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Sued for Patent Infringement? Don't Miss the Early Exit Signs | November 2013

By Doug Muehlhauser and Payson LeMeilleur of Knobbe Martens Olson & Bear LLP

Receiving notice as in-house counsel that a patent infringement complaint has been filed against your company can be a surprising, daunting and unwelcome experience. This is especially true if the company you represent is generally inexperienced with patent litigation. Your client - the company - will understandably look to you for answers and guidance in selecting and working with patent litigation counsel to navigate the formidable and sometimes overwhelming domain of patent litigation in the federal court system.

Because patent litigation is often expensive and unpredictable, and because there is often no upside as a defendant, it comes as no surprise that your company’s most favorable path forward is almost always to avoid lengthy litigation. At first blush, this might seem to be an ambitious goal where the plaintiff has already taken the not-so-trivial step of filing and serving your company with a patent infringement complaint. However, close inspection of the facts and context of the case often reveals several opportunities to achieve this very goal, whether by influencing the plaintiff to withdraw or dismiss its case, or by winning dismissal of the complaint in court. Being aware of the various avenues to avoid patent litigation at an early stage is vital when selecting outside patent litigation counsel, who may sometimes overlook opportunities for early resolution, focusing instead on long-view strategies that involve drawn-out, big-budget litigation tactics. In addition, moving quickly to explore these avenues before plaintiff’s infringement claims can gain momentum in the district court will almost certainly improve the odds of early dismissal.

Below are a few areas worthy of exploration to see if the case filed against your company may be susceptible to early dismissal.

1. Eliminating Future Damages

Compensatory damages typically sought by a patent plaintiff can be viewed in two parts: (1) past damages (damages that have already accrued based on the alleged infringing activity prior to the filing of the lawsuit) and (2) future damages (damages that will accrue each day after the filing of the lawsuit). While past damages are more or less fixed at the time of the complaint, truncating future damages can greatly diminish the leverage held by a plaintiff in litigating the case toward a trial.

The ability to stem future damages depends primarily upon the feasibility of promptly and clearly halting the accused infringing activity. This could take the form of stopping all manufacture, use, importation and/or sales of a product accused of infringement. Very often this is simply not possible given the realities of running a business. But because many patents involve relatively minor improvements or very discrete features, it is often quite feasible to carry out a narrowly-focused redesign of the accused product to remove a single specific feature or to implement a change to a feature so that the accused product is plainly outside the coverage of the asserted patent.

Identifying a target feature for redesign will depend largely on the nature of the accused product and also on the specific features that are claimed in the patent. It is sometimes helpful to view patent claims like recipes that list specific ingredients, and also to consider that, in attempting to establish infringement, the plaintiff must, generally speaking, prove that the accused product includes each and every one of the claimed ingredients. Using this analogy, one may simply ask the question: “Which of the required ingredients listed in the patent claim can be removed from the accused product without impacting its commercial value?” Applying some careful scrutiny, certain of the required features listed in a patent claim may emerge as target features that are non-critical to the commercial value of the accused product. In these circumstances, eliminating or implementing changes to one or more target features may be much less costly to a defendant than the legal expenses of protracted litigation and/or a potential damages award that includes compensation for all of the alleged infringing activity that occurred after the filing of the lawsuit.

Another source of potential redesign possibilities is the patent’s prosecution proceedings at the Patent Office. These proceedings record the communications exchanged between the patent applicant and the Patent Office that resulted in the issuance of the patent. Such proceedings, more often than not, include concessions made by the patent applicant that result in restrictions on how the patent claims can be interpreted and asserted against accused products. While an assessment of the ways in which these prosecution-based restrictions can impact a case is beyond the scope of this article, analysis of the prosecution history by competent patent counsel may go a long way in revealing weaknesses in the patent that can be exploited when fashioning a redesign to stem future damages. Indeed, such analysis may also reveal important limitations in the coverage and scope of the patent claims that are so restrictive, a plaintiff may have no legitimate infringement case at all. The point here is that retaining patent counsel very early on, and reviewing the requirements of the patent claims and the patent prosecution proceedings, may lead to a prompt, effective, and commercially-feasible redesign.

As mentioned, assessing the suitability of a redesign is undertaken with the objective of extinguishing the plaintiff’s chance for future damages. Achieving that goal limits the basis for a plaintiff’s compensatory recovery to only the activity (e.g., product sales) that occurred prior to the redesign and thus removes what is often significant leverage that a plaintiff may have in the threat of obtaining a permanent injunction at trial. Capping damages in this way allows both parties to have more certainty about the value of the case, and provides a tremendous incentive for settlement or even withdrawal of the complaint depending on additional circumstances. Moreover, in practical terms, because an effective redesign fully rebuts allegations of ongoing infringement, it achieves the same relief as an injunction would for the plaintiff. This result can often give a plaintiff and its counsel the sense that victory has been achieved such that continued litigation is no longer necessary. Moreover, even if a plaintiff proceeds with the litigation, the defendant may enhance its credibility in the eyes of the court for a couple of reasons - first, for being a conscientious party that sought to avoid litigation after being put on notice, and second by offering the plaintiff a large part of the relief it seeks through litigation. This enhanced credibility can have a tremendously favorable impact on how the judge views the merits of your arguments as the case progresses. 

2. Sending The Patent Back To The Patent Office

In addition to an early redesign analysis, patent counsel can also conduct an invalidity analysis that may further incent a plaintiff to consider early dismissal and/or settlement. This can occur, for example, when an analysis of a patent’s validity raises issues serious enough to warrant review proceedings at the Patent Office. While competent patent counsel can advise further on the variety of patent review procedures that are available, one such review procedure is called ex parte reexamination where the Patent Office reviews an issued patent based on a substantial new question about its validity. Because any party can request that the Patent Office reexamine a patent, a patent owner always faces the threat that such a reexamination, if granted, places the livelihood of its patent in jeopardy. And because a reexamination proceeding can lead to a patent being invalidated in its entirety, a pending litigation based on such a patent may be fully dismissed.

If a request to reexamine a patent is granted by the Patent Office, it creates a further dilemma for the patent owner even beyond the question of whether or not the patent will ultimately survive. This is because many courts are likely to stay pending litigation that involves a patent undergoing reexamination for fear that the Patent Office’s conclusion may render moot the resources expended by the district court in litigation. Thus, a defendant considering reexamination should move promptly because the benefit of a stay is much more likely to be obtained when reexamination is sought during the earliest stages of the litigation. A final point of potential distress for a patent owner whose patent is being reexamined is the possibility that the Patent Office may, during the reexamination process, require that the scope of the patent claims be narrowed to save the patent from invalidity. When a patent’s claims are modified this way during reexamination, a defendant in pending litigation may argue that the patent owner is not entitled to compensatory damages based on any of the alleged infringing conduct that occurred before the issuance of the reexamined patent with narrower patent claims.

A defendant in a patent case can thus, generally speaking, use a patent reexamination procedure to (1) eliminate the patent entirely if the Patent Office invalidates the patent, or (2) eliminate compensatory damages based on pre-reexamination conduct if the Patent Office requires narrower patent claims. While there are pros and cons to submitting an asserted patent for reexamination that are beyond the scope of this article, a patent owner is nevertheless always aware that a reexamination may jeopardize the livelihood of its patent as well as the remedies it seeks in pending litigation. Thus, the prospect of a reexamination creates problems that can make litigation unpalatable, especially where future damages have been extinguished.

3. Assessing The Plaintiff’s Notice Of Infringement

A defendant should also assess at a very early stage the issue of when, if ever, it received proper notice of patent infringement. Insufficient notice can seriously undermine a plaintiff’s ability to recover any past damages and thereby create additional pressure on the plaintiff to resolve a case early. If the plaintiff has never provided actual notice of infringement prior to filing the complaint (e.g., by cease and desist letter), then in many cases where the plaintiff itself makes a product covered by the patent, the plaintiff bears a burden of showing that it at least provided constructive notice by marking substantially all of its own products with the patent number. Where a defendant has evidence of a failure to mark, such evidence may be used to help settle or dismiss the case early if the plaintiff is made aware that past damages may be unavailable due to a failure to adequately mark products with the patent number.

4. Gaining Leverage From Plaintiff's Frivolous Claims

Another sometimes overlooked option is the threat of a motion for sanctions based on a frivolous complaint (e.g., under Fed. R. Civ. P. 11). This approach is effective where early analysis of the facts of the case reveals a significant or even alarming lack of merit in the plaintiff’s infringement case or in the patent’s validity. A well-thought-out Rule 11 motion not only requires a plaintiff (both counsel and client) to objectively assess the merit of the case under prevailing law, but it also educates the judge on your views of the case, including possibly highlighting some glaring weaknesses in the plaintiff’s case at a very early and influential stage.

5. Assessing The Plaintiff's Standing

One way to bring a quick end to a plaintiff's patent infringement case is to learn that the entity or entities who are filing the lawsuit do not own the patent and do not have an exclusive license to assert it. In the absence of ownership or an exclusive license, a plaintiff likely has no standing to maintain a claim for patent infringement, and few circumstances will prompt a district court to dismiss a patent case faster than a lack of standing. While a thorough survey of the law concerning standing to bring a patent infringement claim is beyond the scope of this article, competent patent counsel can certainly begin checking the chain of title to the patent by accessing Patent Office records for any recordation of assignments, including for example, assignment by the original inventors named on the patent. The complaint itself should also be scrutinized for clues to defects in standing that may show up as insufficient allegations of title or exclusive license, or possibly as discrepancies between the plaintiff entity and the alleged owner of title.

Conclusion

In sum, when your company is named as a defendant in a patent infringement case and you are looking to retain outside patent litigation counsel, make sure that your potential patent counsel is providing you an assessment of the many options that exist to achieve early dismissal. This includes assessing whether future damages can be truncated by a practical and effective redesign, whether review of the patent at the Patent Office may be warranted, and whether the plaintiff has any legitimate claim to past damages. Also have them consider any significant lack of merit in plaintiff’s case that can be subject to Rule 11, and whether plaintiff has proper standing. While there are numerous strategies and tactics that can be adopted in defending a patent infringement case, focusing on these areas at an early stage will help a defendant understand and develop the weaknesses in plaintiff's case and may well position the case for an early dismissal.