Reviewing Competitor's Patents: Are There Risks?


Many high technology companies today either systematically or sporadically track their competitors' patents. Patent disclosures can, for example, provide insight into a competitor's future product areas, or assist in evaluating the worth of a cross-license. But what if you run across a patent which your company may be infringing? Is there a downside to having acquired independent knowledge of the patent? The answer is advance knowledge of a problematic patent can be either a threat or an opportunity to minimize your company's exposure. It all depends upon how the information is handled.

Damages

First, a court is unlikely to find your company liable for damages based solely on its independent knowledge of the patent. To trigger damages there must be some affirmative action constituting adequate notice by the patent owner (in the usual case where the patent owner uses its own patent). Specifically, Title 35 U.S.C. Section 287(a) provides that the patent owner can satisfy the notice requirement either by (1) labeling or marking its patented product, (2) filing an action for infringement, or (3) providing specific notice (usually in writing) to the accused infringer.

Marking

Marking can be accomplished by either marking the article covered by the patent or listing the patents which cover the article in the accompanying product literature and/or advertisements. Despite the wide-ranging benefits of marking, it is not unusual for the patent owner to fail to mark a product covered by one or more of its patents. Particularly in the fast-paced arena of semiconductors and computer applications, the product itself may be too small to mark, while the department which generates marketing literature may not be aware of the need to mark, or may be too pressed to get the product out the door. In another not uncommon scenario, the patent owner may license another company to manufacture the patented article, but neglect to include a provision in the license requiring the licensee to mark the final article.

Notice

Absent marking, to trigger liability for damages, the patent owner will typically send a letter to the accused infringer identifying the patent or patents which the patent owner suspects are being infringed. If the letter says nothing more, however, it is likely to be found inadequate to trigger damages. In last year's Amsted Industries Inc. v. Buckeye Steel Castings Co., the U.S. Court of Appeals for the Federal Circuit was very specific about the required content of notice letters. In particular, the court stated that:

[Notice must be of "the infringement," not merely notice of the patent's existence ownership. Actual notice requires the affirmative communication of a specific charge of infringement by a specific accused product or device ... It is irrelevant ... whether the defendant knew of the patent or knew of his own infringement.

Thus, notice letters which are "merely informational," and of the kind routinely sent out by patent owners to competitors in the industry, are likely to be found legally insufficient. To trigger damages, the notice letter should not identify the patent or patents infringed, but expressly identify specific products that the patent owner believes are likely to be infringing.

Significantly, in the Amsted case, the court ignored for purposes of damages the fact that the accused infringer had known of the patent for 13 years before receiving Amsted's notice letter.

This is a sensible rule since to hold otherwise would incentivize companies to remain willfully ignorant of competitors' patents, thereby missing an opportunity to avoid infringing the patent together.

Willful Infringement

While a company's independent knowledge of a patent may not constitute notice under Section 287, the company's knowledge is likely to be used by the patent owner as evidence of willful infringement in the event of a lawsuit. If the accused company is held to have willfully infringed in the patent, the company may be liable for up to treble the damage award and attorneys' fees. In Amsted, the infringer knew of the patent, did not work around the patent, and instead adopted a course of basically ignoring the patent despite an unfavorable opinion of counsel.

Ultimately, Amsted was able to prevail on its willful infringement theory and obtain treble damages. Ironically, however, because Amsted's early notice letter was found to be inadequate, the court held that Amsted was only entitled to recover damages for the four-month period between its second (and adequate) notice letter and the date upon which the patent at issue expired a relatively small amount compared to what Amsted had hoped to recover, even given triple damages.

Conclusion

If a company learns of a problematic patent owned by a litigious competitor, the least advisable course would be to do nothing. The company would be well advised to seek an opinion of outside counsel to determine whether the parent is valid and/or arguably infringed by the company's product. Often, after a review of the prosecution history of the patent, it turns out that the claims are not as broad as they may first appear. Outside counsel can also provide guidance in working around the patent, thereby insuring minimal exposure to future claims of infringement.


Copyright 1999 Wilson Sonsini Goodrich & Rosati