les Nouvelles September 2021 Article of the Month:
Same Questions, Different Perspectives—A Frenemy Dialogue On Patent Litigation Strategy
When a company is asserting IP, e.g., a patent, they are following a strategy that suits their position not only as plaintiff but also the specific market and their commercial goals. The defendant must in some parts adapt to that strategy but also has the opportunity to influence the course of the proceedings in great detail. A carefully devised patent litigation strategy can put crucial cards in the hands of both the plaintiff and the defendant. Especially in the preparation of the dispute.
In this next dialogue an imaginary patentee and a potential defendant will this one time give the game away and discuss strategic possibilities and positions related to patent litigation.
Scene: A cozy but a relatively abandoned small cafe in Paris. One guest sitting at a corner table with a glass of red wine and deck of cards… looking lonely… another guest comes up on the street, stops in surprise as he sees the lonely figure in the half dark corner.
Defendant: Hey Friend! Long time no see!
Patentee (smiling, or rather snarling): Not sure I regret that... but I actually miss our games!
Defendant: I am always up for one, you know.
Patentee: Oh, that I know; you never seem to run out of ideas. But this time how about doing it with open cards? You pick one, read what’s on it and come forward with the strategy.
Defendant: Alright, then. But you pick first. It is always you after all who opens the game.
Patentee: Am I really…?! However be it, here goes the first one:
1. Choosing the Patent
Upon seeing potential infringement, I must look at their patent portfolio to determine which rights should be enforced. When a patentee has a larger portfolio, this is like casting patents that can be potentially asserted. Key factors are the validity of the patent, and also how easy it is to determine and prove infringement. This may be quite different depending on the type of claims. Obtaining evidence on a manufacturing process is usually more difficult than analyzing a commercially available product, especially in jurisdictions in which it is more difficult (or impossible) to obtain pre-trial evidence from the opponent.
The selection is however limited when the patentee has less numerous rights relating to the invention, e.g., in the pharmaceutical industry. Then the selection is more predetermined, and the right holder would just consider the strategy on discovering or proving infringement in the different markets and weighing up chances of success of that.
In very competitive markets it often is the case that an infringement situation occurs even before the grant of the patent. In the case of European patents, one must bear in mind that EP patents must be validated in the target jurisdiction before asserting them. Even though there is altogether three months to do so, failing to act quickly may decrease success chances in those jurisdictions where a lapse of time results in failing to meet the urgency requirement that is needed for a quick preliminary injunction. There is thus a strategy element in validating EP patents. Furthermore, it is necessary to prove infringement also after the grant of the patent.
It is not just you, the patentee, that evaluates potential patents. If I suspect that my activity exposes me to patent enforcement, I must also look at what potential patents may be asserted and build up defense strategies against them, prioritizing the same way as the patentee does. Depending on which is stronger, I may prepare an invalidity attack early on or put more resources in building and backing up non-infringement arguments. The latter is key, especially when one is expecting to face a preliminary injunction request since, in those countries where patent validity and infringement actions are separated, such as Germany, Austria or Hungary, invalidity arguments alone may not be suf ficient to prevent a preliminary injunction. Also, the earlier I start with my invalidity research, the higher the probability that I will find useful prior art. Depending on financial resources, I may file a protective brief where it is allowed. There are several further defenses that may be considered, e.g., prior use right, non-infringement proceedings or filing a torpedo action in a different country. If my resources allow, it is best to prepare for asserting multiple defenses to increase the chances of winning either in the preliminary stages or in the main proceedings. In any case, it is key to establish awareness of potentially asserted patents and building up a defense strategy against them rather than just passively waiting for an attack. And, of course, I am looking for signs that can tell which patents are more likely to be asserted—e.g., a quick validation proceeding—to help alert me of an upcoming challenge. Another sign may be a transfer of the patent to a previously unknown entity.
2. Choosing Jurisdiction
When the situation allows, choosing jurisdiction is key for patentees. I must assess what infringing activity takes place in a given jurisdiction. Manufacturing, extensive distribution, maybe even the manufacturing or supply hub for the whole region—these define the territorial commercial driver for the action—especially if financial sources are limited. But, beyond this I must look at the substantive and procedural law of the potential jurisdictions: where can I obtain a quick preliminary injunction that I can use as a flagship decision to help establish the case in other jurisdictions? Once again, if the patent is not super strong, bifurcating countries with relatively quick procedural duration in the infringement proceedings may become preferred. If there is scarce or not easily available evidence, I need to consider which countries that evidence is the easiest to obtain; in some European jurisdictions the court allows quite extensive pre-trial evidence gathering while in others this is hardly possible. It may even be possible to introduce this obtained evidence in different countries, e.g., I can use pre-trial discovery in the United States and use these facts (as far as the protective order allows) in German proceedings. Or I could use the evidence from a saisie contrefacon in foreign proceedings. On the substantive law side, I may look at the practice of courts regarding their approach to, e.g., contributory infringement, but also what type of acts they consider as infringement. There can be significant variations between courts, which influence success chances.
Believe it or not, these are issues a defendant can also consider. In fact, I can actively influence the success chances of patent litigation by taking into account enforcement possibilities when setting up the geographical structure of a given business. For instance, a manufacturing site and its processes may be more protected from patent attacks in a jurisdiction where fishing for evidence is not possible or restricted. Also, choosing a distribution hub in a country which is not granting cross-border injunctions is beneficial.
3. Choosing the Parties
Even though the patentee is the most obvious candidate to enforce the patent, especially in the case of a Pan-European portfolio, it is not always the most effective choice. Sometimes plaintiffs will use, e.g., a German entity as plaintiff in Germany to avoid the need to provide security for the cost of the proceedings up front. Also, in some countries the courts may not issue a preliminary injunction if the patentee is not selling/ manufacturing on the market themselves and cannot demonstrate any direct interest in enforcing the patent or threat of suffering damages in that jurisdiction. In order to avoid this pitfall, the patentee may appoint domestic licensees as plaintiffs or co-plaintiffs. Using a different legal entity could also be used to counteract a “torpedo” that the defendant may fire.
Of course, on the defendant side the party selection is more predetermined, although there are some scenarios I can be aware of and plan for. In many jurisdictions the foreign manufacturer or mother company can be sued and enjoined, and that may suit well a patentee wishing to enforce injunctions against the same entity with respect to several jurisdictions. However, there are countries where the court refuses to injunct an entity that is not personally active on the market, and thus performs no act of exploitation. In this case the plaintiff may attack an entity in the domestic distribution chain. If those entities are not affiliated with the foreign manufacturer, they might be unprepared for a patent litigation challenge, and their lack of preparation or information could cost the defendant its market, or at least time and effectiveness in the defense. Besides having contractual arrangements in place with these entities, this motivates the defendant to consider setting up a quick information chain so that no patent enforcement can take place against them without their knowledge.
In any case, the movements of the patentee can alert someone anticipating patent litigation. As a potential defendant company, I would usually closely monitor the market and, for example, observe “known enemies” and their movements in the register. For example, if you see that a patent is being transferred or licensed to another entity, this can be a sign for enforcement of this patent and give away who the plaintiff is.
For a patentee, it is key to know if there are time bars or limitations on bringing a patent enforcement action. In other words, if there is an urgency factor in deciding on, e.g., a preliminary injunction request. In this context I also must be aware of when my time clock starts to tick. Launch of a product? Advertising? Obtaining regulatory approval? Grant or validation of the patent? This is crucial since I have to arrange the preparation of not only argument but also my evidence so that I can present them in time. Also, while a general clause or more concrete deadline regarding urgency may be included in the patent acts, the question of when it begins to lapse can only be derived from the knowledge of local judicial practice. For example, some jurisdictions allow applying for a preliminary injunction if the patent is maintained (or modified) in opposition proceedings.
I know the patentee will act quickly and that preliminary injunctions proceedings can be painfully quick. Where ex parte proceedings are common, it is key to file a protective brief as soon as I am ready with my non-infringement and invalidity arguments. In those jurisdictions where it is not possible to file a protective letter, I must be prepared to respond to a preliminary injunction request in a short time, sometimes just a few days. Thus, if there is any evidence that may support my position, those must be prepared well in advance. An expert opinion supporting my non-infringement argument is usually very difficult to obtain in just a few days, but can be key for rebutting the plaintiff’s allegations, or at least convincing the court that the technical issues require main proceedings. If it is expected that the defendant will be a local entity that is not involved in central IP operations, they must be alerted well in advance so that they forward any court claim quickly to the patentee or their lawyers for preparing a defense without delay. Lack of in-advance preparation or absence of a pre-established quick reaction mechanism can cost the defendant its market presence.
A Frenemy’s Advice for Patent Litigation Strategy
Whether you are plaintiff or defendant, it is worth investing in thorough preparation for patent litigation. Know the patents that may be asserted and play on their strengths or weaknesses, respectively, and prioritize enforcement and defense front lines accordingly.
Gather and prepare evidence well in advance so that you can present it even when time is pressing. Think about who will sue whom, where and when, and try to be one step ahead of your opponent. It is not always evident, but if possible, can lead to maximizing success chances, while passivity and lack of preparation can damage even an initially favorable scenario.
Patentee: This was nice, but we did not discuss Brexit and the UPC, court proceedings, enforcement…
Defendant: Oh, for that my friend we have to come back next week. You do not have enough money to buy the right amount of wine we need to cover all that tonight.
Patentee: Wait, who said I pay?!
Defendant: Who said you don’t?! ■
Available at Social Science Research Network (SSRN): https://ssrn.com/abstract=3772995