Yearbook 2020 Building IP value in the 21st century - Prepare for litigation and avoid it where possible - SpencePC
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Prepare for litigation and avoid it where possible
SpencePC
William C Spence
Yearbook
2020
Building IP value in the 21st century
SpencePC | International
Prepare for litigation and
avoid it where possible
By William C Spence, SpencePC
If litigation is war then patent litigation is certainly patents concurrently around the world. This
one of the most devastating forms of litigation is best accomplished through a global patent
warfare. It is well known that US patent litigation monetisation campaign coordinated by an
can cost millions of dollars on top of court costs. experienced and knowledgeable firm capable
US patent litigation is also: of managing the complexity associated with
• time-consuming; such a campaign that is closely tailored to the
• distracting to the core business; client’s needs and the characteristics of the
• harmful to public image; and intellectual property.
• unpredictable.
Synergies from coordinating patent
The high risks involved in patent litigation mean monetisation in multiple jurisdictions
that it should be a seldom-used tool of a successful The United States, Germany and China have
patent licensing programme. Today, a successful differences in patent law and patent litigation
patent owner must consider a more global and procedure, while their market conditions offer
nuanced approach to patent monetisation. unique benefits to and confer different risks on
If a patent owner wishes to succeed in licensing patent owners (see Table 1).
patents in 2020 and beyond, it must carefully A party pursuing monetisation and/or
develop and execute a global licensing campaign litigation in only a single country, regardless of
that prepares for litigation but avoids it where which country, is likely to encounter at least one
possible. Lobbing legal grenades at the enemy unique challenge. For example, in the United
is no longer a viable tactic. Now, the strategy States, a patent owner may be unable to obtain
must be to apply suitable pressure in the most an injunction, or face inter partes reviews or early
appropriate places to facilitate a resolution within motions to dismiss based on patent invalidity that
the desired value range, but without invoking full- stops litigation in its tracks, thus removing the
blown patent litigation. Nevertheless, sometimes ‘stick’ for monetisation. In Germany, a patent
a resolution may be possible only through war. owner may be unable to obtain discovery needed
However, as Sun Tzu once wrote in the Art of to prove its case, or to obtain punitive damages,
War: “To fight and conquer in all your battles providing a weak stick that limits the return
is not supreme excellence; supreme excellence on investment. In both the United States and
consists in breaking the enemy’s resistance China, even if an injunction is obtained, it may
without fighting.” not affect manufacturing that occurs elsewhere.
From 2020 onwards, ‘supreme excellence’ in Some enforcement challenges are shared between
patent monetisation requires that patent owners Germany and China, such as the likelihood of
develop global strategies to successfully license a lower damages award than might be awarded
intellectual property. This includes obtaining in the United States (eg, median damages in
patents in strategic foreign jurisdictions but China in patent litigations brought after 2014
also tactically licensing and enforcing such were less than $5,000, although maximum
IAM Yearbook 2020 59
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TABLE 1. Patent law and procedure
United States Germany China
Litigation costs $3 million to $4 million $100,000 to $500,000 $50,000 to $100,000
Time to trial 24 to 36 months Nine months Eight to 14 months
Damages $8.9 million median Largest award: $2.7 million $5,000 median; $50 million
Largest award: $2.5 billion maximum
Statutory: Rmb100,000 to
Rmb5 million
Injunctions Rarely granted without direct Automatic on finding of Automatic on finding of
competition infringement infringement
Discovery Extensive document and Almost no discovery Almost no discovery
deposition discovery Private Investigators often
used to gather evidence
Contingency fees Allowed Not allowed Allowed but strictly regulated
damages of approximately $50 million have been litigation damages. From 2012 to 2016 the median
awarded there more recently). Although typical damages award in cases that went to trial was $8.9
Chinese damages have historically been low, million – far greater than the median damages
the current trend in damages is drastically and award in China of less than $5,000, but less than
quickly increasing, with the average damages the recent maximum. Moreover, in the United
award from the Beijing IP Court increasing States, a court can award triple damages if there is
from $52,000 to $162,000 between 2015 and wilful infringement, in addition to attorney fees.
2017. By coordinating a global monetisation By contrast, punitive damages are not available in
campaign, a business’ patent portfolio may Germany or China.
collectively benefit from each jurisdiction’s Unlike most foreign jurisdictions, US patent
unique characteristics by initiating concurrent litigation also allows liberal pre-trial discovery.
licensing and/or litigation activities in all The liberal discovery contemplated by the US
three places. Federal Rules of Civil Procedure allows extensive
One important aspect of deriving synergies from discovery of an accused infringer’s electronic
concurrent patent lawsuits is to engage a law firm communications, sales numbers, manufacturing
capable of not only enforcing in its home country, processes and any other information “relevant
but also capable of strategising and coordinating to any party’s claim or defense and proportional
in the various other possible countries, their courts to the needs of the case” (Fed R Civ P
and agencies: a complex task. 26(b)(1)). Such liberal discovery is largely
responsible for significantly higher costs of
Comparison of patent litigation in the United litigation and longer periods of time between
States, China and Germany filing and trial, but allows a plaintiff to obtain
Challenges and advantages of patent litigation in information it otherwise might struggle to
United States obtain in jurisdictions without a similar scope of
The United States has historically occupied pretrial discovery.
centre stage in international patent litigation Nonetheless, patent litigation in the United
activity. One major reason for this is the fact States seems to be trending downwards; likely
that the United States is home to the majority due to US patent law changes that resulted in
of patents in force. In Figure 1 (generated from the consensus view that US patent litigation is
the World Intellectual Property Data Centre), now a riskier and more expensive proposition for
the number of US patents in force is much patent owners. Contributing factors likely include
greater than that of, for example, Germany or the following:
China, although China’s numbers are trending • The America Invents Act (2011) created
upwards very rapidly. new post-grant review processes: inter partes
The United States is also an obvious location review and covered business method review.
for litigation when a client seeks to maximise An accused infringer uses these post-grant
60 IAM Yearbook 2020
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proceedings to invalidate patents and delay
district court litigation.
• eBay Inc v MercExchange LLC (547 US 388, 391
(2006)) is a Supreme Court decision reversing
a decade-long presumption that a successful
patent plaintiff is entitled to a permanent
injunction to prevent continued infringement.
After eBay, patent owners who do not practise
their patent or are not in direct competition with
the infringer only rarely obtain an injunction.
• The patentable subject matter trio of Supreme
Court cases, Bilski v Kappos (561 US 593
(2007)), Mayo Collaborative Servs v Prometheus
Labs Inc (566 US 66 (2012)) and Alice Corp Pty
Ltd v CLS Bank Int’l (134 S Ct 2347 (2014)), William C Spence
have made it far harder to enforce software and Partner
business method patents and has limited the william.spence@spencepc.com
pharmaceutical method of treatment patents.
• Octane Fitness LLC v ICON Health & Fitness Inc William C Spence is a trial lawyer and founding
(134 S Ct 1749 (2014)), increased the danger to partner of SpencePC, an IP and complex litigation
patent plaintiffs of being forced to pay attorney boutique firm in Chicago. The firm assists both
fees if they lose. individual and business clients to obtain the best
possible outcome in contentious legal matters. Mr
However, Congress may overturn many of Spence’s extensive experience includes litigation,
these decisions. arbitration and mediation involving a wide range
Senators Tillis and Coons, the chairman and of IP and complex commercial disputes. He also
ranking member of the IP sub-committee, recently has extensive experience with patent monetisation
held three days of Congressional hearings on a bill strategies and management of complex, international
that would revise 35 USC Sections 100, 101 and patent infringement litigation involving multiple
112 to overrule Mayo and Alice by abrogating the parties and jurisdictions, including in Asia.
judicially created exceptions to patent eligibility. Mr Spence is a graduate of the University of Notre
The bill is still in the early stages but has garnered Dame – where he obtained separate BS degrees in
bipartisan support and a new draft should be chemical engineering and biophysics – and of the
proposed later in 2019. University of Houston Law Centre.
Senator Coons also recently re-introduced
the STRONGER Patents Act, which would
overrule eBay and substantially weaken post-grant arrangements enable greater access to justice;
proceedings by standardising requirements for patent owners without the financial means can
challenging a patent and heightening the standard retain quality litigation counsel by effectively
of review to “clear and convincing evidence”, paying for such counsel with a share of future
which is highly deferential to examiners. While enforcement and/or licensing proceeds, if any.
it does not seem likely that it will pass through In foreign jurisdictions that do not permit such
Congress, it demonstrates a growing trend contingency arrangements, a patent owner must
to restore stronger patent protections in the be able to pay the attorney’s hourly fee plus
United States. costs to enforce a patent; although lower than
One thing that has not changed in US in the United States, it can still be prohibitive.
litigation is the availability of contingency Thus, another potential global patent litigation
arrangements to pay for attorney fees and/or strategy is for a patent owner to retain a US firm
costs. Patent owners routinely pay for US legal on contingency to combine patent litigation
services by agreeing to non-recourse contingency with lower cost enforcement activities outside
arrangements; nothing is paid to the attorneys or of the United States, to increase the leverage
law firms unless the patent owner wins, in which and potentially increase the likelihood of a
case the attorney or firm receives a percentage higher settlement payment likely to fairly value a
of the award or settlement. In principle, such portfolio of asserted patents.
IAM Yearbook 2020 61
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FIGURE 1. Patents in force in the United States, China and Germany from 2004 to 2016
3,000,000
2,250,000
1,500,000
750,000
0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
China Germany United States of America
FIGURE 2. Litigation cost and time to trial across jurisdictions
Typical Litigation Cost Time to Trial (average)
$4,000,000 40
$3,000,000 30
Months
$2,000,000 20
$1,000,000 10
$0 0
United States Germany China United States Germany China
Challenges and advantages of patent litigation German patent litigation remains popular
in Germany because of the strong injunctive powers of German
Germany operates a dual patent litigation system courts. Injunctions in German courts are granted
in which different courts handle invalidity and as a matter of right under law, so long as the court
infringement separately. Validity challenges are finds infringement. This provides a patent owner
handled either through opposition proceedings at with significant leverage, for post-injunction
the same patent office that granted the patent or settlement discussions, and against competitors
at the German Federal Patent Court, where cases who cannot afford to suffer a shut down. The
are heard by technically trained judges. Currently, settlement leverage often includes local products or
the biggest challenge for the German patent processes, as well as worldwide products or services
system is whether the Unified Patent Court given today’s European Union as a major market
(UPC) Agreement ratification will be upheld. for defendants brought into German proceedings.
The German Constitutional Court is scheduled to Moreover, German courts are more likely to
hear arguments and render a decision on the issue issue injunctions on standard-essential patents
between July and September 2019. The UPC for a cost. True contingency arrangements are
and unitary patent will broaden the scope of the unavailable in German proceedings.
patent and any patent litigation decision to cover In addition to the injunctive power of the
all signatory nations, which encompasses the German Courts and patents, the jurisdictional
European Union except Spain and Poland; but is reach that Germany exercises over patent
unlikely to affect damages significantly. infringement is greater than most nations.
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Before the mid-2000s, German courts held prevail in China’s courts at least as much as
that if a process or machine patent is at least Chinese plaintiffs.
partially infringed within the territorial limits of With rapid timelines in Chinese courts, a
Germany and then exported for the completion plaintiff that files suit without having its evidence
of the infringement, the actions will be treated lined up may find itself in trouble, but a defendant
as if the entirety of the infringement occurred may feel even more rushed, without warning of the
in Germany. In some cases, the jurisdiction lawsuit beforehand. Although plaintiffs in China
has applied so broadly to even cover internet cannot obtain pre-trial discovery, plaintiffs can hire
advertisements written in German as offers for private investigators in China who go far beyond
a good that infringes a German patent even if private investigators in the United States or Europe.
the product may not be actually purchased in Although Chinese patent litigation may result
Germany. For now, these jurisdictional bounds in damages awards seemingly lower than those
provide a valuable tool in global monetisation available in the United States, Chinese courts
and litigation strategies. almost always grant injunctions to prevailing
Finally, a potential challenge in German patent plaintiffs similar to Germany. Moreover, damages
litigation is the risk that a losing party may be in Chinese patent infringement lawsuits seem to
ordered to pay court fees and attorney fees. While be trending upwards. China’s highly anticipated
these payments are unlikely to rise to US levels, Fourth Amendment of the Patent Law will
German litigation can still be costly compared to include several key revisions which will certainly
other less expensive jurisdictions. make foreign patent litigation and monetarisation
more attractive. The amendment will increase
Challenges and advantages of patent litigation the statutory damages range from Rmb10,000 to
in Asia Rmb1 million, to Rmb100,000 to Rmb5 million.
Like Germany, China also maintains a dual In addition, the amendment will raise punitive
system where patent infringement is separately damages against wilful infringement to up to five
determined by courts and patent invalidity times the awarded statutory damages. There will
proceedings are determined at the patent office. be an additional clause shifting the burden of
Chinese patent law is largely based on German proof onto the alleged infringer once the plaintiff
patent law. China established three specialised IP produces prima facie evidence.
courts between 2014 to 2015, in addition to the 50 The revised Japanese Patent Act 2019 (recently
Intermediate People’s Courts, to try infringement signed into law and expected to take effect in
cases. Challenges to validity, on the other hand, 2020) has significant re-formulations to damages
are handled by the China National Intellectual calculations. Revised Article 102 allows the
Property Administration. Japanese courts to factor over-hanging lost profits
Recent statistics indicate that Chinese courts in final damages calculations, as well as allowing
may be far friendlier to foreign patent owners them to determine the potential monetary amount
than previously thought. A 4 July 2016 IAM if the infringer and patent owner entered into a
blog post (www.iam-media.com/blog/detail. contractual agreement.
aspx?g=8dc59dc8-6405-4b86-b241-27e89afc6089) The Korean Intellectual Property Office
reported that in 2015, foreign plaintiffs won 100% (KIPO) recently indicated that there are proposals
of the 65 cases that they filed in Beijing’s IP court, to amend the Korean Patent Act, specifically
although about 75% of those cases concerned focusing on increasing monetary damages as
trademarks. Notably, foreign plaintiffs continue to a remedy for patent infringement. With the
“With rapid timelines in Chinese courts, a plaintiff that files
suit without having its evidence lined up may find itself in
trouble, but a defendant may feel even more rushed,
without warning of the lawsuit beforehand”
IAM Yearbook 2020 63
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addition of enhanced damages, the KIPO hopes Comment
that this will incentivise both the protection and Due to variances in the patent laws of different
litigation of intellectual property in South Korea, countries, businesses are wise to carefully consider
to make it a lucrative country to engage in a patent the potential benefits of strategically coordinating
monetisation strategy. concurrent patent monetisation across multiple
More recently, Singapore is in the nascent countries. As a first step, businesses should
stages of implementing significant amendments carefully plan how to develop or acquire key assets
to its own IP acts (eg, capping the length of that can comprise a global patent portfolio, either
trial and limiting damages parties may claim). through foreign patent prosecution or through
The most striking modification would come in aggressive purchasing of foreign patents, perhaps
the form of a specialised litigation track where with an eye towards combining with an existing
Singapore’s High Court would handle all litigation US patent portfolio. Once a global patent portfolio
disputes. Further, according to the US Chamber is compiled, businesses will likely benefit most
of Commerce Global Innovation Policy Centre’s from a centrally coordinated global enforcement
2019 International IP Index, Singapore ranks strategy. Careful consideration should be given
number one in the world for patent protection, when selecting the right law firm to coordinate
strengthening Singapore’s marketability relative to your patent monetisation strategy, discover the
patent monetisation. synergies particular to your factual scenario and
leverage both to the greatest benefit.
Comparison of cost and time for patent litigation
between jurisdictions
US patent litigation is significantly more
expensive and drawn-out than German patent
litigation, which in turn is more expensive
and drawn-out than Chinese patent litigation.
Statistics reported by Global Patent Litigation:
How and Where to Win confirm the expected SpencePC
trend (see Figure 2). 515 N State Street
When it comes to damages, you get what Suite 1801
you pay for. The median damages amount for Chicago IL 60654
the United States (about $8.9 million) are so United States
significantly larger than those in China (about Tel +1 312 404 8882
$5,000) that a similar graph comparing these Fax +1 312 635 2299
damages is not needed. Web www.spencepc.com
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