By: Ryan Malone
You probably already know that being a defendant in a patent infringement suit is not a really fun time. Those suits are invasive, expensive, and can sink a product with the stroke of a judge’s pen. Even if you win the case, you’re almost certainly still going to be stuck with paying for your defense, and saying they are expensive is an understatement.
That is why many companies establish proactive “freedom to operate” programs to avoid patent suits before the trouble begins. In theory, this is simple: Find any potentially relevant patents and make sure you avoid them. However, as the global economy has grown, performing freedom to operate reviews has become more and more complex. Product development, manufacturing, and sales activities typically take place in several countries, increasing the risk of your company infringing patents in multiple countries and inadvertently incorporating patented components into your products.
Here are some pointers to help you keep ahead of the lawsuits.
Don’t focus on your patents. I occasionally hear someone explain that their product is patented, so they don’t have to worry about being sued for patent infringement. This is wrong. A patent grants you a limited monopoly to prevent others from practicing (i.e., selling) your invention, but—and I know this sounds kind of strange—it does not give you the right to practice your own invention. For example, if I patent the wheel, and you improve it by patenting the wheel with an axle, you still infringe on my wheel patent every time you sell a wheel with an axle because it has my patented wheel in it. Similarly, I can’t make a wheel with an axle without infringing your patent.
So, the next time your supplier or colleague says not to worry because you have a patent, keep in mind that a patent is a sword, not a shield. You can use your patent to sue others, but you can’t hide behind it to keep you out of the line of fire.
You’re responsible for everything in “your” product. Liability for patent infringement is strict liability; saying you didn’t know you were selling an infringing product (or even that you didn’t know about the patent) is no defense. In this global age of commerce, “your” product is often a collection of many different companies’ components you sell as part of your product. If any of those components infringes a patent, you infringe the patent by selling your product.
Being mindful of this, companies with strong bargaining power often require that suppliers indemnify them from any liability for patent infringement caused by the suppliers’ components.
Such indemnification can be particularly comforting when dealing with large U.S. companies that have long-term interests in the market. But in some cases, indemnity clauses remind me of the $10 bill my five-year-old daughter made for me to keep in my wallet “just in case I need some money.” Indemnity is only good if the supplier is willing and able to pay. More than one patent infringement case has devolved into a company suing a supplier for indemnity. And when that supplier is a foreign company not subject to jurisdiction in U.S. court, it doesn’t always work out for the infringer.
Consider also whether indemnity is a sufficient remedy if you can’t make your product without the infringing component due to sourcing or incompatibility issues. In that case, a patent suit can spell the end for your product or force you into an oppressive license with the patentee.
Here, also, the global market can hold some rather ugly surprises. What happens if your foreign supplier is sued for patent infringement in its home country and cannot uphold its supply contract to you? Will you be saddled with unmet supply contracts of your own? Even if you’ve cleared a product and all its parts where you sell the product, an unforeseen patent in the country of origin can disrupt your supply chain.
More cautious companies, and companies that simply cannot impose an indemnity clause, often perform their own clearance on questionable parts. Keep this in mind, and don’t leave a component’s country of origin off the list of places to clear, even if you don’t plan on selling there.
Keep up to date on product revisions. A product-clearance program doesn’t do much good if you’re looking at the wrong thing. And when it comes to modern product development, with CAD, rapid prototyping, and global component sourcing, it can be easy to focus on the wrong thing simply because you can’t keep up with the latest developments.
This leads to a quandary. If you try to clear a product in the concept phase of product development, you don’t know exactly what features will be included or what patents might be relevant. But if you wait until the product design nears completion, you’re potentially locked into infringing features that can’t be removed without sending the whole design back to the drawing board. In many cases, this problem is compounded by other facts of corporate life, such as tight product development timelines, product development distributed among different business units or corporate partners, and budget constraints. Each case is different, but probably the No. 1 piece of advice is to identify key features from a product and patent standpoint as early as possible, keeping the lines of communication open about product changes.
Before moving on, let’s not overlook one more issue: running design changes. You might have whacked all of the moles during product development, but an unmonitored design change to a product already on the market can send you right back into the clearance game. As you might imagine (and hopefully have not experienced), it can be difficult to explain to management how a feature that was removed during the freedom to operate vetting process magically reappears in the product two or three generations after its market introduction. So don’t stop watching after the product hits the market.
Don’t get involved in other people’s infringement. In case you haven’t heard, there’s a thing called “indirect” infringement. It comes in several flavors. “Inducing” infringement happens if I encourage you to infringe a particular patent, and you do it. “Contributory” infringement happens if I sell you a piece of equipment that is not patented, but has no purpose other than to be assembled into a patented product. Another type of infringement occurs if I export a “substantial portion” of the parts of a patented machine out of the country so they can be assembled into a patented machine overseas, even if the infringing product never reaches U.S. soil (and nobody really knows what “substantial portion” means). In each case, the indirect infringer can be liable for patent infringement.
The good news is that indirect infringement requires some knowledge that the acts constitute infringement of a patent. So, you’re not likely to run into any trouble unless you have some awareness of the risk. That said, ignorance is still not bliss. If you suspect there might be a patent issue but make yourself willfully blind to the risk, you still might be in trouble.
In any event, don’t be surprised if a patentee comes knocking on your door shortly after filing a lawsuit against your customer. They might just be calling for afternoon tea, but it’s more likely they’re looking for another infringer to pay for infringing on their patent. Don’t count on your limited contribution to an infringement to keep you safe.
Don’t trip over the language barrier. When you’re poring over patent documents trying to figure out what the heck you’re reading, remember: patents cover new technology, and new technology often means new terminology. Furthermore, there is an age-old saying in patent law that a patentee is entitled be his or her “own lexicographer”. The original intent of this could’ve been to let inventors make up cool new names for their inventions (e.g., Calvin’s “Transmogrifier”). But in reality, this often means inventors and patent writers use words in a way some might consider odd, such as calling a trunk a boot.
Hijinks also abound when reading patents translated from other languages—especially machine translations. On the very day I write this, I found a translated patent application that described a new way of installing a part for a gas burner mechanism into an appliance as improving the “sex” of the parts. I’m pretty sure they meant “mating” of the parts.
The point is, keep an open mind about what you read. You might dismiss it as being directed to something completely unrelated to your product, but the patentee might disagree.
Don’t give up. In fact, it’s impossible to ensure absolute product clearance for every part of every product sold in every country in the world. But this doesn’t mean you can’t have a proper and effective clearance program. It’s all about proper planning and mitigating risks. Add product clearance into the product development workflow as best you can. Coordinate with other parts of your business to identify and agree upon strategic countries for clearance. Keep tabs on product revisions. Develop a library of cleared features. And get solid indemnification whenever you can. In time, you’ll develop institutional knowledge of the patents in your field, which will make the process easier, less expensive, and less risky with every new project.
Michael P.F. Phelps is a lawyer and shareholder at RatnerPrestia, where he specializes in patent law.