United States: Effective Management of U.S. Patent Litigation - Continued

"Willful infringement" of a U.S. patent, while not precisely defined by the courts, embodies the notion that the courts will punish those who have intentionally or deliberately disregarded the legal rights of a patent owner. Knorr-Bremse Systeme Fuer Nutzfahrzeuge GmbH v. Dana Corp., 303 F.2d 1337, 1342 (Fed. Cir. 2004). If willful infringement has been found, the court may increase the damages up to three times actual damages under 35 U.S.C. § 284, and also may award reasonable attorney fees to the patent owner under 35 U.S.C. § 285. Id.

• Willful infringement was alleged in 92.3% of patent infringement cases.

• Willfulness was only decided if the case went to trial and never on summary judgment.

• Willfulness was found in 55.7% of the cases that were tried. For bench trials, the judge found the infringer willful in 60.4% of these cases, while in jury trials, the jury found the infringer willful in 56.0% of these cases.

• Damages were enhanced in 55.7% of the cases where willfulness was found. If the jury found willfulness, the judge enhanced damages in only 36.8% of the cases, but if the judge found willfulness, he enhanced damages in 87.0% of the cases.

• Damages trebled in only 8.7% of the cases where willfulness was found.

Because a warning letter implicates many strategic and tactical decisions in a patent infringement dispute, it is essential that the recipient carefully consider the best course of action to take, based upon an informed analysis. That analysis should include consultation with U.S. patent counsel to fully inform the recipient of the options available and the legal and economic consequences of adopting those options.

Similarly, the economic consequences of a willful infringement finding can be devastating to the infringer because of the possibility of enhanced damages, attorney fees and costs awarded to the patent owner. For this reason, an accused infringer, including one receiving a warning letter, must be fully informed as to the options available and the legal and economic consequences of exercising those options.

By statute, all patent infringement actions are heard in the Federal district court. As is perhaps expected, vast differences between particular district courts and particular district court judges exist.

One of the goals for the Federal Circuit’s creation was to cut down on "forum shopping," i.e., choosing the jurisdiction that is perceived to give an advantage to a party. Despite this goal, a favorable forum for a litigation still can have a substantial impact on the course and outcome of the case. An early evaluation is necessary to identify the best forum; case must then be taken not to do something that puts the ability to secure or retain that forum for any litigation that follows.

A first factor is the time to trial. Some courts are known for fast resolution, e.g., the "rocket-docket" in Virginia or the Western District of Wisconsin or other jurisdictions, which imposes similar schedules. Other courts also offer generally quick (although not quite so fast) resolution; in many cases, statistics are available on-line.

A second factor is the perceived sophistication of the judges’ Certain Federal districts (San Francisco, i.e., Northern District of California), Delaware, and Massachusetts) have an unusually large number of patent cases per judge.

A third factor is an assessment of the behavior of the judges within a district. There are the usual concerns, such as how expeditiously and fairly the judge.s address discovery disputes (combined with an assessment of the likelihood of having such disputes, based on intelligence about the opponent). There are also substantive issues directly related to patent cases. As just one example, the Local Rules in the Northern District of California specify a number of important procedures for patent cases, including the timing of preliminary infringement contentions, invalidity contentions, proposed claim constructions, and the Markman hearing, the timing of which is discussed below as one of the critical issues in managing a patent case.

A fourth factor is the expected feelings of the jury pool — both in terms of past behavior and in terms of their likely feelings about the particular plaintiff and defendant in the case being evaluated.

In most cases, the issue will boil down to selection of an appropriate district court and the choice will seem obvious. However, a choice should be made after having thought through the options.

If a patent-holder creates a reasonable apprehension of suit in another (such as by accusing them of infringement), the accused infringer may be able to file and maintain a declaratory judgment action — typically in the venue of their choice. Of course, a patent-holder can file its own suit after a declaratory judgment action has been filed, triggering cross-motions to transfer each case to the venue of the other.

Because courts show a strong preference for the venue of the first-filed suit, there can be a race to the court house once litigation appears likely. Indeed, some patent-holders will file suit before initiating licensing discussions simply to avoid the risk of ending up in an unfavorable forum. On the other hand, filing a suit can impact the tone and attitude of the negotiations.

Careful packaging of contacts with possible infringers can reduce the risk of a declaratory judgment action in two ways. First, the correspondence can be packaged to reduce the chance that a court would believe that there is a reasonable apprehension of suit — increasing the odds of having any declaratory judgment action dismissed in favor of a later-filed direct action.

Second, if licensing discussions are on-going at the time the declaratory judgment action is filed, many district courts will dismiss the declaratory judgment action in the court.s discretion, as premature. Careful handling of the text of correspondence can impact the likelihood of preserving or obtaining a desired forum on the part of both the defendant and plaintiff.

In addition, however, alternatives are available for a patent case:

One possibility is the U.S. Patent Office. Two types of proceedings often occur in conjunction with litigation. The first is a reexamination proceeding, where a party can request the Patent Office to reexamine a patent in light of prior art that was not before the Patent Office when the patent issued. Past reexamination proceedings were ex parte, i.e., after a request was filed, the Patent Office would only correspond with the patent-holder. As a result, potential infringers used this tool only sparingly — preferring to challenge the patent in Court. Patent-holders would sometimes file for a reexam after learning of a defendant’s prior art, however, to strengthen their litigation position. Inter partes reexaminations are now available, for more recently issued patents; it remains to be seen whether alleged infringers seek to pursue this patch as a part of their litigation strategy. Very significantly, the USPTO is undertaking a major effort to make reexaminations proceedings more meaningful. One step is to improve the quality of the examination during the reexamination proceeding.

The second type of USPTO proceeding, in appropriate cases, is an interference. In an interference, the USPTO resolves competing claims for being the "first to invent." Although not available in most cases, the possibility of an interference can have a substantial impact on litigation strategy.

Another forum to be considered is the International Trade Commission. Where the potential defendant exports to the United States, a proceeding in front of the International Trade Commission is possible (if the plaintiff can also show a "domestic industry" that is being hurt by the infringement). Although no damages can be awarded, these proceedings can result in an order excluding all infringing goods from being shipped into the United States. By statute, the proceedings will also reach their conclusion very quickly — within one year. In addition, there is no right to a jury trial — an Administrative Law Judge acts as the tier of fact.

The combination of a guaranteed quick resolution and the ability to avoid a jury make ITC proceedings an attractive choice for some plaintiffs. An ITC proceeding is not a bar to a parallel or subsequent district court action for damages.

However, Japanese companies have rarely used ITC proceedings. Recently, ITC proceedings have been asserted frequently against Chinese companies.

It is always recommended that a thorough pre-filing investigation be undertaken. Indeed, patent-holders do far better when a litigation strategy is based on sound upfront analysis; a careful analysis can result in avoidance of an ill-advised, expensive law suit.

The first step is to review the patent, its prosecution history and the relevant prior art to understand the strength of an infringement claims and any potential weaknesses. A validity search may be ordered; both the client and the outside counsel should feel comfortable in the strength of validity of the patents to be-insuit.

After the step, the case against potential infringers may be assessed. The strength of the infringement case may be analyzed and an estimate of potential damages may be made, based on estimates of the magnitude of infringing sales, and possible measures of damages (e.g., lost profits or reasonable royalty). This estimate should include, however, the competitive value of an injunction barring future sales and may include the competitive value of filing a litigation, e.g., the value of sending a message to others who may be considering entering the market by infringing the patent.

These steps of the analysis constitute the traditional assessment of a patent litigation. The assessment cannot end there, however.

A complete litigation analysis must include intelligence about the potential defendant(s). This intelligence should include:

• An assessment of the defendant’s resources available for defending the litigation.

• Past litigation behavior and settlement practices.

• Possible counterclaims and, particularly, patent counterclaims.

• Equitable considerations in a litigation with this defendant.

For the first three points, a remarkable amount of information is now available electronically. Examination of the last point is often over-emphasized. Judges and juries often find for the party that they want to find for — i.e., based on the equities.

Since there are frequently a variety of potential defendants, as noted above, this type of analysis can lead to a more intelligent selection of defendants.

The careful litigation manager should assure that all of the above information is gathered and synthesized. Much of this information can, in fact, result in a more informed litigation budget.

There is a belief that patent-holders generally ask for a jury. Juries are perceived as more likely to uphold the validity of a patent because of their perceptions that the USPTO did its job in carefully examining the application that resulted in the patentin- suit against the statutory standards of patentability. Also, as another rationale, it is believed that juries frequently do not understand the technology involved in patents and may be more likely to find for the patent owner more easier at the same time upholding the patent.s validity.

There are other beliefs that some U.S. patent litigators seem to believe:

• If the patent-at-issue is weak, then the patent owner is more likely to ask for a jury because a judge is more likely to take the time in reviewing the issues and may be more likely to rule against the patent.

• If the patent-at-issue is extremely complicated to comprehend, then a trial decided by a judge actually may be better than a jury.

• If the patent-at-issue relates to medical treatment, then a jury may be less likely to uphold a patent.s validity and also find it infringed because the jury knows that the resulting "permanent injunction" could affect the public health.

With those additional observations, the available statistical evidence show the belief that juries tend to favor patent owners is generally correct. Certainly, every litigation is different in the underlying fast scenarios involved, in the manner of presentation, and in the particular judge or jury. These differences can make an enormous difference in the outcome. Nevertheless, some sort of statistical sense about how judges and juries decide cases is inevitably applied in case assessment . usually based on nothing more than an experienced attorney’s "gut" sense of how cases generally come out.

As least two thorough articles have been written that include statistical analyses of the outcome of patent cases in various circumstances and the likelihood of success for particular arguments. Some of the most applicable data is outlined below. Specifically, according to a survey published in 2000,¹¹ patentees win about 58% of the time, with alleged infringers prevailing 42% of the time.

The breakdown, by issue, was reported as follows:

According to statistics gathered in another survey published in 1998,¹² patents are adjudicated to be valid 54% of the time, and held invalid 46% of the time, where validity is litigated. Although some attorneys stress the difficulty in invalidating a patent, it is not rare.

The most common asserted grounds for invalidation are obviousness and anticipation based on the prior art:

The percentage of times that a particular ground for invalidity is successful, when asserted, are as follows:

The ability to influence whether the matter is tried before a judge or jury is, of course, limited. Often, both sides ask for a jury simply our to fear of waiving the right to one. In any event, if the plaintiff does not ask for a jury, the defendant may for no other reason than an assumption that if the plaintiff does not want one, the defendant must.

The one opportunity to eliminate the right to a jury is by selection of forums, e.g., proceeding before the International Trade Commission will necessarily involve a nonjury trial.

While statistics or juries versus judges are no substitute for case analysis, they can assist in a better assessment of the case. These statistics can also be useful in settlement discussion, particularly when one party is (mis)characterizing the way that judges or juries decide cases.

As is known, about twenty years ago inequitable conduct was frequently pled as a defense to patent infringement — a patent that is found "unenforceable" due to a finding of inequitable conduct is dead. The defense was so misused by alleged infringers that the Federal Circuit once called such defense a "scourge" on U.S. patent litigation. The strategy behind routine pleading of inequitable conduct was to try to put pressure on the patent owner to argue such alleged misconduct of the patent owner in front of the jury.

After the famous Kingsdown¹³ in 1988, defenses of inequitable conduct seemed to put a stop to such mischief. During the 1990s, such defenses were much less common pled.

In more recent years, the defense has been making a comeback. The Federal Circuit appears to be upholding more findings of inequitable conduct than in recent history. According to a survey published in 2000, patents are held unenforceable in 27% of the cases in which the defense is decided and that number seems to have increased since 2000.

The caution is that the Federal Circuit’s probably does not mean a return to routinely pleading inequitable conduct in every patent litigation. The defense now is that the Federal Circuit is upholding findings of inequitable conduct where it appears that the district court.s finding was supported by sufficient facts. In other words, the Federal Circuit is upholding each findings in situations where it seems objectively justified to do so. (However, the Federal Circuit is not upholding such findings in situations where it does not seem justified as well!)

As a litigation defense, what recommendations could be made? Inequitable conduct is not recommended to be pled unless some underlying facts support such a defense. In fact, in an initial pleading, a defense of inequitable conduct must be pled with particularity. Sufficient facts must be set forth in that initial pleasing or else the defense will be stricken. If sufficient facts cannot be gathered to be set forth in that initial pleading than it is recommended that the defense not be included. If discovery is subsequently taken and sufficient facts are later gathered then the initial pleading may be amended to include the defense of inequitable conduct.

That being said, the defense of inequitable conduct should be aggressively pursued, but with careful decisions being made during the pursuit.

The question sometimes develops about whether it is necessary to comply with court orders. Court orders can vary form submitting documents, to protective orders, to coming to the U.S. to submit to intrusive depositions, to undertaking a search of back-up computer storage-media, and so on. The answer to the question is "YES!" A party may have an option to ask the court to reconsider a particular order, but if the order is final than it must be complied with. Not only must orders be followed but all the underlying court rules — the Federal Rules of Civil Procedure and the Federal Rules of Evidence must also be complied with. For example, the mandatory disclosures required by operation of the Federal Rule of Civil Procedure 26(a) must be undertaken automatically.

There are certainly a veritable cornucopia of opportunities for advocacy during a U.S. litigation. However, when an order is issued it is not one of them. It is always the better practice to follow a court order.

If a court order it not followed than bad things can happen. First, the judge might get really made. Judges are tasked with making a number of decisions during the litigation and assuming that the process runs smooth because the judge controls the litigation, a judge whose orders are not complied with will likely be stricken against the non-complying party in the future. Second, the opposing party could bring the non-compliance to the court’s attention. A "motion for contempt" could even be filed. Such motions, if granted, could result in monetary sanctions or nonmonetary sanctions. Monetary sanctions could be issued against the client and/or against the attorneys representing the client. Non-monetary sanctions could be additional orders or requirements to contend with, an issue being established by the opposing party for purposes of the litigation, or even an entire dismissal of the litigation against the non-complying party.

Any U.S. attorney who advises a client not to comply with a court order is not providing good advice to a client. Each U.S. attorney is essentially considered an "officer of the court" himself or herself and therefore has a duty separate and apart from the duty to a client to obey the court. Similarly, it is not recommended that a client not comply with a court order but simply not tell the U.S. attorney about the non-compliance. Geographical separation between the U.S. and Japan, language barriers, and cultural differences can complicate communications about court orders, but it is recommended that any such difficulty be traversed.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.