Why it May Be Time to Provide Criminal Remedies for Patent Infringement

By Brooke Blackman
March 4, 2019

“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.”

https://depositphotos.com/108191180/stock-photo-criminal-liability-legal-concept.htmlUnder 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)

Anticounterfeiting Laws

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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The Author

Brooke Blackman

Brooke Blackman is admitted to practice law in the Commonwealth of Pennsylvania and the United States District Court for the Western District of Pennsylvania. She earned her Juris Doctor in 2018 from Duquesne University School of Law in Pittsburgh, PA, with a focus on business and intellectual property law, and she is a member of the Pittsburgh Intellectual Property Lawyers Association. Her favorite intellectual property issues stem from video games, music, cosplay, and cute puppies.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 27 Comments comments. Join the discussion.

  1. Jason Lee March 4, 2019 8:40 am

    Great point, if you steal a car you go to jail but if you steal a patent and you are a big company like Google or Apple, you get away it, this systen needs to work for everyone not just the ones that have all the money. I never thought of this and it’s so clear how much it is needed and how it would help a patent owner. The system is broken it’s time it gets fixed to work for everyone not just the Billions.

  2. Josh Malone March 4, 2019 9:07 am

    Like when an individual directs their employees to reverse engineer a patented product and sell millions of copies under their own brand?

  3. Mike March 4, 2019 9:49 am

    According to Gene Quinn, per this article, one reason patent infringement is the only IP offense to not have criminal consequences may be because any infringement resulted in no harm to the public???

    Well, considering that, per SCOTUS, a patent falls under the public rights doctrine, and because a patent, per SCOTUS, is a public franchise, then infringement most definitely harms the public.

    The grant of a patent results in claims that the public cannot enjoy without license, as a patent bestowes upon the patentee a franchise that has been taken from the public. (Not my words, but those of SCOTUS.) Accordingly, a result of such a government-issued franchise is that the public has an invention EQUALLY EXCLUDED from their use. Thus, infringement of a patent is a disrespect to, and violation of, equal use of the arts by members of the public.

    So, when an infringer performs a patented claim, that’s not fair to all the other law-abiding members of the public who did not tresspass. Because that infringement provides an advantage not enjoyed by other members of the public, the public are most definitely harmed. All members of the public should rise up and demand criminal penalties to be imposed on infringers. These law-abiding citizens did nothing wrong, yet the infringers, by their infringement, took away this very thing away the public — equal use of the arts — providing to the infringer an unfair advantage not tresspassed by others.

    I would love to infringe on patents of my peers, but I do not wish to take from the public equal use of the arts.

    For these reasons, patent infringement is a taking of equal use away from the public, and should be treated criminally.

  4. Night Writer March 4, 2019 11:18 am

    Actually, I think it would be sufficient to just get eBay reversed. Make it easier to get injunctions. An injunction hits the infringer (efficient infringer) hard as they can then lose money from not being able to sell the copied product.

  5. Anon March 4, 2019 11:53 am

    Josh @ 2,

    Reverse engineering is not the same as direct (or even indirect) infringement.

  6. anony March 4, 2019 4:00 pm

    Interesting article. A critique is that creating criminal penalties for “infringement” would have no change to the current system, create no incentive for small inventors, and may likely be used against small inventors. Providing criminal penalties for infringement may even make a bad situation worse.

    For instance, “Efficient infringers” (i.e., large companies) would likely continue to “infringe” under the current system because they are not in fact “infringing”. Rather, they are efficiently invalidating patents so that there is no actual infringement. Furthermore, let’s say a small inventor gets a golden patent blessed by the courts (after 7 figures of legal fees). This small inventor would now have a disincentive to bring a product to market, for fear of being unable to survive criminal penalties for infringing all the patent portfolios of large companies (large companies continuously stockpile patents).

    The impossible choice faced by a small inventor that gets a patent through the Patent Office would be to assert against a large corporation and have the patent invalidated at a cost of 7 figures to the inventor, attempt to market the invention and face criminal penalties, or both, i.e., having to defend a patent at exorbitant cost while facing criminal penalties on any product brought to market.

  7. Paul Morinville March 4, 2019 4:34 pm

    it’s time to once again “harmonize” IP laws.

  8. John Paul Archuleta March 4, 2019 6:23 pm

    I am getting ready to get revived Patent which is very valuable, I ended up getting very ill and now a little better I am pursuing infringing on my IP definitely need laws

  9. John Paul Archuleta March 4, 2019 6:43 pm

    I’m going to say Yes it’s a criminal offense, takes away from family members and monies deserved with valuable IP I am in the process of infrigment proceedings

  10. Anon March 4, 2019 8:44 pm

    Brooke,

    A commendable job, but I have a few nits.

    To start with, you provide excellent reference in your treatment of various other types of IP outside of patents, but then you really skimp when it comes to patents with a type of “Gene says” that lacks where Gene says (and thus, in what context).

    I have a few other bones to pick, but let’s start there.

  11. Josh Malone March 4, 2019 10:08 pm

    We need both injunctions and criminal penalties. Still have the problem of 5-7 years to get a final judgment. Small businesses cannot last that long so the penalties would never materialize.

  12. Jason Lee March 5, 2019 8:09 am

    Great points on the reply side if they can just get rid of rulings like EBay, Alice that have decimated a small patent holders rights from being able to fight and to get any kind of reward from a big company like Apple would be the best way. The system did work the problem is they let Silicon Valley wright all the new laws to be able to steal the IP from small inventors. Companies like Apple and Amazon are Trillion dollar companies because they did not pay for licensing fees to inventors, this needs to change, all IP holders should be able to protect their patents and get a fair licensing payment. The SCOTUS and the U.S. government need to wake up, before inventors look over seas for legitimate patent protection.

  13. angry dude March 5, 2019 11:31 pm

    Yeah..right..keep dreaming

    On which planet do you live ?

  14. angry dude March 6, 2019 9:05 am

    Get real, people

    Criminal penalties for (willful) patent infringement are equivalent to putting America’s richest dudes behind bars for some time

    The likes of Bezos, Jobs, Page and countless others

    What is the likelihood of this happening ? Bezos mugshot ?

    Forget about criminal prosecution – we can’t even have them financially liable as private individuals – the same way we, independent inventors and small private company owners, are liable when we pursue those large publicly-traded corporate infringers in court: when we lose we go broke and lose everything and for them losing in court doesn’t do any harm to their fortunes

    The whole thing is fundamentally unfair and can’t be fixed

    To the morgue…

  15. angry dude March 6, 2019 9:23 am

    “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.”

    Both of these premises are false:

    To equate small privately-owned (e.g. “garage-based”) tech company to a multi-national publicly-traded corporate conglomerate is like saying that toy airplane made of paper is the same as Boeing 777 … cause they both can fly…

    The harm to the public (eventually) comes from complete lack of financial incentive to create anything new and commercially viable
    There could be no Disney or Hollywood in this country without copyright laws
    There can be no healthy tech startup ecosystem without working patent laws

  16. angry dude March 6, 2019 9:39 am

    Anon @5

    Reverse-engineering followed by making some type of copy of a product constitutes very willful and blatant infringement if the product is clearly marked as patented or patent-pending with all patent numbers listed
    There is no other way to look at it

  17. Night Writer March 6, 2019 11:15 am

    @13 angry dude

    Exactly. Patents are on their way out. There is no way something like this would even remotely be considered by Congress.

  18. Night Writer March 6, 2019 11:17 am

    The basic force at work here is that SV implements more than invents, and they have all the money that can buy the Congress. (And the SCOTUS is the lapdog of big corporations and always has been.)

    That is all there is to it.

  19. Anon March 6, 2019 12:12 pm

    angry dude,

    I am trying to ignore your mouthings of the Efficient Infringer mantra of “just give up,” and instead merely reply to your post at 16 to point out that you ADDED a very distinct and separate step to the plain point that I had commented upon.

    FURTHER, I will stress that your added point NEED NOT even contain the actual point to which I commented upon to BE an infringement (willful or otherwise) of a patent.

    Your “there is no other way to look at it” thus FAILS for being both (at the same time) over and under inclusive.

    May I suggest that you try to understand that which you want to comment upon?

    (and please realize how your emotions overcoming your reason plays directly to the Efficient Infringers)

  20. angry dude March 6, 2019 12:54 pm

    Night Writer@18

    SV big tech corps implement whatever new tech they can misappropriate (aka “steal”) and, short of stealing actual manufacturing blueprints, publicly published patents and patent applications greatly facilitate their IP misappropriation (I mean valid enabled tech patents describing new tech not the usual non-enabled legal mumbo-jumbo coming from their legal departments)
    We are heading back to trade secrets wherever it’s possible
    But e.g. for mechanical or simple electronics inventions trade secrets just don’t work – too easy to reverse-engineer and reproduce:
    something like a “bunch-of-balloons” – forget it

    Ironically, for “software” inventions trade secrets work rather well
    (if combined with criminal copyright violation penalties)

    Welcome to trade secrets age !

    To the morgue

  21. angry dude March 6, 2019 5:34 pm

    Anon @19

    You yourself were commenting on Josh Malone’s comment at 2 :

    “Like when an individual directs their employees to reverse engineer a patented product and sell millions of copies under their own brand?”

    His comment is consistent with my comments and not yours 🙂

    P.S. By an “individual” Josh means a CEO or C-level exec of a company, no less… (like Bezos, Jobs, Page etc etc)

  22. Anon March 6, 2019 7:36 pm

    angry dude – you are correct that I was commenting on Josh Malone’s comment at 2, but you are absolutely NOT correct in that his comment is consistent with yours rather than mine.

    Your comment ADDS a feature NOT in Josh’s comment.

    This was an important part of my reply to you, and yet you act as if that was not mentioned at all.

    Please pay better attention and hold a conversation that reflects the comments made.

  23. angry dude March 7, 2019 12:27 pm

    Anon @22

    Dude, can you read ?

    “… to reverse engineer a patented product AND sell millions of copies…”

    “Reverse-engineering FOLLOWED by making some type of copy of a product”

    What feature did I add (other than removing “selling millions”)?

    “Reverse-engineer” AND “copy” is all that is needed to constitute *willful* infringement
    Actually, COPY is sufficient, but in practice copying is impossible without some reverse-engineering, even for simple products like “bunch-of-balloons”
    (in absence of complete manufacturing blue-prints and BOMs which patents are not supposed to provide)
    But you know all of this, don’t you ?

  24. Anon March 7, 2019 2:17 pm

    Making “some type of copy” of a reversed-engineered item does NOT carry the meaning of your added phrase.

    I can read – can you?

  25. Anon March 7, 2019 2:21 pm

    …I should probably add for clarity’s sake: such does not necessarily carry the meaning of your added phrase.

    Believe it or not, reverse engineering (and copying thereof) may yield an item NOT covered by an existing patent.

    For example, there was a recent Pharma case in which a copier escaped an infringment claim because the item copied (of the patent holder) did not itself fall into the scope of the asserted patent. That’s one and certainly not the only way that the “necessarily” can come into play.

  26. Jason Lee March 7, 2019 4:43 pm

    @angry dude

    If America chooses to continue to cater to Silicon Valley and ignore patent inventors rights, a bigger fish is coming and that will use the loopholes they created to grow their market cap. America will not be able to have it both ways. China is coming! By making your patent laws weaker plays very well for China. Top scholars are forth warning the United States gov to fix IP Rights. Greed is very addicting and can make people ignore all rational thinking as the American government has done as they ruled in eBAy and the Alice rulings that killed off Patents. Sens. Thom Tillis, R-North Carolina, and Chris Coons, D-Delaware, were announced as chairman and ranking member of the Senate Judiciary Subcommittee on Intellectual Property on Feb. 7th 2019. What will they do??? Its getting hot in the kitchen, companies like Google Amazon and Apple do not really need America, they are international companies and write their own rules. I think its time the Constitution comes back in play and lays down the law and brings back companies that feel they are above the law like they did in 1911 with Standard Oil. No company should be bigger then the government and have a greater voice then the American people. America is walking a fine line and may for the first time start losing their inventors jumping ship to get patent protection from Europe and Asia where their patents could have true value and the rule of law protecting them from Goliath like Apple and Google from staling their IPs with out paying. Will greed eat itself in America? It already started. But its not to late to fix.

  27. Night Writer March 12, 2019 4:03 am

    @26 Jason

    Both of the below statements are true, but the second one should read that the corporations are already above the American people in their influence. And the two statements below explain the demise of our patent system.

    >>companies like Google Amazon and Apple do not really need America, they are international companies and write their own rules.

    >>No company should be bigger then the government and have a greater voice then the American people.

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