By Curtis L. Harrington
Extracting value from an issued patent can occur either by a manufacturing operation which wishes to operate as a monopoly, or by licensing manufacturers to make the product. An exclusive license is a permission granted to a single manufacturer. A non-exclusive may be granted to one or more manufacturers. The central difference may be with respect to what actions are to be contractually assumed in the license if the patent is infringed. It s much more likely that an exclusive licensee will undertake to sue to protect the patent. Where there are non-exclusive licensees, the patent owner will generally undertake to sue to protect the patent.
The notice of infringement and demand to cease and desist which is sent to an infringer can act to deprive the patent owner of rights if the letter is too strong and the actions taken after the letter do not reflect the strength of the letter. The following scenario can explain how demands can fall out of synchronization with actions taken.
Patent lawsuits are expensive. Even for a simple case the minimum attorney fees can exceed $1,000,000. It is understandable for both patentee and patent infringer to posture themselves so as to avoid going to court. Both sides hope that the others' desire to avoid the high costs of suit will cause the other side to settle or give up. During this saber rattling period, however, the patentee can lose rights in his patent completely under the doctrines of laches or estoppel.
Also where the letter is too strong, the recipient can file suit in District Court for a declaritory judgement, a request that the court determine non-infringement. If the patent holder is not financially prepared for a declaritory judgement suit against the patent, even the best patent can be damaged or destroyed.
The elements of laches are (1) unreasonable, unexcused delay in the assertion of a claim (typically the filing of suit) and (2) prejudice to the Defendant resulting from the delay. The delay period commences when the patentee knows or should have known about the acts of the infringer. Plaintiff has the burden to show the reasonableness of delay periods of more than 6 years, while Defendant bears the burden to show unreasonableness for delay periods of less than 6 years.
The elements of estoppel include elements (1) and (2) above and further include (3) affirmative conduct by a patentee which induces the infringer into believing that the patentee had abandoned its claims, and (4) detrimental reliance by the Defendant.
Where a series of strong deemands are followed by silence, laches may result, depriving the plaintiff of damages accruing prior to the initiation of suit. Where a specific demand with threat of suit on a date certain is made, followed by inaction, the result could be estoppel wherein the patent holder loses all rights against the potential infringer.
In crafting a cease and desist letter, the aggressiveness and tone must be subordinated to the client's actual willingness to press ahead with an infringement lawsuit. A balanced approach, tempering investigation with accompanying notification of patent rights, will tend to configure the conflict into a licensing exercise with its associated tolling of the delay period before filing suit, if filing becomes necessary. By keeping the dialogue open, and in the even that suit is avoided, the basis for any resulting license can be more fully explored. In the event that suit cannot be avoided, any delay before filing suit will more likely be construed as reasonable, and the laches and estoppel defenses will be less available to the infringer.
Where the infringer is looking at a line of issued patents, along with a living continuation-in-part "descendant" of the line having claims that are not yet fixed, the infringer will be less certain about whether infringement may ultimately be found. This uncertainty can increase the power of the patentee and decrease the ability of the accused infringer to evaluate the magnitude of the damages that infringement creates. Where the technology & capabilities of the invention change over time, the continuation-in-part is even more necessary to keep the patentee advantaged over time, both with respect to infringers and as a leader in the field of the invention.
Currently, patent insurance for patentees is available with coverage limits that should be considered at not less than $1,000,000. Under this type of insurance, the patent owner must have known of no acts of infringement at the time the policy was made. The insurance pays for 80% of the cost of suit up to the policy limit. The insurance company recovers its outlay for its 80% of the attorney's fees if any damages are recovered. Note that the insurance companies are performing a lot more due diligence, including searching the internet for similar products which will be excepted from policy coverage, and providing in most cases that the claims of the patent be "narrowed" with respect to their initial submission to insure that an examiner has made a critical evaluation of the claims. (Insurance Companies don't want to pay out for claims which are broad because of the failure of a patent examiner to take a close look at the case.)
Accused Infringer Considerations
An accusation of infringement should trigger an immediate look at the patent versus the infringer product. If an outside patent attorney formulates an opinion of "no infringement", there should be meetings between the patentee and accused infringer if avoidance of a lawsuit is sought. If the accused infringer has a general liability insurance policy with an "advertising clause," there may be the potential to turn the matter over to the insurance company, which will cover the costs of suit. Of course, if you are infringing, you cannot continue to do so. In such cases where the insurance coverage has been properly invoked, and the costs of the lawsuit borne by the insurance company, the lack of burden in paying for the suit which would normally be tremendous, enables the business to carry on without significant interruption. In many cases, the lawsuit alone, even where no infringement has been occurring, is sufficient to put the defendant out of business.
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