Fall/Winter 2008 IP perspectives. Quanta Computer v. LG Electronics : The U.S. Supreme Court Breathes New Life Into the Patent Exhaustion Defense

Transcription

1 Fall/Winter 2008 IP perspectives Quanta Computer v. LG Electronics : The U.S. Supreme Court Breathes New Life Into the Patent Exhaustion Defense 1

2 IP perspectives 8letter from the practice chair 2008 has been a year filled with considerable activity concerning IP rights within Congress, the United States Patent and Trademark Office, and, most notably, the Supreme Court of the United States. Accordingly, it is only fitting that our lead article discusses the Supreme Court s most recent decision in Quanta Computer, Inc. v. LG Electronics, Inc. The article takes us through the Supreme Court s decision in Quanta and discusses the practical effects of Quanta in the areas of patent litigation and patent-licensing transactions. Managing Partner Stephen J. Brogan Advisory Board Brian M. Poissant John J. Normile Executive Editor Susan A. Miller Managing Editor Laura S. Bell Art Director Joseph E. Altobelli Print Production Susan M. Scott IP Perspectives should not be construed as legal advice on any specific facts or circumstances. The contents are for general information purposes only and may not be quoted or referred to in any other publication or proceeding without the prior written consent of the Firm. Receipt of this publication does not constitute an attorney-client relationship. The views set forth herein are those of the authors and do not necessarily reflect the views of the Firm Jones Day. All rights reserved. Printed in the U.S.A. We then turn to patent prosecution, discussing the dangers that lurk in statements made during prosecution of a foreign counterpart to a United States patent application. Specifically, we explain how statements made during foreign prosecution can result in the unintentional loss of patent claim scope for the United States counterpart application. With a recent surge in enforcement proceedings before the International Trade Commission ( ITC ), we next discuss the benefits of remedial orders issued from the ITC that effectively block the importation of goods found to infringe IP rights in the United States. We also explore international licensing of IP rights, specifically in the context of United States, European, and Japanese competition law, addressing the general principles of competition law as applied to IP licensing practices and the possibility for conflicting outcomes in different jurisdictions. We next turn to the world of trademarks, where we discuss the new rules for use in matters before the Trademark Trial and Appeal Board ( TTAB ), promulgated with the hopes of yielding increased efficiency before the TTAB, increased possibility of settlement, and greater disclosure of information and procedural fairness. Finally, we spend A Few Minutes with Krista Schwartz, a partner in our Chicago Office, who discusses choice-of-venue considerations and strategies in IP litigation. As always, we appreciate receiving comments and suggestions concerning this publication, its contents, and possible future articles. Please contact me, or the authors of the articles appearing in this issue, for further information on any of these topics. Brian M. Poissant Intellectual Property Practice Chair

3 CONTENTS Cover Story 4 Quanta Computer v. LG Electronics : The U.S. Supreme Court Breathes New Life Into the Patent Exhaustion Defense On June 9, 2008, the U.S. Supreme Court issued the most recent in a string of patent cases decided by the Court. This ruling reverses the Federal Circuit and readjusts the balance between patent owners and accused infringers. 10 The Effect of Statements Made During Prosecution of Foreign Counterpart Patent Applications on United States Patent Claim Scope More patent applications in the U.S. and abroad have non-u.s. counterparts, creating challenges for those seeking patent protection. This is especially true with regard to non-u.s. prosecution history, since it may determine the scope of U.S. patent claims. 14 ITC Remedial Orders in the Real World The ITC s remedial powers can exclude infringing articles from entry into the United States or stop the sale of infringing goods, but parties must remain proactive to ensure that these remedial orders are enforced. 18 International Licensing of Intellectual Property Rights: Issues Arising Under U.S., European, and Japanese Competition Law Transnational licensing agreements could be subject to competition laws in various jurisdictions that may sometimes yield conflicting outcomes. 26 Playing by the Rules: The New Trademark Trial and Appeal Board Rules To increase efficiency and encourage early settlement, the USPTO adopted significant changes to the rules of practice before the TTAB. However, while the goal of encouraging early settlement may have been achieved, this outcome often is not a direct result of the rules effectiveness but rather stems from the fact that they create more work and increase the costs for the parties. 35 A Few Minutes with Krista Schwartz When Chicago Office partner Krista Schwartz plans the trial strategy for a patent infringement case, she weighs the choice of venue carefully because she knows this choice can mean the difference between a favorable and an unfavorable outcome for the client. She offers her thoughts on the subject here. 3

4 Quanta Computer v. LG Electronics: The U.S. Supreme Court Breathes New Life Into the Patent Exhaustion Defense By Gregory A. Castanias; Warren L. Nachlis, Ph.D.; and Jonathan A. Muenkel 4

5 On June 9, 2008, the U.S. Supreme Court issued its decision in Quanta Computer, Inc. v. LG Electronics, Inc., No , 2008 WL , at *1 (U.S. June 9, 2008), the most recent in a string of patent cases decided by the Court over the past several years. The case specifically concerned application of the patent exhaustion doctrine as a defense to patent infringement. At issue were: (1) whether the sale of a product can exhaust a patent holder s rights in a patented method; (2) whether the sale of a product that substantially embodies but does not contain all of the elements of a patented system or method can exhaust the patent holder s rights in that system or method; and (3) whether the sales at issue triggered exhaustion despite an attempt by the patentee to condition the sales (i.e., whether the sales were authorized). In reversing the federal circuit, the Supreme Court held that the patent exhaustion defense applies to patented method claims and when an authorized/licensed sale of a product substantially embodies a patented invention. In addition, the Court found that the sales at issue triggered exhaustion despite the patentee s attempt to limit downstream use of the products. The Quanta ruling continues the Supreme Court s trend of reversing the federal circuit in patent cases and readjusting the balance between patent owners and accused infringers. In Quanta, the Court potentially precluded a patentee s ability to succeed in an infringement action against downstream users of a component that substantially embodies a larger patented invention. Moreover, Quanta will almost certainly result in patent owners focusing more on the structure of patent-licensing transactions, especially the explicit scope of the license granted. century ago. The doctrine follows from the premise that a patent owner is entitled to a single royalty for each patented device. That is, by selling or authorizing sales of a patented device, the patent owner has bargained for and received an amount equal to the value of the patent rights that attach to the device. Thus, while the rights conveyed by a patent enable its owner to exclude others from using the patented device, once the patent owner engages in or authorizes an unrestricted sale of the patented device, such exclusionary rights are terminated with respect to that device. Put simply, the patent owner s rights are exhausted and cannot be asserted against any downstream purchasers, sellers, or users of the device. The Federal Circuit and district courts established a number of exceptions to the exhaustion doctrine in the years prior to Quanta. For example, patent exhaustion did not occur where the patent owner imposed, by contract and at the time of sale, certain conditions on the downstream use of the patented product. Such contractual conditions generally were permitted unless they violated some law or policy, such as antitrust law, contract law, or patent misuse, because courts assumed that the parties negotiated a price that reflected only the value of the use contemplated with the conditions. Courts also previously held that the exhaustion doctrine did not apply to the practice of method claims. In addition to these exceptions, courts were faced with the issue of whether the patent exhaustion doctrine applied when the article sold was an unfinished part or component of a patented system or product (e.g., an unfinished eyeglass lens or a part to a computer), including cases where such an unfinished part or component had no reasonable use other than incorporation into the larger patented system or product. These exceptions and this issue took center stage in Quanta. What follows is a brief introduction of the patent exhaustion doctrine and how courts historically have applied the doctrine. Next is an explanation of the Quanta case as it developed in the lower courts and an analysis of the Supreme Court s opinion. Finally, we consider how the Supreme Court s decision in Quanta may affect patent litigation and patent-licensing transactions in the future. The Patent Exhaustion Doctrine An Introduction The patent exhaustion doctrine (also known as the first-sale doctrine ) is a judicially created defense to patent infringement, first articulated by the Supreme Court more than a The Patent Exhaustion Doctrine A Brief History The earliest cases articulating what would come to be known as the patent exhaustion doctrine were issued by the Supreme Court in the mid- to late 19th century. In Bloomer v. McQuewan, purchasers of licenses to sell and use woodplaning machines sought to continue using their licenses through an extended patent term. 14 How. 539 (1853). The Court held that once the machines were sold, they were no longer within the patent monopoly, so the patent term was irrelevant to the purchaser s rights. Additionally, in Adams v. Burke, the issue before the Court was whether a subsequent purchaser of patented coffin lids, which were assigned to 5

6 The main functions of a computer are carried out by a microprocessor. The microprocessor is connected by a set of wires to a chipset. The chipset transfers data between the microprocessor and other devices, such as the keyboard, monitor, hard drive, and memory. a seller for use within a 10-mile radius of Boston, could use the lids outside the 10-mile radius. 17 Wall. 453 (1873). There, the Court held that the purchaser of the coffin lids acquired the right to use them regardless of location when they were purchased from the assignee. These cases helped establish the theoretical foundation of the patent exhaustion doctrine. Over the years, the patent exhaustion doctrine was expanded to apply not only to patented articles, but also to patented combinations or systems whose components were being sold with the patentee s authorization. The earliest case addressing the patent exhaustion doctrine as it applies to combination products was the 1942 Supreme Court case of United States v. Univis Lens Co., 316 U.S. 241 (1942). In Univis, Univis Lens Co. owned numerous patents relating to eyeglass lenses, including patents relating to the shape, size, composition, and disposition of both unfinished and finished lenses. Univis licensed Lens Co. to manufacture lens blanks and sell them to other licensees. These licensees, composed of wholesalers and retailers, would purchase the unfinished lenses from Lens Co. and grind them to meet the prescription needs of their customers. The U.S. government brought suit under the Sherman Act for antitrust violations when Univis required that all licensees abide by a pricemaintenance program. As a defense, Univis claimed that its ability to control lens prices was 6

7 within its patent rights, because the licensees used Univis s patented devices to finish the eyeglass lenses. Although the case focused on antitrust issues, the Supreme Court based its opinion on Univis s patent rights. Specifically, the Court held that where a patentee has sold an unfinished article that embodies essential features of [the] patented invention and is destined to be finished by a purchaser, he has sold the invention so far as it is or may be embodied in that particular article. That is, the authorized sale of an article which is capable of use only in practicing the patent is a relinquishment of the patent monopoly. Applying this principle, even if Univis s patent claims included the finishing of the lens blanks, each blank embodied essential features of the patented device, and the unfinished blanks were without utility until they were made into finished lenses. Accordingly, Univis s patent rights were exhausted. Therefore, under Univis, the acquisition of an unfinished article that essentially embodies a patented invention exhausted a patent owner s rights in that invention. Following Univis, district court decisions expanded the scope of the patent exhaustion doctrine in the context of combination products. In Cyrix Corp. v. Intel Corp., Intel owned a patent claiming both a microprocessor and a combination of the microprocessor with external memory. 846 F. Supp. 522 (E.D. Tex. 1994). Intel licensed to Texas Instruments and SGS-Thomson Microelectronics the right to make, use, and sell the microprocessors. These microprocessors were then sold to Cyrix Corp., which combined them with external memory. Intel claimed that this combination infringed its patent. Intel conceded that the sale of the microprocessors exhausted its rights in the microprocessors themselves but argued that its rights in the combination with external memory were not exhausted. The court found that because the microprocessors were of no use unless they were combined with external memory, the sale of the microprocessors included the right to use them for their intended normal purpose. Hence, the sale of the microprocessors exhausted Intel s rights in the patent, including the claim comprising a combination of the microprocessors with external memory. Other district courts have followed suit, holding that the test to determine whether to apply the patent exhaustion doctrine involves considering the reasonable uses of the article sold. In other words, if the article can be put to some reasonable use beyond the patented combination, there will be no exhaustion of patent rights in the combination. Despite the patent exhaustion doctrine, a patentee s rights are not always exhausted upon the sale of an article. It is possible for a patentee to fractionalize the property interests inherent in a patent and convey only limited interests to others by selling products subject to conditions. Indeed, the Federal Circuit has stated that the patent exhaustion doctrine does not apply to conditional or restricted sales. However, the conditions or restrictions must be reasonably within the patent grant, meaning that the conditions or restrictions cannot violate antitrust or contract law or represent patent misuse. The Federal Circuit s logic for upholding express conditions in sales and licenses is that the negotiated price is the value of the use rights conveyed. However, there is conflicting precedent in the dis- microprocessors were of no use The court found that because the trict courts as to whether a unless they were combined with license limitation between external memory, the sale of the a licensor and licensee can microprocessors included the guide the terms of a subsequent sale between the normal purpose. right to use them for their intended licensee and its customers. Some courts require that customers have notice of the limitation, whether that notice be actual assent by the customer or some form of constructive notice, such as a conspicuous notice placed on an article s label or tag. Conversely, at least one court has held that notification of the purchaser is irrelevant in its analysis. The patent exhaustion doctrine has also been raised as a defense in infringement cases involving method claims. In Ethyl Gasoline Corp. v. United States, the Supreme Court applied the patent exhaustion doctrine to a claim for a method 7

8 of using a patented fuel in combustion motors. 309 U.S. 436 (1940). The Court found that the sale of the patented fuel exhausted the rights in the method claim. Additionally, one patent involved in Univis was a pure method patent directed to methods for finishing lenses, but it is unclear whether this method patent was included in the Court s exhaustion analysis. In any event, Ethyl Gasoline and Univis were decided in the 1940s, and there have been no recent Supreme Court cases addressing the patent exhaustion doctrine as it applies to method claims (that is, until Quanta). While the Supreme Court ruled even before Quanta that patent exhaustion applied to method claims, the Federal Circuit recently held that the patent exhaustion doctrine is inapplicable to method claims. For example, in 2006, the Federal Circuit held in LG Electronics, Inc. v. Bizcom Electronics that the patent exhaustion doctrine was applicable to patented microprocessors but not to method claims for using the microprocessors. 453 F.3d 1364 (Fed. Cir. 2006). This tension between Supreme Court and Federal Circuit precedent was resolved in Quanta. The Trial Court and Federal Circuit Decisions LG Electronics ( LGE ) owns the rights to a number of patents relating to computer technology, including the three patents eventually at issue in the Supreme Court s decision, United States Patent Nos. 4,939,641 ( the 641 patent ); 5,379,379 ( the 379 patent ); and 5,077,733 ( the 733 patent ). The main functions of a computer are carried out by a microprocessor (central processing unit). The microprocessor is connected by a set of wires (bus) to a chipset. The chipset transfers data between the microprocessor and other devices, such as the keyboard, monitor, hard drive, and memory. The 641 and 379 patents relate to the use of memory and to ensuring that up-to-date data are retrieved. Data processed by a computer are mainly stored in random access memory (main memory), while frequently accessed data are stored in cache memory, which permits faster access and is often located on the microprocessor. The 641 patent discloses a system for ensuring that in circumstances where both main memory and cache memory are used (and therefore one memory location might have out-of-date data), the most current data are retrieved from main memory. The 379 patent discloses a system and method for organizing read and write requests to main memory, wherein the computer executes read requests until it needs data for which there is an outstanding write request. It then executes that write request in order to ensure that the read request results in the retrieval of the most up-to-date data. The 733 patent provides methods for allowing multiple devices to share a bus without allowing one device to monopolize the bus. LGE granted Intel a license to make, use, sell (directly or indirectly), offer to sell, import or otherwise dispose of its microprocessors and chipsets that practice a number of LGE s patents, including the 641, 379, and 733 patents. The LGE Intel license transaction involved a License Agreement and a separate Master Agreement. The License Agreement expressly disclaimed any license directly to third parties (e.g., Intel s customers) to combine licensed Intel microprocessors or chipsets with any non-intel or non-quanta components or products (i.e., to make a computer). Under the Master Agreement, Intel was required to send notice to its customers advising them of the license disclaimer discussed above. Intel sent such notice to those who purchased its licensed microprocessors and chipsets, including Quanta and other computer manufacturers. Notably, though, the Master Agreement also provided that a breach of this Agreement shall have no effect on and shall not be grounds for termination of the Patent License. Despite receiving license-disclaimer notice from Intel, Quanta and other computer manufacturers used the licensed Intel microprocessors and chipsets in combination with other non-intel components to make computer systems that were then sold to major computer sellers such as Dell, Gateway, and Hewlett-Packard. LGE subsequently sued Quanta and other computer manufacturers for infringement of LGE s patents concerning computer systems. In May 2002, several defendants, including Quanta, moved for summary judgment of noninfringement based on the patent exhaustion doctrine. Specifically, those defendants argued that LGE exhausted its patent rights based on LGE s license to Intel and/or Intel s sale of its licensed microprocessors and chipsets to the defendants. LGE argued, however, that the patent exhaustion doctrine did not apply, because the licensed products sold by Intel did not read on/infringe any of the patents at issue (directed to combinations or systems incorporating or methods involving the use of such products). The district court ruled in favor of the defendants, holding 8

9 that the license or authorized sale of an essential element of a patented device may exhaust the patentee s statutory right to exclude others from making, using, or selling that device. In so holding, the court found that the defendants successfully showed that the microprocessors and chipsets had no reasonable noninfringing use, since the only reasonable use was to incorporate them into computers, such as those made and sold by the defendants. Following the district court s grant of summary judgment, the remaining defendants moved for summary judgment on the same grounds. The district court treated LGE s opposition to this motion as a request for reconsideration of the first ruling based in part on LGE s new arguments that: (1) Intel s sale of microprocessors and chipsets did not exhaust LGE s patent rights because the sale was conditional; and (2) there could be no exhaustion as to any of the method claims. The district court found that the notice from Intel to the defendants was insufficient to create a conditional sale. Accordingly, the exhaustion doctrine applied to the patented product claims. The district court, however, agreed with LGE that the exhaustion doctrine did not apply to the method claims. On appeal, the Federal Circuit agreed with the district court that the patent exhaustion doctrine did not apply to method claims. The Federal Circuit, however, reversed the district court s ruling that the patent exhaustion doctrine applied to LGE s product claims, finding that Intel s sale of the licensed component microprocessors and chipsets was conditional, based on provisions within the LGE Intel agreements, and because Intel s customers were expressly put on notice that they were prohibited from combining the licensed microprocessors with non-intel components. Quanta and several other defendants subsequently appealed to the Supreme Court, arguing that the Federal Circuit s decision was directly in conflict with prior Supreme Court precedent concerning the patent exhaustion doctrine, namely, the Court s decisions in Univis and Ethyl Gasoline. Certiorari was granted on September 25, 2007, and oral argument was heard by the Court on January 16, On appeal to the Supreme Court, the Quanta case presented three primary questions: (1) whether the sale of a product can exhaust a patent holder s rights in a patented method; (2) whether the sale of a product that substantially embodies but does not contain all of the elements of a patented system or method can exhaust the patent holder s rights in that system or method; and (3) whether Intel s sale of its licensed components to Quanta and others was authorized, such that the patent exhaustion doctrine applied. In a unanimous opinion authored by Justice Thomas, the Supreme Court answered yes to all three of these questions. Accordingly, the Supreme Court reversed the Federal Circuit s decision and held that LGE s patent rights were exhausted as against Quanta and the other defendants. The Supreme Court s Decision Within its decision, the Supreme Court provided a brief history of the patent exhaustion doctrine. The Court began with its first-ever discussion of the defense, the 1853 case of Bloomer v. McQuewan (discussed above). It ended by discussing its most recent application of the patent exhaustion doctrine, the 1942 Univis decision (also discussed above). The Court found Univis particularly applicable to the facts at bar. With this historical background in mind, the Court then turned to the three main issues raised in Quanta. First, the Court addressed whether the patent exhaustion doctrine applies to method claims. Citing Ethyl Gasoline, the Court observed that it has repeatedly held that method patents were exhausted by the sale of an item that embodied the method. It also acknowledged a concern that exempting method claims from the patent exhaustion defense would seriously undermine the exhaustion doctrine, because patentees could simply draft their patent claims to describe a method rather than an apparatus and thereby shield practically any patented item from exhaustion. Thus, the Court rejected the Federal Circuit s categorical exclusion of method claims from the scope of the patent exhaustion doctrine, holding that method claims can be exhausted by the sale of products. Second, the Court addressed the issue of when patent exhaustion applies to situations involving the sale of a component that does not contain all of the elements of the patented invention. Here the Court relied on its previous decision in Univis and stated that the sale of such components can trigger patent exhaustion of combination claims when the component substantially embodies the patent. This occurs when two conditions exist: (1) when [the component s] only reasonable and intended use [is] to practice the continued on page 30 9

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11 By Peter G. Thurlow and Anthony D. Mustillo The Effect of Statements Made During Prosecution of Foreign Counterpart Patent Applications on United States Patent Claim Scope Patent Prosecution by the Numbers The need for independent inventors, small businesses, and large corporations to strategically protect their intellectual property rights in today s knowledgebased economy has led to record levels of patent application filings in the U.S. and abroad. In 2007, according to the United States Patent and Trademark Office ( USPTO ), applications for U.S. patents rose 4.9 percent to 467,243, 1 and the World Intellectual Property Organization reported a record 156,100 patent applications filed under the Patent Cooperation Treaty. 2 In China, the growth and volume of patent applications in 2007 were unprecedented. China s State Intellectual Property Office reported a 21.1 percent increase in patent applications (more than four times the increase in the U.S.), for a staggering total of 694,153 applications. 3 As more and more manufacturing operations head overseas, and with China s increased willingness to enforce patent rights, the number of non-u.s.-filed applications will only continue to rise. 11

12 As a result of Heuft s disclaimer in the parent angles of either 12 or 14 degrees did not infringe Heuft s patent that issued on the basis of the These numbers reflect patent protection that is increasingly global in scope. As a result, more and more patent applications in the United States (and around the world) have non-u.s. counterparts. This creates challenges for practitioners with clients seeking patent protection in the United States and abroad. One such challenge for practitioners in prosecuting a client s patent portfolio is managing the growing volume of U.S. and non-u.s. prosecution history. Non-U.S. prosecution history must be managed effectively (and consistently), since it may be used in determining the scope of U.S. patent claims. The Use of U.S. Patent Prosecution History U.S. patent practitioners are all too familiar with the concept of prosecution history estoppel or patent disclaimer, which occurs when a patentee, either through argument or amendment, surrenders claim scope during the course of prosecution. See Heuft Systemtechnik GmbH v. Indus. Dynamics Co., 2008 U.S. App. LEXIS 13486, (Fed. Cir. June 25, 2008). The recent Heuft decision underscored the importance and effect of prosecution history estoppel when the Federal Circuit held that the plaintiff, Heuft, disclaimed exit angles less than 30 degrees for bottle-arranging claims in a divisional application, based on statements and amendments made during prosecution of the parent application. In Heuft, the invention was directed to an apparatus for handling and inspecting bottles for defects. A key feature of such systems is the stability of the bottle arrangement during inspection. The Federal Circuit stated that during prosecution of the parent application, Heuft not only repeatedly distinguished its claims over a particular reference, but it also amended all of those claims to require an exit angle between 30º to 100º. Id. Consequently, the Federal Circuit stated that it had little difficulty concluding that Heuft clearly and unmistakably disclaimed exit angles less than 30º. Id. Because the arguments and amendments Heuft made during prosecution of the parent application related to the same subject matter at issue in the divisional application, the Federal Circuit held that prosecution disclaimer [arose] from [the] disavowals made during the prosecution of ancestor patent applications and therefore Heuft disclaimed exit angles less than 30 degrees in the claims of the divisional application as well. Id. As a result of Heuft s disclaimer in the parent application, the Federal Circuit held that the defendant s products that included exit angles of either 12 or 14 degrees did not infringe Heuft s patent that issued on the basis of the divisional application. As a result of prosecution history estoppel and its potential to limit claim scope, experienced U.S. patent practitioners carefully prosecute applications before the USPTO and refrain from making unnecessary statements and amendments that may be used to limit the scope of a patent. As the filing of international applications continues to increase, U.S. practitioners must be equally cognizant of what occurs during non-u.s. prosecution, as non-u.s. prosecution history may be used to limit the scope of U.S. patent claims as well. Potential Effect of Foreign Prosecution History Foreign patent prosecution must be managed with the same care as the U.S. prosecution because foreign prosecution history may 12

13 application, the Federal Circuit held that the defendant s products that included exit divisional application. be used when interpreting the scope of corresponding U.S. patent claims. See Caterpillar Tractor Co. v. Berco, 714 F.2d 1110 (Fed. Cir. 1983). For example, in Caterpillar, the district court held that Berco s type II seal infringed claims 1, 10, and 19 of U.S. Patent No. 3,841,718 ( the 718 patent ), directed to a method for sealing lubricated tracks on crawler-type tractors. Berco appealed the district court s decision to the Federal Circuit and argued, among other things, that Caterpillar s instructions to its foreign counsel and representations made by Caterpillar s foreign counsel to the German patent office indicated that Berco s type II seal was not contemplated by Caterpillar and therefore claims 1 and 19 of the 718 could not be infringed under the doctrine of equivalents. In addition, regarding claim 10, Berco argued that Caterpillar s instructions and representations added a limitation to the claim. On these points, the Federal Circuit stated that when instructions to foreign counsel or representations to foreign patent offices made by an applicant during prosecution of a corresponding foreign application provide relevant evidence with respect to claim interpretation, such information must be considered. Id. at 1116 (emphasis added). However, even though the Federal Circuit considered Caterpillar s instructions and the representations that it made during prosecution of its German application, the Federal Circuit held that nothing in the instructions or representations served as a basis for denying application of the doctrine of equivalents to claims 1 and 19, nor did it read a limitation into claim 10. Consequently, the Federal Circuit affirmed the district court s decision. The Federal Circuit has also used statements made during foreign prosecution as evidence of whether one skilled in the art would consider use of an alternative element to be interchangeable with the patentee s claimed element. See Tanabe Seiyaku Co. v. U.S. Intern. Trade Com n, 109 F.3d 726 (Fed. Cir. 1997). In Tanabe, the Federal Circuit held that the International Trade Commission ( ITC ) was correct in using statements made by Tanabe to the European, Finnish, and Israeli patent offices in evaluating whether or not a person of ordinary skill in the art would have considered two solvents from the same chemical family to be interchangeable. Id. Tanabe, which owned a U.S. patent for a chemical reaction used in the production of a pharmaceutical compound, brought suit for infringement against a competitor. Tanabe alleged that by substituting the solvent butanone for acetone in its patented process, the competitor had infringed Tanabe s patent under the doctrine of equivalents. Id. In determining whether or not Tanabe s patent was infringed under the doctrine of equivalents, the ITC examined Tanabe s claims in light of statements made to the foreign patent offices during prosecution of the Tanabe counterpart applications. During prosecution of the foreign counterpart applications, Tanabe had successfully argued that the specific base-solvent combinations of its process were not obvious and were therefore patentable. Id. The ITC and the Federal Circuit agreed that because these statements suggest to a person skilled in the art that other solvents, including butanone, may not be interchangeable with the claimed solvents, they weakened Tanabe s argument that butanone and acetone were equivalents in its patented process. Id. at 733. Accordingly, these foreign statements, continued on page 32 13

14 By John C. Evans, Ph.D., and Ric Macchiaroli ITC Remedial Orders in the Real World In 2007 alone, the total value of goods imported into the United States was nearly $2 trillion. Where imported goods infringe United States intellectual property rights, there is perhaps no more effective way to enforce those rights than by turning to the United States International Trade Commission ( the Commission or the ITC ) and United States Customs and Border Protection ( Customs ). In fact, in fiscal year 2007, Customs seized more than $196 million worth of infringing goods (a 27 percent increase from 2006). Since 2003, Customs has seized nearly $700 million worth of infringing goods destined for American consumers. See United States Customs and Border Protection Intellectual Property Rights Seizure Statistics: FY 2007 at 2. 14

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16 As a result, an increasing number of IP owners have sought to enforce their rights and protect their markets by way of an investigation under Section 337 of the Tariff Act of 1930, as amended ( Section 337 ). 19 U.S.C The Commission s broad remedial powers can exclude infringing articles from entry into the United States (an exclusion order) or stop the sale of infringing goods already held in domestic inventory (a cease-and-desist order), or both. Obtaining an exclusion or cease-and-desist order, however, is only half the battle; complainants and respondents must remain proactive to ensure that the Commission s remedial orders are enforced fully and fairly. Section 337 Section 337 declares unlawful unfair methods of competition and unfair acts in the importation of articles into the United States. See 19 U.S.C Among the acts proscribed by the statute is the infringement of a valid and enforceable United States patent or federally registered trademark, as well as other unfair methods of competition that injure a domestic industry. To be entitled to relief, the party alleging a violation of Section 337 (the complainant, in ITC parlance) must show that there has been: (i) an unfair act or unfair method of competition resulting in the infringement of an intellectual property right or other harm to a domestic industry; (ii) an importation, sale for importation, or sale after importation of the offending article; and (iii) a domestic industry. Unlike federal district courts, the Commission has broad in rem jurisdiction, meaning that an accused infringer (the respondent ) need not have any physical presence in the United States for the Commission to act against its products. The Process. Once an investigation has been instituted, the Commission assigns an administrative law judge ( ALJ ) to conduct the investigation, oversee discovery, and, if necessary, hold an evidentiary hearing. The Commission s Office of Unfair Import Investigations ( OUII ) assigns an attorney as a party to the investigation to act on behalf of the public interest. The OUII attorney takes an active role in the investigation, as well as during any enforcement proceedings. Should a violation of Section 337 be found, the Commission may issue an exclusion and/or cease-and-desist order. All Commission remedial orders are subject to a 60-day presidential review period, during which the president may disapprove of the proposed remedy on public-policy grounds. During the presidential review period, infringing articles may still be imported subject to a bond posted by the importer; however, once the period has expired without presidential disapproval, all products permitted entry under bond must be exported or destroyed. Remedies. As referenced above, there are two types of remedy available upon a finding of violation: exclusion orders and cease-and-desist orders. Both are injunctive in nature and prospective in scope. Money damages are not available at the ITC, although civil penalties may be assessed in certain narrow circumstances. Exclusion orders prohibit the further entry of infringing articles into the United States. The Commission can issue either limited or general exclusion orders. Limited exclusion orders are narrow in scope and are directed at specific infringing products from specific sources, typically a respondent found in violation of Section 337. General exclusion orders are broad in scope and cover any infringing product, irrespective of its source, and even where the source was not a party to the underlying investigation. Due to the sweeping nature of a general exclusion order, however, the Commission requires additional evidentiary showings by the complainant before granting such relief. Cease-and-desist orders target domestic respondents with a commercially viable inventory of infringing products located in the United States. These orders generally proscribe the further marketing, sale, or distribution of infringing articles already inside the United States at the time a violation was found. They also provide for civil penalties of up to $100,000, or twice the value of the infringing articles, for each day the respondent is in violation of the order. Penalties may be recovered by filing a civil action in federal district court, which can also order mandatory injunctions incorporating the relief sought by the Commission. Enforcement Framework Customs and the Commission each have a role in enforcing Section 337 remedial orders. Exclusion orders are directly enforced by Customs, which denies entry to infringing articles at all United States ports of entry based on the terms of the order and, in some instances, Customs own independent analysis of imported articles. Cease-and-desist orders are enforced by the Commission and, if necessary, the federal district courts through the imposition of civil fines and other injunctive relief. In addition, the Commission and 16

17 Customs share information related to the enforcement of outstanding remedial orders. For example, the Commission has broad powers to require any person to provide information that will assist it or Customs in enforcing its remedial orders. See 19 C.F.R (a)(1). These reports must be in writing and signed under oath, and compliance is enforceable by the Commission by civil action under 19 U.S.C Exclusion Orders. The exclusion process begins upon entry of the Commission s final determination that a violation of Section 337 has occurred. The Commission transmits a copy of the exclusion order to Customs Office of Regulation and Rulings, Intellectual Property Rights ( IPR ) Branch, which oversees its administration. IPR prepares an Exclusion Order Notice, which contains detailed information regarding the subject matter of the exclusion order. The Notice is recorded in Customs Automatic Commercial System database and distributed to field agents through the Office of Field Operations. IPR may also develop selectivity criteria, based on the distinctive characteristics of subject articles, to automatically alert field agents to potentially infringing imports. In addition, due to the highly technical nature of many excluded articles, Customs operates laboratories to provide technical assistance to field agents and to help determine whether an imported article falls within the scope of an exclusion order. Once a field agent determines that an article is subject to an order, the agent will exclude the article, permit its exportation out of the United States, and alert the importer to the actions taken. Cease-and-Desist Orders. The Commission transmits cease-and-desist orders directly to any domestic respondent whose inventory of infringing goods is implicated by the order. The order will typically require the respondent to submit an annual report to the Commission regarding the number and value of infringing goods in its domestic inventory. Failing to do so, or providing false information in the report, may lead to criminal prosecution under 18 U.S.C In addition, the Commission may require the respondent to keep all records related to the importation, sale, or transfer of any infringing goods, and to make those records available for inspection by the Commission upon reasonable notice. Complainant s Perspective: Enforcing Remedial Orders A complainant s contact with Customs should begin prior to the Commission s final determination. In addition to coordinating with OUII, the complainant may submit a proposed exclusion order to Customs for review and comment. Following the Commission s final determination, the complainant should meet with Customs to provide industry information and intelligence to the field agents who will enforce the terms of the order. Examples of such helpful industry information include established ports of entry, known and suspected importers, the identity of articles subject to exclusion (including, if applicable, downstream products), methods of infringement testing, and the technology at issue. A complainant can also move the Commission to take additional action, known as an enforcement proceeding, to enforce an exclusion and/or cease-and-desist order. Enforcement proceedings can be formal or informal. To institute an informal enforcement proceeding, a complainant notifies the Commission of the potential violation of a remedial order. The Commission then conducts an informal investigation of the allegations through OUII. These proceedings are handled through correspondence, conferences, and other informal methods, and the Commission may issue any orders necessary to ensure compliance with its original orders. The formal enforcement process begins when the party alleging a violation of a remedial order (the enforcement complainant ) files an enforcement complaint. The enforcement complainant can be the original complainant, its successor-in-interest, OUII, or even the Commission itself. The party alleged to be in violation of the remedial order (the enforcement respondent ) has 15 days to respond to the enforcement complaint or risk entry of default. The Commission, typically through an ALJ, conducts an enforcement investigation in which the parties take discovery, present evidence, and conduct a hearing. Following the enforcement investigation, the Commission may modify the existing remedial order to prevent further violation of Section 337 or, for more egregious or repeated violations, revoke an existing cease-and-desist order (or consent order) and enter an exclusion order in its place. The Commission may also issue a seizure and forfeiture continued on page 34 17

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19 BY Sébastien J. Evrard, H. Stephen Harris, Jr., Geoffrey D. Oliver, Shinya Watanabe, and Dr. Johannes Zöttl Intellectual property holders involved in transnational licensing of intellectual property ( IP ) rights properly have come to recognize that their licensing agreements could be subject to competition laws in various jurisdictions, laws that may sometimes yield conflicting outcomes. 19

20 EU law contains a small number of court decisions involving application of Articles 81 and 82 of the EC Treaty (which prohibit agreements that restrict competition and abuse of a dominant market position, respectively) to situations involving the exercise of IP rights. In order to manage the risk of antitrust violations, it is important for practitioners to consider the implications of competition laws in the various jurisdictions in which an IP license agreement may have effects. More than 100 countries now have competition laws, although few to date have developed a significant body of precedent regarding the application of those laws to IP licensing transactions. The United States, the European Union, and Japan remain the three jurisdictions with the most comprehensive bodies of law in this area. The issuance last year of a Report on Antitrust Enforcement and Intellectual Property Rights by the U.S. Department of Justice Antitrust Division and the U.S. Federal Trade Commission, as well as Guidelines by the Japan Fair Trade Commission, serves as a reminder of the growing importance of this area. The good news is that applicable laws in these three jurisdictions have been converging, and a number of key principles are common to the three systems. The bad news is that important differences remain, which can cause serious risks if ignored. This article briefly summarizes the sources of competition law applicable to IP licensing practices and then discusses certain examples of differences among these three systems. These differences should not be exaggerated; the fact that general principles are common to U.S., EU, and Japanese competition laws illustrates the degree of convergence that has occurred. The specific examples demonstrate, however, the continuing potential for differing outcomes in the three jurisdictions. These differences can be important in their own right, but they also serve as important reminders of the potential for further disparities in the future as countries such as South Korea and Brazil increase their levels of antitrust enforcement and countries such as China and India begin, in the very near future, to apply their competition laws to IP licensing transactions. Overview and General Principles While many other jurisdictions are ramping up competition law enforcement with regard to IP rights, the United States, the European Union, and Japan remain the primary jurisdictions with developed bodies of law in this area. In each 20

21 The fact that general principles are common to U.S., EU, and Japanese competition laws illustrates the degree of convergence that has occurred. of these jurisdictions, the enforcement agencies also have published guidelines explaining their likely enforcement positions. In the United States, a robust body of case law governs application of the Sherman Act to IP licensing. A significant amount of precedent is quite dated, however, leading to questions of whether certain older decisions might be reconsidered in light of more recent developments outside the IP area. In response to these uncertainties, the Department of Justice and the Federal Trade Commission (together, the U.S. Agencies ) sought to clarify their enforcement positions, first in Antitrust Guidelines for the Licensing of Intellectual Property (the IP Licensing Guidelines ), published in 1995, and subsequently in the Report on Antitrust Enforcement and Intellectual Property Rights ( Antitrust & IP Report ), published in EU law contains a small number of court decisions involving application of Articles 81 and 82 of the EC Treaty (which prohibit agreements that restrict competition and abuse of a dominant market position, respectively) to situations involving the exercise of IP rights. In 2004, the EU adopted Commission Regulation (EC) No 772/2004 on the Application of Article 81(3) of the Treaty to Categories of Technology Transfer Agreements (the Technology Transfer Block Exemption Regulation, or TTBER ). The TTBER replaces the EC s 1996 Regulation on the Application of Article 81(3) of the EC Treaty to Categories of Technology Transfer Agreements and establishes a block exemption for certain types of licensing agreements from application of Article 81. The European Commission also issued the accompanying Guidelines on the Application of Article 81 of the EC Treaty to Technology Transfer Agreements (the EC Guidelines ), which provide guidance as to how the European Commission is likely to apply Article 81 to license agreements that do not qualify for the block exemption. and Know-How Licensing Guidelines of 1999 and supplement the Guidelines on Standardization and Patent Pool Arrangements, published in Importantly, many positions taken by the JFTC have not yet been tested in court. These developments indicate a growing convergence in the treatment of IP licensing agreements under U.S., EU, and Japanese competition laws. In particular, these sources confirm that, with the exception of certain hardcore practices that are deemed likely to harm competition, restrictions in IP license agreements generally will be reviewed under a rule of reason-type analysis. Courts and competition authorities are likely to recognize the potential procompetitive benefits of restraints contained in IP licensing agreements and in most cases would find a violation only if actual harm to competition outweighed the procompetitive benefit(s) of the restraint, or if conduct ancillary to the license had an exclusionary effect by virtue of the dominant market position of the licensor. Despite the growing convergence among U.S., EU, and Japanese law in this area, however, important differences remain. For example, while the TTBER and the EC Guidelines reflect a general trend toward application of a fact-based analysis similar to the rule of reason, EU law still relies in considerable part on classification of restraints by type and categorization of certain types of restraints as hardcore. Thus, application of EU law may depend on categorization of an agreement in terms of the share of the relevant market affected and whether it involves competitors or noncompetitors, provides for one-way or reciprocal licensing, and conveys exclusive or nonexclusive rights. While these factors are likely to be relevant in other jurisdictions as well, the analysis is likely to be more flexible (especially in the United States). Japan also has a small body of precedent applying its Antimonopoly Act to conduct involving IP. In 2007, the Japan Fair Trade Commission ( JFTC ) issued the Guidelines for the Use of Intellectual Property under the Antimonopoly Act (the Japan Guidelines ), which supersede the Patent More generally, treatment of royalty rates, customer or territorial restraints, restraints affecting multiple licensees, and package or bundled licensing are examples of restraints that might be analyzed differently under the competition laws of these three jurisdictions. The following discussion 21

22 is not intended to be exhaustive; it merely identifies examples of restraints, the treatment of which might differ in the United States, the EU, and Japan. Refusals to License U.S. law provides, at a minimum, a strong presumption that an unconditional unilateral refusal to license does not violate the antitrust laws. See Verizon Communications v. Law Offices of Curtis V. Trinko, 540 U.S. 398, 408 (2004) (the Court has been very cautious in recognizing exceptions to the general rule that the Sherman Act does not restrict the right of a company freely to exercise [its] own independent discretion as to parties with [which it] will deal ). Trinko (which did not involve IP rights) has not yet been applied to a prior split among circuits as to whether the presumptive legality of an IP holder s refusal to license could be rebutted by evidence of the IP holder s anticompetitive intent. (Compare Image Technical Services v. Eastman Kodak Co., 125 F.3d 1195 (9th Cir. 1997) (Kodak s termination of supply of patented and nonpatented replacement parts to independent servicers could state an antitrust claim) with CSU, LLC v. Xerox Corp., 203 F.3d 1322 (Fed. Cir. 2000) (absent fraud on the patent office, tying, or sham litigation, Xerox s termination of supply of patented replacement parts to independent service organization did not state an antitrust claim).) Nevertheless, most practitioners expect that an IP holder s unilateral refusal to license its IP would rarely, if ever, violate the antitrust laws. The U.S. Agencies acknowledge an inherent tension between the right to exclude under the patent laws and the prospect that a unilateral refusal to deal could give rise to antitrust liability, should a patent holder unilaterally refuse to license a particular company. The Agencies have rejected the position that the 1988 amendment to the Patent Act, 35 U.S.C., 271(d), creates antitrust immunity for a unilateral refusal to license a patent. The Agencies nevertheless recognize the traditional understanding that a unilateral right to decline the grant of a license is a core part of the patent grant. Antitrust & IP Report at 30. The Agencies position, therefore, is that unilateral refusals to license will not play a meaningful part in the interface between patent rights and antitrust protection. Id. EU competition law also generally regards a mere refusal to license as not constituting a violation. Nevertheless, EU law may regard a refusal to license intellectual property rights as an abuse of a dominant position in violation of Article 82 if: (1) the would-be licensor is dominant in the relevant market; (2) the refusal relates to IP rights that are indispensable to exercise a particular activity in a neighboring or downstream market; (3) the refusal to license excludes any effective competition in that neighboring or downstream market; (4) the would-be licensee would, if it were granted a license, offer new products or services not being offered by the would-be licensor, for which there is a potential consumer demand; and (5) the refusal to license is not objectively justified. See Court of First Instance, Case T , Microsoft, The Japan Guidelines generally accept the position that an IP holder unilaterally may refuse to license its IP, but with exceptions. The Guidelines provide that a decision by an IP holder not to grant a license is viewed as an exercise of [the underlying IP] rights and normally constitutes no problem. Japan Guidelines III.1(1). The Guidelines, however, specify certain exceptions. For example, a company may be found to violate the Antimonopoly Act if it acquires from other holders significant IP rights that it does not plan to use itself but expects competitors to use in the future and then refuses to license that IP. Id. at III.1(1). Also, an IP holder may violate the Antimonopoly Act by encouraging another company to use the technology in question and then refusing to grant a license. Id. at IV.2(2). Thus, in Japan, while a mere unilateral refusal to grant a license normally raises no issues, the right to refuse a license is not unlimited, and a refusal to license under the circumstances described above could violate the Antimonopoly Act. Royalty Rates Under U.S. antitrust law, an IP holder generally is permitted to charge whatever royalty it wishes for a license to its intellectual property. See Brulotte v. Thys Co., 379 U.S. 29, 33 (1964) ( A patent empowers the owner to exact royalties as high as he can negotiate ). (The patent misuse doctrine might apply to certain aspects of royalty arrangements, however, such as a requirement that a licensee pay royalties based on use of the technology after expiry of the patent. Id.; compare Antitrust & IP Report at , ) The Japan Guidelines are silent on the issue of royalty rates. The Guidelines imply, however, that the JFTC believes a violation of competition law might arise from the unjustifiable imposition of disadvantageous conditions on licensees... 22

23 The Japan Guidelines generally accept the position that an IP holder unilaterally may refuse to license its IP, but with exceptions. decision does not imply that the Commission will review the amount of royalties in most cases. Nevertheless, this decision leaves open the question of whether the European Commission may be willing, in certain circumstances, to second-guess the reasonableness of royalty rates charged by companies deemed to have a dominant market position. in a situation in which the licensor enjoys a dominant bargaining position. Japan Guidelines IV.1(3).b. Unfortunately, the Guidelines themselves contain no explanation of the meaning of unjustifiable or disadvantageous conditions. The JFTC has interpreted the Guidelines as generally permitting parties to determine appropriate royalty rates but may treat excessive royalties as equivalent to a refusal to license. (The Guidelines also refer to certain specific royalty arrangements that may violate the Antimonopoly Act, such as a royalty obligation owing on technology after the IP rights in question expire or on use of technology not covered by the relevant IP rights. Id. IV.5(2), (3).) The EC Guidelines provide that parties to a license agreement are normally free to determine the royalty payable by the licensee. EC Guidelines at 156. The pregnant question is, of course, what situations do the EC authorities consider to be abnormal? Recently, the European Commission imposed a fine of 899 million (approximately US$1.35 billion) against Microsoft for violating a Commission decision requiring Microsoft to license patented and secret interoperability information on reasonable terms. (Microsoft initially charged 6.85 percent, later reduced to 1.2 percent.) Commission Decision of February 27, 2008, COMP/C-3/ Microsoft. The Microsoft decision was unique in that the European Commission had previously found Microsoft liable for abuse of a dominant position and had ordered Microsoft to license its interoperability information on reasonable terms, and Microsoft and the European Commission had agreed upon the criteria for determining whether a royalty would be considered reasonable. Because of its specific circumstances, the Microsoft Unilateral Nonprice Restraints Under U.S. law, an IP holder generally is permitted to restrict a licensee s rights to certain specific territories, uses, or customers. See Ethyl Gasoline Corp. v. U.S., 309 U.S. 436, 456 (1940) (a patent holder may grant licenses... restricted in point of space or time, or with any other restriction upon the exercise of the granted privilege, save only that... he may not enlarge his monopoly ). Any potential concern with respect to enlarge[ing] the monopoly is likely to depend at least as much on analysis of the scope of the patent grant and application of doctrines of patent law, such as patent exhaustion, as on antitrust law. See, e.g., Quanta Computer, Inc. v. LG Electronics, Inc., U.S., 128 S. Ct (2008) (discussed in Quanta Computer v. LG Electronics: The U.S. Supreme Court Breathes New Life Into the Patent Exhaustion Defense, in this edition of IP Perspectives). EU law imposes somewhat tighter limits on the ability of an IP holder to restrict a licensee to a particular territory or group of customers. (In contrast to the United States, where antitrust law is intended to preserve competitive conditions in an integrated economy, EU competition law originated in part as a tool to promote the integration of separate national economies. Today, EU competition law continues to scrutinize closely any restraint that may serve to perpetuate divisions between countries or regions within the EU.) EU law provides that, in a nonreciprocal agreement between competitors, an IP holder may restrict sales by the licensee in a territory reserved for itself, and vice versa. TTBER Art. 4.1(c)(iv). However, EU law would treat a restriction of one licensee s sales into a territory reserved to another licensee as a hardcore restriction if the protected licensee is a competitor of the IP holder at the time of the license. Even 23

24 where the IP holder and the protected licensee do not compete, the TTBER permits restrictions on active sales only, categorizing a restraint on passive sales as a hardcore restriction. Id., Art. 4.1(c)(v). In agreements involving noncompetitors, an IP holder may restrict a licensee s active and (in some circumstances) passive sales to a particular territory or group of customers. TTBER Art. 4.2(b); EC Guidelines Customer restrictions are treated in a similar fashion. An IP holder generally may restrict a licensee to use of the licensed technology in a particular field, unless the agreement is likely to lead the licensee to reduce output outside the licensed field of use. EC Guidelines 183. Although the Japan Guidelines are unclear, under certain circumstances they appear to be even more limiting with respect to nonprice restraints on licensees. The Guidelines provide that a restriction on the scope of use of a technology is generally recognizable as an exercise of rights and in principle it does not constitute unfair trade practices, but they add that in some cases [such a restriction] cannot be recognized substantially as an exercise of rights. Japan Guidelines IV.3. Accordingly, for example, a restriction on the territory where a licensee may manufacture or sell licensed products generally is considered to be an exercise of IP rights. However, an IP holder may violate the Antimonopoly Act if it licenses multiple licensees and controls their activities by restricting the scope of use or imposing certain licensing terms. Id. III.1(2), (3). Similarly, an IP holder may unreasonably restrain trade if it licenses multiple licensees and the licensor and licensees collectively implicitly agree to restrictions on the scope of use in a manner that substantially restricts competition in the market associated with the product. Id. at III.2(2). While it remains to be seen how these provisions will be applied, it appears that the Japan Guidelines are far more concerned with protecting potential competition among an IP holder s licensees than is U.S. law or even the TTBER. Tying and Bundling Tying and bundling involving intellectual property take many forms. Various patents may be tied or bundled together, requiring a licensee to accept a package license. Alternatively, a product containing a patented technology may be tied to or bundled with one or more other patented or nonpatented products. A product tie or bundle of this sort may be accomplished technologically, by combining products physically or producing them so that they are compatible only with one another, or contractually, by requiring a customer to purchase one or more less desirable products or technologies in order to obtain a more desirable product or technology. Important factors with respect to bundled licensing include whether a bundle includes both essential and nonessential IP and whether the patents or other IP in question are also available separately at reasonable cost. While U.S. law generally has treated tying by a company with a significant market share as per se unlawful, recent precedent indicates that U.S. courts are likely to apply a rule of reason analysis to package licensing of intellectual property, including a package containing both essential and nonessential patents. Courts are likely to look favorably on the potential procompetitive benefits of a package or bundled IP license. See U.S. Philips Corp. v. ITC, 424 F.3d 1179 (Fed. Cir. 2005) (Philips package license of patents for recordable and rewritable compact discs was not per se unlawful and could involve significant efficiencies); see also 35 U.S.C. 271(d)(5). The U.S. Agencies have stated that they are unlikely to challenge a tying or bundling arrangement unless (1) the patent holder has market power, (2) the tying or bundling arrangement has an adverse effect on competition, and (3) efficiency justifications do not outweigh the anticompetitive effects. Antitrust & IP Report at 110 (quoting the IP Licensing Guidelines 5.3). The Agencies acknowledge that, in most instances, such practices are not anticompetitive. Antitrust & IP Report at 114. The EC Guidelines also apply the equivalent of a rule of reason approach; they recognize the potential procompetitive benefits of package licensing and state that a package license is likely to violate Article 81 only in rare circumstances and, at a minimum, only if it covers a significant share of a relevant market. EC Guidelines Thus, it would appear that, at a minimum, a finding of some degree of market power would be necessary to find a violation under EU law. The European Commission has challenged product ties in situations where a company has a dominant position, thus raising the distinct possibility that it might also challenge a package license that covers a significant part of a market. Japanese treatment of tying and bundling is less clear. The Japan Guidelines provide that a bundled license is lawful if it is essential to obtain the effect of the technology sought by the licensee or is otherwise recognized as 24

25 reasonable to some extent. Japan Guidelines IV.5(4). Otherwise, it constitutes [an] unfair trade practice[] if it tends to impede fair competition. Id. Because of the lack of precedent on this issue, it remains unclear whether the JFTC might take the position that tying or bundling generally deprives a customer of the right to select products or services and thus harms competition, or whether it would challenge tying or bundling only if the IP holder has market power or there is an actual effect on competition. See, e.g., JFTC Recommendation Decision, Microsoft (Dec. 14, 1998) (issuance of cease-and-desist order with respect to tying of Excel and Word apparently based in part on market power). Cross-Licenses Depending on the specific terms, cross-licenses may give rise to greater potential for anticompetitive harm and therefore may draw closer scrutiny under U.S. law. Nevertheless, U.S. courts have recognized that they are likely to involve procompetitive benefits, and therefore a rule of reason analysis is usually appropriate. The U.S. Agencies recognize that most... non-exclusive [portfolio] cross-license agreements... generally do not raise competition concerns. Antitrust & IP Report at 62. Rather than applying a general analysis, as is the case under U.S. law, EU law applies a number of specific, rigid provisions. For example, a territorial restriction in a crosslicense between competitors may be treated as a hardcore restraint regardless of whether the agreement is exclusive or nonexclusive, whether the provision is limited to competition involving the licensed IP only, and whether the parties have any degree of market power. See TTBER Art. 4.1(c); EC Guidelines ( It is a hardcore restriction where competitors in a reciprocal agreement agree... not to sell actively and/or passively into certain territories... reserved for the other party.... [It is a hardcore restriction] irrespective of whether the licensee remains free to use his own technology ). Thus, under EU law, it is necessary to analyze each of the specific provisions of a cross-license agreement with care. Analysis of cross-license agreements under Japanese law is unsettled, to say the least. The Japan Guidelines provide that various restraints in a cross-license, such as price restrictions or allocation of customers, constitute unreasonable restraints of trade where the participating parties collectively hold a high market share of a particular product market and if they substantially restrain[] competition in the field of trade of the product in question. Japan Guidelines III.2(3).b. The Guidelines also provide, however, that a price restriction in a one-way license agreement is as a rule recognized to constitute an unfair trade practice without regard to the market share of the participants and apparently without regard to existence or absence of anticompetitive effects. Japan Guidelines IV.4(3). The Guidelines provide no explanation for this inconsistency in treatment of a price restraint in one-way licenses and crosslicenses. Clarification may come only when the Guidelines provisions are actually applied in specific cases. Conclusion For many years, the United States was the sole country with a significant body of law addressing the interplay between antitrust and intellectual property law. In recent years, this topic has attracted increasing attention in certain other jurisdictions. The adoption of the TTBER and the issuance of the EC Guidelines and the Japan Guidelines confirm that a number of key principles are common to the analysis in the United States, the EU, and Japan. In particular, there is growing consensus that the IP right itself permits certain restraints, such as (in most cases) the right to refuse to license, and that most restraints should be governed by a factual, rule of reason-type analysis. Nevertheless, important differences remain. As examples, territorial restraints require careful attention in the EU, and restraints on competition among licensees appear to be an issue of particular concern to the JFTC. In most cases, despite these differences, it is possible to accomplish the parties legitimate objectives in an IP licensing agreement, but it is important that the agreement be structured appropriately for each relevant jurisdiction. In future years, the global landscape is likely to become more complicated. A number of countries, such as South Korea, have been fairly active in applying their competition laws and are likely to start facing issues at the intersection of competition and intellectual property law more frequently. And two very important countries China and India are just at the point of beginning to implement competition laws. Article 55 of the new China Antimonopoly Act in particular expressly recognizes that abuses of IP rights may violate this new competition law, but it does not define continued on page 33 25

26 By Peter d. vogl Playing by the Rules: The New Trademark Trial and Appeal Board Rules Prior to the most recent changes made to the rules of the Trademark Trial and Appeal Board ( TTAB ), one of the first topics trademark attorneys discussed with their clients in helping them decide whether to pursue contested proceedings (such as oppositions and cancellations) was the fact that it was likely going to be a long and inefficient process. 26

27 Extensions of discovery schedules, repeated requests to suspend, and motions to compel resulting in case suspensions were all commonplace. With such delay tactics, together with the TTAB s excruciatingly slow pace, parties could often expect years to pass before reaching an acceptable resolution to their trademark disputes. Still, despite its reputation for inefficiency and delay, many parties opted to proceed before the TTAB instead of pursuing court proceedings, which could prove significantly more costly. In an effort to increase efficiency, encourage early settlement, provide greater disclosure of information, and promote procedural fairness, the United States Patent and Trademark Office ( USPTO ) adopted significant changes to the rules of practice before the TTAB. However, while the USPTO may be achieving its goal of encouraging early settlement, in many cases this outcome is not a direct result of the effectiveness of the new rules, but rather stems from the fact that the new rules create more work and significantly increase the costs for the parties. The new rules essentially adopt a modified version of the Federal Rules of Civil Procedure ( FRCP ), implementing a system that requires parties to disclose information and documents, without waiting for discovery requests, and to discuss settlement options, or plans for disclosure and discovery, including the costly production of electronically stored information ( ESI ). (The revised rules, however, do not provide the TTAB with authority to award damages. This limitation continues to provide a clear distinction between the relief available to the TTAB and that available in proceedings before state or federal courts.) In considering whether to bring or defend a case before the TTAB, it is imperative for companies and/or individuals to understand that these proceedings, now more than ever, are much more akin to litigation. (Parties concerned with issues pertaining to the use of a mark, rather than registration, must pursue litigation in court, since the USPTO has jurisdiction only over registration.) Accepting the risk of an opposition when adopting a new mark, and determining whether to proceed with an opposition, requires far more forethought than ever before. As outlined below, the most significant changes to the new rules, which became effective November 1, 2007, unless otherwise noted, concern service of papers, a standard protective order, an initial conference, initial disclosure of evidence, expert disclosures, and pretrial disclosures. An example of a timeline adhering to the new rules for an opposition or cancellation proceeding, which is slightly longer than under the prior rules, is as follows: Day 0 Day 1 Day 40 Day 70 Day 100 Day 220 Day 250 Day 295 Day 340 Day 355 Day 400 Day 415 Day 445 TTAB complaint filed Board institutes proceedings Deadline to file answer Deadline for initial conference Discovery opens (discovery cannot be served until initial disclosures are served) Deadline for initial disclosures Deadline for testifying experts disclosures Deadline for rebuttal experts disclosures Discovery closes Deadline for plaintiff s pretrial disclosures Plaintiff s 30-day testimony period closes Deadline for defendant s pretrial disclosures Defendant s 30-day testimony period closes Deadline for plaintiff s rebuttal pretrial disclosures Plaintiff s 15-day rebuttal testimony period closes 27

28 Service Under the new rules, the plaintiff, rather than the TTAB, must serve the complaint on the defendant. Service must be made to the owner of record or the domestic representative, as indicated on the USPTO web site. (In an opposition proceeding, the attorney of record, if listed, is served.) In light of this rule change, it is important that registration owners update their USPTO contact information. The plaintiff is required to serve a petition to cancel only on the address listed on the USPTO web site. Review of the USPTO s assignment and file history databases is recommended. However, if the complaint is returned and the serving party has further information regarding the defendant s new address, it is required to provide that information to the TTAB. An opposer must notify the TTAB within 10 days of a returned service copy. Parties may also now stipulate to service via or facsimile. In order to avoid midnight service of papers, it is recommended that the parties stipulate that service via after a certain time will be considered to be served the following business day. Parties may also agree that the additional five-day response period when service is made by mail or courier shall apply to service as well. Initial Conference The parties must hold a discovery/ disclosure/settlement conference within 30 days after the answer is due (i.e., 70 days from the TTAB s institution of the proceedings), consistent with FRCP 26(f). The topics for discussion include the nature and basis of claims and defenses, possibilities for prompt settlement, arrangements for initial disclosures, discussion of issues pertaining to preserving discoverable information, and the development of a discovery plan. The initial conference provides an opportunity for the parties to discuss any proposed changes with regard to the timing, form, or requirements for initial disclosure, as well as issues pertaining to the disclosure and discovery of ESI and privileged matters. The TTAB will not likely grant requests to suspend the proceedings for settlement negotiations between the time the answer is filed and the initial conference. (If filed before the answer, or after the initial conference, motions to extend will generally be granted for good cause, such as exploring the possibility of settlement.) Thus, the new early-disclosure requirements for witnesses and key documents will encourage parties to negotiate settlement options before significant costs are incurred. Further, motions for summary judgment generally may not be filed until after the moving party has served its initial disclosures of documents and witnesses. The parties may request that an interlocutory attorney or board member participate in the initial conference. The participation of such an individual may assist in cases where the opposing side is unfamiliar with TTAB rules and procedures or is uncooperative. Initial Disclosures Within 30 days of the opening of discovery, the parties are now required to make initial disclosures of documents and witnesses in support of their cases. (Under the prior rules, a party could wait to produce such information until discovery was served by the opposing party.) Discovery may not be served until initial disclosures have been served. Of course, initial disclosures and discovery requests may be simultaneously filed at the initial conference. The hope is that the requirement for the initial conference and disclosures will foster quicker settlements. Parties involved in proceedings before the TTAB need to be prepared to collect supporting evidence at the outset of the case. If initial disclosures are exchanged, the parties will need to identify persons with knowledge about the case (names, addresses, and phone numbers) and the location of relevant documents, including ESI, for disclosure to the other side. The discovery period, which lasts for a total of 180 days, is the most expensive portion of the proceedings and is even more costly now, with the inclusion of ESI under the new rules. 28

29 The new rules provide that registrations may be made of record by filing printouts from the USPTO s database records on its web site. Failure to disclose evidence during the initial disclosure may lead to exclusion of key evidence at trial. Expert Disclosures Expert testimony is unusual in TTAB proceedings. In cases that do use expert testimony or include consumer survey evidence, any expert witnesses must be disclosed 30 days prior to the close of the discovery period. If a party inquires about an expert through traditional discovery, the responding party cannot withhold the identity of the expert until the deadline. Because the rules require disclosure of just the testifying experts not the consulting experts it is not necessary to reveal expert information if it has not been decided whether the expert will actually testify. Conclusion The new rules provide a slightly longer standard schedule than the prior rules, to accommodate the initial conference and disclosures. The hope is that the requirement for the initial conference and disclosures will foster quicker settlements. However, for cases that do not settle quickly, from both the plaintiff s and the defendant s perspectives, the new rules will increase and accelerate costs, especially in light of the preparation needed for the initial conference and disclosures, as well as the ESI requirements. Under the new schedule, there are more deadlines that must be closely observed. Additionally, while some of the delay tactics used by parties in the past through motion practice have been eliminated, the new rules add several new types of motions pertaining to the new schedule and disclosure requirements that may cause proceedings to be suspended. Pretrial Disclosures Fifteen days prior to the opening of the parties respective testimony periods, each party must exchange its intended witness testimony and evidence to be relied on during the testimony/trial period. The new rules require a general summary or list of the subjects to be covered by the testifying experts, as well as a summary or list of the types of documents and things to be introduced as exhibits during such testimony. As with the initial disclosure, failure to disclose evidence during the pretrial disclosure could lead to the exclusion of key testimony and evidence at trial. Parties are not required to disclose deposition excerpts for use in their testimony period, nor are they required to disclose any notices of reliance they intend to use. Standard Protective Order Effective August 31, 2007, a standard protective order, available at became automatically applicable in all cases, unless the parties agree to different terms. It is recommended that the parties consider modifying the TTAB s standard protective order depending on the parties respective situations, e.g., proceedings where one party is pro se. Additionally, since the TTAB has no jurisdiction after the close of the proceedings, the parties may consider entering into a separate agreement providing for a remedy at law in the event of a breach of the standard protective order. Trademark owners need to reevaluate their strategies, both at the time a mark is adopted and when they are contemplating pursuing contested proceedings before the TTAB. Before adopting a mark, companies should be aware that it is now even more imperative to conduct thorough investigations during the clearance process. The wait and see attitude adopted in the past by parties selecting marginally available marks is not advisable with the increased and accelerated costs of TTAB proceedings. The costeffective approach is to spend more time and resources during clearance and for some, to take a more conservative stance in selecting a mark rather than risking a potentially costly opposition. For parties facing TTAB proceedings, the new rules should substantially influence their decisions to negotiate and settle cases as soon as possible. This is particularly advisable for smaller companies with smaller legal budgets. Parties that decide to proceed in the TTAB must understand that they will need to prepare the evidence in their cases much more quickly than in the past, and they should be prepared to litigate with the same vigor and time commitment that they would devote to judicial proceedings before state and federal courts. : Peter D. Vogl New York ; ; pdvogl@jonesday.com 29

30 Quanta Computer v. LG Electronics continued from page 9 patent ; and (2) when the component constitute[s] a material part of the patented invention and all but completely practice[s] the patent. Using the facts of Univis as a guide, the Court found that Intel s licensed microprocessors and chipsets even though they were components of the patent claims at issue had no reasonable use other than for incorporation within the accused computer systems that practiced LGE s patents. As the Supreme Court stated, A microprocessor or chipset cannot function until it is connected to buses and memory. While LGE argued that Intel s licensed components could be used in noninfringing ways (e.g., by being sold overseas, where the U.S. patent laws have no force, or by being used as replacement parts), the Supreme Court rejected LGE s arguments, stating that the proper question is whether the product is capable of use only in practicing the patent, not whether those uses are infringing. In other words, [w]hether [sold] outside the country or functioning as replacement parts, the Intel Products would still be practicing the patent, even if not infringing it. The Court went on to conclude that the licensed Intel products constitute a material part of the patented invention and all but completely practice the invention, because the only step necessary to practice LGE s patents is the application of common processes or the addition of standard parts (i.e., combining the licensed microprocessors and chipsets with memory and buses, standard components in a computer system that enable the microprocessor and chipset to function properly). As in Univis, where the finishing of the lenses was incidental to the invention, in Quanta, everything inventive about each LGE patent was embodied in Intel s products, not in the combination with buses and memory. Accordingly, because the only reasonable use of Intel s products was to practice the patent claims at issue and the products all but completely practiced the patent claims at issue, the Court held that the patent exhaustion doctrine could apply. Finally, the Court examined whether Intel s sale of its microprocessors and chipsets to Quanta and others actually exhausted LGE s patent rights. Because exhaustion is triggered only by a sale authorized by the patentee, this issue depended on whether LGE authorized Intel s sale of its licensed microprocessors and chipsets to the defendants. LGE argued that there was no authorized sale, because the License Agreement did not permit Intel to sell its licensed products for use in combination with non-intel products. The Court disagreed with LGE, finding that the Intel LGE License Agreement broadly permitted Intel to make, use, [or] sell products free of LGE s patent claims. The Court found nothing in the License Agreement restricting Intel s right to sell its licensed products to companies with plans to combine them with non-intel products. The only arguable condition appeared in the Master Agreement and required Intel to provide notice to its customers that LGE had not licensed those customers any rights to combinations of licensed Intel products with non-intel products. However, Intel provided such notice, thereby satisfying its contractual obligations regardless of what Quanta and the other defendants did with the licensed Intel products. Moreover, because the notice requirement appeared only in the Master Agreement, which also provided that a breach of the Master Agreement would not affect Intel s license, the Court concluded that Intel s authority to sell was not conditioned on such notice. As the Court succinctly stated, Intel s authority to sell its products embodying the LGE Patents was not conditioned on the notice or on Quanta s decision to abide by LGE s directions in that notice. Accordingly, the Court found that because Intel was authorized to sell the products and no conditions limited that authority, LGE s patent rights were exhausted by Intel s sale to Quanta and the other defendants. In finding for the defendants, the Court also dismissed LGE s reliance on the fact that the License Agreement disclaimed any license to third parties. The Court explained that whether any third parties received an implied license was irrelevant to patent exhaustion. Instead, exhaustion turn[ed] only on Intel s own license to sell products practicing the LGE Patents. Because Intel s sale was authorized, exhaustion applied. The Practical Effects of, and Questions Raised by, Quanta The short- and long-term implications of Quanta are likely to be significant in the context of both patent litigation and patent-licensing transactions. From a litigation perspective, Quanta may affect a patent owner s success when bringing an infringement action 30

31 against downstream users of a licensed product or component that is incorporated into a larger patented system or involved in a patented method. Even so, patent owners may still have forceful arguments against claims of exhaustion. For example, the patentee may argue that the licensed component has some reasonable use that does not practice the patent or that the component is not a material part of the inventive part of the patented system or method, and therefore the component does not substantially embody the patent claim. (A patentee, however, must be cautious when making such arguments, to ensure that they do not undermine any contributory-infringement claims the patentee may have raised.) Where the patentee has granted a license, the patentee may also argue that the sale was outside the scope of the license grant or in violation of a condition therein and therefore unauthorized. Moreover, even if patent exhaustion were to apply, the patent owner may, where the license allows, still seek redress through a breach-of-contract claim, an option explicitly recognized in the Court s opinion. The effect of Quanta may reverberate even more in the context of patent-licensing transactions. Despite the outcome in Quanta, it is important to understand that the Supreme Court did not eliminate a patentee s ability to create restrictions or conditions within a license agreement that might avoid later application of the patent exhaustion defense. In fact, the Supreme Court indicated that Intel s sale might not have been authorized and thus, the patent exhaustion doctrine might not have applied if the license grant to Intel had explicitly excluded Intel s right to sell products to customers who later combined the licensed Intel products with non-intel products downstream. A patent owner can learn from Quanta to structure licenses to ensure that the license grant offered is as narrow and circumscribed as possible, such as through field-of-use and market limitations. Put simply, unlike what was done in Quanta, a patent owner must be careful to explicitly limit the scope of a license in a way that ensures the patent owner receives the compensation it expects from the sale of each licensed product. From either perspective litigation or transactional Quanta leaves a number of unanswered questions. Most notably, what will constitute a substantial embodiment of the patent so that the exhaustion doctrine applies? From the Court s discussion of its prior Univis decision, we know that each lens blank embodied essential features of the patented device and its only use was in practicing the patent (i.e., finishing the lenses). Similarly, we know that the Intel microprocessors and chipsets in Quanta substantially embodied the LGE Patents because they had no reasonable noninfringing use and included all the inventive aspects of the patented methods. But it is not clear that those two conditions (no reasonable noninfringing use and including all inventive aspects of the patent) are going to be necessary conditions for a finding of substantial embodiment. In addition, it is unclear what uses can qualify as reasonable noninfringing uses, especially given the Court s statement that the question is whether the product is capable of use only in practicing the patent, not whether those uses are infringing. Only case-by-case development by the Federal Circuit and lower federal courts will answer these questions. At the time this article went to press, more than five months had passed since the Supreme Court s decision; however, neither the Federal Circuit nor the lower federal courts have so far issued any decisions that offer substantive guidance on these issues. Conclusion The Quanta decision marks yet another Supreme Court reversal of a Federal Circuit patent decision. Once again, the Supreme Court appears to be rebalancing the patent laws in a way different from the balance the Federal Circuit has struck over the years. Nevertheless, as with every Supreme Court decision, it will be important to see how the Federal Circuit and district courts interpret Quanta and, most important, under what circumstances they will uphold conditional sales and licenses and refuse to apply the patent exhaustion doctrine. : N.B.: Jones Day filed an amicus curiae brief on behalf of IBM. Gregory A. Castanias Washington ; ; gcastanias@jonesday.com Warren L. Nachlis, Ph.D. New York ; ; wlnachlis@jonesday.com Jonathan A. Muenkel New York ; ; jamuenkel@jonesday.com The authors would like to thank New York associate Ken Canfield and former New York summer associate Tom Bassolino for their assistance in the preparation of this article. 31

32 The Effect of Statements continued from page 13 coupled with experimental test results, led the ITC to conclude, and the Federal Circuit to affirm, that there was no infringement of Tanabe s process under the doctrine of equivalents. Id. at 734. The Federal Circuit continues to use statements made to foreign patent offices to determine how a person of ordinary skill in the art may construe U.S. patent claims. See Gillette Co. v. Energizer Holdings, Inc., 405 F.3d 1367 (Fed. Cir. 2005). In Gillette, the Federal Circuit determined that Gillette s claims for a razor comprising three blades were infringed by Energizer s Quattro, a four-bladed razor. Energizer unsuccessfully argued that Gillette s comprising language was meant to exclude razors with more than three blades and that a person having ordinary skill in the art would not understand the claim to encompass a razor with four blades. The Federal Circuit disagreed, finding that comprising was an open-ended term that could include razors with more than three blades. Id. at In rejecting Energizer s argument, the Federal Circuit relied on Energizer s own statements made to the European Patent Office during prosecution of a virtually identical claim in Gillette s European counterpart application. The Federal Circuit stated, [Energizer] itself endorsed an open interpretation of comprising... before the European Patent Office, and it further stated that this blatant admission [by Energizer] clearly supports this court s holding that those skilled in the art would construe the claims of the... patent to encompass razors with more than three blades. Id. at Caterpillar, Tanabe, and Gillette illustrate that statements or representations made during prosecution of foreign counterpart applications may be used to determine the claim scope of related U.S. patents. Such statements may be as valuable as statements made by an applicant during prosecution of a U.S. application in determining whether an applicant surrendered claim scope during the course of prosecution. Accordingly, statements and representations made during foreign prosecution must be made carefully and consistently because they may be used to limit the scope of a U.S. patent s claims, as in Tanabe, or to undermine defenses in infringement actions, as was the case in Gillette. As foreign applications increase, the number of statements made during foreign prosecution and the need for consistency will only continue to increase. What Does This Mean for Clients and Practitioners? Based on Caterpillar, Tanabe, and Gillette and the increase in patent application filings worldwide, foreign patent prosecution must be managed carefully to avoid an unintentional loss in U.S. patent claim scope and hence a decrease in patent value. While national patent laws differ around the world, resulting in the necessity for practitioners to use different arguments to obtain related patents, these arguments must be coordinated so that a consistent interpretation of the claims is ensured. Inconsistency in claim interpretation may provide the foundation for alternative (potentially less valuable) claim interpretation and may provide evidence of the understanding of a person having ordinary skill in the art. Foreign prosecution history may also be valuable to clients seeking to avoid litigation or in designing around existing patented solutions. Because foreign prosecution history may be used to shed light on the scope of a U.S. patent claim, clients may find that based on comments made during foreign patent prosecution, a U.S. patent claim may be narrower than it first appears. Practitioners may be able to aid clients in reducing litigation risk and design-around costs by investigating foreign prosecution history as part of accurately determining the scope of the U.S. patent claim at issue. Accordingly, it may be advantageous for a client and practitioner to: Determine at the outset who will manage or control prosecution of the international portfolio for related applications preferably, this will be a single practitioner who will be able to ensure that all arguments and representations made during prosecution of the related patents are consistent; and Notify foreign associates of the possible detrimental effect that inconsistent arguments or representations made during prosecution of foreign counterpart applications can have on U.S. claim scope. 32

33 International Licensing of Intellectual Property Rights continued from page 25 Conclusion The increasingly global scope of patent protection requires clients and U.S. patent practitioners to be more aware of and more involved in what transpires during prosecution of foreign applications that have U.S. counterparts. Failure to do so may result in an unintentional and unnecessary surrender of patent scope. Companies must be cognizant of the potential risks of inconsistent prosecutions and should ensure that their patent counsel take the necessary steps to obtain the broadest patent protection possible. : Peter G. Thurlow New York ; ; pgthurlow@jonesday.com what constitutes an abuse. It remains to be seen how these countries will apply their respective laws to IP licensing issues. The increasing complexity of this area of law makes it all the more important for IP holders to consider potential implications in all relevant jurisdictions at the time IP licenses are being planned. : Sébastien J. Evrard Brussels ; ; sjevrard@jonesday.com H. Stephen Harris, Jr. Atlanta ; ; Washington ; sharris@jonesday.com Anthony D. Mustillo New York ; ; admustillo@jonesday.com Geoffrey D. Oliver Washington ; ; gdoliver@jonesday.com Endnotes 1 United States Patent and Trademark Office, Patent Applications Filed 2007 (preliminary data), annual/2007/50302_table2.html; all web sites last visited November 18, Unprecedented Number of International Patent Filings in 2007, Press Release, World Intellectual Property Organization, February 21, Available at article _0006.html. Shinya Watanabe Tokyo ; ; swatanabe@jonesday.com Dr. Johannes Zöttl Frankfurt ; ; jzoettl@jonesday.com 3 State Intellectual Property Office, Applications for Three Kinds of Patents Received from Home and Abroad, 2007, sipo_english/statistics/gnwsznb/2007/200801/t _ htm. 33

34 ITC Remedial Orders in the Real World continued from page 17 order directed to a party that repeatedly attempts to import excluded goods where the Commission finds that the party has (i) previously attempted to import a product; (ii) been denied entry because of a final exclusion order; and (iii) been given written notice of the exclusion order and the risk of seizure and forfeiture. Finally, as discussed above, the Commission may initiate a civil enforcement action in federal district court to enforce its orders, assess civil penalties, and seek injunctive relief. Respondent s Perspective: Responding to Remedial Orders A respondent s options are not exhausted with the entry of an exclusion and/or cease-and-desist order. First, the respondent may continue to import covered products under bond during the presidential review period. During that time, the respondent may appeal to the executive branch to disapprove the Commission s determination on remedy. Also, the respondent may appeal the Commission s final determination in the United States Court of Appeals for the Federal Circuit. It should be noted, however, that a stay of remedial order pending appeal is rarely granted. Respondents also have administrative avenues within Customs and the Commission to respond to remedial orders. First, a respondent may challenge the applicability of an exclusion order in a Customs administrative proceeding. These quasi-administrative proceedings are conducted by Customs and are reviewed by the United States Court of International Trade. Such proceedings may result in a binding administrative ruling from Customs that covers future shipments of products that can be demonstrated to be outside the scope of an exclusion order. The respondent may also challenge the exclusion of a specific shipment of products by filing a protest against exclusion with Customs. Under this procedure, the respondent informally approaches the field agent responsible for refusing entry to discuss the matter before filing the protest. Once the protest is filed, Customs will either allow or deny it, with the decision reviewable by the U.S. Court of International Trade. (or any other party) may then file a response within 10 days of service of the petition. The Commission will conduct public hearings and permit the implicated parties the opportunity to be heard. If the modification/rescission petitioner is a former respondent, the Commission may grant relief on the basis of new evidence that was unavailable during the violation phase of the investigation. Finally, any party may request an advisory opinion from the Commission as to whether a proposed course of conduct would violate an existing remedial order. Advisory opinion proceedings are administered in a manner similar to violation and enforcement proceedings. The Commission must also consider a number of additional factors in determining whether to issue an advisory opinion, including whether the opinion would facilitate enforcement of Section 337, would be in the public interest, and would benefit consumers and competition, as well as whether the petitioner has a compelling business need for the advisory opinion. Conclusion The ITC offers many advantages to IP owners seeking to enforce their rights against infringing imports. Successfully obtaining an exclusion and/or cease-and-desist order, however, is only the first step. Numerous options remain available to both complainants and respondents after a remedial order has been issued. Close cooperation with the Commission and Customs is critical for parties on both sides of a remedial order. It is equally important to have counsel familiar with the intricacies of the enforcement phase to help ensure that a remedial order is enforced fully and fairly. : John C. Evans, Ph.D. Cleveland ; ; jcevans@jonesday.com Ric Macchiaroli Washington ; ; rmacchiaroli@jonesday.com Second, any party may file a petition for the rescission or modification of a remedial order based on changed conditions of law or fact, or the public interest. The complainant 34

35 8 A Few Minutes with Krista Schwartz Learn more about our Intellectual Property Practice. Krista s practice focuses on the area of high-tech intellectual property litigation. She has worked with such diverse technologies as the internet and World Wide Web systems and protocols, cellular telephony, computer software, semiconductor circuitry, medical imaging, handheld scanners and printers, and medical devices (pacemakers and defibrillators). Krista worked at AT&T Bell Labs for seven years, gaining real-world technical experience. Krista is a named inventor on more than 20 AT&T NCR U.S. patents related to desktop video conferencing, and she brings to her practice the practical experiences of a successful inventor. She may be reached at ksschwartz@jonesday.com. When Chicago Office partner Krista Schwartz plans the trial strategy for a patent infringement case, she weighs the choice of venue carefully. She knows this choice can mean the difference between a favorable and an unfavorable outcome for the client. Patent infringement complaints can be brought in any of the nation s 94 district courts, as well as before the International Trade Commission ( ITC ), so Krista first determines which of those two forums is appropriate to achieve the client s goals. If the defendant is a foreign company or has significant manufacturing presence overseas, we may counsel the plaintiff client to bring its case to the ITC, since the ITC can bar the importation of infringing products and stop their sale. If the client seeks monetary damages, however, the case must be brought in a U.S. district court exclusively or in combination with a complaint filed with the ITC. Districts with established rules for patent infringement cases, such as the Eastern District of Texas and the Northern District of California, provide the plaintiff s legal team a timeline and a sense of what is expected at each step of the process. The judges in those districts are also familiar with patent cases and are generally more comfortable with the sometimes complicated scientific or technical subject matter. Districts with shorter times to trial also generally favor the plaintiff, since in those districts defendants have less time to develop their cases and the settlement possibilities are limited. Among the speediest districts are the Western District of Wisconsin and the Eastern District of Virginia (known as the rocket docket ). Several districts are known for returning verdicts for patentees (verdicts of infringed and valid ), including the Eastern District of Texas, the Middle District of Florida, the District of Delaware, and the Western District of Wisconsin, making them among the most popular with plaintiffs. Krista and her colleagues in Jones Day s IP litigation practice may also consider the court s willingness to transfer a case at the request of the defendant. A judge s decision to transfer a case can eliminate the advantage the client sought in its original choice of venue. Clearly, there is no foolproof formula for selecting a venue, says Krista, since the goals, facts, and parties in each case are unique. Nevertheless, an experienced lawyer knows which key variables to weigh in selecting a venue that is likely to be advantageous to the client. : 35