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6. The Federal Trade Commission and the National Academies bave both noted the pitfalls associated with “subjective” elements of patent litigation, and I mentioned in my statement the example of willful infringement: there is a disincentive for companies to engage in a comprehensive search of prior art because they may unwittingly expose themselves to higher damages. Is this a real problem? If so, should we eliminate these elements, or can their utility be preserved through modification?

Reply: The disincentive for companies to engage in a comprehensive search of
prior art is a real problem. We believe the problem can be addressed without
completely eliminating thc willful infringement doctrine and treble damages. We
favor limiting treble damages to situations where the defendant has received a
detailed written notice from the patent owner charging infringement and
identifying the specific patents and claims and the specific allegedly infringing
products or processes. The notice from the patentec must also be sufficient to
give declaratory judgment jurisdiction to the receiver of the notice. Treble
damages are also appropriate in circumstances in which the defendant
intentionally copied the patent subject matter or the patent was asserted against
the defendant in a previous judicial proceeding. Amending the law with respect to
willful infringement will encourage more pre-commercialization study of the
patent rights of others.

7. Do any reforms obviate, or at least lessen, the need for any others? Would an effective post grant review system remove the need for changes to the standards for issuing injunctions? Would improved patent quality through reforms at PTO be more productive in reducing abusive litigation than some of the litigation reforms we discussed at the hearing?

Reply: Interrelationships exist among many of the proposals for patent reform.
. As noted, we favor post-grant oppositions as a way to improve patent quality and
provide greater legal certainty. The issue of injunctions is not closely related
because permanent injunctions are issued against parties who have been proven to
infringe a valid (and therefore high quality) patent. Objectives for Congress
should include improving patent quality and reducing the amount and cost of
litigation. Patent quality is the most important single objective because it will
provide many benefits including ultimately reducing abusive litigation. Other
reforms in addition to improving quality of future patents are needed, however,
because of the patents of deficient quality that have already been granted and are
subjects for litigation.

8. Some have suggested that quality concerns at PTO mean that the presumption that patents are valid is misplaced. I wonder if the proper approach would emphasize improving quality rather than changing the litigation standards. Would lowering the standard for challenging patents from “clear and convincing" evidence to a preponderance of the evidence run the risk of negative consequences? Would investors be less likely to invest in nascent technologies if a patent did not carry with it a strong presumption of validity?

Reply: We favor maintaining the “clear and convincing" standard of proof for establishing factual findings on which to base a holding of invalidity of a patent. We favor the “clear and convincing” standard during post-grant opposition proceedings as well as during court litigation. Emphasis on patent quality is important, of course, because the "clear and convincing" standard assumes quality patents. Investors need the confidence provided by a strong presumption of validity to encourage them to invest in technology,

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I want to take this opportunity to thank you again for providing me with the opportunity to testify before your Subcommittee on the issue of patent law reform. This communication responds to the questions posed by you and Senator Leahy on issues raised in the hearing.

Question One

You stated in your testimony that a "strong bias in section 283 [of title 35)
and in the patent jurisprudence in favor of a patent owner obtaining an
injunction... is based on sound public policy.Is this true even in the face
of widespread concerns about patent quality?

As I testified, there is a sound public licy for having a "bias" in favor of a court granting a patent owner's request for injunctive relief once the court has found a patent valid and infringed. The basis of my belief is that rights conferred by a patent to prevent the unauthorized use of the patented invention can be given effect only if the patent owner can obtain a courtimposed injunction. While damages can be recovered to redress past infringements, the ability of a patent owner to prevent future infringements can be practically realized only through the grant of an injunction. The capacity to enjoin use of the patented invention is why a patent owner is able to extract licensing revenue from a possible infringer – if the patent owner cannot obtain an injunction, the capacity to influence the behavior of an infringer is severely limited.

SIDLEY AUSTIN BROWN & WOOD

July 29, 2005
Page 2

Changing injunction standards would thus significantly change the nature of patent rights in the United States. In most situations, the ability of the patent owner to control which parties may or may not use the patented invention is why the patent has economic value. If a patent owner cannot prevent the unauthorized use of the patented invention, that patent owner cannot control the use of the patented invention. Without that control, the patent owner loses its ability to determine the most viable means of commercializing the patented invention. As such, it is appropriate for a court to be inclined to grant injunctive relief unless exceptional circumstances are established by the infringer.

I also wish to point out that my testimony was predicated on the assumption that the patent in question was valid and infringed. A patent which has survived a validity challenge in litigation is a properly issued patent that protects a legitimate invention. In such cases, the owner of the patent should be able to prevent the unauthorized use of the patented invention if that patent owner believes doing so is necessary to protect its commercial interests in the patent property.

I do not believe generalized concerns over patent quality in certain technology areas can justify making significant changes to the jurisprudence and law governing patent injunctive relief. Ultimately, the decision of a court to issue or to not issue an injunction must be based on the facts before it, and in particular, the patent being asserted. In this sense, it is, and it should be, irrelevant to a court whether there are widespread concerns over patent quality, or whether there is widespread public satisfaction with patent quality. The validity of patents other the one being asserted is and should be immaterial to the decision of a court to grant an injunction based on the patent being asserted. If evidence exists that there are significant quality problems at the PTO for a class of patents, the consequence, if any, should be felt in how the court evaluates the validity of the patent being asserted.

Thus, other than in exceptional cases, a patent owner should be able to obtain an injunction prohibiting the infringing conduct once it has proven its patent valid and infringed. Moreover, the burden of establishing these exceptional circumstances should be on the shoulders of the person who has been proven to have infringed a valid patent.

I note that your question frames the motivation for possible changes to the patent injunctive relief standard as being concerns over patent quality. I think an equally significant motivation for reform is the prevalence in use of inappropriate tactics in patent litigation by certain types of patent owners. These tactics are made possible by the unpredictability in the patent law, and the uncertainty of patent litigation. While reform measures that improve patent quality are overdue and justified, it is a mistake to assume that patent quality reforms will materially change the civil litigation environment that is motivating many to call for patent reform. Measures that focus on removing uncertainty in the patent law, such as by removing subjective aspects of the patent law, along with measures that limit the use of certain tactics in patent litigation, are needed in addition to reforms aimed at improving patent quality.

SIDLEY AUSTIN BROWN & WOOD

July 29, 2005
Page 3

Question Two

Patent trolls" extract value from the patents they own, not by working
them or licensing them, but by using them as settlement leverage in
lawsuits. Mr. Lemley noted in his written testimony that threats of
litigation by patent trolls are prevalent, and he promised forthcoming
research that will quantify and describe more about this problem. Can
you provide us with any more concrete details about how much of a
problem patent trolls are when it comes to seeking (and winning)
injunctions on patents?

Many of the concerns you have heard about the current environment of patent litigation stems from cases that have been brought by “patent trolls." I have found it difficult to accurately and correctly define the term “patent troll.” I believe doing so, however, is essential.

The concerns over trolls are perhaps best described as a reaction to the unjustifiably aggressive enforcement of a patent by someone that has made no effort to develop products or services subject to the patent. In this context, the "troll” takes a stance designed to present an extreme risk to a company that is actually marketing a product or service. The troll" seeks to leverage the uncertainty in litigation, and the prospects of a significant business disruption made possible by the modem environment of patent litigation, to coerce a large settlement from the target of the enforcement action. The goal is a settlement amount that bears no rational relationship to the objective value of the patented invention.

The difference between a "troll” and a legitimate patent owner is often hard to establish. Many legitimate patent owners aggressively enforce their patents, and use every procedure available in litigation to maximize the amount of a settlement from an infringer. Many of these patent owners have some concept of product development driving their licensing efforts. For example, many universities aggressively enforce their patents. These patent owners do not typically manufacture products or market services. They often, however, partner with entities in the private sector to do so. The private sector entity takes on the responsibility and effort of developing a product or service under the patent. So, it is inappropriate to label any entity that does not manufacture products but which aggressively enforces its patent rights a patent troll.

In my view, there are several distinguishing features of a patent troll. First a patent stroll” often is not affiliated with the original inventor. Instead, it often comes into possession of a patent that the original inventor has not taken steps to commercialize. Second, the patent troll usually has no plans to develop a new product or service. Instead, it focuses solely on pursuing other companies that have already launched successful products or services. The troll pursues those entities because they have a heightened economic risk from a finding of infringement. Third, the patent troll often takes a posture in litigation that is designed to maximize risk to the infringer, rather than protect an identifiable commercial interest of the patent owner. Thus, they often pursue extremely aggressive tactics that are not conducive towards settlement, but are designed to be as intrusive and costly as possible. The patent troll does this to force the accused

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