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Patent Infringement: It's More Common than You Think

Aug. 28, 2012
A U.S. patent is a limited monopoly granted to an inventor by the federal government for his or her invention. A patent gives the patent owner (or "patentee") the right to exclude others from using his patented invention without his or her permission. Patent infringement is common and is becoming more common as new products are designed, developed, perfected, assembled, manufactured, distributed, sold and used in dozens of countries.

To understand what patent infringement is, and why and how patent infringement occurs, one needs to first look at the history of U.S. patents and how they came into existence.

The concept for U.S. patents was established by the founding fathers in Article I, Section 8 of the original U.S. Constitution that was adopted in 1787.

It gives Congress the power to "promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries."

Since patents were included in the original version of the U.S. Constitution, patent rights are actually older than such other basic American rights, such as freedom of the press and freedom of speech -- rights that were not established until the adoption of the Bill of Rights (the first 10 amendments to the Constitution) in 1791, 14 years later.

A U.S. patent is a limited monopoly granted to an inventor by the federal government for his or her invention. A patent gives the patent owner (or "patentee") the right to exclude others from using his patented invention without his or her permission.

U.S. patents are governed by the federal law known as 35 U.S.C. (United States Code). According to Section 271 of that law, patent infringement occurs when an entity -- usually a business -- "makes, uses, offers to sell or sells" a product or service that uses a patented invention.

Permission to use a patent is given in the form of a license. The patent is licensed to a manufacturer, for example, and in return the manufacturer pays the patent owner a royalty based on unit sales, dollar sales or some other criteria.

The other option is for the patent owner to sell the patent, and patents can be bought and sold just like any other asset.

Willful vs. Unintentional Patent Infringement

Most people can understand the difference between murder and manslaughter: In most states, murder involves "malice and forethought," while manslaughter is an unplanned event such as a lover's quarrel.

Similarly, there is both willful patent infringement and unintentional patent infringement.

That means that lack of knowledge of a patent is not an excuse for infringing it.

How can unintentional patent infringement occur?

It is entirely possible -- and, in fact, it often happens -- that great minds think alike.

Two inventors, working independently, come up with essentially the same invention. The inventor who applies for a patent and can prove that he was the first to invent it is awarded the patent.

For example, two businesses that compete in the same industry both have R&D departments toiling away working on the next great mousetrap, and both teams come up with the same solution.

As both companies rush to get their newest technologies to market, Company A introduces a new product that infringes the patent of Company B. Unintentional as it may be, that is still patent infringement.

Willful patent infringement occurs when an entity -- usually a business -- simply ignores a patent it knows about and brings an infringing product or service to market.

A business should seek a "freedom to operate" opinion (also known as a "freedom from infringement" opinion) from a qualified patent attorney before introducing a new product.

The challenge facing many businesses -- especially those in intensely competitive, global, high-tech industries -- is: Can they afford to wait?

Many businesses make the decision to launch the new product, grab shelf space, gain market share, build the brand for the new product, and start booking sales ... and profits. If somewhere down the line the company discovers that it has infringed a patent or two, they let the attorneys worry about it.

Patent infringement is common and is becoming more common as new products are designed, developed, perfected, assembled, manufactured, distributed, sold and used in dozens of countries.

A Japanese company can easily develop a new product, manufacture it in the Philippines, and sell it in Europe, only to discover that it infringes a German patent.

What Constitutes Patent Infringement?

Just because Product B looks and operates like Product A, and Product A uses a patented invention, that does not necessarily mean that Product B is infringing the patent used in Product A.

It is entirely possible that the second product uses a totally different technology to accomplish the same thing as the first product. For example, a gasoline-engine truck looks like a diesel-engine truck, but the technologies that power the two trucks are totally different.

What does constitute patent infringement is if the product or service uses all of the elements ("reads on" is the legal phrase) of at least one independent claim in the patent. A patent consists of a series of claims, and each claim has elements to it.

If a product or service uses ALL of the elements of at least one independent claim in the patent, that constitutes patent infringement.

But of course, it is never as clear-cut as that, and that is why there are patent-infringement lawsuits.

Company X does not believe its product uses all the elements of a claim in the patent, but the patent owner believes it does.

Penalties for Patent Infringement

Patent infringement is not a crime, so there are no criminal penalties.

It is a civil matter, and one of the reasons why patent infringement is so common is because the civil penalties are not severe. If a patent owner sues a manufacturer for patent infringement and wins, the redress awarded by the court is defined by law as "reasonable royalties."

In other words, what the patent owner is entitled to is the royalty he would have charged the manufacturer of the infringing product had the manufacturer licensed the patent in the first place.

As a result, it sometimes makes sense for a manufacturer to rush to market with a new product since the royalty he might end up paying to the owner of a patent is essentially the same as the royalty the manufacturer would have paid in the first place had it licensed the patent.

The exception to this is willful infringement. If the patent owner can prove that the infringer knew about the patent, and proceeded to willfully infringe it, the patent owner is entitled to treble (legalese for triple) damages.

The challenge, however, is that it is very difficult to prove willful infringement.

The other option a patent owner has is injunctive relief.

If the patent owner practices the patent (uses the patent in a product or service that is manufactured, used, sold or offered for sale), the court may order the infringer to cease sales of the infringing product.

If the infringing product is manufactured outside of the United States, the court can only order the company to cease importation of the product into the U.S..

Recent court decisions have made in it increasingly more difficult to secure injunctive relief for patent infringement, but it is sometimes granted.

Unknown Infringement

Many patents are infringed on a daily basis, and nothing is done about it because the patent owner is unaware of the infringement.

Patent enforcement is the responsibility of the patentee, and unless a patent owner is diligently looking for infringers, or he happens to come across a product or service that infringes his patent, a patent can be infringed by several companies for years.

There are two common scenarios for the discovery of patent infringement.

The first is when an inventor shows his invention to a prospective customer, and that company passes on buying or licensing the patent.

A few months or years later, the same company introduces a new product that uses the patented invention -- after it told the inventor it had no interest in.

The second scenario is when Company A owns a patent, and at a trade show or a competitor's website it sees a product from Company B that looks strangely familiar to one of its products, and it turns out that Company B is infringing Company A's patent.

If the patent owner is not a manufacturer of the product (what is called a "market participant"), and not up to date on all the companies and products that might infringe the patent, then he would not automatically know that his patent is being infringed.

Unviable Infringement

The more common scenario, however, is that a patent is being infringed, but it is not financially viable for the patent owner to enforce the patent.

It costs from several hundred thousand dollars to a few million dollars to launch and take to trial a patent infringement lawsuit.

As a result, many inventors, small businesses, universities and other patent owners do not have the financial resources to finance a patent infringement lawsuit.

There are patent-enforcement firms that operate on a contingency basis.

That means they are not paid for their services by the patent owner up front. Instead, these companies manage and finance a patent enforcement campaign on behalf of the patentee, and are then paid out of any awards, settlements, royalties or other revenue it secures for the patent owner once those funds are received.

The issue that then arises is the financial viability of launching a patent-infringement lawsuit. Are there sufficient sales of the infringing products or services that a lawsuit would produce sufficient damages to cover the litigation costs and produce a return for the patent owner and the patent enforcement firm?

A product can be flagrantly infringing a patent, but if the infringing product or service does not generate at least tens of millions of dollars in sales, it is simply not a financially viable undertaking to sue the infringer for patent infringement.

Unenforceable Infringement

U.S. patent laws only have the effect of law in the United States. That means that a foreign corporation can produce a product or service that infringes a U.S. patent overseas, and there is nothing the patent owner can do unless the patent owner also has a patent for that invention in the country in which the product is manufactured.

This foreign corporation can then sell the infringing product or service in Canada and Mexico, Europe, Asia, South America, Africa, Australia and Antarctica (if they can find any customers for it there), and there is nothing the U.S. patent owner can do if he does not have a patent in any of the countries in which the infringing product is sold.

Should that company import the infringing product into the United States, only then does the owner of the U.S. patent have a claim.

Fighting Patent Infringement

Some infringers, when faced with evidence that they are producing or selling a product or service that infringes a patent, will decide to do the right thing and license the patent.

However, many will challenge the claim.

When charged with patent infringement, most infringers respond with the same refrain:

  1. They are not infringing the patent.
  2. The patent is not valid anyway.

In fact, a common strategy by infringers is to challenge the validity of the patent, forcing the patent into reexamination by the U.S. Patent and Trademark Office. And that process can take a year or longer.

Patent-Infringement Litigation

Like most civil litigation, patent-infringement lawsuits are typically settled sometime during the course of litigation but before actually going to trial.

If the patent owner, or the patent-enforcement firm it selects to enforce its patent, determines that a patent-infringement lawsuit is a viable option and they file a lawsuit, the most likely outcome is a settlement.

Settlements in patent infringement-lawsuits usually cover past use of the patent and a license for the remaining life of the patent.

The good news for patent owners is that patent-infringement lawsuit settlements can run into the millions of dollars -- even into tens of millions or hundreds of millions of dollars.

It is also not uncommon for there to be multiple infringers, as companies competing in the same industry and offering similar products and services can all be infringing the same patent.

So Many Infringers, So Little Resources

The U.S. Patent and Trademark Office issues about 180,000 patents a year, and since a U.S. patent is valid for 20 years from its filing date (providing the maintenance fees are paid), there are 2 million to 3 million enforceable U.S. patents at any point in time.

And while there are 2,500 to 2,600 patent-infringement lawsuits filed in the U.S. each year, it is likely that many more U.S. patents are being infringed on a regular basis.

Enforcing Your Patent

If you as an individual own a U.S. patent, or work for a business that owns one or more U.S. patents, you need to be vigilant.

A patent is an asset and your (or your company's) property (in this case, intellectual property or "IP"), and just as you would not permit someone to live in your house or put inventory in your warehouse without your permission, you should not allow someone to trespass on your intellectual property.

It is a worthwhile exercise to take a look at all of the products and services that might use your patented invention, and the Internet has made that easier than ever to do.

If your business manufacturers products that use a patented technology, take a look at all of the directly competing products of your competitors to determine if any of them are infringing one or more of your patents.

If you find a product or service that appears to infringe your patent, contact a patent attorney or patent enforcement firm.

Do not contact the alleged infringer directly as that can weaken your enforcement efforts down the line. Pursuing the infringer of your patent might not be a viable undertaking, but then again, it might be worth millions.

Kathlene Ingham is the director of licensing at General Patent Corp., the oldest patent licensing and enforcement firm in the world.

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