By Saria Tseng and John Schnurer

Transcription

1 By Saria Tseng and John Schnurer ACC Docket 60 October 2009

2 Winning Global Patent Litigation Strategies for the21st century No matter your industry or company, there is a competitor who is busy trying to take market share from you. To successfully counter such attacks, companies must seek ways to gain the advantage over their competitors. Patent litigation is one way to garner or protect market share. It can be used, for example, to enjoin the manufacture, sale or use of a competitor s products, exclude their importation or increase their cost basis. Patent litigation can even be used to discourage a customer from designing in a competitor s products. A fear of getting involved in a downstream lawsuit stemming from patent litigation against the competitor and the additional effort required to secure indemnity from them often discourages a customer from designing in the product. Whether you find yourself on the offensive or defensive side of a patent battle, there are a variety of approaches available to help you win the war. Here are a few rules of thumb to consider in implementing a successful global patent litigation strategy. ACC Docket 61 October 2009

3 Choose a Legal Forum Effective patent litigation strategies whether offensive, defensive or both should not be limited to your local court. Rather, they should reflect the realities of the global economy. You and your competitors generate significant revenue in markets around the world and perhaps acquire patent rights in those markets. Using other legal forums available in your home country or other countries, including courts and administrative agencies, can give you an advantage. Consider legal forums that satisfy one or more of the following criteria: Where the infringing manufacturing takes place; Where the distribution of the infringing product occurs; 1 Where the sales and use of the infringing products occur; and Where the infringing products are imported. Use of Counterclaims When facing an infringement suit, a worthwhile defensive strategy includes both counterclaim and additional offensive components in another forum. By filing counterclaims as simple as seeking declaratory relief of non-infringement and/or invalidity or better yet, asserting infringement of your own patent you may level the playing field. With a counterclaim seeking declaratory relief, you prevent your competitor from leaving the lawsuit on a whim and ensure finality if they wish to end it. With a counterclaim asserting infringement, you transform the litigation from a onesided defensive fight to a more evenly matched battle. Moreover, with an additional offensive attack in another forum, you set the pace of war, especially if you select a faster and more favorable forum than the one chosen by your competitor. Potential counterclaims for your consideration, assuming supportable facts, include: Declaratory judgment of invalidity; Declaratory judgment of non-infringement; Declaratory judgment of unenforceability (whether based on patent misuse, inequitable conduct, license, exhaustion, laches or estoppel); Unfair competition; Antitrust-based claims; Trade secret misappropriation; and Offensive patent infringement claims based on your patent. Saria Tseng is vice president and general counsel from Monolithic Power System, a fabless analog IC manufacturer headquartered in San Jose, California with sales offices and an R&D center in Europe and Asia. Prior to joining Monolithic, Tseng served as vice president, general counsel and corporate secretary of MaXXan Systems. She is an active member of the bar of California, New York and the Republic of China, Taiwan. She can be contacted at saria.tseng@ monolithicpower.com. John Schnurer is a partner of Fish & Richardson PC in the firm s San Diego, California office. He litigates and tries patent cases in federal courts throughout the United States, including Section 337 proceedings before the United States International Trade Commission. He also provides strategic global intellectual property litigation and prosecution counseling. Schnurer is an active member of the bar of California. Prior to becoming a laywer, he worked as an electrical engineer. He can be contacted at schnurer@fr.com. By counterattacking on one or more new fronts, you seize the initiative and gain momentum. Attack or Defend on Multiple Fronts When planning an infringement suit, take advantage of your ability to dictate the place, time and pace of the war. If you have the resources and wherewithal to open more than one front, adopt a shock and awe strategy and file suits in multiple forums, such as in the United States International Trade Commission (US ITC) with a collateral case in federal court in a favorable jurisdiction. But respondents (the name for defendants in the US ITC) have a mandatory right to stay the collateral case in federal court and file an additional offensive case with different patents in a fast, patentee-friendly forum, whether in the United States or abroad. Your competitor will reel from your barrage, giving you the added leverage you need to achieve your objectives. One such example is the Broadcom versus Qualcomm global litigation. There, Broadcom realized the benefits of multi-forum litigation in its fight against Qualcomm, which resulted in a $891 million settlement. Broadcom dictated the place, time and pace of its battle with Qualcomm. In May 2005, Broadcom filed a complaint in the US ITC against Qualcomm, asserting infringement against Qualcomm s cellular baseband and radio frequency product lines of various Broadcom patents related to wired and wireless communications and multimedia processing technologies. Broadcom also filed a collateral case in federal court in the central district of California and another asserting infringement of other Broadcom patents. Qualcomm countered with a patent suit in the SD of California. The war would eventually span three continents, including Broadcom s complaints against Qualcomm to the European Commission and the Korea Fair Trade Commission for alleged antitrust violations. Ultimately, the US ITC found that Qualcomm s products infringed Broadcom s patents and issued an exclusion order that would have banned the importation of new models of cell phones containing the infringing Qualcomm products. The judge in the southern district of California action found that Qualcomm could not enforce its patents because it had concealed them from a standards-setting group and later concealed discovery of this fact from Broadcom. A jury in the CD of California case ACC Docket 62 October 2009

4 found Qualcomm to have willfully infringed three Broadcom patents. In the end, Broadcom s global patent litigation strategy had an $891 million price tag for Qualcomm and resulted in sufficient marketing exposure that Broadcom now has products and patents in the next generation cellular space. There are several things you should analyze before developing your litigation strategy. On the global front, court procedure, speed and available remedies in patent litigation can be dramatically different from court to court, from court to administrative agency and from country to country. Knowing the differences of each forum can provide you with a competitive advantage that may yield more favorable results. Know Your Goals One of the most common mistakes that companies make is not defining objectives among the management team at the beginning of a patent litigation. Only when your objectives are defined, understood and shared by those whose operation will be most impacted by the outcome (such as sales, marketing and engineering), can you, as in-house counsel, develop the appropriate litigation strategy and execution plan that allows you to achieve your objectives. Whether you initially find yourself as a plaintiff or defendant, it is critical to articulate your goals. As a plaintiff, perhaps you want to derive a revenue stream from your patents or foreclose a competitor from entering or sharing a market or obtaining increased market share with products that are covered by your patents. As a defendant, perhaps you simply wish to resolve the dispute quickly and cost-effectively by conceding. You may agree to exit a market that is not generating a good return in light of the cost of litigation, designing around or agreeing early on to pay a reasonable royalty for a license to the patents. Conversely, you could force a favorable settlement by creating pressure on your competitor s business outlook. Whatever your objectives, the focus of any good patent litigation strategy is to realistically analyze the cost and benefit of the litigation, and the speed to resolution that can affect the product life or sales cycle and time to market. But in order to create significant leverage against your adversary, you first need to know yourself and your competitor. Know Yourself and Your Competitor Know your own products and services technically, geographically and financially. Having a thorough understanding will help you evaluate your risk before entering the fray. Evaluate exposure in your key markets for your high-volume or high-return product lines, and which strategically important products are vulnerable to attack. The following are things you should learn about yourself: Operation of your product; Whether the underlying technologies incorporated in your products are fundamental building blocks for future product; Sales information about your product; Viability of alternative designs of your product, including time, opportunity cost and product acceptance; Life cycle of your product; Volume and profitability of your product; and Whether your products practice your own patents. How you coordinate and interview your sales, finance and engineering teams. The top-selling products today may have a short life cycle in the market, so if your goal is to deter your competitor from entering a market, filing litigation in a country that take years to reach a resolution may not achieve anything. It is equally important to understand your competitor s products, not only technically but geographically and financially. Although you may not have access to the same level of detail as you do with your own products, you can glean sufficient information from publicly available sources, including your competitor s website and its press releases, trade shows, competitive reports and public filings. By targeting the most profitable and strategically important products and services as part of your litigation strategy, you will create significant leverage. If, for example, your competitor sells a large percentage of its products in Japan or the United Kingdom, then filing a patent suit in one of those countries would likely make more sense. However, the most strategically important products and services have not always been the most profitable. The key is to hit an adversary where it will do the most damage, and the threat of an injunction blocking trade of a nascent flagship product in a big market pushes competitors towards reasonable settlement discussions. Know the Forum s Trend and Tendency When planning your global patent strategy and where to file patent claims, consider the historical data of the forum s experience and trends in patent litigation, such as whether the forum tends to award patentees or invalidate patents, as well as its inclination in awarding a sizable monetary damage and/or injunctive relief. For example, if you are defending against a competitor s patent that has parallel foreign patents, consider filing a nullity action (also known as an invalidity or revocation action) against a parallel patent registered in a foreign forum s jurisdiction, such as in the United Kingdom. Given that issuance of a patent does not create a presumption of validity and the inventive step barrier is relatively high, courts in the United Kingdom take a fresh and hard look at validity and have been known to invalidate patents. As a result, these ACC Docket 64 October 2009

5 courts are a popular choice for revocation actions. German courts, on the other hand, are generally considered propatent, which is good if you are the patent owner, keeping in mind that the Munich court has been known to invalidate patents from time to time. It is equally important to understand your competitor s products, not only technically but geographically and financially. In the United States, the eastern district of Texas is known for its pro-patent juries, while the eastern district of Virginia and western district of Wisconsin (and even the northern district of California) may be considered to be pro-defendant. However, recent cases have shown that even some of those venues once considered patentee heaven have begun to invalidate patents or transfer cases out to other jurisdictions. So it is worth the investment to consult your litigation counsel, both domestically and internationally, about the most recent development in various forums besides considering the historical data. Know the Forum s Knowledge of Patent Law and Technology Not all forums share the same familiarity of patent law nor do they possess equal technical capability in determining construction of claim terms and merits of alleged infringement. Indeed, some forums practically market such expertise, while others actively shy away from it. In Europe, the judges in the United Kingdom, Germany (such as in Dusseldorf, Manheim and Munich courts) and the Netherlands are very familiar with patent law and provide well-reasoned opinions. Given the bulk of European patent litigation occurs in the United Kingdom and Germany, this is not surprising. The courts in the Netherlands were inventive and creative in establishing the possibility to obtain cross-border injunctions and are still at the forefront of such relief, although limited given decisions in the past few years. California s district courts (e.g., northern, central and southern) are common venues for patent litigation. The northern and southern districts of California are known for their comprehensive local patent rules and many of the judges, particularly those in the northern district of California, have presided over numerous patent cases and are technologically savvy or at least unafraid of technology. The same holds true for judges in the eastern district of Texas. Mini MBA for In-house Counsel Boston University School of Management, in partnership with the Association of Corporate Counsel Bring More Than Your Legal Skills to the Table DECEMBER 2-4, 2009 MARCH 15-17, 2010 JUNE 9-11, 2010 In-house counsel recommend the Mini MBA. The Mini MBA program did a great job of strengthening the management and business skills I need to contribute the most to my organization. It s helped me bring more to the table and add value beyond my in-house duties. Renee D. Benjamin, Senior Counsel, CalPortland Company Education - Knowledge and training programs by and for in-house counsel. Start adding value to your skills. Register today at

6 In the eastern district of Virginia, particularly the Alexandria division, the judges are very familiar with patent law given the large number of patent filings in that division compared to other divisions in that district. Due to this imbalance, however, there is now a lottery system in place for re-assigning patent cases among the three divisions (Alexandria, Norfolk and Richmond). Therefore, even if you file a patent lawsuit in the Alexandria division, there is only a 1 in 3 chance of staying there. The western district of Wisconsin is a small district, only having two sitting judges. But they have presided over a large number of patent cases, are well-versed in the substantive law and not afraid of technology. Many administrative law judges at the US ITC are patent and technically savvy as a result of presiding over numerous patent litigations, while some have been recently appointed and are relatively inexperienced. In our experience with the ITC, this is not necessarily so. They have a lot of experience, but that experience doesn t make them good arbiters. In China, the intermediate courts normally litigate patent cases. Because the courts have inconsistent experiences and capabilities in patent laws, the outcome of the cases can be dramatically different depending on where the case is filed. China has special intellectual property courts in major cities like Beijing, Shanghai, Tianjin, Guangzhou and Chongqing, where the judges in these special IP courts have training and experience in IP matters as well as in cases involving foreign entities. 2 Know the Rules and Procedures of the Forum Not all forums are the same when it comes to discovery. Significantly, most do not have US-style discovery. If obtaining discovery is important to your case, then you must consider courts in the United States and the United Kingdom, both of which exercise broad discovery powers particularly the US ITC and have well-defined procedures for obtaining discovery. Despite the harmonization of the substantive patent law in Europe, your ability to obtain discovery there is divergent. As noted, the United Kingdom has discovery procedures available. But in Germany, the courts have no discovery mechanisms to help you prove your competitor is infringing your patent. Therefore, in Germany, your infringement case must be well-supported on day one of the action (e.g., such as in a standards-based patent claim), as there will be no opportunity to obtain and use your competitor s documents during the litigation. In France, the courts have extremely broad and powerful search and seizure powers. Before a patentee has decided to sue a potential infringer, it is possible to petition the French government to order that documents and other things be searched and seized. Because this power can be invoked before litigation, there is no commitment to subsequently initiate an infringement proceeding. The required threshold is also low. The requesting party only needs to believe that the information obtained might lead to infringement proceedings. Because Paris is home to many trade shows, this procedure can be effective even for companies that are not based in France. The information obtained from these proceedings could be used, for example, to get discovery for use in filing a proceeding in Germany or other forum that does not permit discovery. Unfortunately, due to the archaic legal system and the difficulty in finding responsive counsel, France can be a difficult jurisdiction for full-blown litigation. Similar to Germany, China does not have US-style discovery procedures per se. Courts in China, however, have the power to seek evidence from any relevant party, but that power is seldom used in practice. Another popular procedure in patent litigation is evidence preservation, which is similar to France s search and seizure procedures. Under Chinese law, where it is likely that evidence could be lost, destroyed or difficult to obtain later, a party may seek ex parte a court order to preserve the evidence. This is a powerful tool for the plaintiff, as a defendant generally will not be notified in advance and might be required to comply by providing the evidence on the spot. In execution of the order, the court can question the respondent, order production of documents, take samples of the alleged infringing product and conduct an inspection of the premises. Any evidence obtained from preservation should be admissible in the subsequent court proceeding. In addition to the evidence preservation mechanism, plaintiffs must collect and submit their own evidence to meet their burden of proof regarding patent infringement and damages. Evidence can come from preservation orders, private investigations, raid actions, overseas litigation and defendant s employees. If you are in China, consider applying for a preliminary injunction when petitioning for evidence preservation. Although the procedure is relatively new, many plaintiffs are successful in obtaining the order, provided they have fulfilled the procedural requirements. In addition, the courts are required to decide a petition for preliminary injunction within 48 hours. This is powerful because, although the respondent may seek review within 10 days from the issuance, the review does not stay the preliminary injunction order until the hearing. One thing the courts in Europe and Asia have in common is that a jury trial for patent cases is not an option, unlike in the United States, which are more common than judge-alone trials. The best choice, if you are able to choose, often varies depending on the circumstances of the case. ACC Docket 68 October 2009

7 Know the Speed of the Forum Depending on the objectives you defined, the speed of the forum, whether its slow or fast, is important. If speedy resolution is desired, some forums in the United States, the United Kingdom, Germany, the Netherlands and China decide cases in less time. An infringement proceeding may take 18 to 20 months in Germany and 12 to 24 months in the Netherlands. In the United Kingdom, courts take about 10 to 14 months from filing to disposition for infringement proceedings with an appeal clocking in at around nine months and a revocation proceeding coming in between nine to 12 months. In China, an infringement proceeding will last at least 12 to 18 months in the first instance if one or more of the parties involves a foreign entity, because of an automatic extension of time given to foreigners for responding to statutory deadlines, the legal requirements to translate all documents, and notarize and legalize all evidence related to obtaining the infringing products and activities. The invalidity proceedings and appeals are even slower. As a result, it is not uncommon to have judgments of infringement on patents that are subsequently invalidated by an invalidity proceeding. Perhaps one of the fastest forums in the United States is the US ITC, with investigations typically lasting nine to 12 months for initial determination of patent infringement. You should also consider the western district of Wisconsin, the eastern district of Virginia and the southern district of California, all of which have achieved recent prominence as hotbeds of patent litigation activity. The attraction of these districts is somewhat complicated, but generally these jurisdictions are known for their relatively short time between filing and final disposition. The eastern district of Virginia, however, has slowed somewhat in recent years due to its reputation as a rocket docket. The western district of Wisconsin has a reputation for being fast. Moreover, the number of cases proceeding to trial is high, although the judges are known to grant summary judgments when appropriate. Therefore, when filing here it is important to have a strong case if you wish to continue on to trial. However, with both judges having assumed senior status recently, and their replacements not yet appointed, this district now has a level of uncertainty for patent litigants. Although the southern district of California is not as fast as the eastern district of Virginia and the western district of Wisconsin, from filing to final disposition, patent cases are clocking in at about 18 months, with a claim construction hearing coming in around nine to 10 months from filing. The district adopted patent local rules a few years back, which has allowed it to achieve its relatively quick docket. Are you settling for a single piece instead of getting the whole solution? Let Bridgeway show you what s been missing. In-House End-to-End Process Control Cost For twenty years, you ve trusted Bridgeway for your matter management and corporate governance needs. Count on Bridgeway ediscovery the safe choice for a complete picture. ediscovery ACC Docket 69 October 2009 Come see us at the ACC 2009 Annual Meeting Booth 312

8 Conversely, if you desire a slower forum whether to increase total costs of the litigation on your opponent, spread out your own costs, delay your opponent s day in court, or achieve some other tactical or strategic objective consider forums in the United States with busy dockets (e.g., the patent-congested the northern district of California or the eastern district of Texas). The the eastern district Texas, once a rocket docket, has slowed down considerably given the huge increase in patent filings there over the last few years. The notoriety of eastern district Texas juries has attracted and still attracts the attention of many patentees looking for a favorable, patentfriendly jurisdiction in which to file an infringement action. This trend, however, has not been supported by a concomitant increase in the number of judges available to hear patent cases, so in recent years the docket has slowed considerably. Similarly, there are countries that are notoriously slow such as India, Italy or Belgium. Slower jurisdictions are often suitable for declaratory judgment actions in which you ask the court to rule that you did not infringe the patent, the patent is invalid and/or the patent is unenforceable. By choosing a slower jurisdiction to rule on the patent rights of your competitor, you have effectively torpedoed their ability to assert the same patent in a faster jurisdiction. Know the Benefits and Drawbacks of Bifurcation Patent litigation generally involves two key issues infringement and validity. These issues can either be resolved by the same court or the inquiry can be bifurcated into separate proceedings. Both approaches have benefits and drawbacks. Courts in the United States, for example, consider validity and infringement simultaneously. This system requires you to carefully evaluate the interplay between the prior art and the accused product, since only one claim construction can be adopted by the judge. In the United States, you may also opt to file an inter partes or ex partes reexamination of the validity of the patent with the US Patent and Trademark Office, a forum that has a lower standard for validity of a patent compared to US courts. This is an administrative proceeding and can be useful in an attempt to stay proceedings in the district court, such as with an inter partes reexam or to take another bite at invalidating the patent with new prior art located after the district court proceeding has concluded. In Germany and other civil law jurisdictions, however, infringement and validity are tried before two separate courts, or before a court and an administrative office. Therefore, a party can adopt different claim constructions for purposes of infringement and invalidity. For example, in Germany, nullity actions are handled exclusively by the patent court in Munich, whereas infringement actions are handled in the federal courts, especially Manheim, Dusseldorf and Munich. In Japan, infringement proceedings are usually handled either in Tokyo district court or Osaka district court. As a defense to infringement, a defendant may argue that the patent is invalid. The district court can make a validity determination, but that is only binding on the immediate parties. Only the Japan Patent Office can invalidate the patent itself. Also unique to Japanese patent litigation is that the infringement proceedings are tried through a series of hearings involving the parties and the judges, where advocacy is based on the written word rather than oral argument. Korea also separates infringement proceedings from invalidity proceedings. Infringement actions proceed similar to the Japanese model with a series of hearings involving the parties and the judges, where advocacy is typically based on the briefs rather than oral argument. In China, infringement proceedings are heard by the Intermediate Courts, while invalidity challenges are first heard by the State Intellectual Property Office (SIPO). Appeal proceedings take place at the Beijing Intermediate Court and Beijing High Court. Infringement proceedings must be filed where the alleged infringer is domiciled or where the infringement has taken place. So to avoid litigating in your competitor s home court (if that would be in China), you might wish to join Chinese distributors or manufacturers of the allegedly infringing product as additional defendants who are located in other jurisdictions in China that are more favorable to you. The bulk of high-stakes patent litigation in Europe occurs in the United Kingdom or Germany. Know the Cost The maxim that all patent litigation is expensive, regardless of the forum, holds true. But some forums are more expensive than others. Some of the most expensive forums in the world are located in the United States. For the price, though, you get terrific procedural safeguards and very broad discovery mechanisms. The simple truth is if you need discovery from your competitor to prove your case, it will cost you. And similarly, if you are the subject of discovery in the United States, it will cost you. One of the most expensive forums is the US ITC. Given its speed of resolution scope of discovery and unique evidentiary requirements, such as proof that the patentee has a domestic industry that practices the patent expect to pay for an entire patent litigation in the current year, which will be a staggering amount to bear even for the largest companies. But compared to federal court, you will save ACC Docket 70 October 2009

9 some money in not having to litigate damages, as they are not an available remedy in the ITC. The benefits of the ITC in regards to time often outweigh the cost of litigating there. Litigating in Europe (as a whole) can be expensive if not more expensive than in the United States if you are forced to litigate in multiple European countries over the same bundle of patent rights, which is moreso the case given recent decisions severely limiting once-popular crossborder injunctions. But you may still be able to achieve your objectives by litigating in just a select few countries, especially if those jurisdictions represent your or your competitors key markets. The bulk of high-stakes patent litigation in Europe occurs in the United Kingdom or Germany. The United Kingdom, one of the quickest European jurisdictions, is also one of the most expensive, primarily because you are able to conduct discovery and cross-examine witnesses, such as technical experts. Additionally, the courts in the United Kingdom will conduct a full investigation and write a wellreasoned opinion. Other European courts do not offer these procedural benefits, but then they are not as expensive. On the whole, German patent litigation is known to be efficient and low-cost, probably one-half to two-thirds the cost of patent litigation in the United Kingdom. This is due to the streamlined nature of litigation (i.e., there is no discovery), the general efficiency of the German legal system, as well as the bifurcation of infringement and invalidity trials. Know When You Need Help There are three simple steps you can take to advance your business objectives through patent litigation. First, develop a solid strategy for acquiring and maintaining your intellectual property. A global patent portfolio will allow you to engage in battle on your own terms. Second, retain counsel with the sophistication and resourcefulness necessary to develop and execute a global patent litigation strategy. When choosing a law firm, make sure they have sufficient legal and technical experience and breadth of vision to understand your business objectives. Third, decide how to leverage your intellectual property. By controlling the time, place and scale of your offensive and defensive actions, you can win the war. Have a comment on this article? editorinchief@acc.com. Notes 1 Nelson A. Blish, Isabel M. Davies and David P. Owen, Securing Global Patent Protection, ACC Docket, April Judge Yongshun Cheng, Patent Litigation, Patent Publication Press, ACC Extras on Global Patents ACC Docket Protecting Privilege in a Global Business Environment (June 2009). In the face of litigation, internal documents can be called into evidence, and upholding international attorneyclient privilege can become tricky. Explore ways to make the law work for you globally. Patent Litigation in China and the United States: What Every Patent Holder Ought to Know (Nov. 2008). This article provides a basic comparative overview of patent litigation in the United States and China, highlighting their most significant differences. Keys for Thrifty Patent Litigation: Brainstorming with Benjamin (March 2006). Use Ben Franklin s wisdom to curb many patent litigation costs. Read how identifying clear goals, selecting top-notch counsel, retaining the right experts and realistically analyzing the merits and costs will save you money. Securing Global Patent Protection (April 2004). Formulate a strategy that provides protection to your company s intellectual property. Program Materials Best Practices in Patent Litigation (Oct. 2008). This panel discussion highlights best practices for more efficiently dealing with patent litigation in-house, with an emphasis on recent court decisions and legislation that may have an impact on your patent strategies Patents Pending Changes Recent Developments in Patent Litigation (Feb. 2007). Find out the latest news, changes in patent enforcement and patent law reform, as well as ways to protect your own intellectual property in the face of impending regulatory change Beyond the United States Taking Your IP Portfolio Global (Feb. 2004). Learn the basics on taking your business IP portfolio worldwide. ACC has more material on this subject on our website. Visit where you can browse our resources by practice area or use our search to find documents by keyword. ACC Docket 72 October 2009