Outbreak

29 September 2020

Outbreak It’s not just us. Patents, too, are suffering from the Covid-19 pandemic. Johnny Chan reports.

In terms of key trends of global patent disputes, Covid-19 has affected a lot of decision making.

“The pandemic has put a financial squeeze on companies that might otherwise be paying license fees, and so many of them figure that they can get away with underreporting or not paying. To the extent that companies have fallen into bankruptcy reorganization, it’s always been a problem that the appointed administrators tend to be willing to pay employee salaries, factory rent and the electric bill – but not for IP,” says John Eastwood, a partner at Eiger in Taipei. “Travel restrictions add to the problem because parties don’t have opportunities to meet face to face to discuss resolution of these matters in a candid way, and it’s hard to get audit requests moving forward. While Zoom and similar videoconferencing technologies have been very important for many companies to hold things together during the pandemic, it’s not the same as actually visiting and spending time with a manufacturing partner, seeing their facility, etc. With videoconferencing, you only see what the other side wants you to see.”

Patent disputes primarily take place in three major jurisdictions: the United States, China and Europe.

“The U.S. has seen a steady drop of patent cases to below 4,000 each year after the Supreme Court decision on Alice Corp. v. CLS Bank International, which empowered defendants to invalidate many software patents, and TC Heartland v. Kraft Foods Group Brands, which restricts where patent plaintiffs can file suit,” says Xiang Wang, a partner at Orrick, Herrington & Sutcliffe in Beijing. “But it appears that 2020 and likely 2021 might see an increase of patent suits as the institution rates for covered business method and inter partes review at the Patent Trial and Appeal Board of the U.S. Patent and Trademark Office continue to drop, however this remains to be seen.”

China, however has seen a steady increase in the number of patent cases annually, with more than 22,000 in 2019, Wang says. “This trend will likely continue as the Chinese judicial system becomes more sophisticated and multinational corporations will be willing to fight their patent battles in Chinese courts.”

For Europe, the most active countries for patent litigation are France, Germany, Italy, the Netherlands and the United Kingdom, he says. “However, the number of cases annually is still small, compared to the US or China.”

Many multinational corporations, such as Apple, Ericsson, Huawei, Micron, Microsoft, Qualcomm, Samsung, TCL and ZTE, are choosing China, Europe and the US as their battlefields for patent disputes, and this trend will continue, he adds.

 

Today, more and more patent cases are cross-border, often in the US and China, and sometimes in all three regions or even more. “Because the best strategy for a plaintiff is to not only go after the defendant at the source where the infringing product is made, but also after the key markets where the product is sold. This phenomenon is clearly demonstrated by today’s most aggressive patent litigants,” he notes. “As such, companies that are in defendants’ shoes should be prepared to defend such aggressive litigation strategy accordingly.”

 

Uprising

Due to Covid-19, there has been an increase in unrest and the conditions lead to disputes.

“Many patent owners are willing to put up with a certain amount of underreporting, but they react strongly when they see it cross certain lines,” Eastwood says. “That said, Covid-19 has led to massive disruptions in the US and other court systems, and while the damages available from such courts are normally pretty good, the inability to get a hearing date is troublesome.” 

“We’re seeing a major increase in patent disputes in China and Europe. One of the main reasons is that remedies and monetary awards in these regions are becoming more attractive,” Wang says. “For instance, many MNCs which used to think litigation in China may not be worth the effort – since there isn’t a discovery process and the monetary awards are often low – are now rethinking their strategy. This is because China is constantly improving its law, enforcement, and damages amount. More importantly, as China becomes the ‘world’s factory’ for many products, the injunctive relief available in China often creates the unique effect of stopping infringing goods at the source and preventing them from leaving China into other countries.”

 

Plans

It is very important to develop quick and decisive strategies for resolving disputes, but some companies are not paying enough attention to them.

“Companies should interact with their licensees regularly and keep up the relationship even if the pandemic has decreased in-person opportunities,” Eastwood says. “The spreadsheets and other documentation sent as part of the reporting process should also be examined carefully for anomalies, and interaction with counterparties shouldn’t be delayed.”

 

Wang says: “For a patent plaintiff, it’s important to not only conduct thorough due diligence before filing a lawsuit, but it’s equally important to choose a jurisdiction that provides the best leverage in terms of retrieving crucial evidence, the sophistication of the judges, the monetary awards and enforcement capability. From a defendant’s perspective, it’s also important to conduct thorough due diligence before introducing a product/service into the market, so that the defendant may modify its product, service or design – to avoid infringement. However, once sued by a plaintiff, it’s important for a defendant to promptly retain good counsel in order to analyze its defense position and formulate a strategy accordingly.”

A well-prepared strategy may lead to quick resolution of a dispute for both the plaintiff and the defendant, he says. “Today, more sophisticated litigants are often filing lawsuits in multiple jurisdictions to not only stamp out the alleged infringing source where the product is made, but also in the market where the product is sold. Therefore, defendants that don’t have adequate litigation experience or lack financial support to retain good counsel may lose the battle.”

 

Keep your eyes open

Protection and enforcement require an ongoing monitoring and detection process instead of a one-off hit.

It is widely seen that companies generally delay in enforcing rights and strategize to wait till misuse actually starts impacting the bottom line, says Saurabh Anand, a senior associate at K&S Partners in Bangalore. “It is vital to nip the misuse or infringement in the bud rather than to wait.”

Before diving into the steps of monitoring and detecting infringement, it is of paramount importance to keep one’s house in order –it should be made sure that the title of patent is clear in terms of correct or legal proprietor and renewals – Anand says. “Further, companies must ensure that their internal IP policies and agreements with their employees or contractors are drafted suitably, to not only cater the present needs or requirements but also take care of future patents that might arise, which are generally termed as foreground IP.”

 

Coming to monitoring and detecting infringement by a company, it is always advisable to have a concerted approach wherein there is a system in place in the organization, where different teams or individuals, generally marketing and sales teams, detect infringement and report to the legal or IP team for assessment, he says. “Hence, it is crucial that an organization should make its employees, equipped enough to understand the meaning of infringement. Such an approach shall invariably reap its benefits in a longer run, wherein one can detect possible infringing activity through regular monitoring of markets, trade circles and e-commerce platforms and accordingly alarm the company to take immediate enforcement action, as and when required.”

Global IP offices publish official journals which give firsthand information about filing or granting by any party, he adds. “Regular monitoring of such journals is also one of the efficient ways to monitor and detect infringement. It can be argued that such exercise shall take herculean amount of time and resources, but recently few paid databases have come up to provide such solutions in a more efficient manner.”

Countries such as India have legislation like the Right to Information Act, 2005, by virtue of which an application can be filed before public authorities seeking relevant details pertaining to possible infringing activities resembling manufacturing approvals, approval to export and the like, he notes. “Especially in patent cases that are related to chemicals and drugs, RTI has been proved to be one of the major local tools through which patentee has got success to detect infringement and using this has got favourable order of injunction from courts.”

Early detection is one of the keys to a successful enforcement action because delays can lead to multiple shortfalls and acquiescence can be detrimental, he warns. “It is critical to keep in mind that enforcement should be preceded with an analysis of why, when, how and where to enforce.”

 

Resolutions

In most patent infringement litigation, the defendant would file a request for invalidation to suspend the case, and technical appraisal may be sometimes required, thus the duration of litigation is long and the cost is high, says Wei Yang, a partner at Jadong IP in Beijing. “In contrast, arbitration and mediation can improve efficiency, reduce litigation cost, save the country’s limited judicial resources and is a supplementary alternative to the litigation trial system.”

 

However, the alternative dispute resolution mechanism cannot replace the position of litigation, which is the ultimate guarantee and backing for safeguarding civil rights, Yang says. “Court judgments are authoritative, and some litigants prefer to obtain favourable court judgments for publicity.”

Moreover, the establishment of specialized IP courts, the introduction of the technical investigator system into court trials, and the advancement of the punitive damages system also promote continuous improvement of dispute resolution mechanisms, she says.

Patent litigation often happens between plaintiffs and defendants that have no contractual relationships, for instance, between competitors or, in cases filed by non-practicing entities. It can also happen between licensors and licensees that have contractual retainership, such as a licensing, technology development or joint venture agreement.

“Where a contractual relationship exists, the parties may choose a pre-agreed dispute resolution, including among other things, governing law and avenue for the dispute, whether in court or by arbitration,” Wang says. “At times, a particular court may be chosen by the parties, but oftentimes an arbitration body may be selected in order to save costs for both parties.”

If arbitration is chosen, it might be more advantageous for a licensor to carve out patent-related issues from the general commercial breach of contract terms, so that the parties agree to submit to any court or administrative bodies with competent jurisdiction to handle a patent-related dispute, he says. “This is because an arbitration body often cannot by itself issue preliminary injunction like a court may. Also, for patent-related issues, it might be better handled by a court than an arbitration body, which is left to handle only disputes on breach of commercial terms. This is especially advantageous for a licensor if it plans to file a patent infringement suit against the licensee in a court of the licensor’s choice, but the court may not have personal jurisdiction because the licensee may not have presence there. However, an administrative court, such as the US International Trade Commission can take the case because it doesn’t require personal jurisdiction.”

Therefore, it is vital for both licensor and licensee, or even for a situation where cross-licensing might exist, to carefully consider what dispute resolution might be the best choice and how a desirable dispute resolution may be negotiated, he adds.


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