Global patent litigation strategy

Table 1. Patent litigation in the United States, Germany and China

The United States is also an obvious destination for clients seeking to maximise litigation damages. The largest patent infringement award in US history was for $2.5 billion; it dwarfs the largest award in any other country. From 2012 to 2016, the median damages award in cases that went to trial was $8.9 million – far greater than the median in China of about $17,000 (but less than the recent maximum, suggesting another upward trend there). If a US court finds that a defendant has wilfully infringed a patent, it can award up to triple damages and attorney fees. Such punitive damages are unavailable in Germany or China.

US patent litigation allows liberal pre-trial discovery. The Federal Rules of Civil Procedure allow extensive discovery of an accused infringer’s electronic communications, sales numbers, manufacturing processes and other information “relevant to any party’s claim or defense and proportional to the needs of the case”. While such liberal discovery is responsible for significantly higher litigation costs and longer periods between filing and trial, it also allows a plaintiff to obtain information that it might struggle to obtain elsewhere.

However, US patent litigation is trending downwards, likely due to a series of changes to US patent law that have resulted in the consensus that it is now a riskier and more expensive proposition for patent owners. Contributing factors include the following:

• The America Invents Act created new post-grant review processes: inter partes review and covered business method review. An accused infringer can use these post-grant proceedings to invalidate patents and delay district court litigation. Multiple defendants can coordinate to file successive inter partes reviews based on different prior art to cause even greater expense and delay.

• eBay v MercExchange reversed a decades-long presumption that a successful patent plaintiff is entitled to a permanent injunction to prevent continued infringement. After eBay, patent owners that do not practise their patent or are not in direct competition with the infringer only rarely obtain injunctions preventing further infringement and must instead be satisfied with no less than the statutorily mandated ‘reasonable royalty’.

• Bilski v Kappos, Mayo Collaborative Servs v Prometheus Labs and Alice Corp v CLS Bank Int’l made it far harder to enforce software and business method patents; they also limited pharmaceutical method of treatment patents. Post-Alice, accused infringers routinely bring early motions to dismiss against software and business method patents, arguing that they are unpatentable ‘abstract ideas’.

• Octane Fitness v ICON Health & Fitness increased the danger of losing patent plaintiffs being forced to pay attorney fees. Where patent owners were previously required to pay attorney fees only if the litigation was based on a fraudulently obtained patent or was both baseless and filed in bad faith, Octane Fitness allows courts to award prevailing defendants attorney fees merely if the case is ‘exceptional’, meaning only that it ‘stands out from others’ with respect to the patent owner’s litigating position or conduct.

One advantage of US litigation is the availability of contingency arrangements to pay attorney fees and costs. Patent owners routinely pay for US legal services using non-recourse contingency arrangements: nothing is paid to the attorney unless the patent owner wins, in which case the attorney receives a percentage of the award or settlement. In principle, such arrangements enable greater access to justice. In foreign jurisdictions that do not permit such arrangements, a patent owner must be able to pay the attorney’s hourly fee (and costs) to enforce a patent. While those fees and costs are often lower than in the United States, they may nonetheless amount to prohibitive sums. Thus, another potential global patent litigation strategy is for a patent owner to retain a US firm on contingency and to combine US patent litigation with lower-cost enforcement activities outside of the United States (eg, German or Chinese patent litigation) to increase leverage and the likelihood of a higher settlement payment.

German patent litigation

Germany operates a dual patent litigation system in which different courts handle separate invalidity and infringement proceedings. There are 12 regional courts in Germany that have jurisdiction over the infringement side of litigation. Validity challenges are handled either through opposition proceedings at the same patent office that granted the patent or at the Federal Patent Court, where cases are heard by technically trained judges.

German patent litigation is popular because of the strong injunctive powers that German courts wield. Injunctions in German courts are granted as a matter of right under law, so long as the court first finds infringement. This provides a patent owner with significant leverage, especially in post-injunction settlement discussions, and especially against competitors that cannot afford to suffer a shutdown. This settlement leverage is powerful and broad, often including not just local products or processes, but also worldwide products or services. German courts are more likely to issue injunctions on standard-essential patents than many other EU courts. Such injunctions, however, come at a price. Although invoices for legal services in Germany sometimes seem to arrive slowly, true contingency arrangements are not available in German proceedings.

Another potential challenge in German patent litigation is the risk of the losing party being ordered to pay court fees and a capped amount of the other side’s attorney fees. While these payments are unlikely to rise to US levels, German litigation can still be costly.

Chinese patent litigation

China also maintains a dual system where patent infringement is separately determined by courts and patent invalidity proceedings are determined at the patent office. In fact, Chinese patent law is largely based on German patent law. China recently established three specialised IP courts to try infringement cases. Infringement cases in China can also be brought in any of the approximately 50 intermediate people’s courts. Challenges to validity are handled by China’s State Intellectual Property Office.

Until recently, foreign companies rarely pursued patent litigation in China. However, statistics indicate that Chinese courts may be far friendlier to foreign patent owners than previously thought. In 2015 foreign plaintiffs won 100% of the 65 cases that they filed in Beijing’s IP court, although about 75% of those cases concerned trademarks. Notably, foreign plaintiffs continue to prevail in China’s courts at least as much as Chinese plaintiffs.

However, there is no pre-trial discovery in China. With rapid timelines in Chinese courts, a plaintiff that files suit without having its evidence organised may find itself in trouble – but a defendant may feel even more rushed, without having warning of the lawsuit beforehand. Although plaintiffs in China cannot obtain pre-trial discovery, they can hire PIs who do far more than would be expected elsewhere. For example, a patent litigation specialist in Beijing recently reported that a plaintiff hired a PI who, within two weeks, provided an investigative report from inside a Chinese manufacturing facility. The report contained pictures from inside the facility which helped to determine use of the infringing process.

Chinese courts almost always grant injunctions to prevailing plaintiffs. Moreover, damages in Chinese patent infringement lawsuits seem to be trending upwards. It remains to be seen how much of this trend is attributable to recent changes in the laws that allow a plaintiff to extrapolate sales of infringing products from publicly available information and shift the burden to the defendant to show that its sales were lower. Some expect to see a Chinese patent infringement verdict exceeding $100 million within the next few years.