Intellectual Property Directions

One of the biggest knocks on the the patent system is that it has evolved into a system that inhibits innovation rather than fostering it as the Constitution intended. Consider the dual edge sword of performing a prior art search. If you don’t do one, you may invest in developing a product only to be shut down when it infringes someone’s patent; if you do one, find a potentially applicable patent but proceed anyway, you could be found liable for treble damages for willful infringement. A formal opinion from a patent attorney was almost a mandatory “insurance” policy against these treble damages.

I recently attended an “Executive Briefing” at the local office of Foley & Lardner on the topic of last year’s Seagate decision - a decision that seems to have brought some relief to companies building products similar to a patented product.

Before Seagate it seemed the only way to prove that you were not acting with disregard for others’ rights was to pay significant sums of money to a patent attorney to get a thick document telling you why you likely would not be infringing. That was a document you could point to as proof you fulfilled your “duty of care.” For a small company you might be kissing your year’s profit goodbye.

In the Seagate decision, the rules changed. Now there is a two-step test.

Step 1: the patentee (not the infringer) must show that you acted despite an “objectively high likelihood” that you were infringing a valid patent. If you and your attorney can point to reasonably plausible defenses then there is no “objectively high likelihood” and you’re off the hook for willfulness.

Step 2: the patentee (again, not the infringer) must demonstrate that the objectively high risk was obvious to or demonstrably known by the infringer.

So what does that mean to most of us? Although not yet tested in the courts it would appear to me that a heart-to-heart discussion with your attorney about any potentially blocking patents you turn up would allow you to determine if there are “reasonable”, “plausible” or “non-frivolous” arguments to support non-infringement or invalidity. That discussion is likely to cost less than the opinions of pre-Seagate. Of course, discuss this strategy with your attorney.

What’s your opinion on opinions?

After working hard to get your trade show booth ready, walking into the show and seeing a competitor displaying an infringing (in your opinion) product must be enough to make your blood boil. For Theresa Miale it was just too much to contain so she confronted her competitor, the Campbell Pet Company (CPC). Now she finds she has to defend her patent on their home turf, at additional cost and inconvenience.

Ms. Miale’s problems started  when she participated in the trade show component of a Seattle convention of veterinarians, demonstrating and selling her pet stretcher products, used for transporting injured pets. At the show she observed the products of CPC and felt they infringed one or both of her US patents. Not content to simply gather data on CPC’s products and ask her attorney to send an appropriate warning letter, Ms Miale (and her mother!) apparently

…confronted several of Campbell’s employees who were attending the convention and accused them of infringing the Miale patents. According to the Campbell employees, Ms. Miale said that she had contacted her patent attorney and threatened Campbell with patent litigation, stating that patent attorneys and litigation were expensive. The Campbell employees further alleged that the convention manager told them that Ms. Miale and her mother had asked that the Campbell display be removed from the convention because it infringed Ms. Miale’s patents, but that the convention manager had declined to do so on the ground that she was not qualified to evaluate a claim of patent infringement. The Campbell employees also alleged that a customer informed them that Ms. Miale and her mother were “bad mouthing” Campbell and its products to Campbell’s customers, and referred to Campbell as “copiers of their patent.”

After the trade show, Ty-Lift (Ms. Miale’s California based company) sent a letter to CPC claiming infringement, to which CPC responded by filing the for the “standard” declaratory judgement of non-infringement and and invalidity in its home court, the Western District of Washington. Needless to say, Ty-Lift moved to dismiss CPC’s suit on the basis that the Washington court did not have jurisdiction over a California entity that did very little business in Washington.

To make a long story short, Ty-Lift would have prevailed and been able to defend its IP rights in California had only Ms. Miale been able to let the legal system take its normal course. As the Court of Appeals for the Federal Circuit said:

“[p]rinciples of fair play and substantial justice afford a patentee sufficient latitude to inform others of its patent rights without subjecting itself to jurisdiction in a foreign forum.” and that “the sending of an infringement letter, without more, is insufficient to satisfy the requirements of due process when exercising jurisdiction over an out-of-state patentee.”

But instead, perhaps spurred on by an overly protective mother hen,

… Ms. Miale’s actions [were] more than attempts to inform Campbell of suspected infringement. … Ms. Miale attempted to have Campbell’s allegedly infringing products removed from the convention and … told Campbell’s customers that Campbell’s products were infringing. Of critical importance to the issue of personal jurisdiction, Ms. Miale’s attempts at “extra-judicial patent enforcement” were targeted at Campbell’s business activities in Washington… Those efforts go beyond simply informing the accused infringer of the patentee’s allegations of infringement.

So, before you try to do your own “extra-judicial patent enforcement” you’d best pick up your cell and phone home, or at least phone your patent attorney and ask him or her to handle the matter for you.

I bought a new car recently and it came with a wide-angle backup camera - a safety feature that shows what’s behind you when you are in reverse. In a patent infringement suit the “reverse Doctrine of Equivalents” [rDoC]may provide you some safety… but don’t count on it.

“What?”, you say, “There’s a reverse doctrine of equivalents?”

Yup, and by a reverse logic that the Red Queen would love the reverse doctrine of equivalents says that you can be literally infringing a patent without being an infringer. To take a case example, last week the Court of Appeals for the Federal Circuit handed down a decision in the case of Roche v. Apotex (a generic drug manufacturer). In that case Apotex wanted to essentially duplicate one of Roche’s pharmaceuticals and called upon this doctrine to fend off a summary judgment of infringement.

The “normal” DoE extends the scope of a patent beyond the literal bounds defined in the claims. The idea is to prevent an infringer from making insubstantial changes or unforeseeable minor improvements in the invention as a way to avoid infringement. For example, replacing a circuit originally built with descrete transistors with one containing an IC would probably be considered an infringing equivalent.

The reverse DoE, on the other hand, contracts the scope of a patent to allow a literal infringer to escape sanctions. The idea is to prevent a patentee from extending the reach of the claims beyond the fair scope of the invention. According to the Supreme Court:

[W]here a device is so far changed in principle from a patented article that it performs the same or similar function in a substantially different way, but nevertheless falls within the literal words of the claim, the [reverse] doctrine of equivalents may be used to restrict the claim and defeat the patentee’s action for infringement.

 For example, two devices may measure the same signal and apply computer signal processing to determine some property of the source. But if one device is looking for amplitude variations while the other is looking for frequency variations, the accused infringer might have opportunity to apply the rDoE by arguing that the principle of operation is different and that the same function (determination of source property) is performed in a substantially different way (frequency analysis rather than amplitude analysis).

But before you get excited, note that the CAFC said:

The reverse doctrine of equivalents is rarely applied, and this court has never affirmed a finding of non-infringement under the reverse doctrine of equivalents. [emphsis added]

 So, just like looking in my backup camera, objects (or favorable patent rulings) may be closer than they appear.

“Dave Grannan was leading an afternoon product development meeting last Wednesday at the Harvard Square offices of Vlingo Inc. when he was rudely interrupted by a process server bearing a lawsuit. His 35-person speech recognition start-up was being sued for patent infringement by the biggest company in its business, Burlington-based Nuance Communications Inc.” Scott Kirsner, Boston Sunday Globe, June 22, 2008 

 Kirsner’s article continues, describing how Vlingo was started by two former Nuance employees, one of whom [Mike Phillips] had been CTO and who said that “part of his job also involved helping the company craft patent suits against competitors.” Being intimately involved with Nuance’s technology and IP, Phillips “says he was assiduous in avoiding Nuance’s patents when he started Vlingo.”

Kirsner is clearly on the side of David when he bluntly suggests that Nuance is nothing more than a bully who has filed “a string of lawsuits … none of which it has won in court.” He references “executives” of Voice Signal Technologies who said a Nuance patent suit was just an “intimidation tactic.” (This before Voice Signal was bought by Nuance for nearly $300 million.)

Further Kirsner suggests that Nuance is nothing more than a leach on the backs of innovators, claiming a Nuance spokesperson  “acknowledges that while the company has never given birth to a new speech-recognition product of its own, it is dedicated to continually improving the products it acquires. Earlier this month, it showed off some new speech software that works with Apple’s iPhone that duplicates some of Vlingo’s features.”

Finally he quotes “industry observer” Walt Tetschner as saying “They’re a monopolist, and who loves a monopolist?” “They don’t want any competition, and that leaves you with a pretty crummy market, with no progress happening.”

Whew, them Nuance folks are plenty bad! And poor David? “… for small companies like Vlingo, lawsuits have no upside. Though the company has raised $26.5 million in venture capital funding, … Vlingo doesn’t have a single attorney on staff. Its outside counsel charges $500 an hour (and up) for a partner’s time.”

This, of course, is the crux of the problem. Large companies have large assets, small companies don’t. And since there’s no penalty to a losing patent holder (assuming the suit was not frivolous), large companies have an inherent advantage in a patent suit against a small company.

So, what’s your perspective. Is Nuance simply a bully, using the asymmetric nature of patent litigation to hammer smaller competitors into submission (either drive them out of business or absorb them)? Or is Nuance simply policing the boundaries of its intellectual property, trying to keep intruders from poaching in their game preserve?