Patent Defenses and Remedies

1. Patent Defenses and Remedies Intro to IP – Prof Merges 2.3.10

2. Defenses • Inequitable Conduct • Patent Exhaustion

3. Remedies in patent infringement cases

4. • Prosecution History Estoppel • Reverse Doctrine of Equivalents • With Authority • Exhaustion/First Sale Doctrine • Implied License • Shop Right • Repair (not reconstruction) • Experimental Use US Patent • common law Claims • §271(e) (Bolar Amendment – for purposes of FDA approval of generics) Term: 20 years from filing • Medical Activities § 287(c) (suits against MDs, hospitals) Defenses • Invalidity Clear and convincing evidence standard § 282 Presumption of Validity

5. Kingsdown Med. v. Hollister • Note the remedy or effect of a finding of inequitable conduct: patent is UNENFORCEABLE

6. Rationale • Examiners are busy; patentee benefits greatly from examiner oversight • Place strong penalty on patent applicant for nondisclosure or misrepresentation in patent prosecution

7. A Potent Defense • Made more attractive when other defenses fail, when patent damages are very high

8. Prosecution history, p. 326 • All these complex interchanges are grist for the mill under inequitable conduct • All amendments, communications with PTO can and will be scrutinized

9. What was the mistake here? • The applicant said, incorrectly, that claim 43 corresponded to allowed claim 50 in another (now issued) application • Claim 43 was in fact broader than the allowed claim 50

10. Standard for Inequitable Conduct “Inequitable conduct resides in failure to disclose material information, or submission of false material information, with an intent to deceive . . . .” -- p. 327

11. • materiality • intent US Patent Claims Term: 20 years from filing Inequitable Conduct • Inequitable conduct • Duty of Candor

12. Materiality and Intent • Materiality: relevance, importance (established here) • Intent: not established here

13. Intent Legal Standard? unknowing deliberate lack of due care reckless accidental

14. • Examples : •failure to disclose prior art •failure to disclose rejection of claims •misleading partial translation •characterizing prophetic examples as real experiments US Patent Claims Information Disclosure Statement •false claim of small entity status Term: 20 years from filing •failure to disclose all true inventors Equitable Defenses • materiality • Inequitable conduct • intent • Duty of Candor

15. Patent Exhaustion • To exhaust: to run out of, use up • What is “used up”? The “power” of a patent • When is it used up? When an item covered by the patent is sold on the market

18. LG Electronics (Patent Owner) Intel (Licensee) Computer Cos.

19. LG Electronics (Patentee) Master License (required non-coverage notice to Intel Customers) Intel (Licensee) Specific product license (no customer restrictions)

20. Intel (Licensee) LG’s right to Sue? Computer Cos.

21. LG Electronics (Patentee) Intel End Users

22. Intel (Licensee) + License? End Users

23. LG Sued End Users – Bizcom, Quanta, etc. • End Users defended by claiming that they were protected against suit by virtue of the LG-Intel license agreement, and Intel’s sale of chips to them

24. District Court • LG argued that end users were not protected by exhaustion, since the chips sold by Intel did not completely embody any claims in the asserted patents • District Court disagreed: held, sales of chips by Intel exhausted LG’s rights vis-à-vis end users

25. Federal Circuit • Partial reversal • No exhaustion: LG did not authorize Intel to authorize end-users to combine Intel products with non-Intel products

26. Quanta Computer, Inc. v. LG Electronics, Inc. • 128 S.Ct. 2109 (2008) • Held: licensee's sale of component computer parts that substantially embodied method patents held by patentee was “authorized” by patent holder, and had effect of exhausting patent holder's patents.

27. Supreme Court: Holdings • Method claims are subject to exhaustion • Embodiments substantially containing claimed technology exhaust a patent • Sales in this case were “authorized sales” under the licensing arrangement in this case: so patents were exhausted

28. Supreme Court: Holdings • Method claims are subject to exhaustion • Embodiments substantially containing claimed technology exhaust a patent • Sales in this case were “authorized sales” under the licensing arrangement in this case: so patents were exhausted

29. Third holding: important for future cases • We can learn from the LG – Intel – End User arrangement

30. Basic exhaustion principles • “Exhaustion is triggered only by a saleauthorized by the patent holder.” • > 128 S.Ct. 2109, 2121

31. Two elements here • [1] SALE only • > Licensing is outside this holding • > Creative licensing arrangements are still permissible

32. [2] Authorized by the patent holder • > Principles of implied licensing come into play

33. LG Electronics (Patentee) Master License (required non-coeverage notice to Intel Customers) Intel (Licensee) Specific product license (no customer restrictions)

34. No restriction on customers’ use of patented technology “[T]he provision requiring notice to Quanta appeared only in the Master Agreement, and LGE does not suggest that a breach of that agreement would constitute a breach of the License Agreement. Hence, Intel's authority to sell its products embodying the LGE Patents was not conditioned on the notice or on Quanta's decision to abide by LGE's directions in that notice.”-- 128 S.Ct. 2109, 2121-2122

35. Quanta strongly suggests that effective restrictions/not-ice in license agreement might bind downstream users Patentee Licensee End users

36. LG Electronics (Patentee) Specific product license WITH requirement to restrict customers; to give notice of no license Intel (Licensee)

37. Remedies in licensing agreement “We note that the authorized nature of the sale to Quanta does not necessarily limit LGE's other contract rights. LGE's complaint does not include a breach-of-contract claim, and we express no opinion on whether contract damages might be available even though exhaustion operates to eliminate patent damages.” – 128 S.Ct. at 2122

38. Important issues post-Quanta Patentee • Contractual remedies for Licensee’s breach of license, including unauthorized infringement by Licensee’s customers Licensee End users

39. Remedies Prospective Effect Final injunction issues Issuance Preliminary injunction hearing Complaint filed in District Court Damages assessed for this period if marking (or actual notice)

40. 35 USC § 283. Injunctive relief. The several courts having jurisdiction of cases under this title may grant injunctions in accordance with the principles of equity to prevent the violation of any right secured by patent, on such terms as the court deems reasonable.

42. MercExchange, L.L.C., holds a number of patents, including a business method patent for an electronic market designed to facilitate the sale of goods between private individuals by establishing a central authority to promote trust among participants. See U.S. Patent No. 5,845,265.

43. United States Patent 5,845,265 Woolston December 1, 1998 “Consignment nodes” Abstract A method and apparatus for creating a computerized market for used and collectible goods by use of a plurality of low cost posting terminals and a market maker computer in a legal framework that establishes a bailee relationship and consignment contract with a purchaser of a good . . . in an electronic market for used goods while assuring the safe and trusted physical possession of a good with a vetted bailee. Inventors: Woolston; Thomas G. (Arlington, VA) Assignee:MercExchange, L.L.C. (Alexandria, VA) Filed: November 7, 1995

44. “Substantial evidence was adduced at trial showing that the plaintiff does not practice its inventions and exists merely to license its patented technology to others. Indeed, the plaintiff has made numerous comments to the media before, during, and after this trial indicating that it did not seek to enjoin eBay but rather sought appropriate damages for the infringement.” -- 275 F.Supp.2d 695, at 712

45. Supreme Court • Reversed Federal Circuit • Rejected “automatic rule” • Reimposed historical standard

46. The 4 Part Test: Plaintiff must show – (1) [T]hat it has suffered an irreparable injury; (2) that remedies available at law, such as monetary damages, are inadequate to compensate for that injury; (3) that, considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction. – book, p. 935

47. What was wrong with the Federal Circuit test? Too mechanical: “[T]he Court of Appeals departed in the opposite direction from the four-factor test. The court articulated a “general rule,” unique to patent disputes… Just as the District Court erred in its categorical denial of injunctive relief, the Court of Appeals erred in its categorical grant of such relief.

48. [S]ome patent holders, such as university researchers or self-made inventors, might reasonably prefer to license their patents, rather than undertake efforts to secure the financing necessary to bring their works to market themselves. Such patent holders may be able to satisfy the traditional four-factor test, and we see no basis for categorically denying them the opportunity to do so.

49. We hold only that the decision whether to grant or deny injunctive relief rests within the equitable discretion of the district courts, and that such discretion must be exercised consistent with traditional principles of equity, in patent disputes no less than in other cases governed by such standards.

50. Kennedy, Stevens, Souter & Breyer The lesson of the historical practice, therefore, is most helpful and instructive when the circumstances of a case bear substantial parallels to litigation the courts have confronted before. -- 938