26 Sep
2018

Global patent litigation strategy

SpencePC -USA

We live in an increasingly ‘flattened’ world. Globalisation continues to expand supply chains and markets outside the United States, connecting countries in ways never imagined. US imports of Chinese goods have skyrocketed from $100 billion in 2000 to $505 billion in 2017. US trade with the European Union has also increased, from $168 billion in exports and $227 billion in imports in 2000 to $283 billion in exports and $435 billion in imports in 2017. While many companies have developed complex business strategies to adapt to this new world order, many continue to use patent enforcement strategies developed decades ago. It is time for change.

As technology expands our conception of commerce, foreign governments have expanded the tools for enforcing patent rights. Businesses need to be ready to take advantage of this expansion. They must develop global strategies to enforce intellectual property, including not only obtaining patents in strategic foreign jurisdictions, but also concurrently enforcing those patents. This is best accomplished through a global patent litigation campaign coordinated by an experienced, knowledgeable firm that can manage great complexity. Such firms must be able to marshal the required resources and knit together the necessary expertise to develop a plan that is tailored to the client’s needs and the characteristics of the intellectual property. This chapter considers one such hypothetical global campaign involving enforcement activities in China, Germany and the United States.

Synergies from coordinating patent litigation in multiple jurisdictions

In each of the three representative jurisdictions, differences in patent law, patent litigation procedure and market conditions present unique benefits and risks for patent owners.

A party pursuing litigation in one country will likely encounter at least one challenge that is unique to that country (see Table 1). In the United States, a patent owner may be unable to obtain an injunction or may face inter partes reviews or early motions to dismiss based on patent invalidity that stops litigation in its tracks. In Germany, a patent owner may be unable to obtain discovery needed to prove its case or obtain punitive damages. Germany and China share some enforcement challenges, such as the likelihood of a lower damages award than US courts might award (median damages in China in patent litigations in 2016 were about $17,000, although maximum damages of approximately $50 million have been awarded recently). Further, even if an injunction is obtained in one country, a patent owner’s injunctive success may have little to no impact on any manufacturing that occurs elsewhere.

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

 

United States

Germany

China

Litigation costs

$3 million to $4 million

$100,000 to $500,000

$100,000 to $500,000

Time to trial

24 to 36 months

Nine months

Eight to 14 months

Damages

$8.9 million median;

largest award: $2.5 billion.

Largest award: $2.7 million.

$17,000 median;

largest award: $50 million;

statutory: Rmb10,000 to Rmb1 million.

Injunctions

Rarely granted absent direct competition.

Automatic on finding infringement.

Automatic on finding infringement.

Discovery

Extensive document and deposition discovery.

Almost no discovery.

Almost no discovery;

private investigators often used to gather evidence.

Contingency fees

Allowed

Not allowed

Allowed

But by implementing a coordinated global litigation campaign, a business that strategically develops a patent portfolio across these countries may benefit from each jurisdiction’s unique characteristics by initiating concurrent litigation activities across all three. A hypothetical global campaign against a US competitor selling Chinese-manufactured products globally might proceed as follows:

  • The plaintiff files an initial patent lawsuit against the defendant in the United States.

  • While service of process and early case activities proceed in the United States, the plaintiff hires a private investigator (PI) in China to investigate the defendant’s manufacturing process.

  • Using the PI’s findings, the plaintiff prepares narrowly tailored discovery requests in the US litigation, targeted to obtain sales information and confirm the PI’s findings with admissible discovery documents.

  • The plaintiff proceeds in the US litigation to take depositions of the defendants’ witnesses, including corporate depositions that are binding admissions by the company. The plaintiff uses the PI’s findings to inform its deposition strategy.

  • With sales data and manufacturing process information in hand, the plaintiff now files suit in Germany and China. Litigation in both other countries will likely be completed before the US lawsuit reaches trial – especially if the US lawsuit is held up by an inter partes review.

  • The plaintiff obtains a judgment of infringement in Germany or China. The damages are low, but an injunction is more likely to follow than if litigated in the United States. In China, the injunction shuts down the defendant’s manufacturing; in Germany, it negatively impacts on a large source of revenue.

  • The US lawsuit moves towards trial, but with foreign judgments and injunctions in hand, the defendant’s business already feels significant pressure from the enforcement strategy; even if the defendant can continue despite the foreign injunctions, it faces a significantly larger damages award in the United States. The plaintiff now has leverage to demand a settlement that more accurately represents the worldwide value of the infringed patent.

  • As a result of this coordinated global strategy, the plaintiff either shuts down an infringer that it could not have stopped through any single national litigation, or obtains a damages award or settlement far larger than it would have obtained otherwise.

This is merely one example of how patents can be concurrently enforced in multiple countries to obtain a better outcome than would be obtained in any individual country. Additional synergies derived from concurrent patent lawsuits in multiple countries are endless. This highlights one important aspect of this strategy: companies should engage a law firm capable of both enforcing at home, and strategising and coordinating abroad as necessary. This is a complex task: just look at the key differences between the patent laws of the United States, China and Germany that can contribute to the synergies discussed above.

Comparison of patent litigation in the United States, China and Germany

US patent litigation

The United States has historically occupied centre stage in international patent litigation. One reason for such dominance is the fact that it is home to the most patents in force. As Figure 1 shows, the number of US patents in force is much greater than that of, for example, Germany or China (although China’s numbers are trending upwards rapidly).

Figure 1. Patents in force in the United States, China and Germany

Fig 1

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.

Comparison of cost and time for patent litigation

Based on the discovery available in each jurisdiction and the hourly fees charged by attorneys, US patent litigation is significantly more expensive and drawn-out than German patent litigation, which is slightly more expensive and drawn-out than Chinese patent litigation (see Figure 2).

Figure 2. Litigation cost and time to trial across jurisdictions

Fig 2

When it comes to damages, you get what you pay for. The median damages for the United States (about $8.9 million) are so significantly larger than those in China (about $17,000) that a graph comparing these damages is unnecessary. 

Conclusion

Due to variances in the patent laws of different jurisdictions, businesses should carefully consider the potential benefits of strategically coordinating concurrent patent litigation across multiple countries. As a first step, businesses should carefully plan how to develop or acquire key assets that can comprise a global patent portfolio – through either foreign patent prosecution or aggressive purchasing of foreign patents, perhaps with an eye towards combining with an existing US patent portfolio. Once a global patent portfolio is compiled, businesses will benefit most from a centrally coordinated global enforcement strategy. Careful consideration should be given when selecting the law firm that will coordinate your strategy, discover the synergies particular to your scenario, and leverage both to the greatest benefit.

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William

William C Spence
Partner
[email protected]

William C Spence is a trial lawyer and founding partner of SpencePC, an IP and complex litigation boutique in Chicago. The firm assists both individual and business clients to obtain the best possible outcome in contentious legal matters. Mr Spence’s extensive experience includes litigation, arbitration and mediation involving a wide range of IP and complex commercial disputes. He also has extensive experience with patent monetisation strategies and management of complex, international patent infringement litigation involving multiple parties and jurisdictions, including Asia. Mr Spence is a graduate of the University of Notre Dame – where he obtained separate BS degrees in chemical engineering and biophysics – and of the University of Houston Law Centre.

Jason Wejnert

Jason Wejnert
Partner
[email protected]

Jason Wejnert’s practice focuses on patent litigation for industry-leading clients, managing all aspects of patent litigation cases from inception through to trial, as well as US Patent and Trademark Office (USPTO) proceedings. His practice leverages his engineering background to provide practical insight to clients when it comes to protecting their intellectual property. Mr Wejnert’s practice primarily centres on patents for complex technologies, including electronics and telecoms. He has litigated before several district courts, the International Trade Commission and the Patent Trial and Appeal Board.

Mr Wejnert was formerly a partner at Kirkland & Ellis between 2010 and 2014 and at Dinsmore & Shohl between 2014 and 2017. He is a registered patent attorney with the USPTO. In addition, he has nine years of engineering experience in the semiconductor and medical electronics industries.

Brian Beck

Brian Beck
Associate
[email protected]

Brian Beck is a registered patent attorney with SpencePC. He has substantial experience in litigation involving all areas of IP law. Mr Beck provides advocacy and advice in patent, trademark and copyright infringement, trade secret misappropriation, unfair competition, breach of contract and post-grant patent proceedings. He has litigated claims in both state and federal courts throughout the United States.

Mr Beck earned his law degree from New York University School of Law and his undergraduate degree in mechanical and aerospace engineering from Princeton University. Before joining SpencePC, Mr Beck spent eight years practising IP litigation at Kenyon & Kenyon LLP in New York and Holland & Knight LLP in Chicago.