“Given the current state of the U.S. patent system, with all of the legislative and judicial developments further weakening the effectiveness of patents, it may finally be time to consider adding patent infringement to the list of IP crimes under federal law.”
Under normal circumstances, infringement and misappropriation of the intellectual property (IP) rights of others are subject to civil liability under U.S. federal (and some states’) law; the remedies for those whose rights have been violated typically include money damages or some form of equitable relief, such as an injunction. However, sometimes the conduct of offenders is so egregious and the remedies so inadequate that pursuit of a private cause of action is insufficient to make IP owners whole. To make matters worse, civil remedies do little to deter further infringement or misappropriation on the part of individuals and entities with more than enough money to game the system. Known as efficient infringers, according to some IP practitioners, they have mastered the business practice of paying out as little in damages as possible and refusing to negotiate licenses with IP owners, all the while bullying IP owners into spending their much smaller fortunes in order to defend their IP rights or to forfeit them—the end result sometimes being the invalidation or cancellation of their IP. Accordingly, lawmakers have enacted legislation with the goal of creating true deterrents against infringement and misappropriation by imposing criminal sanctions on a narrow set of conditions associated with infringement and misappropriation. However, the law does not criminally punish infringement of a particular type of IP: patents.
Criminal Copyright Infringement
There is a narrow set of circumstances in which an infringer may be subject to criminal copyright penalties. If copyright infringement is done intentionally and with full knowledge that infringement occurred, then it can be treated as a federal crime under the 1976 Copyright Act. (17 U.S.C. § 506(a)) The Family Entertainment and Copyright Act of 2005 criminalized the videotaping or transmission of video signals from inside a movie theater and to knowingly place a copyrighted computer program, musical work, motion picture, or other audiovisual work or sound recording on a publicly accessible computer network for purposes of copying (“piracy”). (109 P.L. 9) An infringer who infringes copyrighted works for the purpose of commercial advantage or private financial gain can be fined and/or imprisoned for one to five years depending on the value of the infringing articles. Repeat offenders are punished with fines and up to ten years imprisonment. An infringer may be fined and sentenced to up to three years in prison, regardless of financial gain, if the infringement is ten or more copies of copyrighted works with a total retail value of $2,500, and those who repeatedly infringe may serve up to six years in prison. (18 U.S.C. § 2319) Finally, the Digital Millennium Copyright Act of 1998 penalizes willful infringers and those seeking financial gain with fines up to $500,000 and/or imprisonment for up to five years for the first offense; repeat offenses are punished with fines up to $1 million and/or imprisonment for up to 10 years. (17 U.S.C. § 1204)
Trademark infringement becomes especially egregious during the production or importation of counterfeit products. Counterfeiting is the crime of making, selling, or offering to sell lookalike goods or services that bear fake trademarks. (18 U.S.C. 2320) Examples include knockoff Rolex watches; knockoff purses bearing the Coach, Gucci, or Louis Vuitton trademarks; and even, surprisingly, a website advertising adult sex subscription services using the Playboy Bunny logo. See Playboy Enterprises Inc. v. Universal Tel-A-Talk Inc. (1999 U.S. Dist. LEXIS 6124). Upon conviction, counterfeiters can serve up to ten years in prison (or up to twenty years for multiple convictions under the statute) and pay fines up to $5 million (or up to $15 million if the counterfeiter is an entity).
Trade Secret Theft
Although state laws typically govern issues of trade secret misappropriation in civil actions, there are federal laws that govern issues of trade secret theft in criminal actions. First, the Economic Espionage Act of 1996 prohibits the theft, copying, or disclosure of trade secrets with knowledge or intent to benefit a foreign government, agent, or instrumentality. (18 U.SC. § 1831(a)(1-2)) A conviction under this law may result in up to $5 million in fines (up to $10 million if the offender is an organization) and/or up to 15 years imprisonment. Second, the Computer Fraud and Abuse Act prohibits accessing a computer without authorization or in excess of authorization for the purpose of taking information that, if disclosed, would injure the United States or benefit a foreign nation. (18 U.S.C. § 1030(a)) Punishment under this law depends on the nature of the offense and can include fines and up to twenty years imprisonment for repeat offenses. Several state laws also make the theft of trade secrets a crime, and although they vary in penalties, they typically punish those who steal a trade secret, copy records containing a trade secret, or disclose trade secrets learned within the scope of employment. Finally, the Defend Trade Secrets Act increased the maximum penalty for organizations convicted of trade secret theft to the greater of $5 million or three times the value of the trade secret (18 U.S.C. § 1832(b)) and also made trade secret theft a predicate act under the Racketeer Influenced and Corrupt Organizations Act. (18 U.S.C. § 1961(1)(B))
Why Not Patent Infringement?
Currently, no statutes exist that impose criminal penalties in cases of patent infringement; neither the 1952 Patent Act nor the Leahy-Smith America Invents Act (AIA) established a standard for criminally infringing a patent. Nothing in the legislative histories of either statute suggest that criminal penalties were ever considered.
However, there was one case out of the United States Supreme Court that came very close to imputing a standard of criminal conduct for patent infringement. In Global-Tech Appliances, Inc. v. SEB S.A., 563 U.S. 754 (2010), the Supreme Court affirmed the decision of the United States Court of Appeals for the Federal Circuit and held that “induced infringement under § 271(b) requires knowledge that the induced acts constitute patent infringement.” That holding was no surprise, but what was surprising was the Court’s holding that the knowledge requirement for induced infringement included at least “willful blindness.” This raised a few criticisms among legal scholars. Jacob S. Sherkow of the Michigan Telecommunications and Technology Law Review noted that the decision “violates this longstanding separation between criminal and civil mental states.” (19 Mich. Telecomm. & Tech. L. Rev. 1 (2012)) James G. Dilmore of the Duquesne Law Review said the decision “unnecessarily blended civil and criminal standards.” (50 Duq. L. Rev. 659 (2012)) Again, I note that the decision is the closest the U.S. patent system has come to making patent infringement a crime.
Another interesting case that attempted to make patent infringement a crime came out of ENM Co. v. Transformer Mfrs., Inc., 1977 U.S. Dist. LEXIS 17526. In that case, the District Court for the Northern District of Illinois granted the defendants’ motion to dismiss for failure to state a claim upon which relief can be granted after concluding that the federal patent laws did not give rise to a cause of action for “conspiracy to infringe,” despite the plaintiff’s assertion otherwise. In criminal law, a conspiracy is an agreement between two or more persons to commit a crime or other unlawful act. If patent infringement is not a crime, then there is no conspiracy to infringe.
The question remains: why is patent infringement the only IP offense to not have criminal consequences? My research has revealed very little (if any) discussion on the matter, but at least one person has a theory. Gene Quinn, patent attorney and Founder and CEO of IPWatchdog, said that it may be because, traditionally, patent infringement has been litigated between corporate entities rather than individuals in most cases, and also because any infringement resulted in no harm to the public.
Should It Be A Crime?
I previously stated that very little discussion on patent infringement as a crime has occurred. If the question had been asked 10 years ago, the answer might have been “no.” Quinn noted that, historically, patents have been afforded very strong protections. Patentees were very capable of pursuing infringement suits and winning monetary judgments, as well as injunctions, in a vast majority of infringement cases. In other words, patentees had so many options at their disposal for obtaining adequate remedies that there was no need for the federal government to criminally punish infringers. However, in light of the recent damage to the patent system, the answer to the question may have changed. As Quinn has said:
“Now patents are so weak that inventors have little recourse, as large corporations bulldoze over rights without thought of consequences, because there are no consequences. Even very well-funded startup companies are copied into non-existence. Just look at what Facebook is doing to [Snapchat]. If this type of purposeful copying that cannot be remedied in a civil action is allowed to destroy companies, then perhaps it is time to consider criminal penalties.”
What Quinn meant was that recent legislation and case law have effectively weakened the U.S. patent system to the point where the remedies for patentees seeking enforcement of their patent rights have become so inadequate, assuming they can enforce their rights at all. Not only have injunctions become incredibly difficult to obtain, but also any monetary damages available are reduced to a petty, below-market dollar amount for a “reasonable royalty,” in a compulsory license, as lost profits are nearly impossible to prove. This leads to nothing more than an effective slap on the wrist for large entities that have billions of dollars in assets and millions of dollars in annual revenue, such that monetary damages fail to serve as a deterrent against future infringement where an injunction would otherwise stop this conduct. Ultimately, litigating infringement in court and paying a small judgment is a more cost-effective practice than negotiating a license and paying royalties to use a valid patent, hence the term “efficient infringement.” This kind of behavior is why criminal sanctions must serve as the new deterrent against future patent infringement, especially of large entities.
There is one potential hurdle to overcome when deciding whether to implement criminal sanctions for patent infringement: patent validity. Gill Grassie, head of IP and technology at Maclay Murray & Spens, said, “In the area of patents, it is more debatable whether patent infringement should be a criminal offense, as often there may be arguments regarding the validity of the patent or indeed whether there truly has been infringement in the first place.” Perhaps this concern could be overcome with the use of a bifurcated trial process, similar to the process used in capital punishment proceedings in state courts. By adjudicating the validity of the patent before determining infringement, defendants would be no more denied due process in criminal trials than they would in civil actions. The alternative would be to permit criminal defendants with patent infringement convictions to bring lawsuits to have those convictions overturned on the basis of later invalidated patents.
Given the current state of the U.S. patent system, with all of the legislative and judicial developments further weakening the effectiveness of patents, it may finally be time to consider adding patent infringement to the list of IP crimes under federal law. If no action is taken to improve the current state of the system, there may be a chilling effect on pursuing innovation and seeking patent protection altogether; inventors may rely on trade secret protection in the future as long as patent protection becomes further disincentivized. Finally, for the sake of uniformity, it may finally be time for patent law to join the ranks of its IP law cousins and protect inventors from future IP theft.
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