Authored by Ronald A. Bleeker and Nikolas J. Uhlir
In December, 2006, DuPont Air Products NanoMaterials filed suit against Cabot Microelectronics, seeking a declaratory judgment that it does not infringe four Cabot patents on chemical mechanical polishing ("CMP") slurries.1 This suit followed an assertion of these patents by Cabot and extended negotiations between the parties. The trade press promptly characterized the case as a development that "may become an increasingly familiar byproduct of nanotech commercialization."2
Of course, like many patent cases, DuPont v. Cabot may eventually settle.3 Alternatively, it could become one of the first major nanotech patent litigations, something that observers have long anticipated in view of the recent "patent gold rush" in this field.4 If so, what might it mean for nanotech defendants and those who invest in them?
In one sense, the facts of the DuPont litigation are common to many patent litigations—the owner of a patent asserts that its patent claims cover a more-recently developed product, and the "newcomer" responds that it does not infringe. However, this scenario may be particularly relevant to nanotechnology, where many new products do things or achieve results that were described (and possibly patented) in the prior art, but do so in a new way, or with new materials.
As luck would have it, this potential new wave of patent litigation comes at just the moment that U.S. patent law is undergoing its biggest upheaval in over fifty years. Largely in response to widespread industry and academic criticism about "patent quality,"5 all three branches of the Federal government are currently making or proposing changes in the fundamental rules for how one obtains and enforces U.S. patents. In August 2007, the United States Patent & Trademark Office ("USPTO") issued a complex series of new rules designed to limit the number of times a patent applicant can re-file an application. These rules are extremely controversial, and are currently in abeyance in view of a preliminary injunction issued by the District Court in Alexandria, Virginia.6 In a separate development, the House of Representatives passed a major Patent Reform Bill in September 2007.7 That bill is currently before the Senate Judiciary Committee.8 Finally, and most significantly for our present purposes, the Supreme Court's January 2007 decision in Medimmune, Inc. v. Genentech, Inc.9 led to a major adjustment of the respective abilities of a patent owner and an accused infringer to initiate litigation.
This article will review the pleaded facts in DuPont v. Cabot, to show how they describe a fact situation that may be commonly encountered by nanotech companies. The article will then discuss several options that are or may soon be available to nanotech companies charged with patent infringement.
II. The Dupont V. Cabot Litigation
As mentioned, the DuPont v. Cabot litigation involves a dispute between DuPont Air Products Nanomaterials L.L.C. ("DA") and Cabot Microelectronics, Inc ("Cabot"). DA is a joint venture between DuPont, and Air Products, Inc., and produces materials for electronics.10 Cabot is the world's largest supplier of CMP slurries.11
Consideration of the patents in suit and the pleaded allegations reveals a scenario that might become all too familiar for nanomaterials companies—the assertion of broad patents issued several years before the commercial introduction of the accused nanotech product.12
1. The Patents in Suit
At the heart of the DuPont litigation are five patents owned by Cabot.13 With the exception of the '142 patent, Cabot acquired each of the patents in suit by assignment from its parent, Cabot Corporation. Cabot purchased the '142 patent from International Business Machines Corp.14 Interestingly, each of the patents in suit was filed and issued prior to 2001, well before the recent increase in nanotech patenting.15
Each of the patents in suit relates to chemical mechanical planarization/polishing. As the name suggests, CMP is a process for smoothing (i.e., planarizing) the surface of a substrate via a combination of both chemical and mechanical forces. In a typical CMP process, a substrate (e.g., a semiconductor wafer) is contacted with a rotating polishing pad.16 During the process, a "slurry" of abrasive particles and a chemically reactive solvent is deposited onto the pad.17 The slurry starts the polishing process by reacting with the substrate, and the process is facilitated by the rotational action of the polishing pad.18 Polishing continues until the surface of the substrate achieves a desired conformation.19 CMP is arguably considered nanotechnology because the abrasive particles are typically very small, and in some cases have diameters on the nanometer scale.20
In patent litigation, the true force and value of a patent lies in the breadth, validity, and enforceability of its claims.21 On the one hand, broad claims are desirable, inasmuch as they may be enforceable against a wide range of potential infringers. However, claims are enforceable only if they are valid, and the validity of broad claims can often be more easily challenged.
In the DuPont litigation, all of the claims of the patents in suit relate to CMP slurries or methods for the chemical mechanical polishing of an article.22 Moreover, each of these patents contains independent claims that are undeniably broad. For example, claim 1 of the '142 patent reads:
"[a] chem-mech polishing slurry, comprising: abrasive particles, a transition metal chelated salt; and a solvent for said salt".23
If valid, this claim is enforceable against any chemical mechanical polishing slurry that includes, any abrasive particles, any transition metal chelated salt, and any solvent for the salt.24 The presence of such broad claims in the DuPont litigation suggests several things. At a minimum, it suggests that the patent owner, Cabot, may be able to assert these patents against a wide spectrum of competitors. However, it also raises the issue of whether claims of this broad scope are valid and enforceable. Not surprisingly, Cabot and DA have taken positions on squarely opposite sides of the infringement/invalidity fence.
2. The Pleaded Allegations
In its Complaint, DA seeks a declaratory judgment that it does not infringe the '142, '288, '775, and '787 patents.25 Further, DA seeks a declaratory judgment that the '288, '775, and '787 patents are invalid and/or unenforceable. In response, Cabot denies DA's allegations,26 and counterclaims against DA for actual and induced infringement of these patents, as well as the '423 patent.27
The Complaint recites in detail Cabot's assertion of its patents, and the prior negotiations between the parties. Presumably the recitation of these details is meant to establish that DA was "in apprehension of suit[,]" a requirement at that time for bringing a declaratory judgment action in a patent case.28 Attempting to meet this requirement, DA cites Cabot's oral and written assertions regarding DA's alleged infringement, in particular "representations by Cabot's representatives during. . . discussions that Cabot would not hesitate to bring an action for patent infringement, if [DA] did not cease-and-desist its allegedly infringing activities."29 In its response, Cabot did not contest these assertions,30 so this did not become a threshold issue in the case. Nonetheless, under post-Medimmune standards, these facts would likely be a more than sufficient basis for a declaratory judgment action.
As to the issue of infringement, DA's complaint merely states that it "has not infringed and does not infringe" any of the mentioned patents.31 Cabot's counterclaims provide little more information in this regard, other than alleging that DA has infringed, is infringing, and has induced infringement through the sale of a particular commercial product.32
Regarding the issues of the invalidity and unenforceability of the '288, '775, and '787 patents, DA's pleadings focus on Cabot's conduct during the prosecution of the corresponding applications before the USPTO. In particular, DA asserts that during the prosecution of these applications, Cabot: (a) failed to inform the USPTO of the significance of certain prior art; (b) failed to disclose certain information material to the patentability of the then pending claims; and/or (c) materially misrepresented the disclosure of certain prior art documents.33 DA therefore alleges that Cabot committed inequitable conduct before the PTO, thus rendering the '288, '775, and '787 patents unenforceable.34 Cabot of course denies each of these allegations.35
3. Have the Floodgates Opened?
On its surface, the DuPont v. Cabot litigation has many of the features of a typical patent case. However, the fact that nanotech patents are involved, in particular those issued between 1990 and 2000, adds a wrinkle that may herald the beginning of an increase in similar nanomaterials patent litigation.
Of course, the primary reason why we can expect an increase in nanotech patent litigation is that nanotech products are finally starting to come to market.36 Although there is a unique definitional and prior art wrinkle that may make disputes over nanotech patents more likely than in other fields, most companies are unlikely to sue until they see real products with sales in big markets.
The unique wrinkle lies in certain characteristics of nanotechnology that make the examination of nanotech patent applications more difficult than applications drawn to other, more conventional technologies. For example, though its potential has been long recognized,37 nanotechnology is still in the relatively early stages of development. As a result, the amount of nanotech prior art available to patent examiners in any given area of the technology is likely to be relatively small.38 Further, nanotech inventions are also often claimed by their properties, which examiners may find difficult to search for and identify in the prior art.39 This is particularly true if a patent applicant has acted as its own lexicographer and defined the properties of their invention in previously unknown terms.40 Finally, nanotechnology is a highly diversified science, and thus it is less likely that examiners will have the specialized technical knowledge that may be necessary to fully understand nanotech inventions and claims across several different fields.41
These factors suggest that today's patent examiners may be at somewhat of a disadvantage when considering nanotech patent claims. Some observers worry that these factors may lead to the inadvertent issuance of overly broad (and possibly invalid or unenforceable) nanotech patent claims.42
Patent examiners in the 1990's, when the Cabot patents were being prosecuted, faced even greater difficulties when considering nanotech patent claims. For one thing, patent search tools in the 1990's were not as sophisticated as they are today. It should be noted that the USPTO recently recognized some of the unique problems of examining nanotech patent applications, and has taken some steps to improve the classification and availability of nanotech prior art to its examiners.43 However, these improvements were not in effect in the 1990s. Thus, we would suggest that nanotech patents that issued from 1990 to about 2000 are more likely to contain very broad (and potentially invalid) claims. Of course, this is not necessarily true in every case. However, it is a factor that may encourage some patent owners to attempt wide enforcement of claims that may be subject to attack by alleged infringers.
Another factor is that many patents that become the subject of nanotech patent litigation may not really be "nanotech" patents at all.44 This may well become an issue in the DuPont case. There is endless debate as to the definition of "nanotechnology."45 It is also clear that many patents have issued with claims directed to small materials or to their manipulation, but which do not qualify as "nanotechnology." Nonetheless, these claims might literally cover products that involve newer and different technologies.46 Is this infringement?47 This may well become an issue in the DuPont case, which would set an important precedent for future cases of this type.
For example, patent claims directed to "microscale" materials and devices may use words that literally seem to cover "nanoscale" materials and devices, even though the technologies described in the microscale patents involve completely different properties, functionalities, and fabrication routes from those found or used in the nanotech arts. Many Micro-Electrical-Mechanical system ("MEMs") patents are examples of this problem—is a nanoscale device or machine "infringing" the claims of a patent that describes a macroscale device or machine by using common terms (such as "cantilever" or "fluidics") even though the macroscale patent relates to completely different technologies and even different physical laws?48
Accordingly, there appears to be ample room for substantive disagreements between patent owners and alleged infringers in the nanotech field. Moreover, the recent leveling of procedural barriers to bringing suit gives accused infringers greater ability to initiate litigation. And the introduction of significant commercial products makes the game worthwhile. For all of these reasons, the litigation floodgates may be opening. If so, what are the strategic options for the alleged infringer?
III. Options for an "Alleged Infringer"
For purposes of this article, let us assume that we are dealing with an "unwitting infringer", i.e. a company with no prior knowledge of the patents being asserted against it, or else a company which is aware of such patents but has a good faith belief that it is not infringing them. Any company finding itself in this position has essentially four alternatives: acquiescence; design-around; transactional resolution; or a challenge. Obviously, these choices are not mutually exclusive, and an accused infringer may wish to pursue one or more of these alternatives simultaneously.
Giving in to your competitor is never a popular or career-enhancing business option, so this will always be a strategy of last resort. However, there are times when a company must face the hard reality that its legal position is not strong. In such case, the wiser strategy might be to negotiate an orderly withdrawal from the market. Indeed, by continuing on course in this situation, a company will incur significant burden and expense during litigation, may increase its potential damages exposure, and might have to face treble damages and an injunction at the end of the litigation. In addition, if an area of interest is protected by multiple patentees, the cumulative transaction costs that accompany extended negotiations with each patentee may dictate withdrawal from the market.49
Of course, if the alleged infringer has already made significant commercial sales, then the patent owner may not be willing to allow it to simply withdraw. In that case, the patent owner may require, among other things, payment of a lump sum or royalty for past infringement; whether the alleged infringer will be afforded time to sell off accrued inventory (e.g., on a royalty-bearing basis); the scope of the settlement; and whether the settlement will constrain the alleged infringer from future challenges with regard to the asserted patents.
This scenario may be particularly unlikely in nanotechnology for several reasons. First, developing nanotech-based products generally involves significant capital expenditures. If this money has already been spent in product development, then an accused infringer is unlikely to simply abandon its investment.50 Second, because there has been so much R&D activity on nanomaterials in recent years (e.g. the large number of universities and companies working on carbon nanotubes), there may be more reason for an accused infringer to believe that it has or can find good prior art with which to challenge a patent. As discussed below, the Supreme Court's KSR International Co. v. Teleflex Inc. decision may also make it easier for a defendant to use prior art as a defense. Finally, many companies investing in nanotechnology have already done their homework and are aware that the patent landscape is highly fragmented among different owners in such areas as nanotubes, quantum dots, nanowires, and conducting polymers. These companies have already factored the risk of patent disputes into their investment analysis.
2. Design Around
If possible, another option for the alleged infringer is to redesign an accused product such that it is not encompassed by the claims of the asserted patent. Of course, given enough time and money, one can almost always find a non-infringing alternative. However, to be commercially viable, it must be determined how easily and how quickly a redesign may be accomplished. It must also be determined whether the redesigned and non-infringing product is inferior in terms of quality, price, and/or performance. Surprisingly, in several cases in which we have been involved, this kind of forced re-thinking has led to new products that are not only non-infringing, but also turn out to be superior to the original, accused product.
As with the previous option, however, if the alleged infringer has substantial prior commercial sales, it can expect to have to negotiate the price of its withdrawal. An added complication is that there will often be some legal uncertainty as to whether the new product is truly non-infringing. Moreover, in some cases, the alleged infringer may not want to share details of its new design with the patent owner. For these reasons, defining the exact scope of the settlement agreement and any releases from liability can be critical to an alleged infringer in this situation.
In nanotechnology, this option can be especially difficult because of the large number of "building block" patents with claims directed broadly to basic nanomaterial compositions and processing. One may be able to design around a competitor's patent if its claims are limited to the use of a specific nanoparticle, but it is harder to get around a "building block" patent that claims an entire class of nanomaterials.
3. License, Cross-License, Joint Development, or Acquire ("Transactional Solutions")
A third option for an alleged infringer is to consider the "transactional solution", i.e. resolving conflict by an agreement. Because of the fragmented nature of the nanotech patent landscape in certain key areas, it is likely that there will be numerous agreements cross-licensing nanotech patents.
A. Strategic Options
Many patents are asserted for the purpose of getting an alleged infringer to take a license or, perhaps, to purchase the asserted patent. If licensing or sale is the patent owner's goal, then there is a potential transactional solution to the problem. The issue then becomes whether the terms of the license or sale are acceptable to the licensee or purchaser. This is not to say that such solutions are easy, or even likely, or that a party may not seek negotiating leverage by filing suit.51 However, it is often easier to resolve a dispute by negotiating a license or sale than it is to solve a situation where the patent owner's sole objective is to completely bar the accused product from the market.52
For this reason, an alleged infringer must quickly determine the patent owner's true objective, and the proposed terms on which the patent owner will agree, if any. Of course, many factors will influence negotiations between the parties, such as the strength of the legal arguments as to the validity and enforceability of the asserted patent; the scope of the asserted patent claims; the remaining patent term; etc. The well-known Georgia-Pacific case enumerated these factors in a "hypothetical arms-length negotiation."53
In some cases, it may be possible to bridge the difference between the parties by thinking creatively beyond the simple license agreement. For example, if the alleged infringer has patents of its own, it may be willing to consider a cross-license in which the value received consists wholly or partially of the cross-licensed rights. Thinking even more broadly, the alleged infringer may find that its technology actually complements that of the patent owner. In that case, it may be to the advantage of both parties to work together on new products. Some of the most enduring technology partnerships or alliances have originated in the settlement of a patent dispute.
B. No-Challenge Clauses
It is not uncommon for the patent owner to seek to include a clause prohibiting, or at least restricting, the ability of an alleged infringer/licensee to challenge the validity or enforceability of the licensed patents. The enforceability of such clauses is an interesting subject that has come under fresh scrutiny as a result of the Supreme Court's Medimmune decision.
In its 1969 decision in Lear v. Adkins,54 the Supreme Court held that a patent license clause that prohibits the licensee from challenging the validity of the licensed patent is unenforceable. The Court weighed the value of enforcing contracts against the competing value of protecting the public from invalid patents, but found that such clauses were likely to discourage the very parties (licensees) most likely to challenge patents. In the almost 40 years since, Lear has never been overruled.
However, Lear has been criticized and narrowed in its application, particularly by the Federal Circuit. For example, the Federal Circuit has held that the Lear doctrine applies to patent license agreements, but not to patent assignment agreements or to agreements settling patent litigation.55
The Federal Circuit also seems reluctant to allow a party to challenge a licensed patent while simultaneously enjoying the benefits of a license under that patent. For this reason, the court has ruled that a licensee cannot challenge the licensed patent unless it gives formal notice of its challenge and terminates the license.56 However, in Gen-Probe v. Vysis,57 the Federal Circuit went a step further and held that a licensee that has not terminated its license lacks "standing" to bring a declaratory judgment action, because the continued existence of the license negates the existence of a dispute.
The recent Medimmune case involved a licensee that was reluctant to terminate its license under one patent in order to challenge a second and related patent asserted by the patent owner. The licensee therefore brought a declaratory judgment suit, but continued to pay royalties, "under protest." The District Court and the Federal Circuit followed Gen-Probe, and held that a "non-repudiating" licensee could not bring a declaratory judgment action. On appeal, the Supreme Court reversed, and held that termination of the license was not necessary in order for there to be a sufficient basis for a declaratory judgment action. However, the Supreme Court explicitly stated that it was deciding only the declaratory judgment issue and not whether Lear required termination of the license.58
This reservation leaves us in licensing limbo, and has inspired considerable discussion and ingenuity among licensing counsel as to what clauses might now be enforceable. One thing that is clear is that a clause in a license agreement that prohibits a licensee from challenging the licensed patent remains unenforceable. However, a clause stating that the licensor may terminate the license if the licensee challenges the patent may be enforceable.59 Similarly, the law has not yet sufficiently developed to determine the enforceability of other suggested clauses, such as:
requiring a licensee to give advance notice of any prior art on which it intends to challenge a licensed patent;
indicating that any challenge must be brought in a specific District Court;
allowing the licensee to obtain a license if it loses these challenge, albeit at a higher royalty; and/or
requiring the licensee to continue paying a royalty, even if it wins the challenge (and assuming that no know-how is also being licensed).
One would expect the last of these suggestions to be contrary to Lear, but are the others?
Finally, an alleged infringer always has the option of challenging the asserted patent. The challenge can be to the validity or enforceability of the patent (as in the DuPont litigation), to whether the accused product infringes the claims, or even to the inventorship of the patent. Of course, a challenge does not preclude simultaneous pursuit of any of the other options discussed in this article.
A. Options in the U.S. Patent and Trademark Office
Several options exist in the USPTO for challenging a patent. The viability of some of these options, such as an interference or defensive claiming, would require a substantial discussion of issues such as planning, timing, and/or cost.60 Moreover, they are only available in very limited circumstances, and will therefore not be discussed in detail herein. However, at least one option in the USPTO—reexamination of an issued patent—can be an effective defensive tool against an aggressive patentee.
The term, "reexamination," refers to a procedure by which the claims of an issued patent may be reconsidered by the USPTO in view of cited prior art patents and printed publications submitted by the patentee or a third party.61 Two types of reexamination are currently available under the USPTO rules, i.e., ex parte reexamination, and inter partes reexamination.62
With certain exceptions, much of the basic procedural elements of ex parte and inter partes reexamination overlap. For example, both types of reexamination begin with a Request for Reexamination (the "Request"), which must be filed during the period of enforceability of the patent in question.63 In addition, the scope of both types of reexamination is the same. That is, the rules limit both types to the consideration of prior art patents and publications, and require the establishment of a "substantial new question of patentability" with respect to the challenged claims.64 Further, both types of reexamination conclude with a cancellation of claims, the issuance of a certificate of patentability for new, original, or amended claims, or both.65 Finally, intervening rights for third parties may also be established under either type of reexamination.66
However, several important differences in procedure provide each type of reexamination with distinctly different advantages and disadvantages. For example, unlike a request for inter partes reexamination, a request for ex parte re-examination may be filed anonymously. In the case of a nanomaterials company that has identified patents of concern, but which has not yet been contacted by the patentee, the anonymity afforded by ex parte reexamination provides significant and obvious advantages. For example, a company in this position can attack a patent of concern without signaling the patentee that it may be a target for an infringement action. Further, a company could seek to establish intervening rights by filing as an anonymous third party.
The anonymity of ex parte reexamination does not come without risk, however. Indeed, after the Request, the rules governing ex parte procedure provide no further opportunity for the requestor to participate in the USPTO's interpretation and consideration of the prior art cited as the basis of the reexamination. Nor does ex parte procedure allow the requestor to appeal an adverse decision. As a result, there is enhanced risk that the USPTO will maintain the patentability of the issued claims in view of the prior art forming the basis of the reexamination. If this happens, the reexamined claims will be given a stronger presumption of validity in any subsequent District Court action.
Inter partes reexamination addresses the primary drawbacks of ex parte procedure by permitting the requestor to participate directly in the reexamination process beyond the Request, and to appeal adverse decisions to the Board of Patent Appeals and Interferences.67 In particular, inter partes procedure affords the requestor thirty days to comment on/respond to an office action issued during the reexamination. Thus, an inter partes requestor can have continuing input in the USPTO's consideration of references during the reexamination.
However, several factors weigh heavily against the use of inter partes reexamination. First, as implied above, inter partes procedure requires the requestor to identify itself.68 Of course, in the case of a nanomaterials company that has already been confronted by an aggressive patent owner, the lack of anonymity presents no true disadvantage. However, for the undetected nanotech company, requesting inter partes reexamination of a patent of concern sends a clear message to the patentee that the requestor may be a ripe target for an infringement action.
A second distinct disadvantage to inter partes reexamination is that it may only be requested for patents issued from applications filed on or after November 29, 1999.69 As a result, inter partes reexamination may not be available for many patents that are likely to form the basis of nanomaterials litigation, e.g., those issued between 1990 and 2000.
Finally, and most importantly, the interactivity afforded by inter partes procedure brings with it the very large risk of estoppel. That is, under the patent law, an inter partes requestor is barred from asserting at a later time, e.g. in any civil action, the invalidity of any claim finally determined to be valid and patentable on any ground which the third-party requester raised or could have raised during the inter partes reexamination proceedings.70 The one definite exception to this rule applies when the ground asserted at that later time is based on newly discovered prior art.71
Thus, while reexamination can be a valuable tool for alleged nanotech infringers to challenge issued claims, these procedures come with their attendant risks. These risks should be weighed in advance, and may necessitate pursuit of another option described herein.
B. Ability to Challenge in the Federal Courts (Medimmune/SanDisk)
The converse of the patent owner's right to bring a suit for patent infringement is the alleged infringer's ability to bring a declaratory judgment suit.72 In a declaratory judgment suit, the alleged infringer seeks a judgment from the court that the asserted patent is not infringed, invalid, or enforceable. However, the case must present a sufficient "case or controversy" to satisfy the requirements of the Declaratory Judgment Act and Article III of the Constitution.
Until recently, this limitation often posed a significant obstacle to an alleged infringer. A special "case or controversy" test had developed in patent cases which required the alleged infringer to demonstrate that it was in "imminent apprehension of suit" from the patent owner.73 However, in its January 2007 Medimmune decision, the Supreme Court held that a patent licensee did not have to terminate its license in order to establish a sufficient basis for bringing a declaratory judgment action. More significantly, in footnote 11 of its decision, the Court "went out of its way"74 to criticize the "imminent apprehension of suit" test as too restrictive. This led to two decisions of the Federal Circuit in March, 2007 in which the old standard was abolished and a new standard was adopted in Sandisk v. STMicroelectronics.75 Under the new standard, "where a patentee asserts rights under a patent based on certain identified ongoing or planned activity of another parry, and where that party contends that it has the right to engage in the accused activity without license, an Article III case or controversy will arise. . ."76
Medimmune and the subsequent decisions of the Federal Circuit have thus resulted in a major leveling of the litigation playing field between patent owners and alleged infringers. Previously, patent owners could find various ways to send letters asserting their patents to alleged infringers and their customers, but by careful phrasing could avoid a direct threat of suit that would give the alleged infringer the basis for bringing a declaratory judgment action. Although the courts sometimes criticized such "scare-the-customer-and-run tactics,"77 the power to initiate suit and to thereby select the trial court was a powerful weapon in the hands of patent owners. Now, however, almost any assertion that identifies specific patents and specific products, coupled with an alleged infringer's refusal to take a license, gives the alleged infringer a basis for initiating litigation in a court of its choosing.78
C. Attacking Validity and Enforceability in the Federal Courts (KSR, etc.)
Assuming that the alleged infringer can get into Federal court by means of a declaratory judgment action, it then has an opportunity to affirmatively challenge the scope, validity, or enforceability of the asserted patent (of course, an accused infringer can also raise such arguments as defenses once it is sued, but a declaratory judgment action allows an accused party the chance to initiate the suit in a forum of its choice). In addition to arguments that its product does not infringe the asserted patents, the alleged infringer can allege that the patents are not valid, either in view of the prior art or in view of several defenses as to the adequacy of the patent itself. Another argument that is frequently raised, as it was in DuPont v. Cabot, is that the patent is unenforceable due to misconduct (e.g. the failure to reveal its knowledge of relevant prior art) by the patent owner in obtaining the patent in the USPTO ("inequitable conduct").
In the course of 2007, the courts seemed to show greater solicitude for the alleged infringer both with regard to prior art defenses and with regard to inequitable conduct defenses. First, in the KSR case the Supreme Court made its most important ruling in over 50 years on the defense of invalidity based on obviousness over the prior art.79 In brief, the Court overturned prior decisions of the Federal Circuit that refused to find obviousness by combining the teachings of two or more prior art references unless the patentee could also show a "motivation" to combine the references. The net effect of KSR is to make it easier for alleged infringers to defeat asserted patents.80
The issue of whether a patent is "obvious" in view of prior art will be a major issue in nanotechnology patent litigation. This will be true not only in comparing nanotech patents to prior art "macrotech" patents, but also for developments within nanotechnology itself. For example, does doing something with one type of nanoparticle make it obvious to do the same thing with another type of nanoparticle? If a university group makes a thin film transistor with carbon nanotubes, and a company later gets a patent on a similar transistor made with silicon nanowires, is the patent "obvious" in view of the university work? Questions like this may well become a recurring theme in nanotech patent litigation.
Other defenses may also be available to the accused infringer. For example, the defense of inequitable conduct had fallen into disfavor in the 1990s as a result of such overuse that it was described as "a plague" on the patent system.81 However, in a series of decisions beginning in late 2006, the Federal Circuit showed a renewed receptivity to such claims,82 perhaps in reaction to renewed public concern about "patent quality." It is interesting that this appears to be a major issue in the DuPont v. Cabot litigation.
In short, once the alleged infringer gets into court, its chances of a successful defense are better today than they have been in many years. This is not to say, however, that patent trials are a sure bet for the defendant—statistics continue to show that many trial judges and juries continue to have a preference for patent owners, although this varies considerably by district.83 It remains to be seen whether the Patent Reform Bill and the proposed change in the venue statute will significantly alter these numbers.
D. Potential New Option: Patent Opposition
A major criticism of the American patent system is that it provides little opportunity for an alleged infringer to challenge a patent without incurring the burden of a suit in federal court. In contrast, many foreign patent systems (notably the European and Japanese systems) employ an "opposition" proceeding, in which third parties may contest the validity of a newly granted patent in a patent office proceeding. Although these proceedings have also been criticized for taking too long and for giving an advantage to companies with greater resources,84 they have the advantage of allowing the most interested parties (typically, the patentee's competitors) to bring to the attention of the patent office prior art that the patent examiner might otherwise miss. For this reason, many observers believe that they will provide a faster, cheaper way to improve "patent quality."
The pending Patent Reform Bill in the U.S. Congress would, for the first time, create a U.S. post-grant opposition system. Under the current proposal, which is still being debated, any third party would have nine months from publication of the granted patent to bring prior art to the attention of the USPTO, and to thereafter engage in an inter partes opposition proceeding. Important issues that remain to be resolved by Congress include: whether a third party can submit art after the nine month period; what weight to give such prior art in any subsequent enforcement litigation; and the extent of discovery in the opposition proceeding. However, a U.S. opposition system would offer companies a chance to challenge new patents in a forum that could potentially be faster and cheaper than existing patent litigation. Of course, it remains to be seen whether such a system turns out to be a good thing for the nanotech community. For example, it is possible that new patents would be challenged by companies with older patents that claim "the same thing," but do not achieve the same results in the same way.
E. Mediation or Arbitration
A final option for the alleged infringer is to challenge the patent in a non-litigation mode, i.e. by means of mediation or arbitration. In this context, "mediation" means a non-binding attempt by a neutral to bring about a resolution of the patent dispute, whereas "arbitration" means a binding decision by a neutral, often in accord with a formal set of rules such as those of the AAA, CPR, ICC, or WIPO. The number of variations on these techniques is almost infinite, and it is not unusual for parties to combine techniques by agreeing to engage in mediation, failing which they will proceed to arbitration. Many IP agreements, particularly international technology transfer agreements, routinely include an arbitration clause and some foreign governments may even require this. In addition, a number of federal courts have programs that require the parties to engage in some form of mediation before proceeding to trial.85
Whether or not the DuPont v. Cabot litigation becomes one of the first great nanotech patent litigations, it presents a fact situation that is very common in patent litigation, and which may be particularly relevant for nanotech start-ups and their investors.
However, today's alleged infringer has more options and is probably in a better position to defend itself than at any time in the last 25 years. As always, the alleged infringer has the options of discontinuing its activities; designing around the asserted patent; or reaching a transactional solution with the patent owner. However, should the alleged infringer decide to challenge the patent, several options and strategies are available to it—in the USPTO, through mediation or arbitration, and in the Federal courts. Moreover, recent judicial developments have significantly shifted the litigation balance of power between patent owners and alleged infringers in the Federal courts, making it easier for an alleged infringer to initiate litigation and for it to succeed on the merits.
The continuing ferment over patents at the USPTO, in Congress, and at the Supreme Court guarantees only one thing—that an alleged nanotech infringer, or indeed anyone who is concerned about the patenting of nanotechnology, needs to keep a close eye on new developments that will affect their options and strategies in this rapidly growing new field.
1 DuPont Air Prods. NanoMaterials L.L.C. v. Cabot Microelectronics Corp., No. 06-2952 (D. Ariz. filed Dec. 8, 2006). A fifth patent was later asserted by Cabot in its counterclaim.
2 Richard Acello, DuPont Joint Venture Takes Pre-Emptive First Strike in Nano Legal Dispute, SMALL TIMES, Jan. 3, 2007.
3 Only about 4% of the patent suits that terminated in 2000 reached trial. James Bessen & Michael J. Meurer, Lessons for Patent Policy from Empirical Research on Patent Litigation, 9:1 LEWIS & CLARK L. REV. 1, 2-3 (2004).
4 See Ronald A. Bleeker & Louis M. Troilo, Sink or Swim, PLASTICS AND PACKAGING, Dec. 2006 (indicating that the annual number of nanotech patent applications rose from about 250 in 1995 to more than 5,500 in 2003).
5 Questionable patents can harm competition and hinder innovation by forcing market participants to pay licensing royalties, incur substantial legal expense to defend against infringement claims, engage in design-around efforts that raise costs and/or hinder product performance. See Carl Shapiro, Patent System Reform: Economic Analysis and Critique, 19 BERKELEY TECH. L. J. 1017, 1019 (2004); Adam B. Jaffe & Josh Lerner, Innovation and Its Discontents, Princeton University Press 2004.
6 Smithkline Beecham Corp. v. Dudas, No. 07-1008 (E.D. Va. Oct. 31, 2007) (order granting preliminary injunction).
7 Patent Reform Act of 2007, H.R. 1908, 110th Cong. (2007).
8 Patent Reform Act of 2007, S. 1145, 110th Cong. (2007).
9 Medimmune, Inc. v. Genentech, Inc., 127 S. Ct. 764 (2007).
10 Acello, supra note 2.
11 Press Release, Cabot Microelectronics, Cabot Microelectronics Announces Plans to Pursue Patent Infringement Enforcement Action Against DuPont Air Products NanoMaterials L.L.C. (Dec. 12, 2006) available at http://ir.cabotcmp.com/phoenix.zhtml?c=120920&p=irol-newsArticle_print&ID=941671&highlight.
12 With the exception of the '787 patent (which issued in May of 2000), each of the patents in suit was issued in 1999 or earlier. See infra note 13.
13 U.S. Patent No. 4,954,142 (issued Sept. 4, 1990); U.S. Patent No. 5,527,423 (issued June 18, 1996); U.S. Patent No. 5,958,288 (issued Sept. 28, 1999); U.S. Patent No. 5,980,775 (issued Nov. 9, 1999); U.S. Patent No. 6,068,787 (issued May 30, 2000).
14 See Press Release, Cabot Microelectronics, Cabot Microelectronics Announces Acquisition of CMP Slurry Patents from IBM (July 5, 2006), available at http://ir.cabotcmp.com/phoenix.zhtml?c=120920&p=irol-newsArticle&ID=878572&highlight.
15 Bleeker, supra note 4.
16 See U.S. Patent No. 5,958,288 (issued Sept. 28, 1999).
20 It is noteworthy that under the current USPTO definition, particles having a dimension on the nanometer scale are not considered nanotechnology unless they exhibit a property that is not found in a similar article at larger scale. See OFFICE OF PATENT CLASSIFICATION, U.S. PATENT AND TRADEMARK OFFICE, U.S. PATENT CLASSIFICATION SYSTEM , CLASS 977 NANOTECHNOLOGY (2007), at http://www.uspto.gov/web/patents/classification.
21 See Giles S. Rich, Extent of Protection and Interpretation of Claims – American Perspectives, 21 Int'l Rev. Indus. Prop. & Copyright L. 497, 499 (1990) (in patents, "the name of the game is the claim.").
22 See U.S. Patent No. 4,954,142 (issued Sept. 4, 1990) (claiming a "chem-mech polishing slurry" in claim 1, and a "method of chem-mech polishing an article" in claim 11); U.S. Patent No. 5,527,423 (issued June 18, 1996) (claiming a "method for chemical mechanical polishing" in claim 1, and a "chemical mechanical polishing slurry" in claim 17); U.S. Patent No. 5,958,288 (issued Sept. 28, 1999) (claiming "a chemical mechanical polishing composition" in claim 1, and a "method for polishing a substrate" in claim 37); U.S. Patent No. 5,980,775 (issued Nov. 9, 1999) (claiming a "chemical mechanical polishing composition" in claim 1 and a "method for polishing a substrate" in claim 17); and U.S. Patent No. 6,068,787 (issued May 30, 2000) (claiming a "chemical mechanical polishing composition" in claim 1, and a "method for polishing a substrate" in claim 11).
23 U.S. Patent No. 4,954,142 (issued Sept. 4, 1990).
24 See U.S. PATENT AND TRADEMARK OFFICE, MANUAL OF PATENT EXAMINING PROCEDURE § 2111.03 (2007) (discussing the legal definition of the term, "comprising").
25 Complaint at 2, DuPont Air Prods. NanoMaterials L.L.C. v. Cabot Microelectronics Corp., (D. Ariz. 2007) (No. 06-2952).
26 Answer at 3-7, DuPont (No. 06-2952).
27 Id. at 8-10.
28 As discussed below, this requirement was eliminated by the decisions in the Medimmune and SanDisk cases.
29 Complaint at 3, DuPont (No. 06-2952).
30 Answer at 3-7, DuPont (No. 06-2952).
31 Complaint at 4-11, DuPont (No. 06-2952).
32 Answer at 8, DuPont (No. 06-2952).
33 Complaint at 5-8, DuPont (No. 06-2952).
35 Answer at 5, DuPont (No. 06-2952).
36 In 2003 the total global demand for nanoscale materials, tools, and devices was estimated to be $7.6 billion, and the market is expected to reach $29 billion in 2008. James M. Pethokoukis, How Big Will Small Get?, U.S. NEWS & WORLD REPORT, Feb. 1, 2004.
37 See Richard P. Feynman, There's Plenty of Room at the Bottom, Address at the Annual Meeting of the American Physical Society (Dec. 29, 1959), in 13:5 ENGINEERING & SCI. MAG. (Feb. 1960).
38 See Nikolas J. Uhlir, Note, Throwing a Wrench in the System: Size-Dependent Properties, Inherency, and Nanotech Patent Applications, 16 FED. CIR. B.J. 327, 340 (2007).
39 Id. at 339.
40 Id. at 340.
41 Id. at 341.
42 Uhlir, supra note 38; Mark A. Lemley, Patenting Nanotechnology, 58 Stan. L. Rev. 601 (2005).
43 The creation of a classification for nanotechnology is a substantial step towards helping examiners identify relevant nanotech prior art. See generally OFFICE OF PATENT CLASSIFICATION, U.S. PATENT AND TRADEMARK OFFICE, U.S. PATENT CLASSIFICATION SYSTEM, CLASS 977 NANOTECHNOLOGY (2007), at http://www.uspto.gov/web/patents/classification. The USPTO also hosts nanotech customer partnership meetings, which are partly aimed at discussing the unique examination and search problems caused by nanotech patent applications.
44 See Lemley, supra note 42, at 620-621 (discussing how nanotech inventions may be considered to infringe non-nanotech claims).
45 Myriad definitions of "nanotechnology" can be found in the patent, legal, and scientific literature. See Uhlir, supra note 38, at 329.
46 See Lemley, supra note 42, at 620-621.
47 Contra, Andrew Wasson, Note, Protecting the Next Small Thing: Nanotechnology and the Reverse Doctrine of Equivalents, 10 DUKE L. & TECH. REV. (2004), available at http://www.law.duke.edu/journals/dltr/articles/PDF/2004DLTR0010.pdf (asserting that the reverse doctrine of equivalents should be used to prevent nanotechnology from infringing non-nanotech patents).
48 Although it is beyond the scope of this article, the so-called "reverse doctrine of equivalents" may be a way in which an accused infringer can raise these arguments in its defense. See id.
49 See Lemley, supra note 42, at 618-621 (discussing "patent thickets" in the context of nanotechnology).
50 In order to avoid such choices, nanotech companies and investors need to do a particularly good job of mapping the relevant patent landscape early on by integrating their patent strategy with their product development process, and regularly updating their searches and strategy as the product gets closer to commercialization.
51 Prior to the Medimmune case, the threat of suit was primarily a weapon in the hands of the patent owner. One of the results of Medimmune, as discussed infra, is to make this weapon equally available to the alleged infringer, who can now more easily bring a declaratory judgment action, as DA did against Cabot.
52 For example, due to their regulatory environment, proprietary pharmaceutical companies and generic pharmaceutical companies are often in the latter situation.
53 Georgia-Pacific Corp. v. U.S. Plywood, 318 F.Supp.1116 (S.D.N.Y. 1970), modified, 446 F.2d 295 (2d Cir. 1971).
54 Lear, Inc. v. Adkins, 395 U.S. 653 (1969).
55 See, e.g., Foster v. Hallco Mfg. Co., 947 F.2d 469 (Fed. Cir. 1991); Diversey Lever, Inc. v. Ecolab, Inc., 191 F.3d 1350 (Fed. Cir. 1999); Flex-Foot, Inc. v. CRP, Inc., 238 F.3d 1362 (Fed. Cir. 2001).
56 Studiengesellschaft Kohle m.b.H. v. Shell Oil Co., 112 F.3d 1561 (Fed. Cir. 1997).
57 Gen-Probe, Inc. v. Vysis, Inc., 359 F.3d 1376 (Fed.Cir. 2004).
58 Medimmune, Inc. v. Genentech, Inc., 127 S. Ct. 764, 769 (2007).
59 Note that European Union licensing law allows a clause of this type. Commission Regulation 772/2004 of 27 April 2004 Application of Article 81(3) of the Treaty to Categories of Technology Transfer Agreements, art. 5(1)(c), 2004 O.J. (L 123) 11. In the United States, see Bayer AG v. Housey Pharms., Inc., 340 F.3d 1367 (Fed. Cir. 2003).
60 See 35 U.S.C. § 135 (indicating that an interference can be initiated when two applicants file applications to the same subject matter in the USPTO, and the filing dates of those applications are only a short time apart).
61 See 35 U.S.C. §§ 300-307, 311-318.
62 See 35 U.S.C. §§ 302-307 (ex parte reexamination); 35 U.S.C. §§311-318 (inter partes reexamination).
63 See 35 U.S.C. §§ 301, 311; 37 C.F.R. §§ 1.20(c)(1) -(c)(2) (noting the fees for ex parte and inter partes reexamination); 37 C.F.R. §§ 1.510(a), 1.913.
64 See 35 U.S. C. § 304.
65 See 35 U.S.C. §§ 307, 316.
66 See 35 U.S.C. § 252.
67 See 35 U.S.C. § 314(b).
68 See 37 C.F.R. § 1.915(b)(8).
69 U.S. PATENT AND TRADEMARK OFFICE, MANUAL OF PATENT EXAMINING PROCEDURE § 2601 (2007).
70 See 35 U.S.C. § 316(c).
71 See id.
72 In both situations, the suit would be brought in a federal district court. Current law is fairly relaxed about "venue", i.e. which district court one can sue in. This has led to an explosion of patent infringement cases brought by patent owners in certain courts, such as the Eastern District of Texas, which are perceived to be more favorable to patent owners. However, the pending Patent Reform Bill (see supra notes 7, 8) would restrict venue to those districts with which the parties have more substantial contacts. This proposed reform would again tend to even the litigation playing field between patent plaintiffs and defendants.
73 See Teva Pharms. USA v. Pfizer, Inc., 395 F.3d 1324 (Fed. Cir. 2005).
74 See Teva Pharms. USA v. Novartis Pharms. Corp., 482 F.3d.1330, 1346 (Fed. Cir. 2007) (Friedman, J., concurring).
75 SanDisk Corp. v. STMicroelectronics, Inc., 480 F.3d 1372 (Fed Cir. 2007); Teva, 482 F.3d at 1330.
76 SanDisk, 480 F.3d at 1381; SanDisk, 480 F.3d at 1383 (Bryson, J., concurring). For subsequent cases of the Federal courts exploring the limits of this standard see, e.g., Benitec Australia, Ltd. v. Nucelonics, Inc., 2007 WL 2069646 (Fed. Cir. July 20, 2007); Sony Elec. Inc. v. Guardian Media Techs., Ltd., 2007 WL 2215762 (Fed. Cir. Aug. 3, 2007); Honeywell, Intl'l. Inc. v. Universal Avionics Sys. Corp., 488 F.3d 982 (Fed. Cir. 2007).
77 See, e.g., Arrowhead Indus. Water, Inc. v. Ecolochem, Inc., 846 F.2d 731, 735 (Fed. Cir. 1988).
78 SanDisk itself gives a powerful example of the effects of the new standard. In that case, the patent owner had engaged in extensive negotiations with the alleged infringer, in which it made presentations applying its patent claims to specific products of the alleged infringer. However, the patent owner's counsel also stated that it had "absolutely no plan whatsoever to sue SanDisk." Nonetheless, under the new post-Medimmune standard, the Federal Circuit found that SanDisk had sufficient basis to bring a declaratory judgment suit.
79 KSR Int'l Co. v. Teleflex Inc., 127 S.Ct. 1727 (2007).
80 See Memorandum from Margaret A. Focarino, Deputy Comm'r for Patent Operations, U.S. Patent and Trademark Office, to Technology Center Directors (May 3, 2007) (regarding Supreme Court decision on KSR Int'l Co., v. Teleflex, Inc.); Takeda Chem. Indus. v. Alphapharm Pty., Ltd., 492 F.3d 1350, 2007 WL 1839698, at *10 (Fed. Cir. June 28, 2007) (discussing the application of KSR's holding to chemical patents); Aventis Pharma Deutschland G.m.b.H. v. King Pharms., Inc., slip op. at 10-12, No. 06-1530, 499 F.3d 1293 (Fed. Cir. Sept. 11, 2007) (reversing bench trial verdict that claims in suit would not have been obvious).
81 Multiform Desiccants, Inc. v. Medzam, Ltd., 133 F.3d 1473, 1482 (Fed. Cir. 1998).
82 Nilssen v. Osram Sylvania, Inc., 504 F.3d 1223 (Fed. Cir. 2007) (affirming patents unenforceable due to inequitable conduct); eSpeed, Inc., v. BrokerTec USA, L.L.C., 480 F.3d 1129 (Fed. Cir. 2007) (affirming holding of patent unenforceability due to inequitable conduct); Cargill, Inc. v. Canbra Foods, Ltd., 476 F.3d 1359 (Fed. Cir. 2007) (affirming findings that patents were infringed but unenforceable due to inequitable conduct); Dippin' Dots, Inc. v. Mosey, 476 F.3d 1337 (Fed. Cir. 2007) (affirming judgment that the patent is unenforceable due to inequitable conduct during prosecution); Bayer AG v. Housey Pharmaceuticals, Inc., 189 Fed. Appx. 969 (Fed. Cir. 2006) (affirming patents unenforceable due to inventor's inequitable conduct).
83 Kimberly A. Moore, Judges, Juries, and Patent Cases: An Empirical Peek inside the Black Box, 99 MICH. L. REV. 365 (2000).
84 See Stuart J.H. Graham et. al., Patent Quality Control: A Comparison of U.S. Patent Re-Examination and European Patent Oppositions, in PATENTS IN THE KNOWLEDGE-BASED ECONOMY 74 (2003); Jonathan Levin & Richard Levin, Benefits and Costs of an Opposition Process, in PATENTS IN THE KNOWLEDGE-BASED ECONOMY 120 (2003).
85 A full discussion of this subject is beyond the scope of this article. However, many aspects of this topic are discussed in the March, 2007 issue of Les Nouvelles, the Journal of the Licensing Executives Society International (Vol. XLII, No. 1).
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