Warning: The Federal Circuit Has Determined That Your Notice of Infringement May Be Dangerous to Your Venue
Recent decisions by the U.S. Federal Circuit Court of Appeals may dictate a change in the customary practice of giving pre-litigation notices of infringement of U.S. patents, or at least indicate caution in doing so.
For a number of decades the U.S. patent statutes have made either patent marking or actual notice of infringement a prerequisite for recovery of damages for infringement. Patent marking under 35 U.S.C. § 287 has been widely, although not universally, employed to advise the public that a marketed device is covered by a U.S. patent. Generally, the specific patent number must be part of the "marking". Marking meeting the statutory requirements then permits recovery of damages for patent infringement for all infringing acts committed after the grant of the patent, 35 U.S.C. § 281, and after (reasonably promptly) marking has commenced (although limited to the six year period immediately preceding the filing of the lawsuit, 34 U.S.C. § 286). Of course, once marking is commenced it should thereafter be consistently maintained,
However, many times marking is mistakenly not perceived as feasible, as in the case of process or method of use claims, or is simply overlooked in the marketing of the commercial product. Absent marking, no damages are recoverable "except on proof that the infringer was directly notified of the infringement and continued to infringe thereafter [and then] only for infringement occurring after such notice." 35 U.S.C. § 287(a). While the act of filing a lawsuit for infringement is itself "notice", it only permits recovery of damages for acts of infringement committed subsequent to that filing.
Consequently, providing an early notice of patent infringement has frequently been dictated by the need to start the clock running on damages recovery from a future lawsuit, if that proves to be necessary. Additionally, many companies believe that providing such a notice is a proper business practice and a likely inducement to pre-litigation settlement discussions which may avoid a lawsuit altogether.
However, providing the notice has not been without its own risks. Principally, the accused infringer receiving the notice thereby acquires the ability to file the first lawsuit in the form of a Declaratory Judgment action to have the patent declared invalid or not infringed, and to do so in a judicial venue which is inconvenient or undesired by the patent owner. This has sometimes led to expensive "venue battles" and arguments over the so-called "first-to-file" rule. This can be especially egregious when the infringer claims that even a seemingly friendly but forceful offer of a license constituted a threat of an infringement suit, thereby complying with the requirement of "apprehension" of litigation under the declaratory judgment statute.
This year the Federal Circuit has firmly endorsed and adopted the first-to-file rule and has thus vastly strengthened the hand of the noticed infringer in selecting the district court which will try the case, either for purposes of securing what is perceived to be a more favorable forum, or one most convenient to the infringer, or one which is least convenient to the patent owner. See Genentech, Inc. v. Eli Lilly & Co., 27 USPQ2d 1241 (Fed Cir. 1993).
In Genentech, Eli Lilly (based in Indianapolis, Indiana), was threatened with a lawsuit for infringement by a California university, which owned the patent, and its licensee, Genentech. Lilly could have been sued in many different states. Instead, it elected to file the declaratory judgment action in its home city against the patentees, and did so just prior to the university filing its own action against Lilly in California. The University moved to dismiss the Indiana case or to have it transferred to the California case. Faced with this situation on appeal, the Federal Circuit announced the following ruling,
We are not unmindful that this declaratory action was filed in Indiana only one day before the California infringement action. However, the rule favoring the right of the first litigant to choose the forum, absent countervailing interests of justice and convenience is supported by "[reasons] just as valid when applied to the situation where one suit precedes the other by a day as they are in a case where a year intervenes between the suits" [quoting earlier cases from other courts.]
Dismissal of the Indiana case against the California defendant was therefore denied. There is no comment in Genentech on the chilling effect this ruling will now have on the practice of patent owners of giving pre-lawsuit notices of infringement, perhaps in the hope that negotiations will follow and that no lawsuit will be required.
Given that Genentech is now the controlling law for patent cases, what should the patent owner do? The obvious first measure of defense is to forcefully manage a corporate marking policy, thus obviating the need for the notice in order to be able to recoup damages. An established procedure for coordinating marketing, sales activities and label preparation with patent counsel is clearly mandated. If a notice or offer of license is still felt to be a desirable tactic, there is one other possibility, which is to first file, but not immediately serve, a complaint for patent infringement. Generally such an unserved complaint may remain on file in the court for 60 to 120 days before it would be dismissed. This procedure would appear to give the patent owner "first-to-file" status while still avoiding actual institution of litigation and permitting a (brief) period for negotiation. Presumably the Genentech court would then recognize and sustain the patent owner's choice of venue for the suit.