American patent law continues to move in a defendant-friendly manner that may stifle innovation
January 2018 | SPECIAL REPORT: INTELLECTUAL PROPERTY
Financier Worldwide Magazine
January 2018 Issue
Patent law in the US has always strived, but failed, to find the right balance between promoting innovation versus cultivating competition. Many practitioners, for example, believe that the 1990s and 2000s were largely pro-patent in the US.
Over the last several years, however, a number of new laws, administrative procedures and Supreme Court rulings have reversed that course. While it is not surprising how critical it is for international businesses to understand recent legal limitations and pitfalls for patent holders in the US, the current swing against patent rights means it is increasingly necessary to harmonise intellectual property (IP) enforcement strategies in the US with their approach in other rapidly growing legal markets across the global.
The present shift in US patent law is largely in response to so called ‘patent trolls’, which are individuals and companies who took advantage of patents of typically questionable validity to extract nuisance value settlements from other businesses. But the effect of the new laws and procedures was not limited to fixing the actual problem, and instead has also drastically impacted many other businesses and industry segments.
To briefly summarise some of these changes, starting in 2010 through 2014, the US Supreme Court issued a series of rulings that greatly limited whether inventions relating to software and biology can even be patented in the first place. That new law was retroactive, meaning it can invalidate existing patents on top of applying to new patent applications. Since that time, defendants have been able to effectively use their new weapon to knock out patent infringement lawsuits in their early stages. And that is not all. The Supreme Court has also greatly restricted where patent holders may file suit in the US, which restricts the availability of purportedly plaintiff-friendly venues, and also narrowed liability for indirect patent infringement from the actions of others. At the same time, the Federal Circuit, a patent specific court whose rulings are appealed to the Supreme Court, has reigned in patent damages and made them significantly more limited and difficult to prove.
The woes of US patent holders are not limited to court proceedings, either. Several new administrative post-grant review proceedings with the US Patent Office were created by Congress in 2012, the most notable of these being the inter partes review (IPRs). Since 2012, over 7000 of these proceedings were filed, with over 50 percent related to electrical or software-based patents, and another 25 percent concerning biological and chemical patents. Not counting IPRs that settled, about two-thirds of the IPRs filed were instituted (meaning the Patent Office will review the challenged patent’s validity) and two-thirds of the instituted IPRs that reached a final written decision found every claim of the challenged patent invalid. In only 20 percent of those decisions did the challenged patent escape unscathed. As with the patentable subject matter challenges mentioned above, US patent defendants have effectively used IPRs to limit both the risk and cost of patent litigation to great effect.
In sum, over the last five or so years, patent infringement defendants have been gifted potent tools to defend themselves against infringement allegations. It has become more difficult for a patent holder in the US to choose where an infringement case will proceed, to defend against validity challenges, and to recover significant damages in the increasingly rare instance where the patent holder wins at trial. As a result, international venues, particularly those in Europe and Asia, are increasingly prevalent in global patent disputes.
Countries like Germany and, to a lesser degree, France, for example, have patent friendly win rates in comparison to the US. Even countries like India and China, which historically have had relatively weak IP protection, are increasingly frequent destinations for patent litigation. China, for example, instituted dedicated IP courts in 2014 and has seen explosive growth in the number of patent cases filed (including by foreign nationals), while India has seen growth in patent lawsuits since it added product (as opposed to process) patents in 2005 to align its patent law with other industrialised nations.
In addition to litigation, the pro-defendant shift in US patent law also emphasises the importance of getting patents worldwide to acquire a strong patent portfolio that spans many countries in order to insulate a company’s patent rights from changes due to new laws. Having equivalent, or even similar, patent rights across varied nations permits flexibility when devising an enforcement strategy, and also serves to mitigate the risk posed by protecting valuable intellectual property in only a narrow subset of countries whose laws can change rapidly.
Despite recent trends, though, the US should not be ignored when formulating a global enforcement strategy since it still presents unique facets that are not found with other countries. There are many factors that should be considered when devising global strategy. Different countries present varied injunction success rates, differing recovery potential on damages and separate approaches to whether the litigation ‘loser’ pays (in Europe that is more frequent, while the US system is more restrictive). Some cases may be more favourable to present to a jury in the US, while others may be advantageously decided by a judge somewhere else.
One distinctive aspect of US patent litigation is discovery, which is much more intensive and extensive in the US than in other countries. Thus, a company could pursue US patent litigation to obtain meaningful information and, depending on the agreements between the parties, use that information in lawsuits in other countries. And even though patent damages have become more difficult to prove in the US, it still presents what may be the largest ultimate award. Taking all of this together, an international strategy, for instance, may involve seeking injunctions in plaintiff-friendly countries, such as Germany, while the existence of slower US district court litigation (and its potential for damages) is used to provide further settlement or licensing leverage.
But obviously the specifics of an individual strategy will depend on several business factors as well, including the international market for the patented products/processes or the location and focus of the involved companies (both patent holder and alleged infringer).
Patent litigation has followed the trend of globalisation in the world economy. As a consequence – and especially as patent protections continue to weaken in the US – enforcement strategies in other industrial and developed nations are critical. Complementary approaches that take advantage of the timing, procedure and quirks in various countries’ patent litigation systems is a necessity that has become more so in view of the recent trends in the US. Further, litigation costs can be reduced by consolidating like-tasks across international lawsuits. When forming litigation tactics, it is vital to coordinate efforts in each country, which can be efficiently accomplished through in-house legal counsel working closely with trusted outside counsel.
Ultimately though, while the pendulum of US law has recently swung against patent protection, it will undoubtedly swing the other way at some point in the not-so-distant future. Thus, sound patent portfolio and enforcement strategies should continue to focus on the US, but also devote resources toward planning and coordinating tactics across international boundaries.
Matthew W. Howell is a partner at Alston & Bird LLP. He can be contacted on +1 (404) 881 7349 or by email: email@example.com.
© Financier Worldwide
Matthew W. Howell
Alston & Bird LLP