Module 4: Patent Ownership and Enforcement

Ownership of a patent provides the right to exclude others from making, using, selling or importing the patented invention.[1]  Prior to the passage of the America Invents Act in 2011, the ownership initially vested in the named inventor or inventors.[2]  Now, however, the applicant is presumed to be the initial owner. This applicant can be a sole inventor, joint inventors, other individuals, companies or educational institutions.

Patent Ownership

Regardless of initial ownership, a patent can be assigned to a new owner at any time.  Many employers require employees to assign to their companies any intellectual property developed by the employees within the scopes of their duties.  Likewise, if an independent contractor is hired to work on a particular invention, the company typically owns any resulting patent.

If an employee or independent contractor refuses to sign the assignment, or if they cannot be located when a patent application is filed, then companies can be assigned ownership by the Patent Office if they provide proof of ownership, such as an employment agreement that requires assignment of inventions.[3]

Patent assignments typically include the right to all future related patent applications, including continuations and divisionals.

A patent watch[4] is often a vital component of any company’s intellectual property strategy. Patent watches are typically performed by outside vendors.  A company can tell a vendor what to look for -- such as specific technology patented by any of their top competitors. The watcher performs regular, periodic searches for such patents and applications.

Patent watches can be conducted for many reasons.  First, they can be used to determine whether a company has the freedom to operate in a certain area of technology.  Second, they can be used to discover competitive intelligence and perhaps drive future research and development. Third, they can allow a company to actively compete with a competitor’s patent strategy.  For example, if a company learns that its competitor is attempting to patent an invention that is either anticipated or rendered obvious by the prior art, the company can challenge the patent application.

Patent Enforcement

Once a patent is issued, the owner can use the patent in a number of important ways. The owner can warn others to cease and desist from practicing the patented inventions, can license others to practice the inventions, can pool its patent with other patents for defensive reasons and can initiate litigation for patent infringement.  We will review these various enforcement procedures in more detail momentarily.  But first we need to provide a brief background regarding how damages are determined in patent litigation.

The concept of damages in patent litigation is fairly complicated, and we will address these in the next module.  In general, if a patent owner prevails on a claim for patent infringement in litigation, the owner is entitled to damages in an amount no less than a reasonable royalty.[5] A reasonable royalty is typically the fair market value of a license that the infringer would have purchased from the patent owner for use of the invention.  Royalty rates are usually between 2 and 20% of net revenue for the covered product.  Alternatively, the patent owner has the option to seek its lost profits, which are the profits that the owner would have made but for the infringement.  Finally, in design patent litigation, the owner can instead choose to seek the profits made by the infringer for use of the patented design.[6]

The damages period begins to run based on one of the following three situations.  If the patent owner does not practice the invention, damages begin to run upon the first sale of an infringing item.  If the patent owner practices the invention, and if it marks the patent number on covered products or packaging or its website -- which is known as “patent marking” -- then damages begin to run upon the first sale of an infringing item that occurs after the patent marking had begun.  Alternatively, if the patent owner practices the invention but does not use patent marking, the damages clock starts running when the owner provides detailed notice of infringement to the alleged infringer via a cease-and-desist notice specifically naming the patent and infringing product[7], or by filing a lawsuit. In all of these scenarios, damages cannot be obtained for any infringing sales made more than six years prior to filing the lawsuit.[8]

Patent owners often use cease-and-desist letters as the first step in patent enforcement.  A cease-and-desist letter can be general or specific, with advantages and disadvantages to each.[9]  A letter that details the patent number and the allegedly infringing product can start the clock running for damages based on any sales made after the date of the letter.  In addition, a specific letter can include detailed claim charts and analyses, showing the alleged infringer that the patent owner’s position is strong.  The downside of a specific notice is that it can allow the accused infringer to file a declaratory judgment action, in the forum of her choosing, for invalidity and non-infringement.

The cease-and-desist notice can be more general.  For example, a patent owner could write to inform a competitor about a newly-issued patent and invite the competitor to review the patent.  If no specific allegedly infringing products are mentioned, the notice probably would not provide grounds for declaratory judgment jurisdiction.  However, this general notice would probably not start the clock running for patent damages.

Since the passage of the America Invents Act, cease-and-desist notices have an additional potential drawback.  By bringing the patent to the attention of a competitor, the notice might result in the competitor attempting to invalidate the patent via a Post-Grant Review or an Inter Partes Review.

Patent Licenses

A patent owner has the option to license its patent to entities that are using, or intend to use, the patented technology.  A patent owner might choose to license to monetize its patent without expensive litigation, or it might give a license as part of the settlement of a lawsuit. Licensors can receive periodic royalty payments for ongoing sales of a covered product, or the license can be based on a one-time, paid up front agreement.

A license is a formal promise by the patent owner that it will not sue the licensee for patent infringement.[10] It provides the right to practice the technology described in the patent, but the licensee must still be sure that it is not infringing on any other patents. In addition, the license can be limited to certain specific fields of use, and the licensee can still be liable for infringement if it practices the patent outside of those fields.  Licenses can also be issued for limited time and can be drafted to expire if the licensee does not meet certain predetermined conditions, such as minimum revenue targets.

A license can either be exclusive or non-exclusive.  An exclusive license means that the patent has only one licensee for whatever field of use is specified.  Exclusive licenses transfer most ownership rights to the licensee, including the right to initiate litigation against infringers.  Depending on the language of the license, the patent owner may need to be joined in any lawsuit brought by the exclusive licensee.

A non-exclusive license provides assurance that the licensee will not be sued for infringement but may face others in the market who also have a license to the same technology.

A patent owner can also choose to include its patent in a patent pool.  A patent pool is an agreement between patent owners to license their patents to one another or to third parties.[11] The goal is to reduce costly litigation, creating a resource that collectively benefits all members. Also, in some industries susceptible to “blocking” patents, patent pools may be the only way that an entity can manufacture any products.  For example, the DVD6C licensing group covers technology on DVD discs, players, drives, recorders and decoders. Without efficient patent licensing, it might be impossible for anyone to break into this business. In addition, the automobile industry collaborates in patent pools to standardize some components.  Although patent pools are typically pro-competitive, some pools raise antitrust concerns by excluding some potential competitors.

Patent Litigation

The most significant value of any patent is the threat of litigation against any alleged infringer.  Every patent lawsuit begins in one of two forums -- a federal district court[12] or the International Trade Commission.[13]  District court litigation allows patent owners and exclusive licensees to obtain injunctions to halt infringement and possibly damages for the infringement. In contrast, an International Trade Commission action can only be used to prevent the importation of infringing products and no damages are available.[14]

An International Trade Commission action begins with the filing of a complaint, after which the ITC decides whether to proceed with the investigation.  If an investigation is instituted, the matter is referred to an administrative law judge who sets the ground rules and schedule. After an investigation is instituted, any party may intervene, including the parties importing the goods at issue.  International Trade Commission proceedings often move quickly, involve extensive and costly discovery and are decided by judges rather than juries.

District court litigation is, by far, the more popular option and is the only way to obtain damages and/or stop the manufacture of infringing items within the United States.  District court litigation begins with the filing of a complaint, which must provide details regarding the alleged infringement.  In the early stages, patent owners can also seek a temporary restraining order or preliminary injunction to cease the alleged infringement while the lawsuit proceeds, although such injunctions are rarely granted. 

The accused infringer then responds to the complaint, listing its defenses and typically asserting counterclaims for declaratory judgment of non-infringement or invalidity of the patent.  Depending on the venue, the case typically proceeds according to patent local rules, which often require the parties to exchange infringement contentions and invalidity contentions.  At some point in the litigation, the judge may hold what is called a “claim-construction” hearing, also known as a Markman hearing. We will look at Markman hearings in the next module.

As the litigation continues, the parties engage in additional discovery, including document production and depositions, and then the parties often exchange expert reports.  Patent owners typically retain technical experts to opine on infringement and to counter any opponents’ expert reports.  Accused infringers typically retain technical experts to rebut the infringement report and provide an invalidity analysis. Both sides also may retain damages experts to determine the extent of infringement damages. The parties then typically file dispositive motions for infringement or non-infringement, invalidity and possibly damages-related issues.  Assuming the case is not resolved based on these motions, the case proceeds to trial by jury, unless all parties waive their right to the jury and opt for a bench trial. 

If two or more entities jointly own a patent, then each owner knows that it cannot be sued for infringement of the patent. However, if any joint owner wants to sue a third party for infringement, then all of the other joint owners must consent and join in the lawsuit. This problem can be avoided by, for example, assigning ownership to one owner who then grants licenses to the other owners.

In addition to filing a district court action, patent owners might choose to file a parallel International Trade Commission proceeding, so that the owner can, hopefully, obtain an exclusion order from the Commission and damages from the district court.  In any given year, the International Trade Commission institutes up to about 80 investigations,[15] whereas approximately 4,000-6,000 district court actions are filed.  Interestingly, the average number of district court cases is down substantially since 2013.  Several factors have likely caused the downturn, including the availability of Inter Partes Review and Post-Grant Review, recent Supreme Court decisions making patent invalidity more likely and restrictive decisions regarding patent venue.   

Patent Appeals and Exhaustion

Following litigation in either district court or the International Trade Commission, any party can seek to appeal the judgment to a specialized appellate court, the Federal Circuit Court of Appeals.  The most common issues for appeal are infringement or non-infringement, invalidity and damages.  Each appellant is allowed to file an opening brief and a reply brief, and the opponent can file an opposition. The briefs often cite extensively to the portions of the record and evidence in the district court proceedings, which the parties consolidate into a joint appendix. 

After briefing is complete, the Federal Circuit schedules a hearing date.  On the date of the hearing, the parties learn which three Federal Circuit judges constitute the panel.[16] The unique perspectives and leanings of the three randomly assigned judges often contribute significantly to the outcome on appeal. At the hearing, an attorney for each party has 15 minutes to argue points, but most of this time is typically spent answering judges’ questions. The parties can expect a written decision on the appeal within a few months. Based on the decision, the case might be remanded to the district court or it might be terminated. An unsatisfied party can seek Supreme Court review of the decision via a petition for writ of certiorari, but such petitions are rarely granted.

The doctrine of patent exhaustion provides that once a patent owner has sold a patented product for the first time, the owner no longer has control over the product.  The purchaser can use, sell, give away or destroy the product.  For this reason, for example, iPhone purchasers can resell their phones on the open market.

Prior to 2017, patent law had allowed patent owners to attempt to avoid the patent exhaustion doctrine by imposing limits on resale. A printer cartridge manufacturer could, for example, place a single-use-only restriction on the cartridge and sue for infringement if the device were resold or reused.  However, the Supreme Court’s unanimous decision in Impression Products v. Lexmark[17] held that “a patentee’s decision to sell a product exhausts all of its patent rights in that item, regardless of any restrictions the patentee purports to impose or the location of the sale.”  If a patent owner wants to impose restrictions on future use or sale of its products, those restrictions must be contractually negotiated and cannot be enforced via a patent infringement lawsuit.

In our last module, we’ll turn to a more in-depth analysis of patent infringement and remedies available for infringement.