Why China Should Top Your List of Countries for Foreign Patent Filing

By Bruce Sunstein. A member of our Patent Practice Group

China’s revamped patent system and its giant economy have now put China front and center on the patent map—even though, until recently, China was an intellectual property backwater, off of most radar screens as a place for filing patents.

This picture has changed. In 2015, more than 1 million patent applications were filed in China,[i] whereas the 2015 total for patent filings in the United States was fewer than 600,000.[ii] In 2015, China issued 359,316 patents,[iii] whereas the US issued 298,407 utility patents.[iv] In that same year the Chinese courts accepted more than 109,000 new IP cases, of which 11,607 were civil patent cases.[v] By contrast, 5,830 patent litigations were launched in the U.S.[vi]

In 2014, China established specialized IP courts in Beijing, Shanghai and Guangzhou.[vii] Chinese courts issue injunctions over 99% of the time to the winning parties,[viii] whereas in the United States, the Supreme Court’s 2006 eBay decision[ix] has reduced the rate at which injunctive relief is granted to less than 75%.[x] In Beijing IP court patent litigations, foreign plaintiffs have won about 81% of the time, a success rate that is similar to that of domestic plaintiffs.[xi] In addition to the ready availability of injunctive relief, the prospect of serious damages is now real in China.  The Beijing IP court awarded $7.2 million in December 2016 to Watchdata Data Systems Co. Ltd. in an infringement action brought against Hengbao Co. Ltd. [xii]

China’s new focus on intellectual property protection is not altruistic, but is motivated by China’s desire to foster the advancement of its science and technology.  Nonetheless, this emphasis has also benefited foreign companies.[xiii]

Moreover, the size of China’s economy and its role as a major exporter of goods make China’s patent system even more important. By some measures, China’s current gross domestic product (GDP) has reached approximately $11 trillion. (Other measures make it even larger.) China’s economy stands second only to that of the United States, with a GDP of about $19 trillion. By comparison, the GDP of the entire European Union, made up of approximately 28 member countries, stands at approximately $16 trillion. More...

[i] See Wayne Sobon, “The surprising rise of China as IP powerhouse,” Tech Crunch, posted April 11, 2017, available at https://techcrunch.com/2017/04/11/the-surprising-rise-of-china-as-ip-powerhouse/; WIPO Press Release November 23, 2016, available at http://www.wipo.int/pressroom/en/articles/2016/article_0017.html

[ii] Sobon, id., and USPTO statistics available at https://www.uspto.gov/web/offices/ac/ido/oeip/taf/us_stat.htm.

[iii] WIPO, id.

[iv] USPTO, id.

[v] Sobon, id.; Eugene Low, Skip Fisher and Deanna Wong, Hogan Lovells, “The big picture on IP litigation in China,” LimeGreen IP News, posted May 27, 2016, available at http://www.limegreenipnews.com/2016/05/the-big-picture-on-ip-litigation-in-china/.

[vi] Sobon, id.; Lex Machina 2015 End-of-Year Trends, available at https://lexmachina.com/lex-machina-2015-end-of-year-trends/

[vii] Erick Robinson, “Defending a patent case in the brave new world of Chinese patent litigation,” Intellectual Asset Management (issue 81) January/February 2017, page 9.

[viii] Robinson, id.

[ix] eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006).

[x] Christopher Seaman, “Permanent Injunctions in Patent Litigation After eBay:  An Empirical Study”, 101 Iowa L. Rev. 1949, 1982 (2016), available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2632834

[xi] Sobon, id.; see also Robinson, id.

[xii] Matthew Bultman, “China Becoming More Attractive For Foreign Patent Owners,” Law360, April 19, 2017, available at https://www.law360.com/articles/914779/print?section=ip.

[xiii] Robinson, id.; Bultman, id.

Settlement Agreements Can Provide a Yardstick for Measuring Damages in Subsequent Patent Infringement Lawsuits

By Kerry Timbers. Co-Chair of our Litigation Practice Group

It’s easy to state that a patentee who proves infringement is entitled to recover from the infringer no less than a reasonable royalty.  It’s a lot harder to determine how to quantify these “reasonable royalty” damages.  In Prism Tech. v. Sprint Spectrum, L.P., the Federal Circuit says that, in many circumstances, judges and juries can rely on prior settlement agreement licenses as a guide to deciding these damages.

Sprint was found to infringe patents owned by Prism that involve managing access to protected information provided over “untrusted” networks. Sprint pointed to several low-rate Prism settlements in arguing for a low royalty rate, but sought to exclude a significantly higher-rate 2012 Prism settlement with AT&T.  The trial court denied Sprint’s request and allowed consideration of all the settlement agreements, and a Nebraska jury awarded Prism $30 million in reasonable royalty damages.

Prior guidance from the Federal Circuit had been murky at best:  A settlement agreement license was considered good evidence of a reasonable royalty “sometimes. . . and sometimes not.”  Without more to go on, district courts were left to view settlements through their own lens in deciding whether to allow them to be considered.

In Prism, the Federal Circuit affirmed the use of the AT&T settlement license and identified  factors which weigh in favor of using a prior settlement agreement to measure a reasonable royalty, including:

• the technology is the same or comparable
• the uses of the technology by the earlier licensee and the current infringer are comparable
• no significant market changes have transpired between the time of the settlement and the relevant time for determining the royalty
• where several patents or technologies are involved, the settlement agreement itself identifies the parties’ assessment of value of the patent or technology at issue
• in the earlier settlement, the licensee was not at risk for enhanced damages (which might artificially increase the settlement amount)
• the settlement was completed when the litigation was far along (indicating both that the parties are well informed, and that avoiding future litigation costs is not a primary motivation for settlement)

The Federal Circuit  noted that Prism had adequately demonstrated the comparability of the AT&T settlement license and the royalty rate to be assessed against Sprint.  Prism introduced expert testimony to support several of these factors, including the comparability of the technology, Sprint’s and AT&T’s uses of the patented technology, and the lesser uses made by licensees in the lower-rate settlements. More...

The Federal Circuit Limits the Scope of Covered Business Method Proceedings

By Bruce Sunstein. A member of our Patent Practice Group

The America Invents Act (AIA), signed into law in 2011, gave birth to a variety of post-grant proceedings by which patents can be attacked after issuance in the Patent and Trademark Office (PTO).  For example, the AIA permits a challenger to request an inter partes review (IPR), in which the only question is whether previously ignored prior art should invalidate the issued patent.   In the case of financial services patents, a challenger can request a covered business method (CBM) review, in which the challenger can raise any argument that would have been a basis for denying the patent in the first place.

These proceedings load the dice against the patent owner. As of the end of March 2017, a total of 6700 petitions had been filed for these types of proceedings, of which 6139 (92%) were IPRs and 510 (7%) were for CBMs. About 65% of the IPRs that resulted in final written decisions invalidated all claims of the patent.  For CBM review, this figure exceeds 80%.

Secure Axcess, LLC v. PNC Bank National Association, decided February 21, 2017, was a CBM review in which the Patent Trial and Appeal Board (PTAB) invalidated all the claims for obviousness. Although the Federal Circuit affirms PTAB decisions in post-grant proceedings 77% of the time, in this case the Federal Circuit reversed, vacating the invalidation, and therefore revived the Secure Axcess patent, ending the case then and there without a remand.

The Secure Axcess patent concerned computer security with a focus on authenticating a web page. The patent’s description referenced a bank, and for that reason, among others, the PTAB concluded that the patent should be subject to CBM review because it concerned “the practice, administration, or management of a financial product or service” called out by the statute. The PTAB noted that all of the defendants sued by Secure Axcess in litigation involving this patent were banks and that “‘customer interfaces’ and ‘Web site management and functionality,’” which were covered by the patent, were “ancillary activities. . . of a financial product or service.” More...

We’re Not in Texas Anymore: Supreme Court Drastically Limits Where You Can Sue for Patent Infringement

By Brandon Scruggs. A member of our Litigation Practice Group

The Supreme Court’s recent decision in TC Heartland v. Kraft Foods dramatically restricts where patent lawsuits can be brought.  Previously, a patent owner could sue an accused infringer in any district where the infringer was subject to personal jurisdiction, which often meant anywhere that products accused of infringement were sold.  For products sold nationwide, this led to lawsuits in odd places – courts that offered tactical advantages to plaintiffs but were often thousands of miles from either party.

Now, the Supreme Court has ensured that patent litigation plaintiffs can sue domestic corporate defendants only in either: 1) the defendant’s state of incorporation; or 2) where the defendant has committed acts of infringement and has a regular and established place of business.  This sea change in the patent litigation landscape tilts the balance in favor of defendants.

For over twenty years, many patent owners filed infringement lawsuits in perceived pro-patent jurisdictions that often have few ties to either the patent owner or the accused infringer.  For example, the Eastern District of Texas (in rural areas like Marshall and Tyler) and the Eastern District of Virginia (home of the “rocket docket”) became popular venues for patent infringement because of shorter time-to-trial schedules, higher patent-owner success rates, and trends towards higher damage awards.^[1]

For similar reasons, many patent owners have also filed patent lawsuits in the Western District of Wisconsin (in Madison) and the Middle District of Florida (with courthouses in Tampa and Orlando).  Defendants often hated those forums because the tactical advantages for patent owners are usually tactical disadvantages for accused infringers.  And plaintiffs’ choice of those forums often forced defendants to litigate cases in inconvenient places thousands of miles from home.

The longtime enabler of forum-shopping had been the Federal Circuit, the court that hears all appeals from patent decisions in the trial courts.  In its 1990 decision in VE Holding, the court interpreted a patent-specific venue statute, 28 U.S.C. § 1400(b), in conjunction with a general venue statute, 28 U.S.C. § 1391(c).

The patent-specific statute states that a patent infringement lawsuit can be brought in the district where the defendant either (a) resides or (b) has committed acts of infringement and has a regular and established place of business.  The general venue statute states that a corporate defendant will be deemed to reside anywhere it is subject to personal jurisdiction for the lawsuit in question.  In combination, the Federal Circuit interpreted the two venue statutes to allow patent owners to sue accused infringers in any district where the infringer was subject to personal jurisdiction.

In coming to this conclusion, the Federal Circuit disregarded an authoritative precedent.  In Fourco Glass (1957), the Supreme Court had held that the general venue statute did not apply to patent cases and that, for purposes of the patent venue statute, a domestic corporation “resides” only in its state of incorporation.  The Federal Circuit brushed aside Fourco by reasoning that later amendments to the general venue statute rendered the Supreme Court’s interpretation irrelevant. More...

^[1]See, e.g., PricewaterhouseCooper’s 2017 Patent Litigation Study, at 22-23, available at https://www.pwc.com/us/en/forensic-services/publications/patent-litigation-study.html