The Maryland Legislature passed Senate Bill 585, adding a new section to Md. Commercial Law Annotated Section 11-1605, “Bad Faith Assertions of Patent Infringement” That law was signed by the Governor and became effective June 1, 2014. That bill contains a litany of requirements to be met before sending a patent infringement letter to an accused infringer in Maryland. As a result of the bill, sadly, a patent rights holder needs to strongly consider NOT sending any pre-litigation letters, and instead, simply suing first. More on why that is an important consideration below.
SB 585 is one of many similar bills passed in several states, is aimed squarely at non practicing entities that assert allegedly unviable patents as a “shakedown” to extort license fees – also euphemistically labelled “patent trolls.” The problem is that not every non practicing entity is a “patent troll,” and diluting the right to enforce patents can have a negative impact on innovation. For a good article on why this may be a bad thing, see Inventing the Smart Phone: Why the ‘Trolls’ Were Saviors.
Bad faith assertion of intellectual property rights is nothing new in the law, the Supreme Court has addressed it numerous times. The Supreme Court settled a long standing issue under the Noerr-Pennington doctrine (the 1st amendment doctrine that determines when a person is validly exercising 1st amendment rights to petition the government for redress of grievances) in PREI, INC. v. COLUMBIA PICTURES, 508 U.S. 49. There, the Supreme Court held that “First, the lawsuit must be objectively baseless in the sense that no reasonable litigant could realistically expect success on the merits. If an objective litigant could conclude that the suit is reasonably calculated to elicit a favorable outcome, the suit is immunized under Noerr, and an antitrust claim premised on the sham exception must fail. [n.5] Only if challenged litigation is objectively meritless may a court examine the litigant’s subjective motivation. Under this second part of our definition of sham, the court should focus on whether the baseless lawsuit conceals “an attempt to interfere directly with the business relationships of a competitor,” , through the “use [of] the governmental process–as opposed to the outcome of that process–as an anticompetitive weapon,” . This two tiered process requires the plaintiff to disprove the challenged lawsuit’s legal viability before the court will entertain evidence of the suit’s economic viability. ” While the Noerr Pennington Doctrine is most often applied in the context of antitrust law, the rule is one based on the 1st Amendment – and hence, applies across all rights-assertion scenarios, and is the Supreme Law of the land.
Pre-litigation demand letters are pre-cursors to effective petitioning of the government. Indeed, numerous cases have held that the the law favors dispute resolution, and favors the parties communicating before filing suit, in an effort to settle their disputes. However, under SB 585, engaging in those efforts could cost you $50,000 if you fail to comply with the requirements.
In general, SB 585 requires that a patent rights holder include in the letter several pieces of information (the patent holder’s real identity, the patent number, certain facts about the accused infringer), that the patent rights holder engage in specific analysis regarding infringement, and that the accused infringer be given a not “unreasonably short” time to respond. Further, the law requires that the demand be based on a “reasonable estimate of the value of the license.” As a practicing lawyer, I can tell you that if you put any two (or more) lawyers in the same room and asked them what a reasonable royalty was or what an “unreasonably short” period of time was – they would not agree.
If the patent rights holder gets it wrong in the letter, the risk is huge. The court can award 3 times “damages” (whatever that is in this context) or $50,000, and reasonable attorneys fees.
SB 585, while aimed at some of the more reprehensible “patent trolling” conduct in the news, is unfortunately a law that is going to promote patent rights holders to not engage in pre-litigation resolution effort, and instead sue. A person who sues still must engage in pre-litigation investigation to avoid numerous other bad faith litigation related remedies, like Fed R. Civ. P Rule 11 relief. However, that standard applies to the substance of the claim – not the demand for resolution – and is much harder for a defendant to meet.
SB 585 also appears to apply both prior to, and during litigation, so even making written offers of settlement during litigation is dangerous.
We strongly urge our clients who are considering sending patent enforcement/settlement letters to consider whether or not to do so. If they do, they need to comply with this law or risk severe penalties.
For more information, contact Mike Oliver
Oliver & Grimsley, LLC recently revived an abandoned patent application for a client. We come across this issue from time to time, and wanted to discuss this topic, as many patent holders or applicants may not be aware that a technically abandoned application or patent can often be revived, long after the abandonment occurs.
This issue also affects freedom to operate opinions, as technically abandoned patents that might read on a particular device, system or process could be revived and come into play – and hence, patent searches for these opinions often must take into consideration abandoned patents.
Failure to take certain actions required by the USPTO can result in the abandonment of a U.S. patent application or issued patent. Some of these required actions include, among other things: (1) replying to an office action within six months of issuance; (2) paying an issue fee within three months of the issuance of a Notice of Allowance; and (3) timely paying a maintenance fee for an issued patent.
A question arises after a technical abandonment whether the application or issued patent can be revived? Section 711.02 of the Manual of Patent Examining Procedures (MPEP) outlines this issue.
Fortunately, the USPTO provides for two types of petitions to revive a technically abandoned U.S. patent application or issued patent depending on the circumstances: (1) a petition to revive for “unavoidable” abandonment; and (2) a petition to revive for “unintentional” abandonment.
(1) Petition to Revive for “Unintentional” Abandonment
This petition is usually the more commonly selected petition and although it is the more expensive, usually costing about $1900, applicants and patent holders generally select this option because it is the least burdensome petition to complete and file and usually ends with successful results. The petition is an executable form and the USPTO rarely requires any factual showing of delay. Instead, in the vast majority of petitions under 37 CFR 1.137(b), the USPTO relies upon the applicant’s duty of candor and good faith and accepts the statement that “the entire delay in filing the required reply from the due date for the reply until the filing of a grantable petition pursuant to 37 CFR 1.137(b) was unintentional” without requiring further information. Note, a petition to revive for unintentional abandonment is only available within a two-year time period from the time the application or patent went abandoned.
(2) Petition to Revive for “Unavoidable” Abandonment
This type of petition is less likely to be granted than a petition for unintentional abandonment. While these petitions are less expensive, generally running about $640 (three times less expensive than a petition to revive for unintentional abandonment), these petitions are nearly impossible to prove.
A petition to revive for unavoidable abandonment requires a showing that the abandonment could not have been avoided. This is difficult to prove because the applicant must supply foundational evidence and provide the details of the events as to why the application was unavoidably abandoned.
A showing of unavoidable delay requires: (1) evidence concerning the procedures in place that should have avoided the error resulting in the delay; (2) evidence concerning the training and experience of the persons responsible for the error; and (3) copies of any applicable docketing records to show that the error was in fact the cause of the delay.
The showing required to establish that abandonment was “unavoidable” is so stringent that many times it is not worth the time and effort (or attorney’s fees) required to file the petition.
With either petition, it is important to seek a revival of the application or patent as soon as possible. Excessive delay between discovery of the abandonment and the filing of a petition may not qualify as being “unintentional” or “unavoidable” for the purposes of filing a petition to revive the application or patent. In addition, both petitions require that the applicant submit the response that was originally due at the time of abandonment (e.g., the office action response or issue fee payment). If all goes well, the Petitions Office with revive the application or patent and will leave the application or issued patent in the position it was in at the time of abandonment (less the time of delay) for any issued patent or application that moves forward to issue.
An applicant that has had the unfortunate mishap of having his or her application or patent go abandoned may be able to revive the application or patent by taking timely action and filing a petition with the USPTO. While the petition for unintentional delay is more costly to file, it is generally the least expensive and most successful procedure in reviving an application or patent in the long run.
For more information on this topic, please contact Pamela K. Riewerts, Esq. at firstname.lastname@example.org
In The Hebrew University of Jerusalem V. General Motors, LLC, CV10-03790 AHM (JCx) (U.S. D. Ca March 16, 2012) the court refused to grant summary judgment on a claim that GM’s otherwise licensed use of an image of Albert Einstein violated the rights holder’s post mortem publicity right.
For more information contact Mike Oliver.
On January 10, 2013, the United States District Court, N.D. California, San Jose Division entered a permanent injunction against a patent-infringing defendant in BROCADE COMMUNICATIONS SYSTEMS, INC. v. A10 NETWORKS, INC., Dist. Court, ND California 2013 – Google Scholar. The ruling restrained the defendant and parties in active concert with it from “making, using, selling, or offering to sell in the United States, or importing into the United States any AX series application delivery controller that includes features that infringe claim 25 from U.S. Patent No. 7,454,500, claims 13 and 24 of U.S. Patent No. 7,581,009, or claim 1 of U.S. Patent No. 7,558,195.”
While this result would not have seemed odd before May of 2006, Brocade is now one of the few cases where permanent injunctions have been issued since the decision in eBay, Inc. v. Mercexchange, LLC, 547 U.S. 388 (2006). While the Supreme Court was careful to make it clear that permanent injunctions remained a viable remedy in patent cases, the eBay case changed somewhat well established case law that a prevailing patent infringement plaintiff was virtually always entitled to a permanent injunction.
A successful patent plaintiff must meet its “burden of showing that the four traditional equitable factors support entry of a permanent injunction: (1) that the plaintiff has suffered irreparable harm; (2) that “remedies available at law are inadequate to compensate for that injury”; (3) that “considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted”; and (4) that “the public interest would not be `disserved’ by a permanent injunction.”
While those factors might seem easy to meet, in practice, it is often very hard to show that legal remedies (damages) are inadequate. In Brocade, the court found that Brocade “practices its patent, that [the defendant] is its direct competitor, and that Brocade does not license its patents,” and therefore that “Brocade has shown that it suffers the type of irreparable harm that a permanent injunction is intended to remedy” (emphasis added).
For more information on patent licensing contact Mike Oliver.
Brocade is a district court case and may be subject to an appeal, but it now stands as one of the relatively few cases post eBay in which a permanent injunction was issued.
One take-away from this ruling for licensing transactions, is that a patent holder must consider whether this type of remedy will be sought before engaging in licensing, particularly come one come all or non exclusive types of licenses. That was one of the three key factors the court pointed to in finding irreparable harm and lack of an adequate remedy at law.
In GMG Health Systems v. Amicas, Inc., 1st Cir April 10, 2012, the court had occasion to address a dispute between a software licensor / developer, and a licensee, in which more typical contractual language was in issue (for example, use of the term “go-live” and the phrase “substantially conform to Documentation” and typical warranty limitations).
GMG is a medical services provider – they typically have several systems to manage their billing, processing and other business functions. Here, GMG contracted with a third party (Amicas) for its software – which had to interoperate with software from an already existing vendor used by GMG. Like so many disputes, this one arose because of finger pointing between two vendors as to whose software was causing the error. As an added twist here, and something we have litigated on at least one occasion here – GMG had decided to leave Amicas and go with another vendor, and was desperately trying to find a way out of the long term agreement.
Normally in such disputes, the licensee (client) makes some effort to produce a viable claim of breach of the agreement by the licensor / software developer. In this case, however, GMG, which had not negotiated the agreement and signed a pre-printed form provided by the software company, produced a sole witness to fight the motion for summary judgment filed by the software developer. This witness had no IT or software training, was not a project manager, was not familiar with the function of either of the software systems at issue, and could not provide any details beyond that the “interface did not work.” GMG feebly tried to argue that the merger clause – a clause that states that all prior agreements including verbal understandings between the parties are “merged” into the agreement, did not apply because it had not negotiated the agreement. The court dismissed that argument without any discussion.
Without the ability to provide evidence of what the parties intended – the so called “seamless integration” with the other system – GMG was unable to overcome the warranty limitation in the agreement, which stated that Amicas did not promise that the software would work for GMG in its environment. Not surprisingly, GMG lost on all counts . . . and that loss was affirmed on appeal.
What is the moral of the story?
First, negotiate large scale enterprise resource planning agreements! Yes, the negotiation can be expensive, but far, far less than the litigation costs and potential damages. For example, in the GMG case, it was forced to pay an additional $700,000 for software it had abandoned, it was subject to an attorney fee award, it lost all kinds of time dedicating resources to fight the case, it had to pay its own lawyers, and it ended up taking 5 times as long to reach it s goal (of an integrated system).
Second, even if you do not want to hire a lawyer to negotiate, at least make sure that the party providing the service has stated clearly in the agreement, the deliverable, what it will do, and what you expect from the service. We have reviewed too many scenarios to count where a client has signed a pre-printed form that had NO promises or very light ones, like this agreement. If it is a critical result that software X must interoperate with software Y, state that in the agreement.
Third, consider the remedy. Many contractual negotiations can get hung up on the representations, warranties, disclaimers and so on – when they can be resolved by thinking in the opposite direction – assuming a performance representation is not met, what is the remedy? Remedies range from the “nuclear” option (total contract termination), to some form of “notice and cure” to a repair, re-perform remedy.
Fourth, consider the term of the agreement. In the GMG case, the parties amended their agreement and made it a longer term agreement. Many vendors will offer more significant fee discounts, or less escalation, if the term is longer. These can be attractive deals – but consider that as with GMG, you may desire to move away from that solution. So, my rule of thumb on this point is . . . the longer the fixed term of the contract, the more closely you must negotiate it – and the more you must pay attention to escape hatches and “relief valves” if something changes. Technology changes very fast – locking into a vendor for 5 years (as was done in GMG) is almost unheard of. A three year deal presents enough technology-change-risk to be the outer limit of most of these deals.
I could go on, but if you made it this far . . . well, thanks!
For more information, contact Mike Oliver.
Low barriers to entry in certain businesses breed rapid response and quick-to-market products that capitalize on “in the moment” mania. Often the in-the-moment-mania products derive from long standing famous trademarks owned by aggressive trademark enforcers. Buyers should be beware of these types of aggressive trademark enforcers prior to making costly investments.
Here is a hint. The National Football League is one of them.
An enterprising sports fan who almost a year ago saw an investment opportunity in the term “HarBowl” recently got more than he bargained for when the NFL’s lawyers came knocking.
The term “HarBowl” emerged into popular sports conversation around Thanksgiving of 2011, when brothers John and Jim Harbaugh became the first siblings in NFL history to lead their teams against one another as head coaches. The first “HarBowl” was a media frenzy of a family affair staged on national television during one of the country’s favorite family meals. Older brother John’s Baltimore Ravens won the inaugural “HarBowl”, yet Indiana resident Roy Fox remained interested in the term even after the final whistle had blown.
The two teams would go on to have very successful seasons before each fell a game short of meeting once again in the only scenario possible that year; the Super Bowl. Despite the super rematch of the “HarBowl” not coming to fruition, Fox liked his chances of the possibility enough to invest in filing for a trademark in hopes of eventually profiting from the phrase.
He filed trademarks for “Harbowl” and “Harbaugh Bowl” on February 21, 2012. The marks, filed as intent-to-use, were allowed and published for opposition.
The NFL contacted Fox in August of 2012 stating concern that his recent trademarks could easily be confused with the NFL’s trademark of the term “Super Bowl.” It was reported the NFL encouraged Fox to abandon the marks shortly thereafter, which he did.
According to ESPN, the league refused to provide Fox with any remedy for his investment in the marks when he asked the league to reimburse him for his costs to file for the trademarks. He was also reported to have requested several other simple consolations such as season tickets and an autographed photo of league commissioner Roger Goodell.
Fox reported that instead of honoring his requests, the NFL chose to aggressively shift direction with its efforts and suggested that not only would the league oppose his filings, but they would also seek to have him pay its legal bills. Fox would eventually fold his hand. At least three more similar marks have been filed over the past month. They will likely meet the same fate.
The legal issue is not that Fox necessarily had a losing hand. The issue is that the NFL holds a lot more chips.
Many would argue that the NFL’s claim is not a legally strong one. “HarBowl” is certainly no less confusing to Super Bowl than other trademarked phrases such as “Sugar Bowl” and “Lingerie Bowl” which are also used to describe football games.
In reality, “HarBowl” is probably no less confusing than “cereal bowl” or “toilet bowl.”
Legal professionals who have publicly commented on the case have noted that the odds of a jury agreeing that the two phrases are confusingly similar are relatively poor. However, mere likelihood of confusion is only one aspect of the legal issues – Super Bowl is unquestionably a world famous trademark. Famous trademarks enjoy a much wider berth – even non confusing but tarnishing or blurring acts can dilute a famous trademark.
The NFL basically smoked Fox out of the hole by signaling their intention to be aggressive in pursuit to stop him. The NFL is an organization with essentially unlimited financial resources. Mr. Fox presumably does not have the type of financial capabilities as a multibillion dollar company. As a result, the question became – are the trademarks financially worthwhile to combat a lawsuit that could potentially cost six figures? Fox made the reasonable decision that no amount of revenue the trademarks could yield would justify that investment.
The moral of the story is an important message for anyone who considers pursuing a low barrier to entry business that expects to profit from the fame or notoriety of someone else or someone else’s trademarks, particularly famous trademarks. Legal review and anticipation of probable legal action is part of the going-into-business decision process. At the end of the day, legal costs in high risk activities should be considered as possibly significant line items on a budget just like any other expense. If the potential return of the expense is not equitable to the potential cost, it may not be a wise investment of resources.
For Fox, a few thousand dollars in filing costs for trademarks may have been worth the prospect of making some money off of clothing sales should the Harbaugh brothers inevitably meet in the Super Bowl. However, the cost of defending those trademarks against a force such as the NFL was not worth the legal bills.
For more information on trademark law, contact Mike Oliver or Kimberly Grimsley.