Patent Notice Letters: Manage With Care November 2004

1. Patent Notice Letters: Manage With CareNovember 2004 Douglas Sharrott

2. Patent Notice Letters • Different Styles: • “cease and desist” • “patent notice letter” • “offer of a patent license” • Common themes: • Reference patent or groups of patents • Mention your company’s product or process • Raise spectre of patent litigation • TAKE THEM SERIOUSLY

3. Patent Infringement • Strict Liability Tort • Your company can be found to be an infringer even when it develops its technology completely on its own, and had no knowledge of the patent whatsoever

4. Receipt of Letter… • TRIGGERS DUTY OF CARE • Consequences if not discharged: • Punitive (Treble) damages • Award of Attorney’s Fees

5. Duty of Care • Have letter studied by a patent attorney • Develop defenses • Assess risks • Formulate strategies for response

6. Patent Notice Letters: 2 Distinct Flavors • From Competitors • From Non-Competitors • More common • Sender’s entire business model may be based on enforcement of patents • Author’s goal is typically a license agreement • Does not mean any less likely to bring lawsuit

7. Building Your Lines of Defense • REQUIRED: Lawyer specializing in patent matters • Depending on the level of expertise of your in-house staff, may benefit from outside patent counsel

8. Lines of Defense: Likely Defenses • Most Common • No Infringement • Patent does not cover your technology • Patent is invalid • Should not have been granted by the USPTO

9. Lines of Defense: Mandatory Courses of Action with any Defense • Detailed study of patent and its prosecution • Understanding the technology implicated by letter

10. Lines of Defense: Understanding the Technology • Thorough understanding of the company technology the notice letter implicates • Meetings with people who developed the technology • Individual’s availability may be limited • TIP: stress seriousness of matter at hand • Litigation will tax schedules even more

11. Lines of Defense:Prior Art • Invaluable aid for developing defenses • Narrowing scope of patents • Providing invalidity position • Multi-faceted • Prior patents and publications • Products sold or processes used • Look for documents or activities dated before patent was filed that shows or embodies all aspects of the invention • Preferably more than a year before

12. Lines of Defense:Prior Art Searches • BEST STRATEGY: 2-pronged search • Outside Counsel • Coordinating search of patent and other literature • In-House • Coordinating search of what has been actually practiced in the industry

13. Your Next Move:Assessment of Strengths • Extremely Strong • Willing to rely on defenses in face of litigation • Sufficient Risk • Warrants negotiation for license • Product Redesign • Taking your product further away from patent at issue

14. Product Redesign • Avoids future damages • Avoids Injunction • No protection for past damages

15. Vague Notice Letters • Claim Charts • Compare the patent(s) with recipient’s products • Bald assertions of infringement • Authors eager for “business discussion” • TIP: Press authors for specifics on merits of their case; provide specifics of your own to support defenses

16. Strong Prior Art • REEXAMINATION BY USPTO • Limitations on what can be accomplished at proceeding • Certain estoppel efforts on future litigation

17. Strong Prior Art • DECLARATORY JUDGMENT ACTION • Standing • Letter must be sufficiently threatening • Many drafted below threshold • COUNTERCLAIM for infringement • Puts you in middle of litigation that could have been avoided • Forum selection

18. Did You Build It or Buy It?Purchased Items • No defense • Patent owner has rights against all who make, use or sell the patented product • Plaintiff can pick the parties it wants to sue • TIP: Scrutinize carefully all sales/service contracts with providing party and inform them of the letter received

19. Pre-Existing Vendor License • Vendor already licensed under the patents • May flow to you as vendor’s customer

20. Indemnification • Vendors often required to indemnify customers for patent issues • Contractual provisions • Operation of law • Notice provisions in indemnification clauses • Firm notice deadlines

21. Indemnification • Defenses available to Vendor • Infringement caused by other vendors’ equipment • Infringement caused by your combination of technology • Consider financial soundness of vendor • You remain liable when vendor unable to cover damage award • Combination technology • Often excluded from indemnification coverage • BE PREPARED: whether vendor is obligated to indemnify can be complex issue, both legally and technically

22. Getting Opinion of Outside Counsel?…Duty of Care • PLAIN TRUTH: Law is NOT neutral on the subject of patent notice letters; burden is squarely placed on receiving party • “[When] a potential infringer has actual notice of another’s patent rights, he has an affirmative duty to exercise due care to determine whether or not he is infringing.” • Underwater Devices Inc. v. Morrison-Knudsen Co., 717 F.2d 1380, 1389-90 (Fed. Cir. 1983)

23. “Willful” Infringement • Keep in mind: Treble damages; attorney’s fees • Factors courts consider in deciding culpability • Was there deliberate copying of patent owner’s ideas? • Did infringer, upon learning of patent, investigate its scope and form a good-faith belief the patent was invalid or not infringed? • How long did the infringer engage in misconduct? • Did infringer take remedial action? • Did infringer attempt to conceal its misconduct?

24. Best Bet for Avoiding Finding of Willfulness:Written Opinion • Timely • Well-Reasoned • Written • Provides concrete record for later litigation • Discussion of law as applied to client’s facts • Take into account patent and prosecution history • Technical experts for complex technology

25. Written Opinion • All relevant facts concerning nature of accused product and circumstances of its development should be disclosed to counsel • Client’s concealment of information can result in finding of willful infringement

26. Ultimate Issue • Mere failure to obtain a written opinion is not, by itself, willful infringement • Does the recipient have a reasonable, good-faith basis for its conduct?

27. Internal Investigations • Should be performed by personnel competent to undertake the analysis; • Relying on valid factual information; • Documented in the event of future litigation • Metabolite Labs v. Lab. Corp. of Am., 370 F.3d 1354, 1370-71 (Fed. Cir. 2004) (internal investigation by person untrained in patent law that failed to consult the patent at issue was insufficient to avoid enhanced damages).

28. Knorr-Bremse Systeme Fuer Nutzfahrzeuge GmbH v. Dana Corp., Appeal Nos. 01-1357, -1376, 02-1221, -1256 (Sept. 13, 2004) • No Adverse Inference • Jury may not draw adverse inference against defendant when attorney-client or work product privilege regarding advice of counsel is invoked, or when no advice of counsel was sought • Nonetheless, Duty of Care is alive and well… • Ultimate outcome based on totality of circumstances