Chinese Patent Litigation – Practice Tips for US Companies (Part 4)

Practice Tips for US Companies

Because China is one of the world’s largest consumer markets, US companies doing business in China will continue to profit from its large consumer base. In light of this new patent litigation landscape in China, however, how should US companies prepare for patent litigation in China? There is no simple answer, and US companies must develop a holistic approach to patent litigation in China.

This article provides four practice tips below. Note, however, that there is no “one size fits all” approach, and US companies will need to customize solutions most suited for their individual needs.

First, be aware of cultural differences. Both Schneider and Samsung misjudged Chinese companies’ reactions. Schneider’s strategy of using lawsuits to force CHINT into acquisition backfired. Probably blinded by a sense of arrogance and self-entitlement, and more likely because of a misjudgment in cultural differences, Schneider has not chosen other means that would be much more effective.

CHINT is a privately-held family enterprise, and its CEO is very wealthy. Therefore, he likely values his reputation more than money itself. He would lose his “face” and social status if he were to be forced into acquisition. On the contrary, he capitalized this opportunity to become a national hero in his “fight” against the perceived foreign “aggression.” CHINT’s PR efforts were commendable, but Schneider could play along with this PR scene after its first several lawsuits in Europe did not help it gain any business leverage. At that point, Schneider should find a way to allow CHINT’s CEO, who is a business person at his core, to save his face while still inking a business deal.

Similarly, Samsung was shocked to see the large judgment. From the hindsight, Samsung grossly underestimated Hollycomm’s strength. In the beginning, however, Samsung retained one of the largest national law firms in China, and overlooked the fact that the strongest law firms in Zhejiang province are not national law firms. Some Zhejiang firms have excellent knowledge of local practice and local political/business environment – an intangible asset that could help Samsung better evaluate the case. Therefore, understanding cultural differences does not mean the differences at an international level, but also at an intra-China level.

Second, create win-win situations. The Chinese culture promotes win-win situations and avoids conflicts. The fact that Schneider’s appeal has not been decided shows that the court is creating a window for Schneider and CHINT to settle their differences.

Granted, however, it is difficult for Schneider or Samsung to salvage a win-win situation after such negative media coverage. For other companies, however, there are a plenty of opportunities during litigation to create and capitalize win-win situations. Remember, saving “face” is the most important thing in China.

Third, execute a short-term plan. As patents and patent lawsuits become more and more important in China, US companies doing business in China must have and execute a short-term plan to deal with potential patent litigation in China.

To avoid becoming the next Schneider or Samsung, one effective way is to have your own Chinese patents. To balance the “perceived” favor for Chinese patent holders in Chinese courts, US companies could counter-sue Chinese companies for patent infringement, using their own Chinese patents. It is one thing if a court issues a large judgment against a non-Chinese infringer. It is quite another if the same court issues a small judgment against a Chinese infringer at the same time. This way, US companies would create a level playing field.

Accordingly, in the short term, US companies must identify their Chinese patents that can be used for defensive purposes. If US companies do not have such patents, they should consider purchasing patents from other entities.

Fourth, develop a long-term strategy. US companies must also develop a long-term patent strategy for the Chinese market in order to enjoy continued business success. The strategy is not only limited to R&D efforts and applying for Chinese patents. It should take into account US companies’ global patent and business strategy and understand the inter-relation between the Chinese market and other markets. US companies must first identify the long-term business goals in China and globally, then develop a long-term patent strategy accordingly.

For example, Schneider attempted to leverage its European patents for business advantages in China by suing CHINT in Europe. It lacked the strong European patents that could defeat CHINT in Europe. If Schneider had a better global strategy, however, it might have succeeded.

The old saying is “when in Rome do as the Romans do.” Likewise, when US companies conduct business in China, they must follow Chinese culture and rules. The changing landscape in China’s patent litigation can benefit both Chinese and US companies. To capitalize on potential opportunities, US companies must get prepared now!

Chinese Patent Litigation – Practice Tips for US Companies (Part 3)

Trends and Predictions

In light of the current socio-political environment in China, these two cases appear to be the tip of an iceberg, as many more similar decisions may follow.

On the one hand, the Chinese government has emphasized the importance of IP rights, and supported China’s own R&D efforts for the past 10 years. And many Chinese companies have learned to patent their innovations and technology. On the other hand, the Chinese industries, especially electronics industries, have been fed up with foreign patent holders’ aggressive (and sometimes insensitive) stance in enforcing their patent rights against Chinese companies in China and globally.

Therefore, it was only a matter of time before Chinese companies and courts would find ways to counter the perceived imbalance in IP enforcement. And these two cases illustrated the trend.

Zhejiang Province’s emergence as the “Eastern District of Texas” of China does not come as a surprise. Zhejiang Province is one of the main commercial centers in China, and unlike other highly developed provinces in China, Zhejiang Province does not have many large state-owned companies in China. Instead, it houses any successful medium and small private companies. As a result, courts in Zhejiang Province have less political risks when the judges issue high damage awards against foreign entities in favor of private businesses. In addition, although Zhejiang companies export products all over the world, they are not large enough to suffer major repercussions outside China.

The trend, however, is not against US companies in the long run. As the courts continue to issue high damage awards, sooner or later, they will have to rule in favor of plaintiffs who happen to be US companies. Therefore, these two cases will continue to push China forward to become a world leader in patent litigation.

(To Be Continued. Stay Tuned for Practice Tips for US Companies.)

Chinese Patent Litigation – Practice Tips for US Companies (Part 2)

Case Study (2): Holley Communications v. Samsung Electronics

On December 19, 2008, the Hangzhou Intermediate People’s Court, also in Zhejiang Province, ordered Samsung to pay $7.4 million (UDS) to Zhejiang-based Holley Communications (“Holleycomm”) for infringing Holleycomm’s patent directed to GSM/CDMA dual-mode handsets. This is the largest damage award for patent infringement in China’s mobile phone industry.

This ends the 20-month dispute, for now, as Samsung has indicated that it would appeal the decision after it receives the formal order. The case started on April 9, 2007, when Holleycomm sued Samsung for patent infringement. On May 8, 2007, Samsung requested China's State Intellectual Property Office (SIPO) to reexamine the validity of the patent. Under Chinese laws, the trial proceedings stayed pending SIPO’s reexamination result. On December 14, 2007, SIPO declared that Holleycomm’s patent was valid. The trial proceedings resumed, paving the way for the December 19, 2008 decision.

Encouraged by this result, Holleycomm indicated that it will start suing other companies. “This means Samsung won’t be the last to be prosecuted for the infringement of the dual-mode patent of Holleycomm,” the company said.

This is still a developing story, as details of the case have not fully emerged. It appears, however, that Holleycomm has fueled the nationalist sentiment by offering free licenses to wholly Chinese-owned companies, but seeking licensing fees from foreign entities.

(To Be Continued. Stay Tuned for Trends and Predictions, and Practice Tips for US Companies.)

Chinese Patent Litigation – Practice Tips for US Companies (Part 1)

Case Study (1): CHINT v. Schneider Electric

Generally, damage awards for patent infringement in China are less than
$100,000 (USD). On September 26, 2007, however, the Wenzhou Intermediate People’s
Court in Zhejiang Province ordered defendant Schneider to pay about $48.5 million (USD) to CHINT, a company based in Wenzhou, for infringing CHINT’s Chinese patent directed to a miniature circuit breaker.

The Wenzhou Court calculated the damage award based on the profits Schneider made through infringement in China from August 2, 2004 until July 31, 2006. This is still the largest damage award for patent infringement in China! The case has been appealed and remains pending before the highest court in Zhejiang Province.

Schneider is one of the world’s largest manufacturers of medium to low voltage electronic equipment, while CHINT is a leader in China’s electrical transmission and distribution industries and generated sales revenue over $2.7 billion (USD) in 2006. Since 2004, Scheinder has filed about 20 patent lawsuits against CHINT in several European countries, all of which CHINT aggressively defended.

Allegedly, the patent disputes between these two companies arose out of Schneider’s failed attempts to acquire CHINT. Xu Zhiwu, legal counsel for CHINT, stated that “Schneider proposed to acquire 80%, 51% and 50% of the CHINT equities in 1994, 1998 and 2004, which were all rejected by CHINT.” Xu further alleged that “Schneider would sue CHINT in any country for infringement every time it was refused by CHINT. The lawsuit does not mean that CHINT is the real infringer, and the intellectual property right has been used by the multinational company as a weapon to contain or press CHINT so that CHINT agrees to the acquisition.”

Needless to say, CHINT’s lawsuit against Schneider came as a shock to Schneider. Because China does not publish court files or opinions, it is difficult to obtain and examine litigation files. I was fortunate enough to have talked to two judges involved in this case regarding litigation proceedings.

A former trial judge in the Wenzhou Intermediate People’s Court, who assisted in handling this case, told me that after CHINT sued Schneider in Wenzhou, Schneider tried to transfer the case to a different venue in another province. After all, CHINT is based in Wenzhou and has considerable influence there. Schneider, however, did not succeed in transferring the case out of Wenzhou.

After Schneider appealed the trial court’s judgment to the highest court in Zhejiang Province, I happened to visit Hangzhou, the capital of Zhejiang Province, and
had dinner with a friend who was the justice handling this appeal. I was told that he expected to issue his final decision in April 2008. He seemed confident, however, in his ability to render an unbiased decision, despite having political pressures from both sides.

Little did I know that the appeal would still remain pending a year later. More interestingly, the same judge who was going to issue the final decision in April 2008 has since left the highest court of Zhejiang Province and joined a private law firm. While I am not sure what exactly happened in the appeal, I am inclined to think that the long delay in the appeal would allow the parties to settle their differences before any formal decision.

(To Be Continued. Stay Tuned for Case Study (2): Holley Communications v. Samsung Electronics; Trends and Predictions; and Practice Tips for US Companies.)

Chinese Patent Litigation – Practice Tips for US Companies (Introduction)

Remember the days of low damages for IP infringement in China? They are soon to be over! Not only is China one of the world’s largest consumer markets, it may also become a world leader in patent litigation soon. In addition, do you know that the courts in East China’s Zhejiang Province have emerged as the “Eastern District of Texas” of China – the preferred venue where Chinese patent holders bring patent infringement lawsuits against Non-Chinese companies?

This article provides practice tips for US companies doing business in China
through case studies of two recent patent litigations: one resulted in a $48.5 million (USD) judgment against Schneider Electric for infringing a Chinese patent owned by CHINT, a Zhejiang company, and the other resulted in a $7.4 million (USD) judgment against Samsung for infringing a Chinese patent owned by Holley Communications, also a Zhejiang company.

(To Be Continued)

Would a Covenant Not to Sue Defeat Declaratory Counterclaims? Depends on the Coverage of the Covenant, Says the Federal Circuit.

In Revolution Eyeware, Inc. v. Aspex Eyewere, Inc., No. 2008-1050 (Fed. Cir. Feb. 13, 2008), the Federal Circuit reversed the district court’s holding that “Revolution’s covenant not to sue for past infringement ousted the court of jurisdiction of Aspex’s counterclaims.” Slip. op. at 11.

Relevant Facts/History:

Revolution sued Aspex for patent infringement, and Aspex countered with declaratory counterclaims. After the district court set the trial for the issues of unenforceability and invalidity, Revolution sent Aspex a covenant not sue, and then filed a motion to dismiss the counterclaims for absence of the requisite case or controversy. The district court granted the motion, and Aspex appealed. The Federal Circuit reversed and remanded.

Revolution’s Covenant Not to Sue:

“Revolution and counter-defendant Gary Zelman hereby unconditionally covenant not to sue Aspex for patent infringement under the ‘913 patent based upon any activities and/or products made, used, or sold on or before the dismissal of this action (03-5965 case).”

Issue:

“This case relates to a covenant not to sue for past infringement, and its effect on jurisdiction of declaratory counterclaims applicable to future infringement.” Slip. op. at 1.

Holding:

If the covenant not to sue covers the products sold before or after the covenant, there would be absence of continuing case or controversy. If, however, the covenant not to sue covers the products sold before the covenant only, there would be continuing case or controversy.

Judge Newman summarized this point in a clear and concise way: “In all of these [prior] cases, the covenants covered the current products whether they were produced and sold before or after the covenant, and the courts found absence of continuing case or controversy. In contrast, Revolution offered no covenant on the current products, stating that it is not obligated to 'repudiate suit for future infringement.' Br. at 24. We agree that such is its right. However, by retaining that right, Revolution preserved this controversy at a level of 'sufficient immediacy and reality' to allow Aspex to pursue its declaratory judgment counterclaims.” Slip. op. at 11 (emphasis added).

Commentary:

This is good news for accused infringers, and disappointing one for patentees who employ a “hit-and-run” tactic. This opinion makes perfect sense. If a patentee wants to assert a patent, it better conduct pre-litigation due diligence thoroughly. Once a lawsuit is instituted, the patentee cannot simply grant a covenant not to sue based on past infringement to dismiss declaratory counterclaims, while reserving its right to sue for future sales. Finally, although this case relates to declaratory counterclaims, the same rationale also applies to declaratory judgment actions.

Five Common Mistakes of Patent Prosecution from the Enforcement Perspective (Part 5)

Mistake #5: Lack of Communication with the Examiner

We observed that sometimes applicants do not proactively communicate with the examiner. Again, this is not really a mistake, but a less than ideal common practice.

Examples
• Applicant realizes that the Examiner appears to have misunderstood a complex aspect of the invention, and traverses in the response to the office action. The Examiner issues the final office action with the same misunderstanding. Applicant traverses again in another response.

Consequence
• Prolonged Examination.
• Potential Prosecution History Estoppel.

Case Study

In Hormone Research Foundation, Inc. v. Genentech, Inc., 904 F.2d 1558 (Fed. Cir. 1990), the Court held:
• Prosecution history estoppel can limit the coverage of an inventor’s claims.
• Official correspondence with the examiner may be used to limit the patentee’s claims.
• “Depending on nature of purpose of amendment, it may have limiting effect with inspector ranging from great to small to zero.”

Therefore, communicating with the Examiner proactively may reduce paper trail and avoid unnecessary delays. Based on our experience, the examiners are generally professional and cordial, and also want to move the prosecution forward.

Solution
• Proactively communicate with the examiner via telephone or in person interviews.
• Work with the examiner after an office action to expedite the prosecution and save costs by avoiding unnecessary delays and, after the final office action, pursuing the possibility of an Examiner’s Amendment.

(THE END)

Five Common Mistakes of Patent Prosecution from the Enforcement Perspective (Part 4)

Mistake #4: IDS

The fourth typical mistake is that the applicant of one application fails to bring an office action and/or cited prior art in a co-pending application to the first Examiner.

Examples
• Applicant files App. A and App. B, both of which share a similar specification. Examiner A issues an office action in App. A, citing several prior art. Applicant fails to bring this office action (and its cited art) to Examiner B who examines App. B.

Consequence
• This may lead to inequitable conduct, which could render the patent unenforceable.

Case Study

In McKesson Info. Solutions, Inc. v. Bridge Med., Inc., 487 F.3d 897 (Fed. Cir. 2007), the Federal Circuit affirmed the district court’s finding of inequitable conduct due to the patent applicant’s nondisclosure of three items of information during prosecution in a setting where the applicant had co-pending applications, including one before the same examiner and the undisclosed items came from co-pending applications. Id. at 901, 925-26.

The Federal Circuit cautioned that “the MPEP at the time explained that a prosecuting attorney should not ‘assume that [a PTO examiner] retains details of every pending file in his mind when he is reviewing a particular application,’ MPEP § 2001.06(b) (5th ed. rev. 3, 1986).” Id. at 925.

The current MPEP retains the same language.

Solution

If the applicant has co-pending applications that share a similar specification, under McKesson and recent Federal Circuit cases, the applicant should always submit the IDSs to bring office actions and cited prior art from the co-pending applications to the examiner’s attention, even if the same examiner is examining all co-pending applications.

(TO BE CONTINUED)

Motivation to Combine? Capable of Infringing?

In Ball Aerosol & Sepciality Container, Inc. v. Limited Brands, Inc., No. 2008-1333 (Fed. Cir. Feb. 9, 2009), the Federal Circuit reversed the district court’s finding that the asserted claims are not obvious and infringed. Here, BASC’s patent claims a candle tin with a removable cover that also acts as a base for the candle holder. The parties do not dispute that the prior art discloses all the limitations of the claims. The district court had rejected Limited’s argument that the motivation to combine was “self-evident” because “the prior art seeks to solve the same problem” of scorching caused by the candle holder.

Key Issues:
• Whether the alleged infringer’s analysis of a motivation to combine “should be made explicit”?
• Whether an accused product that is reasonably capable of operating in an infringing manner infringes the claim that is not drawn to capability?

Holding:
• It is the court’s analysis, not the teachings in the prior art of a motivation to combine, that “should be made explicit” according to KSR.
• “[I]nfringement is not proven per se by a finding that an accused product is merely capable of infringing.” Slip op. at 17.

Commentary:

In this case, Limited appeared to argue simply that the motivation to combine was “self-evident.” The outcome was fortunate for Limited because of the relatively low level of ordinary skill in the art. Slip op. at 13 (“BASC did not dispute the district court’s adoption of Limited’s argument that because the ‘technology is simple and easily understandable,’ the level of ordinary skill in the art was that of an ordinary layman of average intelligence.”)

The lessons are two-fold:
• On the one hand, a patentee should always attempt to argue a higher level of ordinary skill. If an ordinary layman can understand and appreciate the technology, chances are that the accused infringer will find prior art references, which, in combination, may teach all of the claim elements.
• On the other hand, an accused infringer should not merely rely on the argument that the motion to combination is “self-evident.” If it is really “self-evident,” explain it in details. Even though not required under KSR, explicit explanation about the motivation to combine may help you avoid unnecessary appeals (and anxiety that comes with it).

Five Common Mistakes of Patent Prosecution from the Enforcement Perspective (Part 3)

Mistake #3: Potential Infringing Acts?

Well, this is not really a mistake. Too often, however, are claims of a patent application/family directed to one type of potential infringing acts only. The reasons could be that (1) the person who drafts the application does not think ahead and draft claims with an eye towards enforcement, (2) the person who drafts the application does not fully understand the technology roadmap in the market beyond the invention itself, or (3) both.

Examples
• Claims directed to a computer processor chip, but none directed to a computer or a network system using the chip.

Consequence
• Less flexibility in enforcement.
• In the example above, the patentee can only sue on the chip, but not a computer or a network system.
• Potential damages may be negatively affected.

Case Study

In Quanta Computer, Inc. v. LG Electronics, Inc., No. 06-937 (U.S. June 9, 2008), some of key facts and arguments are as follows:
• LGE has patents that are directed to computer chips and computers.
• LGE licensed its patents to Intel for Intel’s chips with the condition that the license does not cover combinations (e.g., computers) with non-Intel products by Intel’s customers.
• LGE sought royalties from computer manufacturers, and got payments from many.
• Quanta contended that it does not have to pay royalties for its computers containing Intel chips due to patent exhaustion, among other reasons.

The US Supreme Court held that patent exhaustion applies here, partly because Intel did not violate any terms of the LGE-Intel license by selling its chips.

Notwithstanding LGE’s losing, this case illustrates the benefits of having claims directed to multiple potential infringing acts:
• “The sale of a device that practices patent A does not, by virtue of practicing patent A, exhaust patent B.” Slip op. at 15.
• Overall, the Court appears to suggest that a patent license may be drafted in a way to avoid patent exhaustion.
• Conceivably, a patentee may choose not to license a chip maker but sue a computer manufacturer directly for higher damages (no patent exhaustion in this scenario).

Solution

Draft multiple sets of claims (or patents), each set covering a different type of potentially infringing acts in the supply chain (i.e., chip, computer, and network system).
• Increase flexibility in enforcement.
• Increase potential damage awards.

(TO BE CONTINUED)

Five Common Mistakes of Patent Prosecution from the Enforcement Perspective (Part 2)

Mistake #2: Means-Plus-Function

The second common mistake is improper use of means-plus-function terms in the claims. Means-plus-function elements require that the specification must permit one of ordinary skill in the art to know and understand what structure corresponds to the means limitation. Some improper claims are in means-plus-function form, but the specification does not disclose a corresponding structure. This may seem to be a no-brainer, but you would be surprised how often this happens, especially in software patents.

Examples
• United States Patent No. 5,404,505: “database editing means . . . for generating a hierarchically arranged set of indices… and for embedding said indices in said information database.” And the specification discloses corresponding “software.”

Consequence
• Invalid for lack for definiteness.

Case Study

In Finisar v. DirecTV Group, Inc., 523 F.3d 1323 (Fed. Cir. 2008), the patent at issue is United States Patent No. 5,404,505, and claim 1 recites ““database editing means . . . for generating a hierarchically arranged set of indices… and for embedding said indices in said information database.” The specification discloses corresponding “software.”

The Federal Circuit finds this claim invalid for lack of definiteness. Referring to the part of the specification regarding “software 132,” it found that “[t]his passage provides no description… of structure corresponding to the claimed function” and “software,” without more, is not the requisite structure. Id. at 1340-41.

Solution

Avoid drafting a means-plus-function claim and use alternative approaches. If you have to, always include a corresponding structure.

(TO BE CONTINUED)

Strategies for Successful Patent Procurement

To develop competitive business advantages, one must develop sound strategies for successful patent procurement. Patent procurement includes not only filing patent applications for a company’s own R&D efforts, but also procuring strategic patents from third parties to support or supplement its own business.

I. Understand Your Business Goals

A major aspect of successful patent procurement is to decide what to patent. To do so, you must understand your business goals and integrate them into your IP strategies.

First, not all your innovations are suitable for patenting. For example, a patent provides your right to exclude others from practicing your invention, but in exchange, your must disclose sufficient information to enable others to appreciate your invention. Therefore, if it is difficult to detect infringing activities, you may choose to protect the innovation as trade secrets. In contrast, if your invention may be easily copied through reverse engineering, you may consider patenting your invention before start selling any products embodying the invention. However, if you choose to protect your invention as trade secrets, you must develop and enforce policies managing trade secrets and preventing technology leakage.

Second, understand why you decide to patent. Obviously, it depends on your business model. If you are a design house and do not make any products, IP is your life line and you must patent to protect your revenue (e.g., royalties from licensing). However, if you are a manufacturer of chips or semiconductor equipment, chances are that you have many direct competitors. What is your strategy, then, for gaining competitive advantages through your IP?

For example, Tokyo Electron Limited (“TEL”), a successfully semiconductor equipment company, uses patents to differentiate its own products and bolster its competitive advantages. [1]

Conversely, a company may choose to patent potential common desirable features of the next generation products to gain competitive advantages. If successful, the company may force its competitors to design around at a higher cost or even drive its competitors out of business.

Therefore, different companies should develop strategies to suit their own business goals. There is no one strategy that fits all. In general, however, understanding your business goals requires you to understand your competitors’ business and develop a decision-making process to patent your innovations that will advance your business goals.

II. Procure Patents to Achieve Your Goals

Once you understand your business goals and understand why you patent, you can then procure strategic patents to achieve your goals.

First, identify technology roadmaps. Certainly, patent mapping will provide some insights as to what areas your competitors already obtained patents in and what areas you may choose to focus your patenting efforts on. Additionally, working closely with your customers and suppliers will help you identify common goals, develop timely solutions, and patent the solutions for your competitive advantages. For example, TEL’s patent strategies include working closely with chip manufacturers, material suppliers, and other equipment suppliers to pursue common goals and provide timely solutions. [2]

Second, provide incentives to inventors to encourage new ideas. Successful companies utilizes one or more incentives, including (1) lump-sum payments at the time of submission of patent applications, (2) bonuses if inventions are commercialized in-house or licensed to third parties, and (3) awards to honor inventors.

Third, acquire patents via multiple avenues. For example, TEL procures patents through (1) global R&D effort with facilities in Japan, Europe, and the U.S., (2) collaboration with industry consortia, universities, and research institutes, and (3) TEL Venture Capital, Inc. (based in California) to discover, assess, and utilize promising technologies on a global scale. [3]

III. Think Outside the Box

Patent procurement is not limited to patenting your own technologies. Successful companies frequently purchase patents from third parties to protect their products and gain competitive advantages.

How about purchase patents unrelated to your products? This may sound like a crazy idea, but thinking outside the box can pay off in the long run.

One of the most anticipated cases in 2008 is the Quanta v. LG case where the U.S. Supreme Court ruled on patent exhaustion issues involving LG’s patents related to computer chips and memories. [4] This case has been discussed extensively by many commentators, so this article will not discuss the details of this case. One fact of this case, however, was often overlooked, as people rarely noticed that LG’s patents-in-suit were originally patented by Wang Laboratories. The USPTO assignment record shows that LG purchased many of Wang Laboratories’ patents related to computer chips and memories in the 1990s after Wang Laboratories filed for bankruptcy.

Why did LG purchase these patents, as LG does not appear to make computer chips and memories? One obvious reason is that LG profited at least hundreds of millions dollars from these patents through royalties from computer makers such as Quanta.
Another subtle reason, however, may lie on LG’s competitive business advantages against its competitors who also make products covered by these Wang patents. Some commentators have observed that LG might have used these patents to achieve business leverages regarding LG products unrelated to Wang patents, when a competitor has strong patents covering LG products, but happens to also make and sell computer products covered by Wang patents. This way, LG might have used these patents as a deterrent to fend off some competitors’ patent infringement lawsuits against LG’s products.

Therefore, developing sound strategies for successful patent procurement may require companies to think outside the box. Finally, execution of these strategies demands the commitment from the top management and the investment for the future.

-----
[1] Tokyo Electron Limited, Annual Report 2006, at 21.
[2] Id.
[3] Id.
[4] Quanta Computer, Inc. v. LG Elec., Inc., No. 06-937, slip op. (S.Ct. June 9, 2008).

Risk Management for U.S. Patent Infringement Lawsuits

When Asian companies become more successful and start doing business in or for the U.S. market, they will inevitably face patent infringement lawsuits in the U.S. This section will discuss how Asian companies may develop risk management strategies for U.S. patent infringement lawsuits. Some of the strategies may also apply to companies in the U.S.

I. Identify Potential Risks

As for any risk management, the starting point is to identify potential risks. Regarding U.S. patent infringement lawsuits, potential risks come in two forms: direct risks and indirect risks.

Direct risks, prevalent among semiconductor manufacturers, may come from product design. For example, during the R&D process, engineers might have studied competitors’ technology or patents to develop their own solutions. If the final product has features that would be covered by third party patents, it creates direct risks of potential patent infringement lawsuits.

Indirect risks, common among packaging companies that source semiconductor materials from manufacturers, may come from contracts and purchasing agreements. For example, when a packaging company enters a contract to purchase semiconductor components from a component manufacturer, the contract may be silent on potential IP liabilities regarding the components, or even release manufacturers from any future liabilities. As a result, the packaging company may be liable for patent infringement because of the components it purchased. Certainly, bargaining powers among the contracting parties may determine the wording of these contract provisions, but one must be aware of this type of indirect risks.

In addition, Asian companies that do not directly import or sell components in the U.S. may face indirect risks of patent infringement lawsuits in the U.S. For example, customers of Asian companies may buy and package the components in Asia and then sell final products in the U.S. A U.S. patent owner may then petition the United States International Trade Commission (ITC) to institute a Section 337 investigation that may exclude importation into the U.S. of any products containing infringing components.

To fully evaluate direct and indirect risks, Asian companies should engage competent U.S. counsel to perform due diligence at every step of the production cycle.

II. Minimize Potential Risks

After identifying potential risks, Asian companies will need to minimize potential risks of patent infringement lawsuits. Generally speaking, successful companies have adopted three common approaches.

First, design around to avoid your competitors’ patents. To minimize expenses, designing around should take place in the early phase of R&D, and one must continue to monitor competitors’ patenting efforts throughout the R&D process. Naturally, Asian companies should not design around alone without input of competent U.S. counsel, because determining the scope of patent claims requires in-depth legal analysis.

Second, when designing around is not preferable (too costly or difficult), Asian companies may retain competent U.S. counsel to render opinions on validity or infringement or both. Although an opinion letter is not required to defeat willful infringement (and potential treble damages) under recent U.S. case law, it is still desirable to have one because it will save future litigation costs and remove some uncertainties of the litigation.

Third, strategically patent the technologies that will cover your competitors’ products. Typically, in the semiconductor industry, products may be covered by many patents owned by different companies. Owning patents that cover a competitor’s products may enable you to negotiate a cross licensing deal so that both companies will be able to make and sell products without facing each other’s patent infringement lawsuit.

III. Manage Actual Risks

Unfortunately, some potential risks are inevitable to avoid. Therefore, Asian companies must also be prepared to face and manage actual risks. For example, in the U.S., patent holding companies operate under a business model where they do not make any products themselves (thus unlikely to be sued for infringing other companies’ patents), but seeks royalties through licensing and patent enforcement. Therefore, Asian companies need to learn how to handle U.S. patent infringement lawsuits.

This section will discuss two areas that are particularly relevant to Asian companies: personal jurisdiction and electronic discovery. When you receive a copy of the complaint of a U.S. patent infringement lawsuit, you may consider taking several strategic steps in response.

First, evaluate your position in the stream of commerce. For example, do you sell products in the U.S.? Do you import products to the U.S.? Do you sell products in China, but your customers sell or import products into the U.S.?

On the one hand, if you sell or import products into the U.S., it is most likely that at least one U.S. district court has jurisdiction. The question then becomes which U.S. district court has jurisdiction. If the products are not sold in or imported into a particular district (e.g., Maryland), then this particular U.S. district court may not have jurisdiction. The plaintiff, however, may bring a suit in the appropriate U.S. district court.

On the other hand, if you sell the products only in China, but eventually the products are imported to and sold in the U.S., the situation becomes more complicated and requires careful analysis by U.S. counsel. For example, in Technology Patents, LLC v. Deutsche Telekom AG, China Mobile and Singapore Telecom were named as two of many defendants in a U.S. district court in Maryland, but did not sell products in the U.S., as they merely allowed its existing users to send text messages while traveling in Maryland through agreements with U.S. wireless carriers.[1] Therefore, they were not subject to personal jurisdiction in Maryland. [2]

In contrast, if you sell your products to a customer, knowing that the customer will either import the products directly to the U.S. or package them with other components and import the final products to the U.S., it is more likely that you will be subject to personal jurisdiction in at least one U.S. district court.

Second, develop defense strategies by working with U.S. counsel to determine, for example, whether the company should file a motion to dismiss the lawsuit for lack of personal jurisdiction. Obviously, the decision depends on specific facts in individual cases. Additionally, U.S. counsel will help you identify potential issues, access risks, and develop appropriate defenses.

Third, prepare for document production if the lawsuit is not dismissed. As discussed earlier, discovery is a major component of U.S. patent litigation, and failure to produce relevant documents will result in severe sanctions. For example, in Qualcomm Inc. v. Broadcom Corp., the judge ordered more than $8.5 million against Qualcomm, the plaintiff, for failure to produce relevant emails. [3]

Typically, the judge will set a discovery schedule in the beginning of the case, so each party must be prepared to preserve the evidence and produce relevant documents timely. Accordingly, Asian companies should work with U.S. counsel to develop a discovery plan including identifying all relevant documents for production.

With careful preparation, Asian companies can learn to manage actual risks and handle patent infringement lawsuits smoothly.

------
[1] Technology Patents, LLC v. Deutsche Telekom AG, No. AW-07-3012, slip op. at 2 (D. Md. Aug. 29, 2008).
[2] Id.
[3] Qualcomm Inc. v. Broadcom Corp., No. 05 Civ. 1958, 2008 WL 66932 (S.D. Cal. Jan. 7, 2008).

Five Common Mistakes of Patent Prosecution from the Enforcement Perspective (Part 1)

Mistake #1: The Invention?

The first common mistake is describing the scope of the invention using over-precise language. This may occur in the specification or in a response to Office Action. For foreign originated applications, this is often caused by translation errors.

Examples
• “According to the invention”
• “The invention is/does”
• “According to the method/apparatus of the invention”
• “The method/apparatus of the invention is/does”

Consequence
• Narrower claim construction.

Case Study

In Praxair, Inc. v. ATMI, Inc., No. Civ. 03-1158-SLR, 2005 WL 2989767 (D. Del. Nov. 8, 2005), the parties dispute the meaning of “pressurized fluid” in the claims of U.S. Patent No. 6,007,609, and whether this term covers gas phase fluid only or other fluids as well.

According to the patent specification, “[t]he apparatus of this invention provides a flow restriction in the storage container . . . that will positively limit the discharge of gas phase fluid from the container . . .” ’609 patent at col. 3, ll. 54-58.

Citing the above disclosure, the court construed “pressurized fluid” to mean “gas phase pressurized fluid.” Praxair, 2005 WL 2989767, at * 3.

Solution

One may consider using broad language instead:
• “Consistent with the invention”
• “Consistent with the method/apparatus of the invention”
• “According to an embodiment of the invention”

(TO BE CONTINUED)

Five Common Mistakes of Patent Prosecution from the Enforcement Perspective (Introduction)

We all know that obtaining a patent should not be the goal, but merely means to the goal. Typically, a patentee wants to (1) gain competitive business advantages by excluding its competitors from using the patent in their products, or (2) capitalize the value through licensing the patent.

To achieve either goal, a patentee needs to answer at least the following questions:
• What is the value of your patent?
• Is your patent valid?
• Is your patent enforceable?

Patent valuation is a complex topic and will be discussed at another time. Suffice to say, however, that the value of a patent is directly tied to its validity, enforceability, and claim scope. To successfully enforce a patent, one must first draft and prosecute patents properly and avoid five common mistakes of patent prosecution.

(TO BE CONTINUED)

Why MM Patent Law Blog?

Hi, this is Lei Mei from Mei & Mark LLP, a Washington, DC-based IP and litigation law firm. I am always interested in the business side of Patent Law and IP management, but did not get to spend much time writing or blogging this aspect of my practice while working for a big firm. Now that I have my own firm, I decided to devote a lot of time writing and blogging.

As you all know, many patent law blogs offer excellent case summaries and analysis. What is lacking, however, is how these cases may impact day-to-day business operations. In-house IP professionals often ask us, not only what the cases say, but what the cases mean in term of their operations. Therefore, we hope to complement the existing legal-centric patent law blogs by focusing the business side of patent law.

The MM Patent Law Blog will provide coverage in the following areas:

• track recent development of patent law and provide up-to-date analysis regarding what it means to businesses,
• provide practice tips on patent prosecution and risk management of patent litigation,
  
• write case study series on how successful large, medium, and small companies run their IP business, and
• provide a unique coverage on the development of Chinese patent law and its impact on U.S. companies doing business in China.
  

Since I have to make a living representing clients and have a busy daily schedule, please be patient and come back often for updates.