United States: Top Legal Issues Facing Automotive Suppliers In 2014 - Patents

Executive Summary

Patent litigation case filings by non-practicing entities (NPEs) against practicing entities (manufacturers of products) continue to increase. Although the legislature has enacted reforms in new legislation, businesses still face substantial problems. Various inexpensive methods exist that may be used by practicing entities to defend against and deter non-practicing entities. One method is to seek attorney's fees from nonpracticing entities in exceptional cases. Other patent litigation concerns include avoiding suit from subcontractors by obtaining appropriate licenses. We are at the forefront of developing innovative techniques to handle patent litigation issues, in a cost effective manner.

1. INCREASED PATENT LITIGATION

The number of patent litigation suits continues to increase. The chart below is data from a PricewaterhouseCoopers Patent Litigation Study released in 2013.

Given the proliferation of software in the modern automobile, and the frequency of NPE suits involving software-related patents, however, the increase in patent litigation is likely to accelerate further.

Some actions that automotive suppliers may take to stem the onslaught of patent litigation include clearing products prior to manufacturing or release. Other preventative measures may include increasing patent filings where the patent applications are published in 18 months. Further, each company should adopt innovative litigation strategies involving immediate actions to resolve patent litigation suits.

2. SEEKING ATTORNEY'S FEES FROM NONPRACTICING ENTITIES

The Federal Circuit recently affirmed an award of $1.6 million in attorney's fees to the defendants in a patent suit in Taurus IP, LLC v. DaimlerChrysler Corp., 726 F.3d 1306 (Fed. Cir. 2013). Attorney's fees may be awarded to a defendant in patent cases when the ligation is objectively baseless and is in subjective bad faith. To be objectively baseless, the patentee's assertions, whether manifested in its infringement allegations or its claim construction positions, "must be such that no reasonable litigant could expect success on the merits." Id. at 1309.

A. OBJECTIVELY BASELESS

In Taurus, the Federal Circuit ruled, "Taurus [the nonpracticing entity] improperly asserted and maintained its positions in the litigation." The Federal Circuit reasoned "no reasonable litigant in Taurus's position [after the claim construction] could have expected a finding that a web surfer accessing the accused external websites satisfied the requirement for a 'user,' as recited in claim 16." The court also stated, "when patentees have sought unreasonable claim constructions divorced from the written description, the Federal Circuit has found infringement claims objectively baseless." According to the Federal Circuit, "the specification and prosecution history clearly refute [the patentee's] proposed claim construction. Thus, the patentee's infringement claims were objectively baseless."

B. SUBJECTIVE BAD FAITH

The Federal Circuit ruled that the patentee's proposed claim construction ignored the entirety of the specification and the prosecution history, was thus unsupported by the intrinsic record, was frivolous and supported a finding of subjective bad faith. The Federal Circuit reached a conclusion that Taurus subjectively knew that the DaimlerChrysler patent suit lacked a reasonable basis and was, therefore, pursued and maintained in bad faith.

3. AVOIDING PATENT SUITS FROM SUBCONTRACTORS

When an automotive supplier negotiates intellectual property rights, the automotive supplier might not focus on obtaining rights from its subcontractors. Instead, the focus of intellectual property rights negotiations may be between the automotive manufacturer and the automotive suppliers. Automotive suppliers may use subcontractors to manufacture the parts for an automotive manufacturer or a parts store.

The subcontractor may develop various intellectual property rights (e.g., patents) as the subcontractor solves the problems related to assembling the manufacturing equipment and method for manufacturing a part. In particular, the problems that are solved in order to manufacture the part may be appreciated only by the subcontractor. In some instances, the subcontractors may file patent applications based on the methods and systems for assembling the part.

When the subcontractor fails to grant the automotive supplier the appropriate intellectual property ownership or licenses, the automotive supplier may be exposed to liability. For example, when the automotive supplier changes subcontractors, the original subcontractor may assert its intellectual property rights against the automotive supplier. The intellectual property rights may include patents that are directed to the method or apparatus of manufacturing the part. The method or apparatus may have been invented based on the requirements of the automotive supplier.

Accordingly, when negotiating with the subcontractor, the OEM may want to include contractual provisions that include an assignment or license for any intellectual property rights that are developed in connection with the subcontractor's work for the OEM. Moreover, an automotive supplier may wish to have the intellectual property licenses for a combination of all parts that are manufactured by the subcontractor in each contract.

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.

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