Authored by Li Feng, Ph.D. and Esther H. Lim
In this high-tech era, competition among companies often involve IP strategies, including high-stakes patent litigation. Ongoing global patent wars involving many mobile-phone companies such as HTC, Samsung, Apple, Nokia, and RIM, exemplify the growing importance of patents and prevalence of patent disputes in multiple countries. For example, the intense global patent disputes between Apple and Samsung are currently ongoing in nine countries, including the United States.
In many cases, the United States plays a key role in global patent litigation not just because it is a commercially significant market but also because it presents a daunting risk of large damages, in the range of millions of U.S. dollars, awarded by juries. Thus, Taiwan companies conducting business in the United States or selling products there should take care to avoid infringing U.S. patents and become aware of major trends and changes in U.S. patent law when they make business decisions.
The U.S. court with the greatest impact on patent law is the U.S. Court of Appeals for the Federal Circuit (“Federal Circuit”), which has the unique power to decide all patent appeals from across the United States. Although the Federal Circuit usually decides cases by a three-judge panel, in matters of significant legal importance, it assembles all active judges to decide what are called “en banc” cases. This article reviews two en banc decisions of the Federal Circuit from last year that could affect Taiwan companies’ patent strategy in the United States.
Therasense, Inc. v. Becton, Dickinson & Co.
The Therasense case deals with the inequitable-conduct doctrine, a notion unique to the U.S. patent system. The doctrine was designed to encourage patent applicants to conduct candid exchanges with the Patent Office and disclose information known to them that may be relevant to the patentability of their claims. To prove inequitable conduct, an accused infringer must show (1) that the patentee intended to deceive the patent office, and (2) that the act committed by the patentee is material to patentability. The penalty for dishonesty before the Patent Office could be severe: a patent can be rendered unenforceable if inequitable conduct is found. Thus, inequitable conduct has become a powerful shield against allegations of patent infringement.
A common charge of inequitable conduct alleges that a patentee intentionally withheld from the Patent Office important information relevant to obtaining allowance of a patent application. In the past, charges of inequitable conduct became quite prevalent and, if successful, accused infringers could avoid patent liability and damages. Thus, patent applicants tended to err on the side of caution, at times flooding the Patent Office with information that might be even remotely relevant to patentability. The inequitable-conduct doctrine, while providing some measure of protection for defendants in patent actions, came to be called a “plague” to the U.S. patent system.
Recognizing the abuse of the doctrine, the Federal Circuit in the Therasense case tightened the standard for inequitable conduct. In the past, both materiality and intent were relatively easily shown. For example, materiality can be shown if a patent examiner considers a withheld reference “important” to patentability. And if the withheld reference is highly important, it can be inferred that the patentee intended to deceive the Patent Office, even without any direct or circumstantial evidence of intent.
Under the new standard in Therasense, however, intent can no longer be inferred from materiality. To prevail, an accused infringer must prove that the patentee acted with the specific intent to deceive the Patent Office. For cases involving nondisclosure of information, the accused infringer must prove by clear and convincing evidence that the applicant knew of the reference, knew that it was material, and made a deliberate decision to withhold it. “Materiality” is also raised to a “but-for” standard, meaning that the accused act is material only if the Patent Office would not have allowed the patent application but for that act. In other words, a reference withheld by a patentee is not material if the Examiner would still have allowed the patent application even after considering the reference.
Thus, the Therasense case provides some relief for patent holders as the heightened standard would make it more difficult to challenge the patent through inequitable conduct. And the Patent Office may be relieved, to a certain degree, of patent applicants inundating the Patent Office with marginally relevant information. On the other hand, companies accused of infringing a U.S. patent, especially those without their own patents to countersue, now have a less powerful defense in patent-infringement actions and have greater exposure.
Tivo v. Echostar
The other en banc case, Tivo, also spelled victory for patent owners. In a patent-infringement action, a party that is deemed to infringe a valid and enforceable U.S. patent and is enjoined from making, using, or selling a patented product typically has three options: (1) pull infringing products from the market and stop all infringing activities, (2) obtain a license from the patentee, or (3) design around the patent. If a patentee believes that the design-around product still infringes, he can either initiate a contempt proceeding to enforce the permanent injunction or start a new patent-infringement suit. A contempt proceeding is a much more preferred option for a patentee because it avoids the full process of a new trial and is thus cheaper and faster. The Tivo case now makes it easier for a patentee to enforce a permanent injunction through a contempt proceeding.
In the Tivo case, the trial court found that Echostar infringed Tivo’s patent and imposed a permanent injunction. Echostar embarked on an expensive design-around effort and even obtained legal opinion stating that the design-around product did not infringe Tivo’s patent. Tivo, believing that the design-around still infringed, sought a contempt proceeding to enforce the permanent injunction. The district court agreed with Tivo, holding Echostar in contempt and imposing over $90 million in penalty. At the Federal Circuit, the court rejected Echostar’s argument that good-faith efforts, such as a costly redesign and noninfringement opinion of counsel, are defenses for contempt. The court clarified that civil contempt is remedial in nature and that lack of intent to violate an injunction alone cannot save the infringer from a finding of contempt.
The Federal Circuit leaves the question of whether to initiate a contempt proceeding to the broad discretion of the trial court. All that is needed to initiate a contempt proceeding is a patentee who makes a detailed accusation setting forth the alleged facts constituting contempt.
Thus, through Tivo, the Federal Circuit significantly reduced the threshold requirement for a trial court to initiate a contempt proceeding to enforce a permanent injunction. After this case, a company found to infringe and permanently enjoined should exercise greater caution before putting a design-around product on the market. Placing a design-around product on the market could risk continued infringement, which would continue to accrue monetary damages and risk a contempt holding and hefty sanctions.
The outcome of these two recent en banc cases by the Federal Circuit are generally favorable to patent holders. For a defendant in a U.S. patent-infringement action, merely relying on legal defenses proves to be an inferior strategy. To obtain equal footing with international competitors, Taiwan companies should strengthen their own patent-protection programs and obtain high-quality patent portfolios. Having high-quality patents can level the playing field in patent-infringement actions and serve to advance settlement negotiations or cross-licenses. With increasing presence of Taiwan companies in the U.S. market, it is important for them to be aware of significant trends in patent litigation for offensive and defensive purposes.
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