliminaryinjunctionhearing

Damages assessed forthis period if marking

(or actual notice)

Prospective Effect

Final injunction

issues

35 USC § 283. Injunctive relief.

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.

MercExchange, L.L.C., holds a number of patents, including a business method patent for an electronic market designed to facilitate the sale of goods between private individuals by establishing a central authority to promote trust among participants. See U.S. Patent No. 5,845,265.

United States Patent 5,845,265 Woolston December 1, 1998

“Consignment nodes”AbstractA method and apparatus for creating a computerized market

for used and collectible goods by use of a plurality of low cost posting terminals and a market maker computer in a legal framework that establishes a bailee relationship and consignment contract with a purchaser of a good . . . in an electronic market for used goods while assuring the safe and trusted physical possession of a good with a vetted bailee.

Inventors: Woolston; Thomas G. (Arlington, VA) Assignee:MercExchange, L.L.C. (Alexandria, VA) Filed: November 7, 1995

“Substantial evidence was adduced at trial showing that the plaintiff does not practice its inventions and exists merely to license its patented technology to others. Indeed, the plaintiff has made numerous comments to the media before, during, and after this trial indicating that it did not seek to enjoin eBay but rather sought appropriate damages for the infringement.”

-- 275 F.Supp.2d 695, at 712

Supreme Court

• Reversed Federal Circuit

• Rejected “automatic rule”

• Reimposed historical standard

The 4 Part Test: Plaintiff must show –

(1) [T]hat it has suffered an irreparable injury; (2) that remedies available at law, such as monetary damages, are inadequate to compensate for that injury; (3) that, considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction. – book, p. 935

What was wrong with the Federal Circuit test?

Too mechanical: “[T]he Court of Appeals departed in the opposite direction from the four-factor test. The court articulated a “general rule,” unique to patent disputes… Just as the District Court erred in its categorical denial of injunctive relief, the Court of Appeals erred in its categorical grant of such relief.

[S]ome patent holders, such as university researchers or self-made inventors, might reasonably prefer to license their patents, rather than undertake efforts to secure the financing necessary to bring their works to market themselves. Such patent holders may be able to satisfy the traditional four-factor test, and we see no basis for categorically denying them the opportunity to do so.

We hold only that the decision whether to grant or deny injunctive relief rests within the equitable discretion of the district courts, and that such discretion must be exercised consistent with traditional principles of equity, in patent disputes no less than in other cases governed by such standards.

Kennedy, Stevens, Souter & Breyer

The lesson of the historical practice, therefore, is most helpful and instructive when the circumstances of a case bear substantial parallels to litigation the courts have confronted before. -- 938

An industry has developed in which firms use patents not as a basis for producing and selling goods but, instead, primarily for obtaining licensing fees. For these firms, an injunction, and the potentially serious sanctions arising from its violation, can be employed as a bargaining tool to charge exorbitant fees to companies that seek to buy licenses to practice the patent. When the patented invention is but a small component of the product the companies seek to produce and the threat of an injunction is employed simply for undue leverage in negotiations, legal damages may well be sufficient to compensate for the infringement and an injunction may not serve the public interest.

Damages

• Statute

• Caselaw (principles)

35 U.S.C. § 284

“[T]he court shall award [the patentee] 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.”

35 U.S.C. § 285

“The court in exceptional cases may award reasonable attorney fees to the prevailing party.”

Damages

• Two measures:

– Actual damages: “Lost Profits”

– Reasonable royalty

• Actual damages & the problem of proof

Compensation principle

• “But for” the defendant’s infringing sales, what would the patentee’s profits have been?

• NOT a disgorgement remedy: patentee’s loss, NOT infringer’s gain

Willful infringement

•Section 284: The court “may increase damages up to three times”