October 2015 Issue
For companies involved in the competitive world of innovation there is always a chance they will have to make or defend a patent infringement allegation. Whether the dispute relates to rights, royalties or any other kind of issue requesting recompense, it helps to quickly determine the most appropriate response strategy. Proactive behaviour is key, not only to minimise disruption to normal business operations but also to maximise the chances of an equitable resolution.
FW: Reflecting on the past 12-18 months, what are some of the key trends you have you observed in the world of patent disputes? Have there been any legal or regulatory developments which have had a particular impact in this area?
Chiu: In China, we have witnessed a series of judicial reforms in the patent dispute arena in the past 12-18 months. In particular, on 31 August 2014, the Standing Committee of the National People’s Congress passed the law to establish specialised IP Courts in Beijing, Shanghai and Guangzhou. The IP courts have been established to hear technical cases such as disputes over patent rights, new plant varieties, layout designs of integrated circuits and trade secrets. The IP courts will be the pioneers and explorers of a series of new experiments such as establishing the programme of technical investigation officers who will play the role of the court’s neutral technical advisers. By the end of February 2015, the IP courts have already accepted a total of 2832 cases. We expect to see the reform resulting in greater consistency and increased predictability of case outcomes, as well as improved court efficiency.
Hood: We are continuing to see the effects of the America Invents Act (AIA) on patent disputes in the United States. Inter Partes Review (IPR) filings remain strong at the PTAB, and overall the number of dispute filings, both in district court and at the PTAB, is on the rise. One trend of note the past year has been a substantial increase in motions seeking to find, and decisions finding, claims of asserted patents invalid as not satisfying the patent eligibility requirements of 35 U.S.C. § 101. These motions, brought pursuant to the Supreme Court’s 2014 decision in Alice Corp. v. CLS Bank International, are in large measure finding success invalidating software related patents. While the most susceptible patents have traditionally been the province of NPEs, recent decisions have begun to adversely affect computer-implemented patents owned by practicing competitors.
Dressel: Unfortunately, a trend toward disharmonisation can be seen in case law on pharmaceutical patent litigation. This has led to a divergence of patentability standards across jurisdictions, a reduced presumption of validity of granted patents, less business certainty and, therefore, fewer incentives to invest in pharmaceutical innovation. While there might have been a tendency in the past to grant disproportionately broad patents compared to their technical contributions, national courts and patent tribunals are now exploring very different, sometimes novel and unfortunately often mutually exclusive and contradictory concepts in order to invalidate patents: added matter or unallowable amendments at the European Patent Office (EPO), obviousness over common general knowledge and lack of priority in the UK, additional exemptions from patent eligibility in the US, utility, sound prediction or false promise in Canada, section 3(d) and compulsory licences in India, to name just a few.
Hinman: Preparations for emergence of the European Unified Patent Court (UPC) are coming to a close. We look forward to its entry into force. Another important event is the EU Court of Justice’s decision in Huawei v. ZTE where the court confirmed that in the case of standard-essential patents, injunctions may still be requested. Pending patent reform legislation has been heavily promoted as a way to combat so-called patent ‘trolls’. The publicity surrounding this argument has drowned out any attempt to make an opposing argument. Articles appear almost daily condemning not only the ‘trolls’ but any attempt to monetise IP as somehow damaging ‘innovation’. As a result, standards organisations like the IEEE have implemented licensing limitation policies which include rules on calculating a royalty and commitments to forgo seeking injunctive relief in exchange for submitting patented technology to the standard.
Vary: One significant development is the move to seek resolution of patent disputes through arbitration. In the past parties would engage in prolonged, expensive country-by-country patent litigation. Now, with a willing licensee the dispute can be resolved far more efficiently and quickly through arbitration. Many have argued that it can’t be done, but we’ve shown it is possible, both in our recent agreement with LG, and earlier with Samsung.
Collier: The increased use of the IPR procedure, an administrative trial proceeding before the United States Patent and Trademark Office (USPTO), has been, and continues to be, one of the most notable developments in US patent dispute resolution. Since its inception in September 2012, this procedure has become a common tool for those accused of patent infringement. Each year has seen an increased number of filings over the previous year – filings in 2014 increased over 150 percent from 2013. And that trend is continuing in 2015. As of this writing, IPR filings for 2015 have already surpassed the amount filed in all of 2014.
Sukduang: One of the clearest trends concerning patent disputes is the increased use of IPR proceedings. Given the high rate at which the PTAB grants institution of IPR and the equally high rate of claim cancellation once instituted, patent owners and alleged infringers need to seriously consider IPR implications. IPRs have also had a significant impact on litigation, as a large number of lawsuits are stayed pending completion of IPR proceedings. As such, IPRs have become valuable tools for alleged infringers.
“Pending patent reform legislation has been heavily promoted as a way to combat so-called patent ‘trolls’. The publicity surrounding this argument has drowned out any attempt to make an opposing argument.”
FW: Are you seeing an increase in the number of patent disputes in today’s business world? Are there any common causes of conflict?
Dressel: In the world of pharmaceutical patents, an increasing trend to generic launches at risk is noticeable in many jurisdictions. Instead of clearing the way, many generic companies prefer to launch at risk or piggy-back on their competitors’ litigations and profit from cross-undertakings in case of injunctions. While this might be understandable from a generic’s business perspective, which does not want to clear the way for its generic competitors by initiating expensive patent litigation early, this adds to the business uncertainty for originators who rely heavily on patent exclusivity. In some jurisdictions, new sub-optimal laws have initiated a flood of often unnecessary, but unfortunately legally required patent litigations: South Korea and its recent introduction of patent linkage or Portugal and its introduction of arbitration tribunals requiring the initiation of litigation even when there is no dispute just to preserve rights.
Collier: Last year, for the first time in several years, the total number of new patent cases filed in US federal courts decreased from the previous year, dropping by about 18 percent from 2013 levels. This drop has been attributed to a reduction in the number of patent infringement cases being asserted by non-practicing entities (NPEs), those entities that do not commercially practice the inventions of their patents, as a result of recent patent law changes. This drop in new patent cases, however, may be short lived. Patent case filings this spring rose sharply, making the total filings for 2Q 2015 the highest of any quarter yet observed. Whether this recent increase in filings will continue is questionable, with some commentators attributing it merely to NPEs filing suit before Congress enacts pending legislation directed to patent reform. Regardless, for now, the patent field remains an area with a significant number of disputes, and that does not appear to be changing anytime soon.
Sukduang: In the life sciences area, we have not seen an appreciable uptick in patent disputes. However, now that companies have the ability to seek Food & Drug Administration (FDA) approval to make biosimilar versions of available biological products, one would expect an increase in patent disputes – both litigations and IPR proceedings – involving those patents protecting biological products as well as their method of use and manufacture.
Hood: There does appear to be an increase in the number of patent disputes of late. Filing statistics show that the number of patent disputes filed in district courts has risen and remains steady in 2015. In fact, second quarter statistics show that it may have seen the most filings of any quarter ever. Filings in the previously popular Eastern District of Texas in particular have reversed course and substantially increased once again as well. The increase in filings generally may in some respects owe to continued consideration of legislation to address what some perceive as abuse of patent rights and frivolous claims, with patent holders pursuing claims ahead of enactment of legislation that may make doing so more challenging.
Hinman: As per the most recent statistics quoted by Unified Patents Inc., the number of 2015 patent litigation filings is projected to surpass 6000, the highest count ever. Of these numbers, a significant amount of them were originating from NPEs. In Q2 2015, for instance, 71.4 percent of all litigation was NPE-generated. However, while total case filings may be increasing, I believe that this is largely due to recent legislative changes pursuant to the AIA, which required separate filings for separate defendants in most instances. Also, with regard to litigation trends in general, with more courts awarding costs to a party acting inequitably, there also has likely been an increase in settlements. The increase in settlements may also be due to the increased use of IPRs and the resulting risk that the asserted patents will be held invalid prior to serious litigation.
Vary: We see an increase in the number of media reports of patent disputes, but I am not sure whether that is due to a real increase in cases or just in the media’s interest in them. In fact, in our industry we’ve certainly seen a drop in cases in the US, with a shift to more cases being brought to Europe.
Chiu: The number of patent disputes in China has continued to rise. According to Intellectual Property Protection by Chinese Courts published by the PRC Supreme People’s Court (SPC), newly accepted civil patent disputes increased by an average of 4.93 percent in 2014. The increase in the number of patent disputes partly results from the Chinese government’s policy of strengthening judicial protection of intellectual property and local companies’ awareness of patent enforcement. In addition, the State of Administration for Industry and Commerce recently promulgated the Provisions on Prohibition of Abuse of Intellectual Property Rights for Eliminating or Restricting Competition which has taken effect on 1 August 2015. Patent disputes arising from alleged monopolistic conducts are likely to increase.
FW: When a patent infringement has been detected, what initial steps should a company take to help maximise its chances of resolving the dispute in its favour?
Hinman: Some initial self-reflection is necessary: do we want to enter into litigation, or can we resolve the matter in a mutually beneficial way? Obviously, a better choice is to resolve the matter with the other party in an amicable way. This self-reflection should include a thorough amount of patent due diligence, investigating whether the patent concerned is strong enough to survive litigation, whether the other side also infringes other patents, and whether we may use IP owned by the other side. Also, before asserting a patent, it is important to make sure that a company performs other due diligence with respect to the allegedly infringing products to ensure that the assertion case is solid. Finally, it is important for a company to adequately anticipate legal, technical and business arguments that they are likely to receive from the other party when asserting its patents.
Chiu: We generally advise right owners collecting as much information as possible about the suspected infringers and their infringing activities as a first step. This information will allow the company to decide whether they have a case and choose the most appropriate enforcement route. Different preparations shall apply depending on the chosen enforcement route. If a right owner decides to file a civil action, we will normally suggest that they firstly arrange for notarised purchases of the infringing samples, then carry out an infringement and validity analysis. They should also decide where to sue and which entity should be bringing the lawsuit. A key to success is the preparation of evidence, comparison charts and pleadings before commencement of the action.
Sukduang: The first thing a company should do is conduct a thorough review to be certain that the accused product infringes the claims you may assert. This would include preliminarily construing the claims and pressure testing those constructions to ensure that the claims would survive validity and patentability attacks. Now that IPRs are a viable option, patent owners should also seek to enlist the help of experts in the field and preliminarily prepare for an IPR attack. Additionally, if the circumstances are favourable, it might be productive to reach out to the alleged infringer to determine whether an amicable resolution could be reached without litigation. That said, if the companies have a history of disputes, or are direct competitors in a very competitive market, filing suit might be necessary as the first course of action.
Vary: From the perspective of the patent owner, this differs between standards-essential patents, where infringement is implicit in the production of a product implementing those standards, and implementation patents. But in either case, asking the infringing party to respect your intellectual property, either by agreeing terms for a standards-essential patents licence or stopping infringement on other patents, should be the first step. If you cannot agree on terms for the standards-essential patents, you should offer arbitration or another way of resolving the matter.
Hood: They key to maximising a company’s likelihood of prevailing in a patent dispute is to critically assess the asserted claims and available defences, as early as possible. If contemplating filing a lawsuit, this means obtaining as much information as possible about the infringing device, system or use. A company should also review and assess notice of the patent and financial impact, and objectively evaluate potential monetary damages and the target infringer’s financial viability and IP portfolio. An accused infringer, on the other hand, should assess the merits of the infringement allegations and identify and vet all potential defences, to determine potential legal and financial exposure and identify a best course of action. Regardless of side, determining early the company’s goals, and objectively assessing anticipated costs, risks and outcomes, will help guide the effort throughout the dispute and avoid expenditure of time and money that does not advance the company’s end goals.
Dressel: Higher pressures on healthcare budgets have led to increased incentives to substitute originator products for cheaper generic copies, automatic and competition-based price reductions especially after the launch of more than one generic product, and an increased competition by generics to be the first to launch in order to utilise the most profitable period immediately after the first generic launch. All these factors have caused earlier and faster erosion of originator sales. Therefore, the prevention of such launches by early preparation for litigation and preliminary injunctions is key for originators: know the value of your portfolio, get the litigation stories right and aligned across jurisdictions, select technical experts, expert witnesses and counsel, and have competitive intelligence and litigation coordination in place.
Collier: Being proactive and developing an action plan is essential to avoid being caught flat footed. Every successful company will likely face a patent infringement allegation at some point and being prepared to handle that situation will likely impact how efficiently and effectively that matter will be resolved. An action plan should identify the key decision-makers to evaluate the possible infringement and the most effective strategy for dealing with it. The decision-making team should include individuals who can effectively voice and evaluate business and legal considerations that the possible infringement implicates. Meanwhile, the legal strategy to implement should be influenced by business objectives and, with those in mind, the decision-making team should evaluate the various dispute resolution mechanisms that are available, such as pursuing a licensing strategy or other business resolution, enforcing the patent through litigation or ADR, or taking no action at all. The team will want to conduct a cost-benefit analysis for each possible strategy.
“The increase in filings generally may in some respects owe to continued consideration of legislation to address what some perceive as abuse of patent rights and frivolous claims.”
FW: In the US, how would you characterise the impact of the America Invents Act (AIA) on patent litigation? In what ways does the AIA affect patent challengers?
Hood: The AIA has had a major impact on patent litigation. It created new avenues by which patents can be invalidated, and in much shorter time periods, than in conventional district court patent litigation. AIA procedures such as IPR and Covered Business Method Review (CBM) are being used by accused infringers with increasing frequency to challenge the validity of patents, and the PTAB has not been shy about invalidating patent claims in these proceedings. So far, Post Grant Review (PGR) has proven less popular, but likely because fewer patents have to date been eligible for the proceeding. As more patents become eligible, expect that PGR will become more prevalent. Many entities are using these procedures in parallel to district court litigation, while others are using the procedures on their own to challenge patents that may be of some concern to them. The procedures add yet another potential weapon in the accused infringer’s arsenal, but they should not be viewed as a silver bullet. There are substantial complexities of interaction between these procedures and parallel district court litigation, and companies will be well served by carefully assessing whether and how such weapons may best be utilised.
Collier: Even four years later, AIA continues to have a profound impact on US patent dispute resolution with the full extent of that impact still yet to be fully understood. The most obvious and significant impact to date has been the institution of the IPR procedure, allowing for an invalidity challenge of an issued patent before the USPTO. The IPR procedure mechanism offers several attractive elements for a patent challenger, including a broader claim construction standard than used in US district court, no presumption of patent validity, a ‘preponderance of the evidence’ standard for patent validity, generally better technical expertise on the part of decision makers, the fact that it can run parallel to and will often stay litigation in federal courts, and the fact that it is often faster and lower cost than litigation in federal courts. One disadvantage, however, is that if an IPR is instituted and a final written decision is issued, the challenger will be precluded, or ‘estopped,’ from later raising any invalidity ground that it reasonably could have raised, or did raise, during the IPR.
Vary: It has been the subject of much discussion, but the doomsday scenarios predicted by some have not arisen. We’ve seen a reduction in the number of cases where we are named alongside many other defendants, but that’s more a procedural change than a substantive one. AIA is one part of the general trend in the US to make it harder for patent owners to prevent infringement or collect royalties. The intention was to reduce the number of egregious ‘troll’ type cases but unfortunately this is having the opposite effect: making it harder for innovators to collect royalties tends to drive them to sell their patents to those who are prepared to use more aggressive tactics.
Sukduang: The AIA’s introduction of post-grant proceedings, particularly IPRs and review of CBM patents, has changed the game with respect to patent infringement proceedings. Alleged infringers now have a relatively short and cost effective means for attacking patents that have, or may be, asserted against them. IPR and CBM have been particularly useful for those companies that are frequently sued by non-practicing entities seeking a settlement. Indeed, many companies have taken a proactive approach by filing IPRs even before they are sued. With the high rate of institution and claim cancellation, the use of these proceedings will likely continue to grow.
Hinman: In typical litigation filed by NPEs prior to AIA, they could file a patent infringement suit against numerous defendants that might have nothing in common, other than the fact that each had been accused of infringing the same patent. AIA altered the ability of plaintiffs to file one lawsuit against numerous defendants in these situations, and requires that questions of fact common to all defendants or counterclaim defendants arise in the same action. Also, the use of IPRs has been a key aspect of the AIA which has most affected patent litigation by providing ways to challenge an asserted patent in a non-litigation setting and to achieve litigation stays while the IPR is conducted. In addition, older patents which are reviewed under newly revised guidelines may be found invalid notwithstanding whether such patents were valid under prior law.
“Being proactive and developing an action plan is essential to avoid being caught flat footed. Every successful company will likely face a patent infringement allegation at some point.”
FW: Can you explain the practical benefits that the Inter Partes Review (IPR) has brought to patent disputes? Are there any changes on the horizon?
Vary: IPR in the US is rather like opposition in the EU. I am sceptical about its benefit as a defendant. In this industry the portfolios of patents are substantial, and the greatest difficulty facing a patent owner is to identify within its portfolio the patents that are really strong. IPR streamlines your opponent’s portfolio and converts the many ‘uncertain’ patents into a few tried and tested patents. As a defendant I would rather face an opponent who has a large portfolio of untried patents than a patentee armed with patents that have survived IPR.
Hinman: The AIA eliminated inter partes re-examination, but added IPR. The use of IPR is intended to be quicker, more efficient and less expensive for post-grant patent challenges, and is also intended to be faster to appeal with PTAB adjudicating validity. IPRs can provide a viable way to achieve a stay in litigation while the IPR is considered, and offers accused infringers other advantages including broader claim construction standard, a lower burden to prove invalidity, the use of technical decision makers, and a higher chance of success. In general, an IPR may be most appealing when litigation is pending or likely in a jurisdiction where the judge or jury is unlikely to invalidate the patent or when the prior art in the IPR request is reasonably strong. However, there is proposed legislation that may change the IPR process including addressing estoppel and claim amendments.
Dressel: The lower invalidity standard of preponderance of evidence at the PTAB versus the clear and convincing evidence standard used in courts facilitates invalidation and is increasingly recognised as a valuable tool by generics in order to clear the way. However, this erodes the presumption of validity, only benefits patent challengers and creates different validity standards for different legal bodies.
Hood: IPR has presented an avenue by which accused infringers, or others with an interest in the challenged patents, can seek to invalidate the patents in much shorter time periods that in conventional district court litigation. IPR by statute is to be completed within a 12-18 month resolution window. From a practical standpoint, this means a patent challenger has the opportunity to resolve a patent dispute in about half the time that it has traditionally taken to resolve a district court lawsuit. There is also a potential for cost savings from pursuing IPR, although it remains to be seen whether this is actually being realised. Parallel district court proceedings are not automatically stayed pending an IPR, and a patent challenger can find itself fighting the battle on two fronts.
Sukduang: Practically speaking, IPRs provide a relatively short and cost effective means for determining patent validity. Filing IPRs early on in a patent litigation case may also lead to a stay of the district court action during pendency of the IPR, which provides additional cost saving measures. Many, however, believe that patent owners are significantly disadvantaged in IPR proceedings, as they are not permitted to provide expert evidence in its preliminary response to the IPR petition, and the PTAB has been reluctant to allow claim amendments that overcome the cited art. The USPTO has issued draft proposals to address some of these issues, including providing the patent owner the right to file expert declaratory evidence with their preliminary responses and having the decision on IPR institution made by a single judge as opposed to three judges – the same three judges that will ultimately determine the outcome of the IPR. There are some limitations associated with IPRs, including the inability to raise patentability issues under 35 U.S.C. § 101, or written description and enablement grounds under §112. IPRs also include estoppels, whereby if a final written decision is issued, the petitioner cannot, in another proceeding, raise issues it did or could have raised in the IPR. Given the high number of IPR filings, the estoppel provisions do not appear to be a major deterrent.
Collier: One practical benefit of an IPR is the efficiency with which those disputes are resolved. Upon grant of an IPR petition, the USPTO must issue a final written decision within 12 months, although extensions of six months may be allowed for good cause. As a result, patent litigants are much more likely to have a ruling from the IPR process long before a ruling from district court litigation, even if the district court does not stay the litigation pending the IPR’s resolution. While its relatively short duration may make the IPR process attractive, it is also important for any accused infringer to consider the estoppel that may apply before initiating an IPR petition.
“As a defendant I would rather face an opponent who has a large portfolio of untried patents than a patentee armed with patents that have survived IPR.”
FW: To what extent can Section 337 of the USITC facilitate a quick resolution to certain patent disputes?
Collier: Section 337 investigations proceed very quickly. While the statutory provision that provided a strict one-year limit on the pendency of Section 337 proceedings has been amended to eliminate this time limit, United States International Trade Commission (ITC) proceedings still progress rapidly and may conclude within a year to 18 months. The ITC’s accelerated schedule, although offering the benefit of a shorter time between filing and resolution, can create increased time-pressure, costs and litigation burdens on both parties. Section 337 investigations still play a notable role in patent disputes, but they have generally decreased in popularity since peaking in 2011. That year, 72 ITC investigations were instituted, but decreased to 43 in 2012, 45 in 2013 and 37 in 2014.
Hood: Section 337 disputes continue to serve as an alternative or supplementary option for enforcement of patent rights. This type of proceeding provides a company a tool to potentially exclude infringing imports. Monetary damages are not available, but an exclusion order which is available in this type of proceeding can be extremely valuable to a company facing infringing competitors. These proceedings are highly accelerated as well, as compared to federal district court proceedings, generally resolving within 12-18 months. They can prove expensive, however, so a business involved in or considering such proceedings should be prepared from the outset to be fully engaged in fast paced proceedings, at significant expense.
Vary: Section 337 offers an exclusion order against importation of infringing products, but no damages. The judges seem to be good quality and you can get to trial in a similar timescale to Dusseldorf or London. Unfortunately ITC actions are not cheap, and it is then necessary to go through a review by the Commission before any order can issue. One day we may see a US federal court with the same procedures and timescales as the ITC, but with the ability to award damages as well.
Hinman: Although civil litigation continues to be the most common way to enforce US patent rights, companies seeking to enforce their patents against foreign-manufactured products have increasingly chosen to pursue infringers by administrative litigation before the ITC. The ITC is what they call ‘a rocket docket’ for patent litigation. The average time to trial is approximately 10 months and the average time to decision is approximately 16 months. This is a rather remarkable speed given the fact that ITC trials, on average, involve more parties and more accused products than the average District Court trial. Besides speed, another advantage of utilising the ITC is its use of the Exclusion Order. This order is often more advantageous than a District Court injunction because it bars the importation of infringing products regardless of who imports them.
FW: In Europe, what have been the most notable developments surrounding patent protection in recent years? How confident are you that the UPC will succeed where the EPLA failed?
Dressel: It has become clearer that German bifurcation of invalidation and infringement proceedings can no longer be considered as a model of success to be followed by other jurisdictions including the UPC. When it takes the Federal Patents Court two years or more to come to a decision on the validity of a patent, whereas a fast Regional Court like the one in Mannheim can issue an infringement decision within nine months or less, a potential injunction gap of one year or more is generated. Also worrisome is a divergence between the validity standards of the EPO and the abnormally high invalidation rates of national courts especially in the UK, Germany and the Netherlands leading to a decreased presumption of validity and therefore less business certainty. Having said that, the EPC has been a success story for the European market, and there is optimism that the UPC will be one too. For the success of the UPC it will be crucial to convince the many existing excellent European patent judges to participate in the UPC.
Hinman: A significant development in Europe has been in setting the framework for implementation of a unified European patent, which would streamline obtaining and enforcing patents throughout most of Europe and also provide a common set of rules for these processes. Currently there is no common European patent litigation system, and the application and interpretation of EPC is not fully harmonised. The failure of EPLA was that it touched on issues under the exclusive jurisdiction of the European Community and it was determined to have breached Article 292 of the EC Treaty. Unlike that approach, the UPC should succeed as all necessary measures have been taken to ensure that it fits in perfectly with the EU legal system, and after carefully considering case law from the EU Court of Justice.
Vary: I am pretty sure that the UPC will succeed. It has achieved such momentum that its adoption is inevitable. The rules of procedure look good overall. There is some scepticism about some aspects of its make-up, in particular the ability to forum shop and the negative effects that can result from putting courts in direct competition with each other, but we will have to ameliorate those with careful appointment of judges.
“Filing IPRs early on in a patent litigation case may also lead to a stay of the district court action during pendency of the IPR, which provides additional cost saving measures.”
FW: In your opinion, how important is it for companies to develop a quick and decisive strategy for resolving patent disputes? Do you believe that companies are paying enough attention to preparation before disputes occur?
Hinman: When a patent dispute surfaces, it is very important to explore all available options outside of litigation, but be prepared to litigate if other avenues are exhausted. It is important to resolve disputes early by finding common ground and dispelling any misunderstandings regarding the patent scope or allegedly infringing products. Many companies rush into costly litigation immediately, without first attempting to negotiate patent peace, which is a mistake, as they may have been able to resolve the dispute out of court. Many companies also do not sufficiently conduct thorough due diligence preparations before they initiate costly litigation, and are then unprepared for what may follow.
Chiu: Enforcing patents in China involves many of the same issues which need to be considered when enforcing patents in other countries. However, because of the size of China, with its many different provincial and municipal courts and distinct procedural rules in dealing with patent matters, companies might overlook some unique and practical issues for patent disputes in China. For example, you need to know your counterpart very well and avoid possible local protectionism, and if necessary, you must be prepared to lodge the case somewhere other than the place where your counterpart is domiciled. Ideally, patent owners should consider commencing actions before one of the IP courts in Beijing, Shanghai or Guangzhou as these courts are specialised in technical, patent dispute cases.
Collier: It is critical for companies to be prepared and to act quickly when a patent dispute arises and to minimise disruption to normal business operations. Companies should know all of the legal avenues available to them to reach their business goals for asserting or protecting their patent rights and stay flexible about the best way to achieve them. Unfortunately, due to the unique nature of most patent disputes it is difficult to have a comprehensive plan in place to address a dispute before it occurs. Nonetheless, the lack of a one-size-fits-all approach to patent dispute resolution should not deter companies from developing a general action plan and understanding the advantages and disadvantages of the various patent dispute resolution mechanisms available to them.
Hood: It is vitally important for a company to develop a quick and decisive strategy for resolving a patent dispute. These disputes are complex, time consuming and expensive. Early, critical assessment of patent claims and defences, to include an objective evaluation of potential monetary damages and other potential relief, will enable the company to develop a comprehensive strategy to achieve identified objectives. Delay and indecision stand to undermine, or even preclude, available strategies and mechanisms for resolving patent disputes. This will become even more important as, for example, the AIA’s PGR process, which is only available in the first nine months after a patent issues, becomes a more available option.
Vary: I don’t like the word ‘strategy’ in a business context, as it carries with it a presumption that you must always have a strategy, and preferably one that can be expressed through the medium of PowerPoint. But in litigation it is unwise even to begin to develop a ‘strategy’, if you choose to call it that, until your opponent is known and the parameters of the dispute are clear. Even when you have developed a strategy, you will probably need to change it when your opponent or a judge does something that you did not expect. Pre-developed strategies or procedures are a bad thing because your team feels constrained to follow them in situations where they have ceased to be appropriate.
Dressel: A proper patent litigation strategy before any litigation starts is key. Depending on the type of conflict, the value of the patent portfolio needs to be assessed as objectively as possible early on, potential outcomes of any litigation and non-litigious alternatives need to be evaluated, exit scenarios need to be considered and the business needs to be on board in order to identify the most pragmatic solutions for a patent dispute which unavoidably will bind immense resources for a long time. The big pharmaceutical competitors usually are savvy and experienced enough. Smaller players might sometimes lack expertise and experience and, therefore, foresight.
Sukduang: There is an old phrase: “It is better to sweat in peace than bleed in war” – in this instance meaning that it is better for patent owners to really dig into the issues, interview the inventors, preliminarily review important documents, and hire experts to consult with prior to filing a patent infringement suit. You want to be aware of as many issues as possible before you litigate such that when your opponent raises an issue, you have a response at the ready. Even better, you might feel stronger about your overall case position if your opponent has not raised an issue you identified.
FW: Litigation is a typical route for patent disputes, but when and to what extent might arbitration and alternative dispute resolution (ADR) methods be considered?
Hood: Arbitration and other ADR methods, including mediation and settlement conference, are often mandated by the judge at some point in a federal district court patent litigation case. Whether by local rule or court directive, the parties are often required to choose an ADR method, such as mediation or settlement conference, and provide their input on timing of the process. The timing of ADR depends on each case. Some cases are amenable to early ADR, even before discovery begins, and in such instances offer a potential vehicle to resolve the dispute early and before substantial expense. Others, however, have no meaningful chance of resolution before discovery, including that from experts, is complete. Each case much be assessed on its own merits.
Sukduang: The most common use of ADR is when an agreement between the parties dictates mediation or arbitration. In those instances, the parties already have a relationship, and may want to continue that relationship on friendly terms. ADR can allow for this by minimising costs and burdens on each party, as well as providing a neutral third party that has the time, willingness and ability to sit down with each side and point out strengths and weaknesses in their positions. If litigation is pending, mediation before an experienced magistrate judge can, at times, materially advance settlement, primarily by getting decision-makers from each party to communicate with one another in a referred manner.
Chiu: According to the SPC’s White Papers, around 65.96 percent of first instance intellectual property cases in 2014 were withdrawn or settled before judgment. The Chinese courts have continued their efforts to diversify the mechanism of dispute resolution. For example, the courts in Zhejiang province have established a docking mechanism for litigation and mediation. They entrusted 187 patent cases for mediation under the system. As a result, 81.28 percent of those cases were withdrawn before judgment. When the dispute occurred between parties of a commercial contract, it may be possible to resolve the dispute through arbitration.
Vary: Patent litigation is never our preferred option. We favour the use of arbitration; our most recent deal with LG Electronics, for example, leaves the amounts of royalty payments to be settled through independent arbitration.
Collier: Binding arbitration is one route some companies take for patent disputes because it can be considerably cheaper and more efficient than normal litigation. An arbitrator has wide discretion to guide the proceeding by narrowing contested issues and streamlining the discovery process. In fact, it is becoming more common for companies to include an arbitration clause in patent licence agreements. That said, there are special rules regarding arbitration of patent disputes that companies should keep in mind when considering whether to forego litigating a dispute in federal court.
Dressel: ADR like mediation or arbitration still plays a very minor role in pharmaceutical patent litigation. At this point in time there is unlikely to be any significant role in patent disputes between originators and generics, at least not in the field of small molecule drugs. However, this might become an interesting alternative in the area of biologic drugs, research tools or diagnostics for personalised medicines where the number of disputed patents is often bigger, cross-licences might be needed and a resolution creating early business certainty across many jurisdictions might be attractive. One interesting issue of ADR might be how far antitrust issues, which are becoming more and important in pharmaceutical patent litigation, can be properly addressed.
Hinman: While an aggressive patent litigation strategy might be the best approach in some circumstances, often the preferable commercial outcome, particularly when defending a patent infringement claim, is to use ADR methods such as negotiation, mediation, collaborative law or arbitration to facilitate communication between the parties to reach a settlement to the dispute. ADR can be court-ordered or privately organised and can be a very cost effective way to avoid an otherwise costly lawsuit.
“For the success of the UPC it will be crucial to convince the many existing excellent European patent judges to participate in the UPC.”
FW: Could you provide examples of any recent court cases and judgments which you believe will have important implications for the patent disputes going forward?
Vary: The CJEU’s recent ruling on the referral of the Huawei v. ZTE judgment confirms that normal remedies for patent infringement remain generally available to SEP owners without risk of infringing competition rules. When deciding whether to give an injunction, the decision highlights that the behaviour of the licensee, not just that of patent holder, is important. Whilst SEP owners must have made a specific FRAND offer to implementers before seeking an injunction, implementers must either accept or make a counter offer without using any delaying tactics. The judgment also states that implementers using the teaching of a patent before they have a licence must provide security such as a bank guarantee. This means that implementers must make provision for payment even before there may be a court ruling in cases under dispute.
Dressel: One interesting aspect of pharmaceutical patent disputes which national courts currently try to tackle is the area of so-called second medical use patents covering new indications, modes of administration, dosages or dosage regimens of drugs, the carve-out of these patented uses by generics leading to skinny-label generics and the later use of these skinny-label generics for the carved-out patented use, often referred to as cross-label use. While generally accepted as an important part of innovation, enforcement in a complex pharmaceutical environment with many stakeholders like physicians, pharmacists, patients, insurers in addition to originators and generics becomes very difficult due to short-term healthcare budget considerations, manifold incentives to substitute by cheaper generic products, patients’ data privacy. Recent national court decisions of the first and second instance especially in the UK, Netherlands and Germany regarding Pfizer’s/Warner-Lambert’s Lyrica/pregabaline and Novartis’ Aclasta/zoledronic acid are leading the way.
Hinman: In Alice Corp. v. CLS Bank International, the Supreme Court decided claims directed toward a patent-ineligible abstract idea do not become patentable due to recitation of a general-purpose computer. Such recitation does not add an ‘inventive concept’ to the claims sufficient to transform the claimed abstract idea into a patentable invention. Another important case which may have far-reaching implications is Intellectual Ventures I LLC v. Capital One Bank, where the Federal Circuit held that claims were directed to an abstract idea without an inventive concept. These cases deal with important legal subject matter which may have future implications.
Collier: The Supreme Court has recently shown a greater willingness to delve into the patent field, issuing several patent law decisions during its last term. In Teva Pharmaceuticals v. Sandoz, the Supreme Court reined in Federal Circuit control over district court claim construction. The Court held that in questions of claim construction, the Federal Circuit – the appellate court that hears all patent cases – must provide substantial deference to the district courts on factual issues. Another notable case decided this year, Kimble v. Marvel Entertainment, affirmed a prior Supreme Court decision that held patent licences could not extend past the expiration of the licensed patent. Thus, companies entering into patent licensing agreements must be cognizant of the fact that if the agreement calls for post-expiration royalties, the contract may be held unenforceable once the patent expires.
Chiu: Disputes over patents incorporated into technical standard have been brought into the spotlight recently. Much debate surrounds the issue of determining infringement that results from practicing the technical standard. In the 2014 case of ZHANG Jingting v. Hengshui Zi Ya He Architecture Engineering Co., Ltd et al, the SPC held that without authorisation of the patentee, implementation of a recommended technical standard that incorporates the patent at issue can constitute patent infringement. The ruling has been a significant development from SPC’s previous reply to a case in 2008. The court then stated that where the patentee participated in the formulation of the technical standards or consented to the incorporation of its patents into the standard, it shall be deemed that the patentee made an implied licence to whoever implemented the standards. There should be no finding of patent infringement. The SPC in ZHANG’s case clarified that when the patentee has made proper disclosure, the implementer of the technical standard should obtain a licence from the patentee and pay for the royalties under the fair, reasonable and non-discriminative principle. When the implementer refused to pay for the royalties, it shall be deemed to infringe the patent.
Hood: A decision with major implications for patent disputes is the Supreme Court’s January 2015 decision in Teva v. Sandoz. The case addressed the issue of patent claim construction, the process by which certain terms in patent claims are defined. The Court ruled that claim construction determinations that are factual in nature, as compared to legal, are entitled to substantial deference on appeal, and are not subject to the de novo appellate review standard as had been the case previously. The decision has and will continue to influence how parties address and present claim construction in patent cases, and stands to affect the calculus that patent litigants use in assessing cases. The Supreme Court’s June, 2014 Alice Corp. v CLS Bank International decision is continuing to have a major impact on patent disputes, providing a vehicle by which litigants are persuading courts to invalidate patent claims. Most recently, the Supreme Court’s May 2015 Commil v. Cisco decision, holding that an accused infringer’s good faith belief that a patent is invalid is not a defence to induced infringement, as well as the Federal Circuit’s July, 2015 Amgen v. Sandoz decision that provided guidance on the logistics of a biosimilars challenge under the Biologics Price Control and Innovation Act, stand to also substantially impact patent disputes and affect how litigants proceed.
Sukduang: In Ariosa Diagnostics, Inc. v. Sequenom, Inc., the Federal Circuit, following Prometheus and Myriad, placed further restrictions on what can be considered patentable subject matter under 35 U.S.C. § 101. There was no dispute that the invention claimed in Sequenom’s patent was a medical breakthrough in that it allowed for much safer prenatal testing for genetic disorders, yet the court determined that the invention was still directed unpatentable subject matter, as it was premised on assaying naturally occurring cell-free foetal DNA, the existence of which no one knew until identified by Sequenom. The Sequenom case may make it more difficult for biotech companies to successfully assert certain types of patents that utilise materials that are naturally occurring.
“The Chinese courts have continued their efforts to diversify the mechanism of dispute resolution. For example, the courts in Zhejiang province have established a docking mechanism for litigation and mediation.”
FW: What final piece of advice would you give to companies on effectively protecting and enforcing their patent rights, including adding particular provisions to their commercial contracts?
Sukduang: Companies should invest the time and resources in hiring highly competent in-house or outside counsel to draft and prosecute patent applications. While patent litigations might get the spotlight, cases can be won or lost based on the quality of the patent and claims being litigated, usually many years earlier. Too often, companies take a short-term approach with respect to budget when prosecuting patent applications, rather than taking the long view approach and realising that the application pending today might protect their very profitable product. When long-term goals are considered, spending the time and resources to improve on patent drafting and prosecution will be repaid many times over in litigation.
Dressel: Early development of a consistent patent validity and infringement story aligned with internal and external technical experts and business stakeholders as well as early consideration of potential antitrust issues, all across the most relevant jurisdictions are key. These measures minimise surprises and avoid awkward changes of direction which can easily lead to contradictory arguments and loss of credibility in front of courts.
Hinman: One key piece of advice is for companies to not opt-out from the UPC. Such an opt-out may too easily result in a lock-out, preventing you from efficiently litigating your European patents. A lock-out happens when, after an opt-out, the European patent is litigated nationally, which litigation may have been started by your competitors by seeking national revocation. In such a case, an opt-out cannot be withdrawn. In contracts, dispute settlement provisions should be formulated such that UPC litigation is not excluded. An additional piece of advice is to practically understand the coverage of your patent claims and what the true exposure might be. With regard to commercial contracts, it is best to address intellectual property provisions, such as ownership and indemnity, early on in the negotiations so that they can be assessed and considered contemporaneously with the commercial terms.
Hood: Companies should treat patents as valuable assets worthy of protection. A company should have a comprehensive patenting and patent maintenance programme in effect, to ensure that its development efforts are appropriately mined for protection, and to ensure that patents are properly maintained. Additionally, the company should adopt a monitoring process that will track competitor IP activities and strategy, alert it to potential infringements by competitors, and trigger appropriate action such as preparation of a cease and desist letter or even a complaint and more formal dispute documents. Finally, as early as possible in the process, the company should objectively assess its options, and aggressively pursue available remedies when the situation calls for action.
Vary: You really need to have people on the payroll who understand your portfolio because patent selection is the key to success. Also, hire an experienced patent litigation law firm. Patent litigation is tremendously expensive but the outcome is dependent on the skill and experience of your litigation team. It can be a false economy to use your usual commercial law firm, even if they do give you a great discount. After all, the most expensive thing in patent litigation is losing.
Collier: Over the last five years, the US patent field has changed dramatically and further change seems to be in order. Companies should make it a priority to stay informed about patent related developments that impact their industry. Monitoring the marketplace is important from both a litigation and business perspective, and companies should stay informed about competing businesses, products and technologies and the patent protection that others are receiving. As the recent Kimble Supreme Court decision highlights, when entering into patent-related commercial agreements, companies should be aware of developments in patent law impacting patent and licence rights. Intellectual property can often be one of a company’s most valuable business assets, and companies should be cognizant of the effective ways to protect and enforce it so as to maximise it, but also recognise that the law and mechanisms associated with patent protection are continually evolving.
Chiu: Our final piece of advice is to fight a prepared battle by knowing yourself and knowing the battlefield. Companies are recommended to ‘localise’ their patent strategy, taking into account the special features of the Chinese patent regime. Besides the differences in the laws and procedures governing patent litigation, attention should be paid to the distinct commercial and cultural environment in China. For example, we have seen many cases between parties which have a pre-existing commercial relationship. If the contract provisions were drafted properly, it may be possible to avoid such a dispute or to resolve it in a more swift and cost-effective way should the dispute occur. The parties may consider adding future disputes over patents as a type of contractual breach and provide for the remedies, as well as dispute resolution mechanisms for such a breach. Ideally, consulting with legal counsel both familiar with the legal regime, and sensitive to the commercial culture will be important, if not critical, for drawing up an overall patent portfolio and enforcement plan.
Sanya Sukduang concentrates on patent litigation before federal district courts and the US Court of Appeals for the Federal Circuit, primarily in the areas of biotechnology, pharmaceuticals, biologics and medical devices. He has conducted all aspects of pre-trial, trial and post-trial proceedings. Mr Sukduang has extensive experience in cases arising from the filing of Abbreviated New Drug Applications (ANDA). He can be contacted on +1 (202) 408 4377 or by email: sanya.sukduang@finnegan.com.
Georgia Chiu is a counsel in Hogan Lovells’ Intellectual Property, Media and Technology (IPMT) Practice Group. She is a Hong Kong qualified lawyer and based in the firm’s Shanghai office since 2005. Ms Chiu specialises in all areas of IP, with a focus on litigation, in particular enforcing clients’ different types of IP rights against counterfeiters and managing administrative, civil and criminal actions in China. Ms Chiu is also experienced in trademark, design and patent counselling and portfolio management. She can be contacted on +86 21 6122 3800 or by email: georgia.chiu@hoganlovells.com.
Paul Collier is a partner in the Intellectual Property Department of Kirkland & Ellis LLP’s Chicago office. Mr Collier has extensive experience litigating intellectual property and high profile litigation matters in federal district courts and the United States International Trade Commission. He has tried to verdict cases in numerous courts around the United States. Mr Collier also has experience counselling clients on licensing and enforcement of their patent portfolios. He can be contacted on +1 (312) 862 2471 or by email: paul.collier@kirkland.com.
Richard Vary is Nokia’s head of litigation, and is an English solicitor. Since joining Nokia in 2006, he has been responsible for more than 200 patent litigation cases, giving him experience of patent litigation in the US, China and across Europe. Before joining Nokia, Mr Vary practised law in the Intellectual Property Department of Linklaters in London. He can be contacted on +44 (0)7920 272 750 or by email: richard.vary@nokia.com.
Jürgen Dressel is responsible for the global litigation strategy at Novartis Pharma IP with focus on patents. In 2002 he joined the Generics group in the Novartis patents department, and in 2004 returned to the originator business and became responsible for Patents Primary Care. From 2007 to 2014 he headed patent litigation outside the US, and in 2014 switched to his current role. Mr Dressel’s main experience is preparing for and executing patent litigation between originators and generics. He can be contacted on +41 61 3248853 or by email: juergen.dressel@novartis.com.
Gary Hood is a skilled and successful trial attorney. A veteran litigator in courts throughout the United States, he has successfully led trial teams in a broad array of lawsuits. Mr Hood is vice-chair of Polsinelli’s IP and Technology Litigation Group, and leads the firm’s Hatch-Waxman and Biologics practices. He has been named an IP Star and Chicago Leading Lawyer each of the past three years, and to the IAM 1000 in 2014 and 2015. He can be contacted on +1 (312) 873 3653 or by email: ghood@polsinelli.com.
Brian Hinman is chief intellectual property officer at Royal Philips where he leads a worldwide team in conducting intellectual property management, strategy, litigation, standards, patent portfolio management and IP monetisation. Mr Hinman previously co-founded Unified Patents Inc., served as vice president of IP and Licensing at InterDigital and also VP of IP and Licensing at Verizon. He was also the founding CEO of Allied Security Trust (AST) and vice president of IP and Licensing at IBM. He can be contacted on +31 40 27 40555 or by email: brian.hinman@philips.com.
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