Tag: Intellectual property

Reading the Supreme Court Tea Leaves in Dex Media Inc. v. Click-to-Call Technologies, LP

On June 24, 2019, the U.S. Supreme Court granted the petition for certiorari in Dex Media Inc. v. Click-to-Call Technologies, LP. Next term, the Court will determine whether 35 U.S.C. § 314(d) permits appeal of the U.S. Patent Trial and Appeal Board’s decision to institute inter partes review upon finding that 35 U.S.C. § 315(b)’s time bar did not apply.

The Dex Media case has traveled a long and tortuous path. Its journey began with the service of a complaint in 2001 which was dismissed without prejudice in 2003, and the filing of a new complaint in 2012. The petition for inter partes review was filed in May 2013, and a final written decision of the Board issued in October 2014 finding that the asserted claims are invalid. From there, the case visited the Federal Circuit twice, the Supreme Court once and is now on its way back for a second time. On appeal, the dispute has focused on whether the petition for inter partes review was time barred by § 315(b), and whether the Federal Circuit has jurisdiction to hear the appeal of that issue.

Facts of the Case

In 2001, Inforocket.com, Inc., an exclusive licensee to the patent-in-suit, filed a district court action against Keen, Inc. The complaint asserting infringement was served on September 14, 2001. While the case was pending, Keen acquired Inforocket as its wholly owned subsidiary and stipulated to a voluntary dismissal of the district court action without prejudice in 2003. Keen later changed its name to Ingenio. Click-to-Call subsequently acquired the patent-in-suit, and on May 29, 2012, filed patent infringement lawsuits against multiple parties, one of which was Ingenio.

On May 28, 2012, just under one year after being served with the complaint in the Click-to-Call action, Ingenio and two other defendants filed a petition for inter partes review (IPR) of the patent-in-suit. In its preliminary response, Click-to-Call contended, among other things, that § 315(b) statutorily barred institution of the IPR proceedings, noting that Ingenio’s predecessor-in-interest was served with a complaint alleging infringement of the patent-in-suit in 2001. Section 315(b) states, “An inter partes review may not be instituted if the petition requesting the proceeding is filed more than 1 year after the date on which the petitioner, real part in interest, or privy of the petitioner is served with a complaint alleging infringement of the patent.”

The Board instituted the proceeding, and based on Federal Circuit precedent found that dismissal of an infringement suit without prejudice nullifies the effect of the service of the original complaint against Keen. Therefore, service of the 2001 complaint did not bar the petition. Click-to-Call again argued that the petition was time-barred in its patent owner response; and in its final written decision, the Board reaffirmed its earlier conclusion on that point and found that the challenged claims were invalid.

In the case being reviewed by the Supreme Court, the Federal Circuit first had to decide whether it had jurisdiction to hear an appeal of the § 315(b) time bar in light of § 314(d), which states, “No Appeal. – The determination by the Director whether to institute an inter partes review under this section shall be final and unappealable.” The Federal Circuit, relying upon its en banc ruling in Wi-Fi One, LLC v. Broadcom Corp., 878 F.3d 1364 (Fed. Cir. 2018), held that time-bar determinations under § 315(b) are appealable.

In Wi-Fi One, the Federal Circuit based its finding on the rationale that the time-bar determination “is not akin to either the non-initiation or preliminary-only merits determinations for which unreviewability is common in the law,” and the fact that the time bar “sets limits on the Director’s statutory authority to institute.” Id. at 1373-74. Having decided the question of appealability, the Click-to-Call court then held en banc that the time-bar decision applies to bar institution of an IPR when a petitioner was served with a complaint for patent infringement more than one year before filing its petition, but the action was voluntarily dismissed without prejudice.

Predictions for the Supreme Court

Often, even without the presence of a circuit court split, the Supreme Court takes cases on appeal from the Federal Circuit to reign in and overrule the Appellate Court. In fact, the Supreme Court has reversed 70 percent of the Federal Circuit cases it has heard since 2007. There are two important factors to suggest that the Supreme Court will for a second time reverse the Federal Circuit in this case.

  • First, in a prior appeal of this case to the Federal Circuit in 2015, the Federal Circuit dismissed the appeal for lack of jurisdiction based on its prior precedent in Achates Reference Publishing, Inc. v. Apple Inc., which was subsequently overruled by Wi-Fi One. Click-to-Call petitioned the Supreme Court for review, and in June 2016, the Supreme Court granted cert, and vacated and remanded the case to the Federal Circuit to consider in light of the Supreme Court’s ruling in Cuozzo Speed Technologies, LLC v. Lee. This suggests that, at the time, the Supreme Court thought there was a clear path for the Federal Circuit to hold that § 315(b) rulings are appealable, as the Federal Circuit did in both Wi-Fi One and its ruling that is currently under review. Since then, the composition of the Supreme Court has changed, with Justice Kennedy’s retirement and the confirmation of Justices Gorsuch and Kavanaugh. It seems now that at least four of the justices of the newly constituted Court may believe that the Federal Circuit’s decision is not consistent with § 314(d).
  • This contention also is supported by the fact that the Supreme Court declined to review both of the questions presented by the petition for cert. Dex Media, Inc., the successor-in-interest to Ingenio, also requested that the Supreme Court decide whether § 315(b) bars institution of an inter partes review when the previously served patent infringement complaint, filed more than one year before the IPR petition, had been dismissed without prejudice. The Supreme Court declined to hear that issue. One might suppose that if the Supreme Court believes the time-bar question is appealable, the Court also would want to rule on whether a dismissal without prejudice negates the effect of service of the complaint under the time bar statute. It is entirely possible that the Court declined to make that determination because the question will be moot once the Court determines there is no appellate jurisdiction over the time-bar issue.

Implications of the Ruling

If the Supreme Court affirms the Federal Circuit’s ruling and finds that § 315(b) questions are appealable, the Federal Circuit’s jurisprudence regarding when the one-year period begins will remain binding, at least until the Supreme Court decides to hear that issue anew. This means that entities looking to file IPR petitions must be alert to the fact that a predecessor-in-interest may have been served with a complaint triggering the one-year time limit as well as whether to file a petition with other entities who (directly or through a predecessor-in-interest) may have been served with complaints that could bar the entire petition.

In contrast, what will happen if the Supreme Court reverses the Federal Circuit’s ruling and Orders dismissal of the appeal on the grounds that § 314(d) prohibits appeal of the time bar issue? Prior to the Federal Circuit’s ruling, the Board had consistently found, as they did in this case, that dismissal of a complaint without prejudice constituted a nullity in terms of the time-bar statute. If the Federal Circuit’s opinion in this case is overruled, its opinion would not be precedential and the Board could either interpret the statute as they had previously or alter the interpretation in view of the Federal Circuit’s opinion, though they would be under no obligation to do so. It also is possible that this becomes one of the many issues that are panel-dependent, forcing petitioners who were served with complaints that have been dismissed without prejudice to “roll the dice” on the issue.

PTAB practitioners should be watching the outcome of this case closely and consider all of the implications of the ruling before filing a petition for inter partes review. As the facts of this case highlight, they also should perform a thorough due diligence review of all “real parties in interest” related to the contemplated petitioner.

©2019 Drinker Biddle & Reath LLP. All Rights Reserved

Game Over: Obviousness Can Be Based on a Single Prior Art Reference

The US Court of Appeals for the Federal Circuit affirmed a Patent Trial and Appeal Board (PTAB) obviousness decision, finding that obviousness can be based on a single prior art reference if modifying that prior art reference is found to be obvious. Game and Technology Co., Ltd. v. Activision Blizzard Inc., Case No. 18-1981 (Fed. Cir., June 21, 2019) (Wallach, J).

Game and Technology (GAT) owns a patent directed to a method for generating a “gamvatar” by combining game items with layers of an avatar in online games. Activision Blizzard and Riot Games sought and were granted inter partes review of the patent. During the proceeding, the PTAB construed the term “gamvatar” to be a combination of an avatar with a game item function, and construed the term “layers” to mean display regions. The PTAB issued a final written decision finding the challenged claims obvious based on a user manual for a video game called Diablo II. GAT appealed.

On appeal, GAT argued that the PTAB erred in construing the terms “gamvatar” and “layers,” and further argued that the PTAB erred in its determination that the claimed method would have been obvious over the Diablo II manual.

Addressing claim construction, GAT argued that the PTAB’s construction of “gamvatar” was broader than the broadest reasonable interpretation BRI, and argued that “gamvatar” should mean “concurrently usable online and in the game.” The Federal Circuit rejected GAT’s argument, finding that the PTAB did not err in construing the term “gamvatar” because the claims and specification both showed that “gamvatar” is a combination of an avatar with a game item function and is not limited to “concurrently useable online and in the game.” As to the term “layers,” GAT argued that the term should be construed as regions for displaying graphical objects where the layers are displayed on the avatar. The Court disagreed, finding that the claim and the specification supported the PTAB’s construction of the term “layers” to mean display regions.

Turning to obviousness, GAT argued that the PTAB erred in using the user manual to find obviousness because a “a single reference . . . cannot support obviousness.” The Federal Circuit rejected GAT’s argument as a matter of law, finding that a patent can be obvious based on a single prior art reference if it would have been obvious to modify the reference to arrive at the claims invention. Applying that standard here, the Federal Circuit found that the PTAB did not err in its obviousness decision because the PTAB’s finding that the Diablo II manual teaches the “gamvatar” and the “layers” limitations was supported by substantial evidence.

 

© 2019 McDermott Will & Emery
For more in PTAB cases, please see the Intellectual Property type of law page on the National Law Review.

Wide-Ranging Senate Bill Aims to Streamline Post-Grant Proceedings and Block Trolls

On Wednesday, Senator Coon—of 101 hearings fame—and five co-sponsors introduced the Stronger Patents Act in the Senate (“Support Technology & Research for Our Nation’s Growth and Economic Resilience”). About 22 of the bill’s 40 pages involve amendments to IPR, PGR and ex parte reexamination that limit appeals and clarify overlapping court and PTO actions. These provisions have been ably summarized by Joshua Rich in a post at PatentDocs, but there are other interesting amendments to 35 U.S.C. so I thought I would start toward the last half of the bill.

Section 106 of the bill, entitled “Restoration of Patents as Property Rights,” amends section 283 to require that a court that finds infringement to presume that further infringement would cause irreparable injury and that remedies available at law are inadequate to compensate for that injury. These are the circumstances that encourage the court to issue an injunction against the infringer.

Section 42 of 35 U.S.C. would be amended to end USPTO fee diversion into the general fund by providing that any fees collectable by the Director shall be “available to the Director” and used to operate the PTO. Remaining unobligated funds are to be maintained in the “USPTO Innovation Promotion Account.”

Section 123(d) would be amended to clarify that a mircoentity includes an applicant who receives the majority of his income for a institution of higher education, or applicant has, or is under an obligation to assign, grant or convey a license or other ownership interest to said institution or the applicant is the institution or the applicant is a 501(c)(3) “nonprofit organization” that holds title to the institution’s patents “for the purpose of facilitating commercialization of the technologies” of the IP.

The bill establishes a pilot program whereby no fewer than six district courts will receive one additional law clerk or secretary who is tasked, with the assistance of the Federal Judicial Center, with helping  the court “develop expertise in patent and PVPA cases”…”for the purpose of expanding the [patent cases pilot program] to address special issues raised in patent infringement suits against individuals or small business concerns.”

The bill introduces Title II—”Targeting Rouge and Opaque Letters” and defines “Unfair or Deceptive Acts or Practices in Connection with the Assertion of a United States Patent” (section 202). The bill makes it an “unfair or deceptive act or practice,” as defined by the ITC, to send written communications that the recipient is or was an infringer of “the patent” and bear liability or owe compensation to another, if the sender, in bad faith (high probability of deceit and intentional avoidance of the truth—defined in more detail in the bill—sends communications regarding 15 specific assertions regarding infringement, licensing and prior suits, or failure to identify the sender.

These bad acts or failures to act are a laundry list of the approaches patent trolls use to intimidate recipient targets or to mask their identities. Bad acts include falsely representing that sender has the right to enforce the patent, that a civil action has been filed against the recipient or other parties, that recipient will be sued, that third parties have taken licenses, including failure to disclose that the other licenses are not to the allegedly infringing acts, that recipient’s alleged infringement has been investigated by sender or that sender has filed an action that sender knew had failed.

A sender cannot seek compensation for infringement of a claim that has been held unenforceable or invalid, acts by recipient after the patent has expired or recipient’s acts that the sender knew were properly licensed.

A sender in bad faith, cannot fail to include the identity of the person asserting the right to license or to enforce the patent, including ultimate parent entities. The patent asserted to be infringed upon must be identified, as must the product or activity of the recipient alleged to be infringing. The name of a contact person must be given to the recipient.

While the sender can argue that any of these acts or failures to act was due to an honest mistake, enforcement is by the FTC and the fines can be as high as $5 million.

Section 204 preempts State laws regarding “transmission or contents of communication relating to the assertion of patent rights,” but does not preempt other State laws relating to state trespass, contract or tort law. The FTC can intervene in suits brought by States and, if the FTC has instituted a civil suit, the State cannot begin an action under section 202.

While I am sure that there are freedom of speech and commerce clause arguments to be made, this bill elevates its prohibitions to the level of shouting “fire!” in a crowded theater. Combined with the proposed traffic laws meant to limit the use of multiple IPR filings, and their associated appeals at every turn in the litigation road, this seems to be a reasonable attempt to untangle the tortuous relationship between district court litigation and post-grant PTO proceedings.

Senator Coons played an important role in the recent Senate subcommittee hearings on the misguided expansion of patent ineligibility under Section 101. He may have found this part of the Patent Statute to be easier to untangle than defining a “natural phenomenon” or an “abstract idea” but I hope that this issue remains on his IP to-do list.

© 2019 Schwegman, Lundberg & Woessner, P.A. All Rights Reserved.
For more on patent laws & legislation see the National Law Review Intellectual Property page.

Ericsson Offers FRAND – District Court Endorses Comparable Licenses, Rejects SSPPU Royalty Rate

On May 23, 2019, the court issued a declaratory judgment in the case of HTC v. Ericsson, No. 18-cv-00243, pending in the United States District Court for the Eastern District of Texas (Judge Gilstrap). That judgment confirmed that Ericsson’s 4G standard-essential patents (“SEPs”) convey significant value to mobile handsets and held that Ericsson made an offer to HTC that complied with Ericsson’s obligations to license on fair, reasonable, and non-discriminatory (“FRAND”) terms. The decision, published on the heels of Judge Koh’s recent opinion in FTC v. Qualcomm, provides much-needed clarity to SEP owners by definitively rejecting the smallest-saleable patent practicing unit (“SSPPU”) royalty theory in favor of a real-world, market-based approach.

The Dispute

Ericsson owns a large portfolio of cellular patents essential to the 2G, 3G, and 4G standards that it licenses to handset makers worldwide. As a member of the ETSI standard setting organization, Ericsson agreed to license these patents on FRAND terms. Ericsson offered a license to HTC at a rate of $2.50 per 4G device, or 1% of the net device price with a $1 floor and $4 cap. HTC countered with a rate of $0.10 per 4G device. HTC sued Ericsson, claiming that Ericsson’s offered royalty rate was too high, and that Ericsson breached its FRAND commitment.

A jury trial was held in February 2019. HTC argued that a royalty base must be calculated based on the profit margin of the baseband processor (which HTC argued was the SSPPU) rather than the price of the device as a whole. Ericsson argued that HTC’s SSPPU approach dramatically undervalued 4G cellular technology and that Ericsson’s patents in particular were worth far more. After a five-day trial, the jury found that Ericsson’s offers did not breach Ericsson’s commitment to license on FRAND terms and conditions.

The Decision

Following the verdict, the district court also issued its findings of fact and conclusions of law in connection with ruling on Ericsson’s request for a declaratory judgment that it had complied with FRAND. This declaration reaffirmed the jury’s findings, while also addressing more fully some key questions.

First, the court stated unequivocally that the ETSI FRAND commitment does not require a company to license its SEPs based on the profit or cost of the baseband processor or SSPPU.The district court’s decision is consistent with Federal Circuit precedent, such as Ericsson v. D-Link, which holds that “courts must consider the facts of record when instructing the jury and should avoid rote reference to any particular damages formula.”

Second, the order went further to conclude that Ericsson’s 4G portfolio is worth significantly more than a royalty rate based on the profit margin or cost of the baseband processor in HTC’s phones (HTC’s “SSPPU”). Looking to industry-wide evidence, the court held that the value of cellular technology far exceeded a valuation based on the price or profit of a baseband processor. The court found that “Ericsson established, and HTC’s own experts conceded, that there are no examples in the industry of licenses that have been negotiated based on the profit margin, or even the cost, of a baseband processor” and that credible evidence supported a finding that “the profit margin, or even the cost, of the baseband processor is not reflective of the value conferred by Ericsson cellular essential patents.”

Third, the court determined that both of Ericsson’s offers to HTC—(1) $2.50 per 4G device or (2) 1% with a $1 floor and $4 cap—were fair, reasonable, and non-discriminatory. The court found that Ericsson’s “comparable licenses provide the best market-based evidence of the value of Ericsson’s SEPs and that Ericsson’s reliance on comparable licenses is a reliable method of establishing fair and reasonable royalty rates that is consistent with its FRAND commitment.” At trial, evidence was presented regarding Ericsson’s licenses with Apple, BLU, Coolpad, Doro, Fujitsu, Huawei, Kyocera, LG, Panasonic, Samsung, Sharp, Sony, and ZTE. The court noted that several of Ericsson’s licenses contained express terms that were “similar or substantially similar” to Ericsson’s offers to HTC and rejected the argument that Ericsson’s offers to HTC were discriminatory.

Why It Matters

Judge Gilstrap’s declaration represents an important development in FRAND case law that looks to industry practice and market evidence rather than untested licensing theories. It affirms that basing a rate on comparable licenses is an acceptable FRAND methodology.

The decision also rejects the SSPPU royalty theory. Some have read the recent FTC v. Qualcommopinion to suggest that a FRAND royalty must be structured as a percentage rate on a baseband processor. Judge Gilstrap’s declaration demonstrates why such a reading is incorrect.  First, the declaration explains that the ETSI FRAND commitment simply does not require a SSPPU royalty base. Second, even if one were to indulge the SSPPU approach, the SSPPU for many standard-essential patents is not limited to a baseband processor. Third, a wealth of market evidence shows that Ericsson’s patents (and standard-essential patents generally) are far more valuable than a baseband processor-based royalty would reflect.

© McKool Smith
This article was written by Nicholas Mathews from McKool Smith.

State Sovereignty 101: State Universities Not Immune to IPR Proceedings

School may be out for the summer, but public colleges and universities would do well to spend their break shoring up strategies and defenses against potential inter partes review (“IPR”) proceedings. Last week the Federal Circuit ruled that states and state agencies (including state affiliated colleges and universities) may not rely on a sovereign immunity defense in a patent IPR proceeding. This decision means that challenges against University of Minnesota patents will proceed at the Patent Trial and Appeals Board (“PTAB”), and that other state affiliated educational institutions also may be subject to such proceedings.

The June 14 decision could open the floodgates to other IPR challenges against patents held by public colleges, universities, and other state entities. State colleges and universities should plan on adjusting various intellectual property clauses of licenses, sponsored research, and other technology transfer and funding agreements in efforts to mitigate the risks associated with an IPR challenge. These institutions also should carefully evaluate and plan for this risk in any assertion or even licensing efforts where a risk of an IPR may arise. Further, public colleges and universities should develop internal strategic plans to reduce the risk of an IPR occurring and to have various strategic approaches to IPR situations should an IPR challenge, or even a threat of an IPR challenge, occur in the future.

In the dispute, Ericsson challenged multiple patents held by the University of Minnesota relating to wireless technologies. The University of Minnesota also faces separate patent challenges to a computer hardware patent and a university patent related to hepatitis C medication.

The Federal Circuit held that for purposes of IPRs, state sovereign immunity is essentially the same as tribal sovereign immunity held by Native American tribes. In 2018, the Federal Circuit ruled that Saint Regis Mohawk could not employ tribal sovereign immunity in a dispute before the PTAB.

“[An] IPR represents the sovereign’s reconsideration of the initial patent grant, and the differences between state and tribal sovereign immunity do not warrant a different result than Saint Regis. We therefore conclude that state sovereign immunity does not apply to IPR proceedings,” the Court wrote in the June 14 ruling. Regents of the Univ. of Minn. V. LSI Corp., No. 2018-1559, 27 (Fed. Cir. Jun. 14, 2019).

The Federal Circuit also wrote that IPR proceedings differ substantively from typical civil litigation, to which sovereign immunity would normally apply unless waived. Instead, the Court writes that IPR proceedings “are essentially agency reconsideration of a prior patent grant.”

In other words, IPRs are more akin to a government agency enforcement action than a civil suit. The PTAB’s primary focus is determining whether a previous patent grant was made in error, rather than resolving a dispute between two adversarial parties. The PTAB may issue a ruling even if the petitioner or patent owner decides not to participate, unlike in civil litigation.

A petition for certiorari was filed in Saint Regis but was denied by the U.S. Supreme Court, which effectively allowed the Federal Circuit decision to stand. It remains to be seen if the University of Minnesota will appeal this ruling or if certiorari would be granted, but if allowed to stand, it is fair to anticipate a significant increase in patent IPR challenges to public colleges and universities as well as to other state agencies.

Click here to read the full opinion from the US Court of Appeals for the Federal Circuit.

Copyright © 2019 Womble Bond Dickinson (US) LLP All Rights Reserved.
Read more about patent inter partes review proceedings on the National Law Review Intellectual Property page.

Federal Circuit Concurring Opinion Recommends En Banc Review of Prior Ineligible Subject Matter Decision

On October 9, 2018, the United States Court of Appeals for the Federal Circuit affirmed a grant of summary judgment of invalidity due to patent-ineligible subject matter in Roche Molecular Systems, Inc. v. Cepheid, No. 2017-1690, applying its prior holding concerning claims directed to similar technology in In re BRCA1- & BRCA2-Based Hereditary Cancer Test Patent Litigation, 774 F.3d 755, 760 (Fed. Cir. 2014).  In a concurring opinion, Judge O’Malley recommended that the full court revisit the holding in BRCA1.  If the full court decides to revisit BRCA1, this could strengthen patent protection for other biotech inventions.

Background

Roche’s U.S. Pat. No. 5,643,723 includes claims directed to a method for detecting a pathogenic bacterium using a short, single-stranded nucleotide sequence known as a “primer” and other claims directed to the primers themselves.

Roche accused Cepheid of infringing the ‘723 patent and Cepheid filed a motion for summary judgment of invalidity under 35 U.S.C. § 101. The U.S. District Court for the Northern District of California granted the motion, relying on the Federal Circuit’s holding in BRCA1 relating to primers.  Specifically, the district court held that the claims were unpatentable under § 101 because “the primer claims in this case, which have genetic sequences identical to those found in nature, are indistinguishable from those held to be directed to nonpatentable subject matter in In Re BRCA1.”

Majority Opinion

The Federal Circuit affirmed the summary judgment of patent ineligibility based on its prior holding in BRCA1.  Specifically, the majority noted that the primers of the ‘723 patent have identical nucleotide sequences as naturally occurring DNA, just like the primers in BRCA1.  The majority rejected Roche’s argument that its synthetic primers differed from those in the naturally-occurring gene based on the presence of a 3-prime end and 3-prime hydroxyl group, noting that the “same argument was made in BRCA1.”

Concurring Opinion

Although Judge O’Malley agreed with the majority that BRCA1 compelled the conclusion that the claims of the ‘723 patent are not patent-eligible subject matter, she wrote separately to express her further view that the Federal Circuit should revisit en banc the holding in BRCA1 at least with respect to Roche’s primer claims.  BRCA1 involved an appeal from the denial of a preliminary injunction motion brought early in that case.  Judge O’Malley noted that the record in BRCA1 was underdeveloped and the Federal Circuit in BRCA1 did not have the benefit of certain arguments and evidence, such as those presented by Roche, which could support a finding that the primer claims are patent eligible.  For example, Roche demonstrated the ways in which the claimed primers may differ structurally from anything that occurs in nature.

Judge O’Malley also distinguished the Supreme Court’s decision in Association for Molecular Pathology v. Myriad Genetics, Inc., 569 U.S. 576 (2013).  In particular, unlike the claims in Myriad, which were neither “expressed in terms of chemical composition, nor” reliant “in any way on the chemical changes that result from the isolation of a particular section of DNA,” the primer claims in the ’723 patent are expressed in terms of chemical composition and are reliant on the presence of a 3-prime end and a 3-prime hydroxyl group at a nonnaturally occurring location.

Takeaway

Some of the alleged modifications that Judge O’Malley suggests might render Roche’s primers patent eligible and could save other patent claims directed to synthetic DNA.  If the full court agrees with Judge O’Malley’s suggestion to revisit BRCA1, this may strengthen patent protection for other biotech inventions.

 

© Copyright 2018 Brinks, Gilson & Lione

SAS Indirectly Strengthens the Impact of Estoppel

The Supreme Court decision in SAS Institute v. Iancu[i]will likely strengthen a patent owner’s ability to argue in favor of estoppel and keep a petitioner from getting multiple bites at the invalidity apple in parallel PTAB and district court proceedings. At first glance the Supreme Court’s recent decision appears to be another setback to patent owners. Instead of quickly defeating post grant challenges to at least some challenged claims pursuant to a denial of institution, patent owners will now have to fight petitions even if the Board finds merit with only a single ground challenging patentability. Upon closer examination, however, SAS’s implications for estoppel are favorable and may even resolve a split concerning the scope of estoppel.

The Supreme Court Directive in SAS

SAS addressed the PTAB’s “partial institution” policy, under which the PTAB claimed the power to institute an IPR with respect to only some of the claims challenged in a petition. In SAS, the Supreme Court rejected that policy. The Court explained that if the PTAB decides to institute an IPR, 35 U.S.C. § 318(a) provides that PTAB “shall issue a final written decision with respect to the patentability of any patent claim challenged by the petitioner.” Emphasizing the statute’s use of the phrase “any patent claim,” the Court held that PTAB cannot pick and choose which claims to address, but must instead take the petition as it finds it.[ii] The Court found further support for its interpretation in the structure of the inter partes review process “in which it’s the petitioner, not the Director, who gets to define the contours of the proceeding.”[iii]

The Split on Estoppel

The partial institution policy that SAS rejected has created a split in the interpretation of estoppel under 35 U.S.C. § 315(e). Section 315(e)(2) provides that “[t]he petitioner in an inter partes review . . . that results in a final written decision under section 318(a) . . . may not assert . . . in a civil action . . . that the claim is invalid on any ground that the petitioner raised or reasonably could have raised during that inter partes review.” Congress intended this provision to preclude the same party from re-litigating invalidity in the district court once it had chosen to do so through an IPR. As then-Director of the PTO David Kappos testified, the “estoppel provisions mean that your patent is largely unchallengeable by the same party.”[iv] Similarly, Senator Grassley stated that IPR review “will completely substitute for at least the patents-and-printed-publications portion of the civil litigation.”[v]

Notwithstanding the apparently broad estoppel envisioned by Congress, some courts have interpreted § 315(e) more narrowly. For example, in Shaw Industries Group, Inc. v. Automated Creel Systems, Inc., the Federal Circuit explained that where PTAB partially instituted an IPR, the petitioner was not estopped from raising a ground in district court that it had included in its IPR petition but on which PTAB did not institute. The court reasoned that the non-instituted ground was not raised “during th[e] inter partes review.”[vi] Similarly, in HP Inc. v. MPHJ Technology Investment, LLC, the Federal Circuit explained that “noninstituted grounds do not become a part of the IPR,” and “[a]ccordingly, the noninstituted grounds were not raised and, as review was denied, could not be raised in the IPR.” The court therefore held that “the estoppel provisions of § 315(e)(1) do not apply.”[vii] Other courts have followed suit and even extended that holding.[viii]

A broader interpretation of estoppel tracks what many believe to be the statutory intent, however, as a party should not get two bites at the apple and be able to seek review at both the PTAB and in the district court. Adopting this view, the court in Biscotti Inc. v. Microsoft Corp. cabined Shaw and HP to their facts, holding that they “exempt an IPR petitioner from § 315(e)’s estoppel provision only if the PTAB precludes the petitioner from raising a ground during the IPR proceeding for purely procedural reasons.”[ix] Thus, the court held that § 315(e) estopped the petitioner from asserting any ground that (1) was included in PTAB’s final written decision, (2) was not instituted for non-procedural reasons, or (3) was not included in the petition.[x] Any other decision would result in needlessly protracted litigation as petitioners would re-litigate arguments similar to those that it had already lost or strategically chose not to include in a petition.[xi] The court in Douglas Dynamics, LLC v. Meyer Products LLCtook a similar view with respect to non-petitioned grounds, holding that estoppel applies “to grounds not asserted in the IPR petition, so long as they are based on prior art that could have been found by a skilled searcher’s diligent search.”[xii]

SAS Strengthens Patent Owners’ Estoppel Arguments Because a Petitioner is Deemed to be the “Master of its Complaint”

While SAS had nothing to do with estoppel on its face, much of the disagreement regarding the scope of estoppel arose out of the PTAB’s partial institution policy and the effect of estoppel on non-instituted claims. Because the PTAB no longer has discretion as to partial institution, courts will no longer have to struggle with whether a petitioner is estopped from raising non-instituted grounds for unpatentability in a subsequent or parallel district court proceeding. While a few open issues remain, the patent owner will still be able to argue that SAS supports the idea that petitioners should only get one opportunity to challenge patentability—either at the PTAB or before a jury. The Supreme Court directive from SAS, coupled with recent guidance from the PTAB, suggests that the divide between the broad (Biscotti and Douglas Dynamics) and narrow (Shaw and HP) interpretations of estoppel—at least with respect to pre-institution decisions from the PTAB—may be merging.

Moreover, while SAS does not explicitly resolve whether a petitioner is estopped from arguing non-petitionedclaims in a parallel district court case, the premise behind the Supreme Court’s decision—that the petitioner is the master of its own petition—suggests that estoppel should apply. Some commentators have predicted that because PTAB must now choose between full institution and full denial, “petitioners [will] have an incentive to focus their petitions even further—when choosing claims to challenge, grounds to assert, and prior art to cite—in order to ensure that the likelihood of full institution is greater than the likelihood of full denial.”[xiii] But filing a targeted (and therefore stronger) petition may run the risk of estoppel on any non-petitioned claim. As Biscotti and Douglas Dynamics indicate, petitioners should not be permitted to hold arguments in reserve in case of an unfavorable result at the PTAB. Moreover, SAS supports Biscotti’s and Douglas Dynamic’s interpretation of the meaning of “during” the IPR. While Shaw characterized an IPR as not beginning until institution,[xiv]SAS depicts post grant review as a single process that begins with petitioner defining the scope of the proceeding in its petition.[xv]Applying estoppel to non-petitioned claims would not be inconsistent with a courts’ concern “that estoppel applies only to those arguments, or potential arguments, that received (or reasonably could have received) proper judicial attention.”[xvi]

 Further, SAS will still enable patent owners to rely on the same line of cases to argue for procedural estoppel. Before SAS, the PTAB frequently denied institution in view of procedural deficiencies.[xvii] Now, however, the PTAB will be faced with either denying institution for failure to comply with PTAB rules or allowing institution on all grounds even where some of the challenges are procedurally improper. For example, petitioners could present a single procedurally proper argument to open the door to review and evade page limit requirements by packing the remainder of the petition with grounds that must also be instituted under SAS but that are supported only by improper incorporations by reference.[xviii] While denying institution because of procedural failings could preclude the petitioner from filing another (procedurally proper) petition making the same arguments,[xix] the petitioner, as “master of its complaint,” could have drafted its petition correctly from the start.[xx] In short, the petitioner’s failure to follow the rules should not justify a second bite at the validity apple.

 Finally, pending petitions subject to partial institution could have the same consequences depending on the action of the petitioner post-SAS. PTAB guidance indicates that in such cases, “the panel may issue an order supplementing the institution decision to institute on all challenges raised in the petition.”[xxi] If a petitioner fails to seek supplemental institution or fails to appeal the PTAB’s refusal to supplement, estoppel could apply. While some courts might continue following Shaw and HP by holding that non-instituted claims were not raised “during” the IPR, petitioner “could have raised” those claims and arguments “during” the IPR—even under Shaw’s interpretation—given SAS’s holding because the petitioner should have sought to remedy the non-institution.

The Takeaway

While not obvious at first glance, SAS follows recent decisions like General Plastics that tend to protect patent owners’ rights. While the focus of SAS was on institution and the scope of institution, the Court has armed patent owners with another weapon with which they can challenge serial review of the same patent on the same grounds in multiple petitions and district court proceedings.

[i] No. 16-969 (Apr. 24, 2018).

[ii] Id., slip op. at 1, 4-5.

[iii] Id., slip op. at 12.

[iv] Hr’g on H.R. 1249 Before the Subcomm. on Intell. Prop., Competition and the Internet of the H. Comm. on the Judiciary, 112th Cong. (2011) (statement of David Kappos, Dir., USPTO) (“Those estoppel provisions mean that your patent is largely unchallengeable by the same party.”)

[v] 157 Cong. Rec. S1360-94 (daily ed. Mar. 8, 2011) (statement of Sen. Grassley) (claiming that the estoppel provision “ensures that if aninter partes review is instituted while litigation is pending, that review will completely substitute for at least the patents-and-printed-publications portion of the civil litigation”).

[vi] 817 F.3d 1293, 1300 (Fed. Cir. 2016) (quoting 35 U.S.C. § 315(e)(2)).

[vii] 817 F.3d 1339, 1347 (Fed. Cir. 2016).

[ See, e.g., Verinata Health, Inc. v. Ariosa Diagnostics, Inc., 2017 U.S. Dist. LEXIS 7728, at *8-10 (N.D. Cal. Jan. 19, 2017); Illumina, Inc. v. Qiagen N.V., 207 F. Supp. 3d 1081, 1089 (N.D. Cal. 2016).viii]

[ix] 2017 U.S. Dist. LEXIS 144164, at *21-22 (E.D. Tex. May 11, 2017).

[x] Id. at *22.

[xi] Id. at *17-18, *20-21.

[xii] 2017 U.S. Dist. LEXIS 58773, at *15.

[xiii] Saurabh Vishnubhakat, First Steps After SAS Institute, Patently-O (Apr. 27, 2018), https://patentlyo.com/patent/2018/04/first-steps-institute.html

[xiv] 817 F.3d at 1300.

[xv] Slip op. at 6, 9.

[xvi] Verinata, 2017 U.S. Dist. LEXIS 7728, at *10.

[xvii] See, e.g., Shenzhen Huiding Technology Co., Ltd. v. Synaptics Incorporated, IPR2015-01741, Paper 8 at 29-31 (PTAB Aug. 7, 2015) (partially denying institution due to improper incorporation by reference); Bomtech Elec., Co. Ltd. v. Medium-Tech Medizingeräte GmbH, Case No. IPR2014-00138, Paper No. 8 at 32-33 (PTAB Apr. 22, 2014) (same).

[xviii] See 37 C.F.R. § 42.6(a)(3).

[xix] General Plastic Industrial Co., Ltd. v. Canon Kabushiki Kaisha, IPR2016-01357, Paper 19 (PTAB Sept. 6, 2017).

[xx] Id.

[xxi] Guidance on the Impact of SAS on AIA Trial Proceedings (Apr. 26, 2018) (emphasis added). 

 

© McKool Smith
This post was written by Scott W. Hejny and Chelsea Priest of McKool Smith.

Are Foreign Lost Profits Really Lost?

On January 12, 2018, the Supreme Court granted certiorari to review the Federal Circuit’s lost profits decision in WesternGeco LLC v. ION Geophysical Corp., 791 F.3d 1340 (Fed. Cir. 2015), marking the first step toward defining the scope of recovery for damages in the form of lost foreign sales. Under the Patent Act, damages are governed by § 284, which provides:

Upon finding for the claimant the court shall award the claimant damages adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer, together with interest and costs as fixed by the court.

While § 284 allows patent owners to recover lost profits and reasonable royalties, the statute is silent as to whether these damages should encompass overseas losses (i.e., from foreign sales or contracts), which could play an important and substantial role in elevating damages – especially for patent holders with international contracts and services.

Background

WesternGeco LLC (“WesternGeco”) is a wholly-owned subsidiary of Schlumberger Limited, a worldwide provider of reservoir drilling and processing technology in the oil and gas industry. Relevant to this case, WesternGeco LLC provides reservoir monitoring and imaging services to help perform seismic surveys. ION Geophysical Corp. (“ION”) offers similar services as WesternGeco and is a competitor.

In 2009, WesternGeco sued ION for patent infringement under 35 U.S.C. § 271(f)(1)-(2). Specifically, 35 U.S.C. § 271(f) provides:

  1. Whoever without authority supplies or causes to be supplied in or from the United States all or a substantial portion of the components of a patented invention . . . in such manner as to actively induce the combination of such components outside of the United States in a manner that would infringe the patent . . . shall be liable as an infringer.
  2. Whoever without authority supplies or causes to be supplied in or from the United States any component of a patented invention that is especially made or especially adapted for use in the invention and not a staple article or commodity of commerce suitable for substantial noninfringing use . . . knowing that such component is so made or adapted and intending that such component will be combined outside of the United States . . . shall be liable as an infringer.

The district court found for WesternGeco, awarding it $93,400,000 in lost profits and $12,500,000 in reasonable royalties as damages. On appeal, however, the panel majority reversed the district court’s award of lost profits, observing that the “presumption against extraterritoriality is well-established and undisputed.” Moreover, the Federal Circuit previously stated in Power Integrations v. Fairchild Semiconductor, “[Our patent laws] do not thereby provide compensation for a defendant’s foreign exploitation of a patented invention, which is not infringement at all.” In effect, the majority held that “[u]nder Power Integrations, WesternGeco cannot recover lost profits resulting from its failure to win foreign service contracts.”

WesternGeco’s Petition

WesternGeco filed two petitions for certiorari. Based on the first petition, the Supreme Court vacated the Federal Circuit’s opinion in light of Halo Electronics, Inc. v. Pulse Electronics, Inc., 136 S. Ct. 1923 (2016). On remand, however, the Federal Circuit reinstated its opinion and judgment as to lost profits. As a result, WesternGeco filed a second petition for certiorari on February 17, 2017, which presented the following question:

Whether the court of appeals erred in holding that lost profits arising from prohibited combinations occurring outside of the United States are categorically unavailable in cases where patent infringement is proven under 35 U.S.C. § 271(f).

In its petition, WesternGeco argued that the majority panel “applied the presumption against extraterritoriality in such a duplicative manner [that] defeat[ed] Congress’ intent in enacting § 271(f).” Therefore, the decision “effectively eliminate[d] lost profit damages where infringement is found under § 271(f), limiting patent owners only to a reasonable royalty.” WesternGeco also distinguished its case from Power Integrations, by arguing that “Power Integrations dealt with infringement under § 271(a)” and therefore “reflects no comparable congressional judgment to target certain extraterritorial conduct.”

In an amicus curiae brief submitted on behalf of the United States, the Solicitor General urged the Court to hear this case, stating that the Federal Circuit’s “approach systematically undercompensates prevailing patentees like petitioner, whose transnational business suffered when respondent infringed petitioner’s patents within the United States.”

In addition, WesternGeco argued that allowing patentees to recover lost profits from international sales would be consistent with copyright law, which has been found by several circuits to permit parties to recover foreign damages so long as those damages are directly linked to a domestic predicate act of infringement.

Implications

Although the Supreme Court, in its 2007 opinion in Microsoft Corp. v. AT&T Corp., previously “[r]ecogniz[ed] [that] § 271(f) is an exception to the general rule that [U.S.] patent law does not apply extraterritorially,” the Court ultimately “resist[ed] giving the language . . . an expansive interpretation.”

Patent holders should be aware that the Supreme Court’s decision in WesternGeco may present an opportunity to expand the scope of damages claims to encompass international losses caused by infringement in the United States.

 

© Copyright 2018 Brinks, Gilson & LioneBrinks, Gilson & Lione.
This post was written by Jeffrey J. Catalono and Judy K. He of Brinks, Gilson & Lione.
Read more Intellectual Property News at the Intellectual Property Page.

Aglets, Who Knew?

SneakRTech Corp. wants you to defend their patent and challenge BadGuys, Incorporated’s patent at the U.S. Patent and Trademark Office Patent Trial and Appeal Board (PTAB). The subject matter: aglets.

You run to the internet and find that “aglets” are the metal or plastic component on the end of a shoelace. Even more, you are surprised to find that the science of aglets is varied and deep. There is technology behind the manufacturing of the aglets themselves, the assembly of the aglets to the laces, and the design of the aglets such that they easily insert into the eyelets of the shoe. Chemistry and material science play a role in the technology related to aglets – both metallurgy and polymer science. Some of these disciplines are relatively old (e.g., at least 15 years ago they were well developed), while some disciplines are rapidly evolving (e.g., nanocoatings to provide a color-change depending on the temperature of the environment).

To complicate things further, the patents being defended and challenged have very different applications—one is an aglet for a desert rock climbing shoe, known to be exposed to high heat, low humidity, and abrasive conditions. The other is directed to a snowboarding boot aglet.

So now you face important questions. Do you need two experts? And how do you choose an expert? There are a least four considerations associated with finding the right expert. 

1. Make a wish-list

The first step in selecting an expert is simple – make a wish-list of the ideal traits you want in your expert. This requires answering, or at least thinking about, several questions.

What, and how many, technology spaces are claimed? Consider whether you need multiple experts, based on the variation in technology, including between claims of the same patent. Although Daubert seems to come up less at the PTAB, consider how to position yourself so that any expert you choose will survive a Daubert challenge.

For our example, think about desired attributes of the eventual selected expert. Are we looking for an expert in aglet design, or perhaps manufacturing processes related to attaching the aglets to the lace themselves? Are we looking for industry or academic expertise, or both? Are we looking for a focused specialist in aglets or a broader expertise in understanding the chemistry, material science, and nanotechnology of aglets. Where is the eyelet going to be (e.g., dress shoe, trail runner, hockey skates, etc.)? Does it matter?

What level of education is required to helpfully explain the technology, and relatedly, how are we planning to define the person-of-ordinary-skill-in-the-art? If the technology is relatively developed, how will our expert opine on the state-of-the-art at a time where she may not have even been out of undergraduate school?

Do you need an experienced expert with deposition and court appearances, or will a more novice expert work?

2. Identify potential expert types and sources

Once you have a wish-list of what you want in an expert, you need to determine where to look to find it. A good start can be to research publications, patents, and industry groups in the claimed technology space.

For example, one aglet patent may relate to electroplating processes of aglets specifically designed to be applied after the aglet is attached to the lace, involving complex chemistry and manufacturing concerns. The other aglet patent could be focused on shape design for ease of entry into an eyelet on a shoe.

For the first aglet, the complex chemistry may require a high level of education. The latter aglet may be better suited to a manufacturing engineer having hands on experience in a final assembly plant, or an industrial designer focused on customer experience. These experts may travel in vastly different circles, and may lend themselves to different types of searching. Additionally, consider whether you’re looking for a generalist or a specialist. For specialist experts, several databases are available to search theses/dissertations. This may provide a list of potential experts to consider that have studied your issue deeply.

3. Consider using an expert service – or two

A helpful shortcut to finding your expert and getting them retained early can be utilizing an expert search service. As a practical matter, it can be helpful to use such a service to ensure quick turnaround, especially if you have a good relationship with the headhunter. You can take steps to make the search consultant’s job easier, which will net better results. This includes providing them a list of experts already disqualified, for example based on conflicts, co-counsel or client preference, etc. Coordination with the client and co-counsel is key, and evaluating potential experts and developing the definition of a person of ordinary skill in the art can quickly narrow the list of available experts.

Additionally, provide the expert service your anticipated timeline—it is critical that the expert is available when you need them (e.g., to prepare a declaration, at deposition(s), etc.).

4. Nail the expert interview – gain knowledge and assess quickly

The interview phase needs to include at least three considerations: experience as an expert, substantive background in the technology, and availability now and throughout trial. If an expert has never been deposed before, try to determine whether they have the soft skills needed to be effectively cross-examined. Push them to see how they react to hard questions both substantively and temperamentally. Ask them for some strategy advice for your case to see how they think. Research them – look for skeletons before hiring them. Ask for references.

You now have two experts: Ms. Boot and Dr. Slipper, PhD., to assist on two separate aglet patent cases.

This post was written by Jason D. Eisenberg of  Sterne Kessler., © 2017
For more Intellectual Property legal analysis, go to The National Law Review

Worried About Fake News? You Should Really Worry About Fake Drugs

While the concept of “fake news” continues to trigger Twitter followers and grab headlines, the trade in counterfeit drugs is a worldwide problem of significant scale.  This article discusses the problem and talks about some things trademark owners are doing to address the public safety issues posed by fake drugs.

The Problem.

Trademark counterfeiting?  Most think of fake Rolex watches sold on city street corners or faux designer purses sold in suburban kitchens.  While knock-off luxury goods may seem harmless, the economic harm inflicted on legitimate businesses—and the workers they employ—is enormous.  The Federal Bureau of Investigation estimates that the dollar value of counterfeit goods sold in the U.S. at $200-250 billion annually.  Many of North Carolina’s leading industries, including tobacco, furniture, apparel and pharmaceuticals, are among the most frequent targets of trademark counterfeiting. Also, according to Interpol, trademark counterfeiting often provides for a source of income and reliable import channel for those with other nefarious purposes, such as illegal drug or human trafficking and potentially even terror activities.

In addition to these very negative economic consequences, there is a particular level of harm associated with certain kinds of trademark counterfeiting.  Counterfeit goods aren’t subject to the same regulatory standards and safety inspections as items produced by legitimate manufacturers. So, in areas of manufacture where quality control is important, counterfeit products fall short.  Consider, for example, the potential harm that could be caused by substandard, bogus automobile tires or airplane parts.

Counterfeit pharmaceutical drugs are clearly an area where public safety concerns are paramount.  Counterfeit medicines have been found in all areas of the globe, including the highly regulated U.S. market, and extend to medicines, vaccines, testing and diagnostic equipment, and other medical devices.  Both branded and generic pharmaceutical products can be falsified.  And sales are not just limited to the black market—such products make their way to hospitals and pharmacies, often through internet sales trade channels.

Lifestyle or “popular” drugs are often counterfeited, and there have been recent increases in cosmetic, weight loss and opioid drugs.  However, such drugs are not limited to such trends—counterfeit malaria vaccines, cholesterol medications and cancer treatments can also be found in the U.S.  The World Health Organization (WHO) estimates that an average of up to 10% of medicines are counterfeit, and in developing countries, that percentage is considerably higher.

The Center for Medicine in the Public Interest estimates the annual worldwide dollar value of counterfeit pharmaceuticals at $200 billion annually and rising. Sadly, the damage is far greater than lost sales. WHO estimates that approximately 200,000 people die each year as the result of ineffective counterfeit anti-malarial drugs.

Counterfeit medicines also may cause adverse affects or allergic reactions, and they may not effectively treat the ailment for which prescribed.  They may promote drug resistant disease strains or contain no active ingredient, the wrong active ingredient, or the incorrect strength (too much or too little) or dosage of the intended ingredient.  According to a WHO investigation, approximately 1/3 of such drugs contain no effective ingredient.  Given the lack of inspection of counterfeit manufacturing facilities, such products are often produced under non-sterile circumstances, resulting in bacterial or other contamination.  Clearly, the ways in which counterfeit drugs can cause serious negative patient outcomes are extensive and extreme.

Combating the Problem.

Drug companies, and their attorneys and security departments, take a multi-pronged approach to combating counterfeiting.  Many of these efforts are used to combat counterfeiting generally, but some have been developed with particular focus toward the nuances of the counterfeit pharmaceutical market.

The counterfeiting problem can appear daunting, given an array of unknown manufacturing sources, the breadth of possible sales outlets, and the strong consumer preference for the “cheap but name brand” combination. Successful anti-counterfeiting practices do not generally follow a reactive “Whack-A-Mole” approach, attempting to squelch every low-level advertisement or email blast that comes out. Rather, systematic and strategic prosecution, akin to practices used in the intelligence community, is preferred. Investigations of networks and relationships, rather than merely products and sellers, can help identify high-payoff targets, the disruption of which can have positive effects across several echelons of the counterfeit trade. Focusing limited enforcement resources on valuable choke points which contribute to an ecosystem response can often be the most fruitful and strategic approach.

Counterfeit pharmaceuticals in particular, given their specific methods of typical advertisement and sale, are prone to certain forms of interdiction over others. It is well known that counterfeit pharmaceuticals are advertised heavily on both internet ads and email “spam” messages, all of which attempt to direct a prospective purchaser to a product-ordering website. Attempting to interdict the advertising messages, which are often sent by botnets or third-parties through a referral-affiliate relationship, or to shut down specific websites, is a losing proposition. This is the case because there are hundreds of thousands or more of each, and the costs to re-establish a confiscated website are negligible compared to the significant enforcement costs. However, academic researchers working with industry and enforcement contacts identified several potential chokepoints on which these sorts of pharmaceutical sales pathways rely. See Dharmdasani et al., “Priceless: The Role of Payments in Abuse-advertised Goods,” CCS ’12, October 16–18, 2012, Raleigh, N.C.  One key chokepoint relationship for online transactions is a seller’s host bank, nearly always non-U.S. and non-EU, that is willing to accept abusive credit card transactions related to these unlawful goods from card processors such as Visa and MasterCard.

Pharmaceutical

Nearly all online counterfeit pharmaceutical revenue can flow through these concentrated banking relationships, and researchers discovered that intercepting just one or two of these banking relationships, and seizing related funds, could have ripple effects disrupting thousands of drug transaction websites and referral affiliates. For example, a 2011 study determined that across 95% of spam e-mail for pharmaceuticals and similar goods, only three acquiring bank institutions were used. Id. This research demonstrates a guiding principal of anti-counterfeiting efforts: enforcement is most successful where the “termination cost [to the counterfeiter] is inevitably far higher— in fines, in lost holdback, in time and in opportunity cost—than the cost of the intervention itself [by the rights holder]. … [R]elatively concentrated actions with key . . .  institutions can have outsized impacts.” Id.

Targeted investigations and enforcement are only one aspect of a comprehensive anti-counterfeiting approach. Successful rights holders employ a broad-based strategy, involving secured supply chain management, thorough technology and distribution agreements with market partners, and high-tech security solutions such as secure packaging, microchips, holograms, and the like. The combination of many of these controls can make enforcement actions easier and more productive, and thus reduce the prevalence and success of counterfeit competitors. In addition, it is important to inform consumers and retailers about both the dangers of counterfeits and the value of accessing authentic products. Pharmaceutical companies should engage in advertising to alert the marketplace to the dangers of counterfeit pharmaceuticals and to also assist others in identifying counterfeit drugs – including examination of packaging and medicines for quality, condition, spelling and grammar; and checking manufacturing and expiration dates and batch numbers on both exterior and interior packaging.

The problem of fake drugs is in fact very real news and companies here in North Carolina and around the world are taking steps to defend their brands and protect their customers in the marketplace.

Authentic Vial                Counterfeit Vial

Botox Authentic    Fake Botox Vial

This article originally was published in the August 2017 edition of the Newsletter of the Board of Legal Specialization, a publication of the North Carolina State Bar.

This post was written by Sarah Anne Keefe & Stephen Shaw of Womble Carlyle Sandridge & Rice, PLLC. Copyright © 2017. All Rights Reserved.