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Patent Trolls: A Global Perspective Re: Patent Infringement

In the United States, patent infringement lawsuits filed by non-practicing entities continue to rise.  A non-practicing entity (NPE) is an entity that does not manufacture products themselves and broadly includes universities, individual inventors, research institutions and speculators who purchase patents from others.  Accordingto Patent Freedom, based on the largest patent holdings, the top 5 NPEs are Intellectual Ventures, Interdigital, Round Rock Research LLC, Wisconsin Alumni Foundation and Rockstar Consortium LLC. (Rockstar).

Some refer to many or all NPEs as “patent trolls” arguing these patent holders wait until another party brings a product to market and then jump out from “under a bridge” to a demand a toll (namely, a license fee and/or royalty).  Many also consider patent trolls to engage in abusive litigation practices such as filing specious claims solely for the purpose of forcing an unjust settlement, instituting suits against distributors, retailers or end-users rather than the original manufacturer or supplier, sending demand letters to individuals or small businesses who are unsophisticated in patent matters, etc. (many refer to these patent trolls as patent assertion entities (PAEs)). 

Patent Freedom lists Apple, Samsung, Hewlett Packard, AT&T and Dell as the top 5 most frequent targets of patent trolls.  In fact, Apple recently reported that it was the target of 92 lawsuits by patent trolls in the U.S. over the last three years.  Of these cases, 57 are closed with Apple paying the “toll” to the troll in 51 of these cases.  Apple is facing patent trolls in Europe as well.  Recently, the German Patent Holder, IPCom GmBH (IPCom) filed a patent infringement lawsuit against Apple in Mannheim, Germany, over Apple’s use of network management technology that prioritizes emergency calls, even if the network is congested.  IPCom is requesting over US $2 billion in damages.  Moreover, IPCom has stated that it is suing other companies, in addition to Apple, for alleged infringement of the same European patent. 

We at the BRIC Wall Blog thought it would be interesting to examine patent troll activity in countries other than the U.S. and Europe.  In this post, we examine patent troll activity in Australia, Brazil, Canada, China, India, Japan and Russia. 

Australia

Australia has limited patent troll activity that does not rise to the activity seen in the U.S.  In fact, in many instances, patent troll activity has risen as a result of troll-like activities that originated in the U.S.  For example, last year, Vringo Incorporated (Vringo) sued the Australian arm of ZTE (which provides telecommunications equipment and network solutions in 160 countries).  Prior to this suit, Vringo sued a number of companies, including Google, AOL, Microsoft, for patent infringement in the U.S.  Interestingly, there has been some debate in Australia as to whether or not Vringo should be classified as a “classic” patent troll.

There are a number of factors that have likely contributed to the limited activity of patent trolls in Australia.  These factors include the following:   

1.  At the time of instituting a patent infringement proceeding, an applicant is required to file a “genuine steps” statement.  In a genuine steps statement, the applicant specifies (a) the steps it has taken to try and resolve the issues in the dispute between the applicant and the respondent; or (b) the reasons why no such steps were taken (which may relate to, but are not limited to, the urgency of the proceedings and whether, and the extent to which, the safety or security of any person or property would have been compromised by taking such steps).  A respondent in the proceeding is provided a copy of the applicant’s genuine steps statement and must file its own genuine steps statement before the first hearing in the case.  Failure to take genuine steps or failure to provide a statement may result in the court not exercising its powers fully in favor of a party or in an adverse order of costs. 

2.  Patent infringement proceedings are almost invariably met with a counterclaim for revocation.

3.  In a revocation action, there is no presumption of validity of the patent.

4.  Infringement and revocation proceedings are held before the Federal Court of Australia (Federal Court) and hence, generally before a judge experienced in patent matters (patent infringement and revocation proceedings are conducted before a judge and not a jury).

5.  The Federal Court has an active “case management” process with directions hearings requiring the attendance of both parties (the first hearing is typically scheduled fairly soon after commencement of the proceeding).

6.  Although preliminary injunctions are available, it is unlikely that a patent troll would be successful in obtaining such an injunction against a practicing alleged infringer.

7.  An “unsuccessful” or “losing” party in a court proceeding will typically have costs awarded against them.  Such an award of costs can be greater than 50% of the attorney costs of the successful (prevailing) party.

8.  Even if a patent troll did win a court proceeding and received an award of costs, such an award would not likely even cover their actually costs in bringing the patent infringement action.    

As shown by the above factors, a patent troll may not only lose a lawsuit for patent infringement, but it also risks having its patent invalidated and a significant award of costs made against it (in essence paying for its own proceedings as well as a good proportion of those of the alleged infringer).  Moreover, even if the court finds in a patent troll’s favor, it may not receive sufficient monetary satisfaction to cover its actual costs in bringing the lawsuit. 

Additionally, Section 128 of the Australian Patents Act (1990) provides that a person unjustifiably threatened with infringement proceedings (often referred to as an “unjustified threat”) may apply to a court to restrain the making of those threats and recover any damages sustained as a result of the threat.  Courts have held that the “mere notification” of the existence of a patent or patent application by itself does not constitute a threat of proceedings.  However, any words used beyond a mere notification may be interpreted as a threat of proceedings.  If a court finds an unjustified threat it may award an injunction and/or damages.  Therefore, if a “patent troll” is found to have engaged in a “threat”, the only way it could defend itself against an injunction and/or an award of monetary damages would be to commence patent infringement proceedings and have the court find that infringement occurred.  However, a patent troll may be liable for damages if the court finds that a “threat” was made, was “unjustified” and that the patent is either invalid or not infringed.  

Additionally, it is likely that that the manner in which infringement proceedings are funded in Australia is also a factor in the lack of patent troll activity.  The “litigation funder” business model is not well established in Australia with respect to patent matters and it appears that most of the major intellectual property firms do not handle infringement and revocation actions on a contingency fee basis.  Without a contingent fee arrangement, a patent troll would have to be prepared to fully fund any infringement (and likely, revocation) actions.  

Brazil

Generally, Brazil does not have a problem with patent troll activity.  One significant reason for the lack of activity is thought to be the long period of time it takes for a patent owner to obtain a monetary award from an alleged infringer.  Specifically, in Brazil, a patent owner has to litigate in three instances (namely, originally in trial court, followed by an appeal to the appellate court, followed by a “special appeal” to the Superior Court of Justice), in order to confirm a finding of infringement.  Many times, this process may take as long as ten years before damages are awarded.  This protracted litigation process goes against how a typical patent troll likes to operate.  

Canada 

Canada has some patent troll activity, however, much like Australia, it does not rise to the activity seen in the U.S.  A few companies exist that could be considered to be trolls.  These include Rockstar (currently in a patent infringement suit against Cisco), Conversant Intellectual Property Management (formerly called MOSAID and which has a patent portfolio containing over 12,500 patents) [Conversant], Wi-Lan Inc. and Dovden Investments [Dovden].   While Conversant, Wi-Lan and Rockstar almost never litigate in Canada, Dovden has been responsible for approximately 28 patent infringement actions within the last 18 months amounting to about 35% of the patent actions started during that period (http://www.ippractice.ca/2013/08/dovden-investments-impeachment-action/).  Interestingly, the city of Ottawa has become home for several non-practicing entities, such as Rockstar, Conversant and Wi-Lan. 

It appears that many patent trolls do not litigate in Canada and prefer litigating in the U.S.  There are several possible reasons why patent trolls would rather not litigate in Canada.   First, Canada really does not have a continuation and continuation-in-part practice comparable to the U.S., and divisional applications must be filed with caution (See, Divisional Practice in the BRICs and other Countries – Part 7 of a 9-Part Series:  Canada).  Additionally, Canada’s Federal Court Rules can, in limited circumstances, require a Patentee to provide a security for costs before a patent infringement suit will proceed against an alleged infringer.  Moreover, the Federal Court, where most patent litigation is conducted, has a few features and procedures that make Canadian patent litigation less appealing to patent trolls.  These include the limited availability of interlocutory injunctions (interlocutory injunctions are rarely granted by the Federal Court) and the award of costs to a successful party (which can be significant).  Finally, there is a lack of forum shopping available to patent trolls trying to find a plaintiff-friendly court. 

China 

Generally, China does not have much patent troll activity.  However, several Chinese companies, such as Huawei Technologies Co. Ltd. (a Chinese multi-national networking and telecommunications equipment and services company headquartered in Shenzhen, Guangdong) [Huawei] and ZTE have been parties in patent infringement lawsuits brought by several large patent trolls (such as Intellectual Ventures and Interdigital, Inc. (Interdigital)) outside of China, namely, in the U.S., Europe and Australia.  The major reason patent trolls have not filed patent infringement lawsuits in China is that the damages awarded in a patent infringement lawsuit are fairly low when compared to the damages generally awarded in a patent infringement lawsuit in the U.S. 

In patent litigation in China, the damages for patent infringement are calculated based on the actual loss of the patent owner or on the profits earned by the infringer.  For a patent troll, calculation of such damages is often difficult since these companies normally do not practice the invention covered by the patents being asserted.  However, if it is difficult to determine actual loss or profits, damages may be awarded by reference to an appropriate multiple of the amount of the royalty fee for exploitation of the patent.  Moreover, if it is difficult to determine the actual loss, profits and a royalty fee, a court may award (statutory) damages ranging between RMB 10K to RMB 1M (approximately US $1,600 to $160,000) depending on the type of patent right (namely, an invention or utility model), the nature and gravity of the infringing act, etc.  Moreover, in China, the burden is on the complainant to prove actual loss and profits, which can be very difficult. 

Because China had not experienced any significant problems with patent trolls, the government has not yet passed any specific anti-troll legislation.  Recently, however, courts have found some patent trolls to be in violation of China’s Anti-Monopoly Law.  For example, in a recent case between Huawei and Interdigital, the Guangdong High Court ruled that Interdigital violated China’s Anti-Monopoly Law and its “fair, reasonable and non-discriminatory” (FRAND) obligations by requesting Huawei pay excessive royalties for certain standard or essential patents.  The Court awarded Huawei RMB 20 million (approximately US $3.3 million) in damages and set a royalty rate of 0.019%.  This is the first known case in which courts in China found an abuse of dominance through the use of intellectual property rights.  Interdigital has appealed.

India

Patent trolling activity was quite prevalent in India in the Information Technology and Communications sector prior to the enactment of the Patents (Amendment) Act, 2005 (2005 Act).  However, after passage of the 2005 Act, a steep decline in the trolling activity has been observed.  The reason for this decline is the inclusion in the 2005 Act of a laundry list of non-patentable subject matter, imposition of stringent deadlines for pre-grant opposition, introduction of post-grant opposition, as well as the introduction of a variety of other provisions. 

While India’s patent laws do not prohibit the existence of patent trolls, these laws threaten their existence.  For example, India’s patent laws require that a (granted) patent be worked or used in India.  If a patent is not worked or used in the territory of India, compulsory licensing might be invoked.  Also, to tighten the noose further, the Indian Patents Act requires the mandatory filing of a statement of working of a patent at the end of each financial year.  Patent holders who fail  to file such a statement may be liable for a fine and/or imprisonment.  Therefore, in India, patent troll activity is fairly under control and does not pose a major threat to any company seeking entry into the Indian market.  

Japan 

Generally, Japan does not have much patent troll activity.  However, several Japanese companies, such as Sony, Toshiba and Fujitsu have been parties in patent infringement lawsuits brought by patent trolls (such as WiLan, Acacia Research Group and Lochner Technologies) outside of Japan, particularly, in the U.S. 

Although the Japanese Patent Law generally allows any patentees to freely use their rights with a few exceptions, the number of patent infringement lawsuits in Japan is only around 100 to 200 per year.  In addition, the size of the damages awarded by Japanese courts is much smaller than that awarded by U.S. courts, thus many lawsuits are settled in Japan and not published. 

Russia 

Russia has a fairly significant amount of patent troll activity.  The main incentive for patent troll activity in Russia is the existence of utility model patents which are patents issued without any formal examination.  Therefore, in Russia, it is possible for a party to file and obtain a utility model patent on a prior art device.  Moreover, under Russian Patent Law, a utility model patent owner enjoys the same scope of exclusive rights as the owner of a full (invention) patent.  Thus, a patent owner has a right to use his invention or utility model by any means not contrary to the law, to assign the patent and to authorize or prohibit third parties from using its patented invention or utility model. 

Utility model patents are granted for devices only.  Specifically, utility model patents are usually granted to electrical and mechanical devices, packs, bottles, furniture etc.  No other type of products (such as chemicals or biotechnological inventions) or processes qualify for utility model protection. 

As mentioned previously, a utility model application does not undergo substantive examination and it is granted by the Russian Patent Office once the formal requirements are met, which is typically within about 6 to 8 months from the date of filing.  In order to be patentable, a utility model must be novel and possess industrial applicability.  A utility model does not need to involve or possess inventive step.  

With respect to enforcement, Russia has a bifurcated system for patent infringement and invalidity.  Thus, in a patent infringement proceeding, a defendant cannot argue that the patent is invalid.  This bifurcated system makes it easier for a patent troll to enforce its patent since it only has to focus on proving infringement and it does not have to worry about invalidity.  

An example of a case involving a utility model patent and a patent troll involved utility model patent RU31183 entitled “Mobile Terminal”.  This utility model patent was directed to well known electronic architecture that could be used in various devices such as mobile phones, car alarm systems, etc.  The patent owner filed a number of complaints with law enforcement agencies and circulated cease-and-desist letters to companies who were using devices allegedly covered by the patent.  Additionally, the patent owner filed a few civil patent infringement lawsuits as well.  Eventually, RU31183 was nullified as a result of cancellation proceedings brought in the Chamber for Patent Disputes.  Typically, nullification of an asserted utility model patents is the most common outcome of patent troll attacks, as settlement is less common. 

Martin O’Brien of Spruson & Ferguson, Gustavo de Freitas Morais of Danneman Siemsen, Trevor Newton and Michael Crichton of Gowlings (Canada), Ivan Shen of Shen IP, Nidhi Anand of Chadha & Chadha, Katsumasa Osaki of Kawaguti & Partners and Vladislav Ugryumov of Gowlings (Russia) all contributed to this article.

© MICHAEL BEST & FRIEDRICH LLP

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About this Author

Lisa L. Mueller, Michael Best Law Firm, Patent Attorney
Partner

Lisa Mueller is a partner in Michael Best’s Intellectual Property Practice Group and a member of the Life Sciences Industry Group. Ms. Mueller writes a blog found at http://bricwallblog.wordpress.com/. Ms. Mueller has extensive experience in the biotechnology and pharmaceutical areas. In her practice, Ms. Mueller regularly drafts and prosecutes patent applications involving genomics, proteomics, immunology, diagnostic assays, pharmaceuticals, green chemicals and bi-products, agricultural products,...

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