Patent Defenses and Remedies
Intro to IP – Prof Merges
2.3.10
Defenses
1.Inequitable Conduct
2.Patent Exhaustion
• Remedies in patent infringement
cases
Defenses
• Invalidity
Clear and convincing evidence standard
US Patent
• Prosecution History Estoppel
• Reverse Doctrine of Equivalents
• With Authority
§ 282
Presumption
of Validity
Claims
Term: 20
years from
filing
• Exhaustion/First Sale Doctrine
• Implied License
• Shop Right
• Repair (not reconstruction)
• Experimental Use
• common law
• §271(e) (Bolar Amendment – for purposes of FDA approval of generics)
• Medical Activities § 287(c) (suits against MDs, hospitals)
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. 326
• 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. 327
Inequitable Conduct
• Inequitable conduct
• Duty of Candor
• materiality
• intent
US Patent
Claims
Term: 20
years from
filing
Materiality and Intent
• Materiality: relevance, importance
(established here)
• Intent: not established here
Intent
Legal Standard?
unknowing
deliberate
lack of
due care
accidental
reckless
Equitable Defenses
• Inequitable conduct
• Duty of Candor
• materiality
• intent
Information
Disclosure
Statement
US Patent
Claims
Term: 20
years from
filing
• 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
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
LG Electronics
(Patent Owner)
Intel
(Licensee)
Computer Cos.
LG Electronics
(Patentee)
Master License
(required noncoverage notice to
Intel Customers)
Intel
(Licensee)
Specific
product
license (no
customer
restrictions)
Intel
(Licensee)
LG’s
right to
Sue?
Computer Cos.
LG Electronics
(Patentee)
Intel
End Users
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 visà-vis end users
Federal Circuit
• Partial reversal
• No exhaustion: LG did not
authorize Intel to authorize endusers 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
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
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)
Master License
(required noncoeverage notice
to Intel
Customers)
Intel
(Licensee)
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
End users
Quanta
strongly
suggests that
effective
restrictions/not
-ice in license
agreement
might bind
downstream
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-ofcontract 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 postQuanta
Patentee
Licensee
End users
• Contractual
remedies for
Licensee’s breach of
license, including
unauthorized
infringement by
Licensee’s customers
Remedies
Prospective Effect
Issuance
Complaint filed
in District Court
Damages assessed for
this period if marking
(or actual notice)
Preliminary
injunction
hearing
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”
Abstract
A 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 fourfactor 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
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”
1. Should a party's assertion of the advice of counsel
defense to willful infringement extend waiver of the
attorney-client privilege to communications with that
party's trial counsel? See In re EchoStar Commc'ns
Corp., 448 F.3d 1294 (Fed.Cir.2006).
2. What is the effect of any such waiver on workproduct immunity?
3. Given the impact of the statutory duty of care
standard announced in Underwater Devices, Inc. v.
Morrison-Knudsen Co., 717 F.2d 1380 (Fed.Cir.1983),
on the issue of waiver of attorney-client privilege,
should this court reconsider the decision in
Underwater Devices and the duty of care standard
itself?
35 USC 284
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.
“Traditional” Federal Circuit rule
“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, inter alia, the duty to seek and obtain
competent legal advice from counsel before the
initiation of any possible infringing activity.” –
Underwater Devices
The duty of due care standard has led to
punitive damages based on nothing
more than a negligent failure to
proceed with “due care.” See, e.g.,
Stryker Corp. v. Davol, Inc., 234 F.3d
1252, 1259 (Fed. Cir. 2000) (declining to
overturn jury finding of willful
infringement when evidence indicated
that reliance on advice of counsel was
“unreasonable”)
But the duty of due care standard shifts to
the defendant the burden of
demonstrating that it has acted with
sufficient care to forestall a finding of
willful infringement. See Knorr-Bremse
Systeme Fuer Nutzfahrzeuge GmBH v.
Dana Corp., 383 F.3d 1337, 1349 (Fed.
Cir. 2004) (en banc) (Dyk, J.) (this
“effectively shifts the burden of proof on
the issue of willfulness from the
patentee to the infringer”).
Seagate opinion
• Over the years, we had held that an accused
infringer's failure to produce advice from
counsel “would warrant the conclusion that it
either obtained no advice of counsel or did so
and was advised that its [activities] would be
an infringement of valid U.S. Patents.” KnorrBremse, 383 F.3d at 1343 -- at 15
• Just recently, the Supreme Court addressed
the meaning of willfulness as a statutory
condition of civil liability for punitive
damages. Safeco Ins. Co. of Am. v. Burr, --U.S. ----, 127 S.Ct. 2201, 167 L.Ed.2d 1045
(2007)
• [T]he Court concluded that the “standard civil
usage” of “willful” includes reckless behavior.
Id. at 2209
• In contrast, the duty of care announced in
Underwater Devices sets a lower threshold
for willful infringement that is more akin to
negligence. This standard fails to comport
with the general understanding of willfulness
in the civil context, Richland Shoe Co., 486
U.S. at 133, 108 S.Ct. 1677 (“The word
‘willful’ ... is generally understood to refer to
conduct that is not merely negligent.”), and it
allows for punitive damages in a manner
inconsistent with Supreme Court precedent
Accordingly, we overrule the standard set out in
Underwater Devices and hold that proof of
willful infringement permitting
enhanced damages requires at least a
showing of objective recklessness.
Because we abandon the affirmative
duty of due care, we also reemphasize
that there is no affirmative obligation to
obtain opinion of counsel.
• When opinions are sought, NO
waiver of attorney-client
privilege with respect to trial
counsel