Patent litigation Christian Helmers May 25, 2015 1 / 34
Overview What is patent litigation about? What can we learn from patent litigation with regard to the functioning of the patent system? the patent system itself? Discuss UK court case HC05C01824 (less complex than patent wars ) 2 / 34
Overview IP litigation may be expensive but, if you look after it properly, it will ultimately look after you. (Jeremy Philips, 2006) [T]here are unlikely to be winners when an issue reaches court. Use of a court to reach a decision is probably the most expensive way to reach a decision and one that the system should be designed to avoid. (Greenhalgh et al., 2010) 3 / 34
Overview - in the spotlight... 4 / 34
Overview - in the spotlight... 5 / 34
Overview - in the spotlight... Apple sues HTC over iphone patents (FT March 2 2010) Apple [...] filed a patent infringement lawsuit against HTC, the maker of Google s Nexus One smartphone, in a sign that the maker of the iphone was preparing to defend aggressively its position as a leader in the booming smartphone market. Nokia files further Apple lawsuits (FT December 16 2010) Nokia has fired a fresh barrage of lawsuits against Apple in an escalating dispute between the rival smartphone makers over alleged patent violations. Apple, Google and Microsoft sued over patents (FT July 10 2010) A company that wrested $612m from BlackBerry maker Research in Motion in patent litigation four years ago said Friday it had filed similar suits against Apple, Google and Microsoft. 6 / 34
Overview - in the spotlight... HTC s One Mini smartphone banned in UK after Nokia trial (FT December 3 2013) HTC will be forced to stop selling one of its flagship range of smartphones in the UK after a British judge ruled that the Taiwanese phone maker had breached a patent held by Nokia. Twitter buys hundreds of patents from IBM, ending legal spat (Engadget, January 31 2014) [In November 2013] IBM accused Twitter of infringing three of the company s patents concerning: efficient retrieval of uniform resource allocators, presenting advertising in an interactive service and programmatic discovery of common contacts. [as a result, Twitter bought 900 patents from IBM in January 2014] The rise of the automotive tech wars (FT November 4 2013) Where we could face the smartphone wars of the future is that Apple wants to get into everybody s cars, Microsoft would, Google feels the same way...if it s done poorly, we could be sucked up into that patent war, says the head of innovation at a top 10 global carmaker. The only ones who will win are the lawyers. 7 / 34
Overview - in the spotlight... Patent litigation has skyrocketed over the past few years (Mark Lemley, Financial Times November 10 2013) There is an intellectual property war going on, said Rob Enderle, president of Enderle Group, a California technology consultancy. It s the kind of cycle that is not good for anyones bottom line, apart from the attorneys. (Financial Times December 16 2010) HTC said that such patent disputes are actually quite common and part of the cycle of innovation. (Financial Times July 10 2010) Do the patent wars tell us something about the patent system? 8 / 34
Intellectual Property (IP) Litigation Focus on infringement & validity Relief: disclosure, injunction, damages, etc. Judgement vs settlement (including before case reaches court) Costs 9 / 34
IP Litigation - Why does it matter? Right conferred by patent must be enforceable Property rights system rests on assumption of enforceability Value of patenting stems entirely from the threat of litigation rather than actual legal proceedings (Bessen and Meurer, 2005) Patent litigation is [...] the tail that wags the dog of the patent system litigated cases provide legal preceden[ts] and important signals to patent holders, potential infringers and third parties seeking to steer free of patent conflicts. (Harhoff, 2009) Tightly linked to thickets, standards, licensing, joint ventures, cooperation in the technology and product market Provides basis for patent troll business model. 10 / 34
IP Litigation - Decision Process (Weatherall et al., 2009) Patentee has to learn about infringement - requires monitoring If infringement detected: 1 Do nothing 2 Take informal steps to enforce IP rights short of filing legal proceedings (send letter) 3 Take formal steps to enforce IP rights (file court proceedings) 4 Take pre-emptive informal steps to reduce likelihood of infringement 5 Redirect project 11 / 34
IP Litigation - Decision Process Potential infringer has to learn about infringement - requires awareness If infringement detected: 1 Do nothing and hope not to be detected 2 If informally accused, do not react and hope no case filed 3 If informally accused, attempt settlement (license agreement) 4 File pro-actively revocation procedures or request statement of non-infringement 5 Redirect/stop project 12 / 34
IP Litigation - Strategic considerations Remember: a patent is a territorial right If validity challenged, patent must be challenged in every jurisdiction in which it was granted But strategic choice of court and use outcome to settle the dispute Litigation offers strategic lever 13 / 34
A simple model of litigation (Meurer, 1989) Risk neutral firm has patent which is invalid with probability α α known to patentee and risk neutral competitor 14 / 34
A simple model of litigation (Meurer, 1989) If litigation, both companies incur costs L > 0 Alternatively, settlement and licensing agreement If patent litigated and invalidated, each firm obtains 0.5V 0 L If patent litigated but not invalidated, patentee maintains monopoly and gets V 1 L and competitor gets L If settlement and licensing, patentee gets V S (where V = hv 0 + (1 h)v 1 with h [0, 1]) and licensee gets S If patentee refuses to license and competitor does nothing, patentee gets V 1 and competitor 0 15 / 34
A simple model of litigation (Meurer, 1989) Patentee makes take-it-or-leave-it offer Competitor s threat to litigate credible iff 0.5αV 0 L (1) Patentee decides whether to settle or litigated (1 α)v 1 + αv 0 2L > V (2) If 1 and 2 hold, litigation occurs If 1 holds but 2 does not, patentee settles with S = 0.5αV 0 L 16 / 34
A simple model of litigation (Meurer, 1989) 17 / 34
England & Wales: Number of court cases by year, 2009-2013 Very few court cases relative to IP rights in force Court cases = tip of IP dispute iceberg Don t really know how large the iceberg really is Year Patent Trade mark Design Copyright 2009 57 127 30 295 2010 58 152 60 193 2011 119 164 48 381 2012 115 179 52 337 2013 78 156 68 347 Total 427 778 258 1,553 18 / 34
UK SME survey evidence (Greenhalgh et al., 2010) Responses to has your firm been involved in an IP dispute? Group No dispute Yes dispute Total Patentees 49 32 81 % 60.5 39.5 100 Non-patentees 63 5 68 % 92.7 7.4 100 Trade markers 59 31 90 % 65.6 34.4 100 Non-trade markers 18 1 19 % 94.7 5.3 100 Creative industries 90 21 111 % 81.1 18.9 100 Total 279 90 369 % 75.6 24.4 100 19 / 34
court case HC05C01824 Better to look at the basics of patent litigation using a single, simple case Case at Patents Court of England & Wales Claimant: Pozzoli SPA (Italian Company) Defendants: BDMO SA (Belgian Company with UK offices) Moulage Industriel de Perseigne SA (French Company) (CMCS Group PLC) Case filed in 2005 Hearing dates June 2006 20 / 34
court case HC05C01824 Patent infringement case Patent in dispute: Package of multiple disks (CDs/DVDs) Defendants Double Push Tray infringes EP0676763 21 / 34
court case HC05C01824 Claimed Infringement - counterclaim invalidity Reasons for holding patent claims invalid: Added matter Obviousness Anticipation Insufficiency 22 / 34
HC05C01824: The patent EP0676763 23 / 34
HC05C01824: The patent EP0676763 24 / 34
HC05C01824: The patent EP0676763 Title: Container for a plurality of discs, particularly compact discs Claimed priority July 1994 What does he patent protect? What can be infringed? The scope of the patent is to be determined by reference to its claims. There is no such thing as infringing the equity of a patent. It is necessary to construe the claims so as to determine what the patentee has set out as the monopoly he seeks. The question of infringement is then determined by applying to the relevant claims the Protocol on Interpretation to determine whether a particular product or process falls within the scope of the monopoly. (Hon. Mr Justice Laddie Cintec vs Parkes and Frost) What is the scope of EP0676763? 25 / 34
HC05C01824: The patent EP0676763 Relevant claim ( extent of protection is determined by the terms of the claims ): Claim 1 Note: [T]he proper approach is to construe the Patent and its claims in the absence of the infringement and only when this has been done, to look at the infringement. In other words: [T]he scope of a patent must be determined without regard to the features of the alleged infringing product or process. Justice Lewison: the claims are to be construed purposively the inventor s purpose being ascertained from the description and drawings. what would a person skilled in the art have understood the patentee to have used the language of the claim to mean? Define scope & interpret relevant claims 26 / 34
HC05C01824: The patent EP0676763 Claim 1, stripped of its reference numerals and broken down into its integers is as follows: 1 Container for a plurality of discs, particularly compact discs, 2 comprising a tray-like body 3 defining seats for accommodating at least two discs, 4 said tray-like body including a first region for accommodating at least one first disc 5 and at least a second region for accommodating at least one second disc 6 located at a higher level than said first region, 7 the discs being axially retained in said seats, 8 so that each of the discs can be individually gripped and axially detached for removal from said seats in which they are retained, 9 characterised in that said at least one second disc is arranged in said second region so as to be spaced from, 10 and to partially overlap said at least one first disc 11 in an axially offset manner. 27 / 34
Principal criteria for patentability of an invention: Remember? Novelty: invention must not yet be in public domain anywhere in the world before the priority date of the corresponding patent. Inventive step: invention must not be an obvious modification of what is already known, meaning that the invention must be neither re-producible based solely on existing patented claims nor ex-ante an obvious solution to the problem to someone skilled in the art. Capability of being used in any kind of industry: the patented invention must contain the potential of commercial value through an industrial application. 28 / 34
Principal criteria for patentability of an invention: What does this mean in practise? Novelty: Is there any other document (single document) that contains all features of all claims? If no invention novel. Inventive step: Could-Would-Test Could: Are there several documents that if combined contain all features of all claims? If no inventive step Would: Would a person skilled in the art have combined these document at the time of claimed priority to solve the objective technical (not commercial) problem described in the patent? If no inventive step Capability of being used in any kind of industry: in practice normally not an issue. 29 / 34
HC05C01824: Validity Is the patent valid? Angle of attack: obviousness Test of obviousness (Windsurfing International Inc v. Tabor Marine Ltd [1985]: Oliver LJ) 1 Identify the inventive concept embodied in the patent in suit. 2 Assume the mantle of the normally skilled but unimaginative addressee in the art at the priority date and impute to him what was, at that date, common general knowledge in the art in question 3 Identify what, if any, differences exist between the matter cited as being known or used and the alleged invention 4 Ask whether, viewed without any knowledge of the alleged invention, those differences constitute steps which would have been obvious to the skilled man or whether they require any degree of invention. 30 / 34
HC05C01824: Judgement Q. So you would be concerned to ensure that there was adequate physical separation between the two discs in their packaging in order to minimize this risk. A. Both physical separation and permanent separation, i.e. a disc could not be pressed against the other one. Q. If you did have this concern, the solution of separating the discs in their packaging in the way that you have just said would be clear to anyone, would it not, because you do not want them to touch? A. I think it is obvious, yes. In my judgment the evidence inexorably leads to the conclusion that if you wanted to reduce the height of a 2:1 container, it was obvious to overlap the discs and separate them physically. Working out how to do it would also have been obvious. 31 / 34
HC05C01824: Judgement Patent is invalid because it was obvious in the light of common general knowledge; Once claim 1 of the patent has been construed, the question of infringement more or less answers itself. The Double Push Tray does not infringe.... but that if it had been valid it would not have been infringed. Note: reference to same case at Landgericht Düsseldorf 32 / 34
Summary IP litigation foundation of patent system Very complex Few answers to lots of questions When is patent litigation privately optimal and when is it both privately and socially optimal? 33 / 34
References Bessen James and Meurer Michael (2005): The Patent Litigation Explosion, mimeo Boston University School of Law. Greenhalgh Christine, Jeremy Philips, Robert Pitkethly, Mark Rogers, Joshua Tomalin (2010): Intellectual Property Enforcement in Smaller UK Firms, Report for the Strategy Advisory Board for Intellectual Property Policy (SABIP). Harhoff Dietmar (2009): Economic Cost-Benefit Analysis of a Unified and Integrated European Patent Litigation System, Report INNO-tec. Meurer Michael (1989): The Settlement of Patent Litigation, The RAND Journal of Economics, Vol. 20(1), pp. 77-91. Phillips Jeremy (2006): IP Litigation, the new money-spinner, Editorial, Journal of Intellectual Property Law & Practice, Vol. 1, No. 8, pp. 497. Weatherall Kimberlee, Webster Elizabeth and Bently Lionel (2009): IP Enforcement in the UK and Beyond: A literature Review, SABIP Report Number EC001. 34 / 34