Patent Infringement Litigation: Risks of Notifying the Infringer Before Filing a Lawsuit


           In “Patent Litigation – Four Steps to Patent Royalties,” the author suggests that after collecting evidence of patent infringement, the patent owner should “notify the infringer” before filing suit, because they “may begin to negotiate right away.” Not so fast. You may be about to have a suit filed against you in a court chosen by the defendant.

            In 2007 the U.S. Supreme Court decided  MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118. The Court discussed circumstances in which the sending of a letter by a patent owner might present grounds for the recipient of the letter to file a suit seeking a declaration that, among other things, there is no infringement and the patent is invalid. Since the MedImmune decision, many cases have fine-tuned the circumstances in which a declaratory judgment action may, or may not, be filed. A recent post by Professor Lisa Dolak of Syracuse University (and a former Federal Circuit Law Clerk) provides an excellent summary of many of those cases. For example, a statement that the patent owner “does not intend to sue” is likely not sufficient to end the suit for declaratory judgment. Similarly, a stated “continued willingness to negotiate” might be useless in preventing or stopping the declaratory judgment action. 

            It is clear that MedImmune has altered the world in which a patent owner may safely initiate communication with a potential infringer or licensee of the patent. Before sending any letters, the patent owner should be working with patent litigation counsel to make sure that the risks of a hostile declaratory judgment action are carefully evaluated and a fully informed decision made about how to go about enforcing the patent.


Business Method Patents: Challenges for Patent Infringement Cases

As attorneys involved in patent litigation, our firm has received several inquiries lately about whether we might take, on contingent fee, a case for infringement of a business method patent.  The answer is “maybe!” “A business method is simply one kind of ‘method’ that is, at least in some circumstances, eligible for patenting.” Bilski v. Kappos,130 S.Ct. 3218 (U.S. 2010). Great care must be taken in evaluating such a case, however, because method patents are not broadly patentable.

Bilski made its way to the highest court via an administrative route rather than by private litigation. An applicant tried to patent a method of hedging risk in commodities trading in the energy market. The PTO rejected the patent, which was affirmed by the Board of Patent Appeals and the Federal Circuit (en banc).   The Supreme Court granted certiorari.            

Methods of doing business are not necessarily non-patentable. In Bilski, the claimed invention was a mathematical formula, an “abstract idea,” and thus not a patentable “process.” Significantly, however, the Court rejected any limitation that a method patent must satisfy a “machine” or “transformation” test. That is, a claimed process is not patent eligible only if: (1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing.  Although a useful tool, the Supreme Court held that the “machine or transformation” test is not the sole test for determining whether a method is patent eligible.   While the “machine or transformation” test might have worked well in the Industrial Age, it does not work as well in the Information Age.             

In the Supreme Court’s decision, four Justices concurred in one opinion (strongly disagreeing with the Court’s disposition of the case) and two in another (believing that business methods are not patentable). The Federal Circuit’s decision produced five opinions. This led Justice Kennedy to note, “Students of patent law would be well advised to study these scholarly opinions.”             

This has led some to suggest reexamination as an alternative to patent litigation or a license and that “defendants and potential licensees are using reexaminations more frequently than in the past to challenge the validity of the claims in issued patents.  So what’s the bottom line? Business method patents, while perhaps alive, will be difficult to successfully litigate by a plaintiff.   Perhaps the patent owner can best prepare his case for successful litigation by seeking re-examination himself before it is sought by a defendant, potential licensee or other third-party. We would be much more likely to take a business method case on contingency fee after the patent has survived re-examination in light of the substantial, though perhaps somewhat ambiguous, discussion of the higher and highest courts in Bilski.


Oops! Plaintiffs want a jury to award them money, but end up with arbitrators making them pay!


            This should be of interest to plaintiffs and attorneys who hope to conduct business litigation or arbitration with a contingent fee.

            Homeowners hired a construction company to build an 8000 square foot house, 2000 square foot guest house, pool and pool house, tennis court, pavilion and multi-car garage on their 12 acre property. The project was to cost $11.3 million. About 2 and ½ years into the project the builder stopped work, alleging the homeowners breached their contract by failing to pay for increased construction costs due to a design change. The homeowners claimed that the builder had delayed work and overrun costs. 

            The homeowners wanted the case heard in court. The builder wanted to arbitrate.  The case was ultimately heard by a three member arbitration panel.  The homeowners were ordered to pay the construction company $5.75 million in legal fees and arbitration costs.

The homeowners believed that they would have won with a jury and that the arbitrators were biased because they had formerly represented construction companies. 

            Obviously, it can matter a great deal to a contingent fee plaintiff whether his case gets tried by a jury or arbitrators. In either case, however, it is very important to pick the right audience, whether they are jurors or arbitrators!