White and Williams Intellectual Property Alert | April 8, 2013
Of the many letters corporate counsel receive every day, those offering a license to patents should be considered among the most important and time sensitive. Because these letters signal an upcoming lawsuit, early review and response may limit a corporation’s exposure and may provide options that help avoid lawsuits entirely.
WHAT AN “INVITATION TO LICENSE PATENTS” REALLY MEANS
As part of a patent licensing campaign, patent owners or their representatives send notice letters to target companies. For reasons I’ll explain below, notice letters rarely explicitly accuse the target company of infringing a patent or list an accused infringing product. Instead, the letters include an “invitation to discuss licensing patents” listed by patent number and vague or inscrutable titles that may not appear at all relevant to the target company’s business.
Corporate counsel who have never before received a notice letter may interpret it as a sales ploy and discard it. But while a notice letter may seem benign on its face, it is actually a clear signal that the patent owner intends to sue the target company for patent infringement. The notice letter serves two important purposes: first, it provides actual notice of the patent to the target company, which under U.S. patent law may begin the damages period, and second, it initiates potential settlement negotiations between the parties.
Prior to sending a notice letter, the patent owner and its attorneys review a product the target company makes, uses or sells (even if the target company purchased the product from a third-party) and determines whether there is a colorable argument that the product infringes the patent. Despite this determination of infringement, the patent owner will not explicitly accuse the product of infringement in the notice letter because doing so would improve the target company’s argument that it has sufficient basis to file a declaratory judgment action of non-infringement in a forum of its choosing. Rather than accusing the target company of infringement and giving the target company a clearer right to a cause of action, the letter purports to merely invite discussions. To further protect its choice of forum, prior to mailing the notice letter, the patent owner may file, but not serve, a complaint naming the target company as a defendant. By the time the target company receives the notice letter, the game is afoot.
Even corporate counsel with experience in these matters, that is, those who have received notice letters in the past and appreciate the unpleasantness that may soon follow, may be tempted to ignore notice letters in hopes that the sender will lose interest or forget about them. This temptation is especially strong when the sender is not an industry competitor, but is instead a patent assertion company, sometimes referred to as a “patent troll.” Nevertheless, employing such a passive, “head in the sand” strategy effectively eliminates the few offensive options available to target companies, namely, filing a declaratory judgment action in a favorable venue or seeking reexamination or inter partes review of the patent at the U.S. Patent and Trademark Office (USPTO). If the USPTO agrees to reexamination or inter partes review, then the target company may seek a stay in litigation until the reexamination or inter partes review is complete, which may take up to four or five years. The combination of reexamination / inter partes review and stay of litigation is one of the target company’s most valuable weapons, but the target company must act quickly because courts are less likely to grant a stay once litigation has proceeded past initial stages.
WHAT TO DO WHEN YOU RECEIVE A PATENT INFRINGEMENT NOTICE LETTER
Upon receipt of a notice letter, the first and best course of action is to speak to patent counsel immediately to discuss the facts and develop a cost-effective resolution strategy. We will meet with you to review the patent and the accused product and explore potential non-infringement arguments. If the accused product is not specifically named in the notice letter, then we will help determine what the product may be. We will discuss damages-related topics like sales figures and the accused product’s history including prior and future versions. If the accused product is sourced from a third-party, we will advise on indemnification issues and participate in discussions with the third-party. We will tell you how much term is left on the patent and whether there are other, related patents you should be aware of. We will look into whether the patentee has sued others for infringement of the patent and review the status of any such cases. Perhaps most significantly, we will find prior art that may invalidate the patent and discuss whether to submit the patent for reexamination or inter partes review or whether to consider a declaratory judgment action.