Dealing with intellectual property disputes
February 2011 | TALKINGPOINT | INTELLECTUAL PROPERTY
FW moderates a discussion concerning intellectual property disputes between J. Michael Jakes at Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, Pierre-Andre Dubois at Kirkland & Ellis International LLP and Daniel Ryan at LECG.
FW: Are you seeing an increase in intellectual property disputes? What are some of the common sources of these conflicts?
Ryan: There has been an increase in the level of disputes in the last couple of years, which appears in part to have been fuelled by the economic downturn and the need for companies to focus on protecting their competitive advantage. In the UK, routine patent and trademark cases have shown an increase of between 10 and 20 percent compared to before the recession. However, the trend for trade secrets cases has seen a huge increase, more than trebling in recent years, as employees moving on in the turbulent economic climate have sought to monetise information owned by their former employers.
Dubois: While in Europe there is not a wave of new litigation, there are more cases than a few years ago. There is no real common thread to these cases. We do see, however, more and more cases where challenges based on competition law are made against IP rights.
Jakes: While patent lawsuits in the US have steadily increased over the last 20 years, 2009-2010 saw a slight dip in the overall number of suits filed. There were significant increases in cases brought in the US International Trade Commission (US ITC) to stop imports of infringing products and lawsuits filed by non-practicing entities (NPEs) in the US district courts. The US ITC has become a preferred forum for enforcing patent rights against products made outside the US. The cases move quickly and provide effective relief to exclude infringing products. Suits filed by NPEs have also increased, often naming upward of 10 or more defendants accused of infringing the NPEs patent rights.
FW: Why is it so important for companies to develop a strategy for resolving IP disputes through quick and decisive action? In your opinion, are companies paying enough attention to this issue?
Dubois: IP disputes can be very expensive and a drain on a company’s resources, such as R&D and marketing. They are a distraction to senior management who should be focussed on other matters. Some companies have well established practices on how to resolve these disputes. While pursuing litigation is often the only option, there are many cases that are best settled early on through commercial discussions. This may be best achieved by having a multidisciplinary team involving not only the legal team but also senior management.
Ryan: IP assets are often the result of significant, often highly risky, investment over a sustained period of time with the intention of providing a sustainable competitive advantage over other players in the market. The most valuable IP assets create significant barriers to entry to that market. One of the issues with IP infringement is that value which has been built up over a long period of time at great cost can be destroyed very quickly. In a number of IP disputes it has become clear as part of the assessment of the losses incurred by the IP owner that the dynamics of the market have been changed irredeemably by the infringement of the IP rights, even though that infringement is not ongoing. Once an infringer has established themselves in the market they can be difficult to dislodge. Further, the IP owner themselves may also have damaged their value position in the market through competitive responses at a time when it is unclear what the legal outcome of any legal process might be.
Jakes: Most technology companies today know the importance of intellectual property to their businesses. But there are different strategies for using that intellectual property. In technology areas where many patents may cover a single product, a company will want to protect its investment in research and development and at the same time have a large enough portfolio for defensive use in negotiations or litigation. Start-up companies will want patents to allow them to attract funding or make them more attractive for acquisition. But only one or two key patents may be needed for a company to protect its place in the market and keep others from stealing its market share. And that’s where quick and decisive action is needed. That action could be filing a case in the US International Trade Commission or seeking an injunction in a US district court.
FW: What advice would you give to companies on effectively protecting their IP through monitoring potential infringements and enforcing IP rights?
Ryan: To effectively protect their IP, companies should first periodically undertake an audit of their IP portfolio, so as to understand the importance of individual items of IP to their business. Within their portfolio, they should identify their key IP assets, or rather, those assets of critical value to the operation of the business. This then allows companies to identify the focus of their monitoring and help them prioritise their response should enforcement be required. One factor that helps with the process of monitoring for IP infringement is that when companies have intangible assets that they believe will be desirable to customers such features are at the forefront of the sales proposition. Increasingly, companies are using patents as a marketing tool even when the technology is of limited value. This means that the regular ongoing process of competitor intelligence will require monitoring of competitor’s marketing literature and this is often an early indicator of a potential infringement. It is therefore essential that staff involved in monitoring activities are trained to spot signs of such infringing activity particularly in relation to business critical IP assets.
Jakes: Effective IP protection has to be built from the ground up. Too often, a company facing increased competition looks to its patent portfolio only to find that the cupboard is bare. So as a first step, a company must capture its innovations in valid and enforceable patents. This takes time. It also takes an intimate knowledge of the business, whether it is in-house or outside patent counsel. Armed with that knowledge and a matching patent portfolio, monitoring potential infringement follows naturally. Once potential infringement is uncovered, however, then action should be taken without delay. The initial action can range from a notice letter and an offer to enter licence negotiations to filing a lawsuit and pursuing a preliminary injunction.
Dubois: Having in place proper monitoring systems, using both internal means with dedicated resources and outside advisers is key and should be considered a good thing to do rather than a waste of money, even in tough economic times. The internal culture should be that this is a real priority, requiring dedicated resources which will focus on monitoring on a regular basis – sometimes daily in sectors such as new media and the internet – and take enforcement measures rapidly. All too often we see cases where clients have been waiting for months, if not years, to decide to take action, and by then, if it is not too late, it is surely not an easy case.
FW: To what extent should alternative dispute resolution methods be considered as soon as a dispute surfaces?
Jakes: Alternative dispute resolution (ADR) methods, including arbitration, can be used effectively to resolve patent disputes in the US. Arbitration is encouraged in the US by both the Federal Arbitration Act and Section 294 of the Patent Statute. ADR is most often used for patent disputes when the parties have a pre-existing relationship, usually through an existing patent or technology licence. This allows the parties to set out in advance the ADR method that will be used, how the neutral evaluator or arbitrator will be selected, and what rules will apply.
Dubois: Starting ADR at the beginning of a dispute is usually a good idea – it sets the right tone before hostilities get the best of the parties’ rational intentions. Often it is impossible to resolve a matter at its inception because insufficient information is available to make informed decisions and also because the parties still feel righteous in their positions. But setting a process in motion early on that gets the parties talking – and listening – to each other and defining the issues so that a creative solution can be crafted will sometimes avoid what happens in many cases – namely that by the time the parties grow weary of the battle and actually start talking about a settlement they each have so much invested in the fight that settlement becomes much more difficult or impossible.
Ryan: As discussed earlier, speed can be critical to minimising any permanent damage to the IP assets. There may be situations when infringement has not been deliberate, or where the infringer, once made aware of the repercussions of their actions, is concerned about the economic implications of a legal dispute with the IP owner. In such cases, a more speedy resolution may be achieved without pursuing a standard legal process – whilst this may not often result in the same level of, or any, damages from the infringing party, that may well be secondary to the primary objective of ending the infringement.
FW: If litigation is unavoidable, what general preparation and procedures should companies undertake in pursuit of the best possible outcome?
Ryan: Once litigation is deemed unavoidable, the focus is frequently on obtaining an injunction because the speed with which the infringement can be halted is critical to maintaining the value of the IP. However, if the claimant is successful in establishing infringement, any damages enquiry may occur a long time after the infringement occurred due to the time spent resolving the liability side of the litigation. Therefore, it is important that claimants retain information and records that are relevant to proving their loss. Where the potential damages are large, the claimant could consider undertaking a preliminary estimate of loss at the outset of the case which will help them to establish the information that will be required.
Jakes: It depends, of course, on which side the company is on. For companies considering filing suit to protect their intellectual property, they must first undertake an investigation and have a reasonable belief of infringement. Beyond that minimum, however, the company may want to perform additional diligence on the validity of any patent it intends to assert and review its internal files, including inventor’s notebooks and patent files. Also, when litigation looks likely, the company should put in place procedures to ensure that relevant documents – including electronic documents – are not destroyed. From the accused infringer’s perspective, once the company is aware of a potential infringement claim, it should also investigate. In most situations, the company should seek the advice of competent patent counsel. Although not necessary to avoid a finding a wilful infringement – and possible increased damages – advice of counsel is one of the best ways to show that the company’s position was reasonable.
FW: Can you outline any recent court cases and judgments which will have important implications for the treatment of IP?
Dubois: In Europe, recent referrals to the ECJ on the interpretation of copyright and the Brussels Regulations could have an important impact in terms of copyright law and jurisdictional issues.
Jakes: Last year, the most important case was Bilski v Kappos, which concerned patentable subject matter. The US Supreme Court refused to restrict patentable methods to those that use specific machines or transform physical objects, leaving such things as computer software and medical diagnostic methods available for patenting. The Court also refused to exclude ‘business methods’ from patent-eligible subject matter, which will allow continued patenting of financial methods among others. In 2011, the case to watch is i4i v Microsoft, in which the Supreme Court will consider the evidentiary standard for proving a patent invalid, whether it is a mere ‘preponderance of the evidence’ or the current higher burden of ‘clear and convincing evidence.’
Ryan: In last year’s Hotel Cipriani case, the defendants operated a London restaurant whose name and logo were found to have infringed the claimants’ trademark. The claimants elected for an account of the defendants’ profits. As a valuation expert, the most interesting issue in the calculation of the account was whether any account should include value in the name that was covered by the trade mark but generated by the defendant. The claimant did not operate restaurants in the UK and the defendants alleged that it was their own efforts that had made the name valuable. However, the judge rejected this argument and agreed with the expert that the name was the means by which the restaurant conveyed its other positive qualities to consumers. Potential infringers should therefore be aware that any account of profits may include the value of goodwill generated by the infringer himself.
FW: What advice would you give to companies on contractual issues surrounding IP rights? What key clauses should be included in contracts to account for the possibility of future disputes arising from an agreement?
Dubois: An obvious but often neglected piece of advice is to make sure that the rights of the parties are clearly defined, in particular when the agreement terminates – who keeps the IP, who has access to new IP, and so on. Make sure that all terms are properly defined. Too often, it is tempting to use precedents without considering the exact meaning of each word. If you are to agree to arbitration, make sure the clause is properly drafted and consider if you wish to have the right to also have recourse on appeal to the courts.
Jakes: Although it’s often an afterthought when concluding a licence agreement, attention should be paid to future dispute resolution. I would recommend more than a standard arbitration clause that refers to a particular set of rules or an organisation – although that is better than nothing if the parties want arbitration over litigation in court. Careful thought ahead of time on how the arbitrators will be selected, deadlines, and limits on discovery, for example, can significantly reduce future costs and provide quicker resolution of any disputes.
J. Michael Jakes is a partner at Finnegan, Henderson, Farabow, Garrett & Dunner, LLP. His practice concentrates on patent litigation and related counselling. He has been lead counsel in numerous patent cases, including trials in federal district courts and the International Trade Commission and before arbitration panels. He deals mainly with technologies related to the computer, electronics, semiconductor, software, and medical device industries. He is currently a member of the Federal Circuit’s Advisory Council, appointed by the chief circuit judge. He can be contacted on +1 202 408 4045 or by email: email@example.com.
Pierre-Andre Dubois is a partner with Kirkland & Ellis International LLP and heads the IP and Competition practices in the UK. He has a vast experience in many areas of IP and IT law and also handles many competition cases. Mr. Dubois was recently named by Intellectual Asset Management magazine to the IAM Licensing 250: World's Leading Patent and Technology Licensing Lawyers, a short list of 250 lawyers around the world. For the last five years, Mr. Dubois has been recommended as a leading lawyer by PLC Which Lawyer? Global 50. He can be contacted on +44 (0)20 7469 2020 or by email: firstname.lastname@example.org.
Daniel Ryan is a managing director at LECG. Mr Ryan is a chartered accountant with over 20 years experience in valuing businesses, shares and intellectual property assets in both contentious and non-contentious matters, including intellectual property licensing, infringement of intellectual property rights, fiscal valuation and transfer pricing, and more. He has been appointed as expert witness on numerous occasions. His experience covers matters in the UK High Court, before arbitral tribunals in the UK and internationally, in fiscal courts and before the Copyright Tribunal. Mr Ryan can be contacted on +44 (0)207 632 5075 or by email: email@example.com.
© Financier Worldwide
J. Michael Jakes
Finnegan, Henderson, Farabow, Garrett & Dunner, LLP
Kirkland & Ellis International LLP