Patent infringement suits brought by patent trolls can bring the heartiest of defendants to the settle negotiation table to avoid the expense of a patent infringement action, known by all to be among the most expensive of all civil litigation actions.
Serial patent suits by a patent troll can be equally vexing. The plaintiff patent troll uses the identical complaint copied from the previous suits, changes the name of the defendant without changing any of the facts, does not identify any facts of infringement and instead provides only cursory general allegations, and escapes a motion to dismiss for failure to state a claim by contending all will be disclosed in the infringement contentions. While in recent years defendants have been able to use the Supreme Court decision in Alice v. CLS Bank to prevail on motions to dismiss when the patent deals with abstract software related patent claims, for other technology areas district court judges are loathe to terminate a case on a motion to dismiss.
Once the patent troll has survived a motion to dismiss the defendant is caught in the troll’s snare. The troll has the defendant where he wants him, in a settlement discussion. The troll demands untold thousands for past indiscretions and a license with royalty obligations for any future sale of the defendant’s products. You represent the defendant. What do you do?
This is where the patent marking statute can be your friend. First, patent marking refers to the notices on products such as “Pat. 8,000,000,” “Pat. Pending,” and similar marks that notify the public and competitors that the products are patented. Under 35 U.S.C. § 287, a patent owner can patent mark in one of two ways. It can mark a physical product or its packaging with the patent number. Alternatively, in the absence of physical marking, it can give notice to the targeted infringer by making a specific charge of infringement. Compliance with the marking statute preserves the patent owner’s right to claim damages for past infringement. Since a patent owner can sue for up to 6 years of prior infringement, whether it has complied with its notice obligation plays an important role in how much a troll can expect to collect from the defendant. Failure to mark can bar a hefty damage claim by eliminating any damages prior to notice of infringement.
Many defendants to patent troll suits have never heard of the patent owner or its patent(s), and will have never received notice of infringement until service of the lawsuit. Typically patent trolls have no product to mark, since they are non-manufacturing entities. In that situation, the patent troll must take reasonable steps to ensure that its licensees mark their licensed products – if it has licensees. If a patent troll plaintiff has not required its licensees to mark, the defendant may be able to defeat past damage claims without spending thousands in legal fees mounting a defense on the merits to an infringement claim. This, at the very least, minimizes potential exposure to a patent infringement defendant.
In an infringement action the patent troll has the burden to show that it complied with the patent marking statute. But consider a scenario where the patent troll who has taken numerous other suits enters into settlement agreements that include license arrangements that do not require its licensee to mark, or where the troll fails to ensure that the licensee does mark its products. The patent troll defendant has a right to know of prior licenses, and has the right to challenge the troll’s compliance with the marking statute. Defeating up to six years of patent damages on a marking defense is less expensive than defeating the infringement claim on the merits, and it may free the defendant from entering into a license agreement and to give up a percentage of its revenue on to the troll. A win win.
The defendant should demand the production of all license agreements from the troll. The license agreements ought to be as discoverable as a defendant’s insurance policies. The troll will resist, claiming they are confidential, but past license agreements are relevant for a variety of reasons. In addition to possibly containing information about patent marking, the royalty rate agreed to will have at least some relevance. Even if there is reluctance on the part of the court to order production of license agreements this can be resolved initially with a confidentiality agreement between the defendant and the troll, which can always be revisited later with the judge should the agreements provide relevant information that deserve to be introduced during trial. With access to the license agreements you can determine whether there are any marking provisions and locate products of the licensee. The next step is to determine whether the licensed products are marked with the patent troll’s patent number.
While it may be more satisfying to prevail against a patent troll on the merits, that will generally be a very expensive proposition. The job of defense counsel is not only to win on the merits, but also to minimize exposure for the defendant through a variety of parallel strategies. If the troll has failed to mark, the defendant to a troll suit will be in a great position to move to bar any pre-suit damages on the failure to comply with the marking statute, save thousands in legal fees, and save thousands in dollars that the troll would otherwise demand for itself.