Contributory Infringement and Territoriality

Simple question: a Belgian shopkeeper B sells a product infringing a German patent to his client C in his shop in Belgium. Infringement or not? Most of us would say the answer is plainly no – territoriality principle.

The BGH has now wondered whether this might change if the shopkeeper knows that the client wants to sell the product in Germany. Then, the act of selling could amount to contributory infringement.

The question became relevant not for patent infringement but because a copyright and trademark owner had sued a Belgian defendant before the German Courts by arguing that the contributor to a main infringement may be sued – according to the German Civil Procedure law - before the courts having jurisdiction for the main infringement action. In the above case, these would be the German Courts.

The BGH has therefore referred the following  question on the interpretation of Art. 5 Nr. 3 EUGVVO (Council Regulation (EC) No 44/2001) to the ECJ:

Must Article 5 Nr. 3 of the Council Regulation (EC) No 44/2001 be interpreted such that the harmful event occurred in one member state (member state A), when the tort, delict or quasi-delict, being subject of the procedure or from which claims are derived has been committed in a different member state (member state B) and consists in the participation in the tort, delict or quasi-delict, having occurred in the first-mentioned member state (member state A)? (freely translated by the author of this note)

If the answer would be positive, this would clearly open new and interesting options for cross-border litigation on the basis of Article 5 Nr. 3 of the Council Regulation (EC) No 44/2001 not only for copyright and trademark cases but also in patent cases where the application of Art. 6 Nr. 1 of the Council Regulation (EC) No 44/2001 is foreclosed after the ECJ-decision Roche/Primus, as long as Art. 22 Nr. 4 of the regulation does not enter the game.

On the same day, the BGH referred the same question on the interpretation of Art. 93 par. 5 of the Commnity Trademark Regulation (Council Regulation (EG) 40/94) to the ECJ. PatLit will keep you updated.

Patent litigation in the UK: some real research results

During 2011-2012, Christian Helmers and Luke McDonagh (both of the London School of Economics & Political Science) have been working on interdisciplinary empirical research for the UK's Intellectual Property Office concerning patent litigation in the UK. This project is linked with SEEK, an ongoing wider European project.  As Luke explains:

"We have undertaken an empirical survey of cases filed at the Patents Court 2000-2008. The two papers that have come out of this project are being pre-published as LSE Working papers on SSRN.  The first of these is Patent Litigation in the UK, the second being Trolls at the High Court?".

The abstract for Patent Litigation in the UK reads:

"We construct a dataset that contains the complete set of patent cases filed at the courts in England and Wales during the period 2000-2008. The data cover all types of patent-related cases brought before the Patents County Court, the Patents Court at the High Court, the Court of Appeal, as well as the House of Lords/Supreme Court. We combine the detailed information on court cases with information on the patents in dispute as well as firm-level data for the litigating parties. We employ the dataset to analyze characteristics of the court cases, = litigating parties, as well as the contested patents. We also provide detailed discussion of the cases that were heard by the House of Lords/Supreme Court as well as of the costs involved in patent litigation before the courts in England and Wales.".

This study, which shows inter alia that the most frequent outcome of any patent litigation is revocation, is fascinating -- but not too much should be read into it as a predictor since there has been a substantial overhaul of patent litigation procedures with the revitalisation of the Patents County Court in October 2010.  This blogger hopes that there will be a follow-up, to measure the degree of change which, at present, is more anecdotal than carefully quantified.

According to the abstract for Trolls at the High Court?:

"This article investigates the phenomenon of litigation undertaken by Patent Assertion Entities (PAEs), often referred to as ‘patent trolls’, within the legal system of the Patents Court (PHC) of England and Wales during the period 2000-2008. Our analysis shows that patent suits involving PAEs at the PHC are rare – they account for less than 6% of all patent cases. We suggest two reasons why the PHC does not provide a welcome venue for PAE litigation. Firstly, the majority of patent cases which reach a judgment in the UK result in a ruling invalidating the patent. Secondly, the costs regime in the legal system of England and Wales requires that the losing party pay the costs of the other side. In other words, even if its own costs are kept low, a PAE which loses a case may have to spend a substantial amount of money in order to cover the costs of the other side. When taken together, it is likely that these two aspects discourage litigation by PAEs at the PHC, which accounts for the low volume of cases when compared with other jurisdictions such as the US. We also offer interesting insights to the wider debate concerning whether it is likely that in the near future there will be a similar increase in PAE litigation in Europe as has already occurred in the US over the last decade. This article also discusses potential implications for the design of the proposed European Unified Patent Court".

Presumably PAEs have to go to court from time to time, even if they can regularly expect their patents to be invalidated, otherwise the threat of infringement litigation which underpins their business model will be reduced.  If patent litigation is costly and inconvenient enough, even the certainty that an action for infringement brought by a PAE would fail and that its patent would be revoked wouldn't entirely negative the attraction of settling quickly and easily by paying a smallish royalty fee.

Study Confirms Impact of Non-Practicing Entities in US Patent Litigation

For several years, observers of patent litigation trends in the U.S. have noted the apparent increase in patent infringement cases filed by so-called "Non-Practicing Entities" (aka patent "trolls"). Criticism of NPE enforcement activity was a major force behind litigation provisions in the America Invents Act.

A group of researchers now have published a report, based on research requested by the U.S. Government Accounting Office, to gauge the  true impact of NPE activity. See Sara Jeruss, Robin Feldman, and Joshua Walker, "The America Invents Act 500: Effects of Patent Monetization Entities on US Litigation" (forthcoming in the Duke University Law School Law and Technology Review). A copy is available on SSRN.

The study documents the rise of "Patent Monetization Entities," a category that includes various plaintiffs whose core activity is creation of an income stream from the robust patent market, as opposed to exploiting their patents as an operating company.  The study concludes that for 2007-2011:

[L]awsuits filed by patent monetizers have increased significantly over the five ‐ year period. The sheer number of cases has increased, as well as the percentage of overall case filings represented by monetizers. In other words, lawsuits filed by patent monetizers are on the rise, while lawsuits filed by operating companies have fallen. Specifically, lawsuits filed by monetizers increased from 22% of the cases filed five years ago to almost 40% of the cases filed in the most recent year. In addition, monetizers were also heavily represented in the list of those who filed the greatest number of lawsuits. Of the 5 parties in the sample who filed the greatest number of lawsuits during the period studied, 4 were monetizers. Only one was an operating company. (at 5).

The Unitary Patent Package: 12 reasons for concern

German intellectual property scholar Matthias Lamping, a Senior Research Fellow at the Max Planck Institute for Intellectual Property and Competition Law, Munich, has been assiduously following the increasingly tense and acerbic debate over the future of Europe's patent grant and enforcement infrastructure.  He has reminded this blogger that the attention of PatLit readers may not have been directed to the Institute's recent objective and reasoned critique of the currently-proposed package of legal reforms.  As Matthias explains:

The Unitary Patent Package: 12 Reasons for Concern

The Max Planck Institute for Intellectual Property and Competition Law, which has functioned as a politically and economically unbiased centre of legal competence for European intellectual property legislation ever since its foundation in 1966, is a well-recognized scientific commentator and adviser on the evolution of European patent law.

The Institute considers a balanced, innovation-friendly and uniform patent system as being indispensable for Europe. However, the current patent package is deemed to be both dangerous and misguided. While a superficial glance may create the false impression of a patent law advancement through the proposal, it instead actually threatens to forestall the necessary legal progress and innovation capacities for the foreseeable future.

These concerns of the Max Planck Institute are shared by experts throughout Europe. Likewise, within a considerable sector of industry, doubts are harboured as to the proposed system's efficiency. Large undertakings might indeed benefit from a reinforcement of their patent portfolios through the proposed system. However, small and medium-sized enterprises are particularly likely to experience significant obstacles to their innovation activities.

Criticism of the package is underpinned by a series of legal arguments which can be found here. Many of these points remain quite unchallenged in the current debate. Yet remedies are only promised for the time after the entry into force of the package. Experience shows that, particularly in relation to legislation for intellectual property, promises of subsequent improvement are unlikely to be fulfilled. Consequently, it might prove disastrous to implement a patent system which is already known to be detrimental from both the legal as well as the innovation perspectives. Much rather, the correct course must be set now. Against this background, the Institute believes it is indispensable to reconsider the content of the Unitary Patent Package afresh.

This blogger feels that, given its impressive track record over the past decades for highly-focused and responsible, reasoned analysis of intellectual property issues, the Max Planck Institute has earned the right to be listened to and for its comments to be taken seriously. Arguably, the Institute has provided a greater contribution to the development of a harmonised, functional integrated intellectual property system in Europe than any other institution -- including the European Commission.

Explaining Patent Litigation 5: leave to appeal

The fifth guest post in Liz Cohen's Explaining Patent Litigation series, on patent litigation in England and Wales, deals with an important and sensitive topic:the mechanism for appeal in patent disputes. Liz, a partner in the IP specialist practice of Bristows LLP, explains why it is that an unsuccessful litigant can't just appeal at will but has to get leave to do so. This is what she writes:

Why is permission needed to appeal?

For those who do not practise Patent litigation in the Courts of England and Wales, the need for a party to seek permission to appeal a judgment is often considered quirky. Permission to appeal a County Court or High Court decision is now required in virtually all cases, compared to (for example) France and Germany, where permission to appeal to a higher court is an automatic right.

A few years ago, the requirement to seek permission to appeal was challenged (see Pozzoli SPA v BDMO SA and Moulage Industriel de Perseigne SA [2007] EWCA Civ 588.) Pozzoli argued that Article 32 the TRIPS Agreement (which reads "An opportunity for judicial review of any decision to revoke or forfeit a patent shall be available") imposes an obligation to grant permission to appeal where a patent has been revoked at first instance, even if there is no real prospect of success on appeal.

The Court of Appeal dismissed Pozzoli's argument that Article 32 requires a full judicial hearing on the merits and held that a decision by the Court of Appeal as to whether or not to grant permission to appeal from an order for revocation is a "judicial review" within the meaning of Article 32 of the TRIPS Agreement.

However, the Court of Appeal went on to observe that, in patent cases which are not very clear and which would not be understood sufficiently readily by the Court of Appeal in an hour or so, the better course was normally for the trial judge to grant permission to appeal. This was because the Court of Appeal, when faced with an incomplete understanding of the case and a plausible skeleton argument seeking permission to appeal, would be likely to grant permission in any event.

So it still remains the case that a party wishing to appeal a judgment from a lower court must first convince the judge who made the decision to be appealed that the appeal has a real prospect of success or that there is some compelling reason why the appeal should be heard. Examples are cases raising questions of great public interest or questions of general policy. Alternatively, following Pozzoli, permission may also be granted if a party can convince a judge that it would take the Court of Appeal more than an hour to sufficiently understand the case to make a meaningful decision on permission to appeal. In practice, this is often a more appealing submission than trying to convince a Judge that he got it wrong. Failing that a party can still apply directly to the appeal court in an appeal notice.

Any permission granted may be limited to particular issues to be heard on the appeal or may be subject to conditions, for example, deferring the hearing of the appeal to a later date.

In all cases the appellant (or intended appellant, if that party is seeking permission from the appeal court) must request permission to appeal in an appellant’s notice. The appellant’s notice must be filed at the appeal court within 21 days after the date of the decision of the lower court that the appellant wishes to appeal unless an alternative period is directed by the lower court (which may be longer or shorter than 21 days). An appellant who requires more than 21 days should apply to the lower court when the judgment is given.

Next week: Expedited patent trials

Preliminary relief: irreparable harm must be related to infringement

Last Thursday's decision of the U.S. Court of Appeals for the Federal Circuit, reversing the decision to grant Apple’s application for a preliminary injunction for infringement of its 8,086.604 patent against fierce rival Samsung, can be accessed here. If you are too lazy, busy or bamboozled by the rapid succession of Apple v Samsung decisions that leap up before your eyes and demand your attention, you can rely on the kindness of our correspondent Perry Saidman (SAIDMAN DesignLaw Group, LLC, Silver Spring, Md) who has read the decision on behalf of all this blog's readers and who tells us that the key excerpt from the opinion is as follows:

“It is well established that as the party seeking emergency relief, Apple must make a clear showing that it is at risk of irreparable harm, which entails showing a likelihood of substantial and immediate irreparable injury. Apple, Inc. v. Samsung Electronics Co., 678 F.3d 1314, 1325 (Fed. Cir. 2012) (hereinafter Apple I) (citing Winter, 555 U.S. at 22; Weinberger v. Romero–Barcelo, 456 U.S. 305, 311 (1982); O'Shea v. Littleton, 414 U.S. 488, 502 (1974)); see also Beacon Theatres, Inc. v. West-over, 359 U.S. 500, 506–507 (1959) (The basis of injunctive relief in the federal courts has always been irreparable harm and inadequacy of legal remedies). But in cases such as this—where the accused product includes many features of which only one (or a small minority) infringe — a finding that the patentee will be at risk of irreparable harm does not alone justify injunctive relief. Rather, the patentee must also establish that the harm is sufficiently related to the infringement. Apple I, 678 F.3d at 1324. Thus, to satisfy the irreparable harm factor in a patent infringement suit, a patentee must establish both of the following requirements: 1) that absent an injunction, it will suffer irreparable harm, and 2) that a sufficiently strong causal nexus relates the alleged harm to the alleged infringement”.

All change for smaller businesses 4: IPO Patent Opinions Service

Sunday is the day for Liz Cohen's Explaining Patent Litigation series, and here's the fourth of her six reader-friendly posts on patent litigation in England and Wales. In this post Liz, who is a partner, Bristows LLP, writes about one of the best -- and most under-used -- features of the British dispute resolution infrastructure, the excellent patent opinions service offered by the Intellectual Property Office. Liz writes:

All change for smaller businesses: IPO Patent Opinions Service

It is well known that small and medium sized enterprises (SMEs) are important for innovation and job creation. It was acknowledged in the Review of Civil Litigation Costs by Lord Justice Jackson, published in January 2010, and more recently, in the Hargreaves Review of Intellectual Property and Growth, published in May 2011, that more needs to be done to assist SMEs with their intellectual property rights in the UK. A number of measures and reforms have since been introduced to achieve this purpose. These include reforming the Patents County Court (PCC) and introducing various tax reliefs. In addition, the IPO is currently consulting on proposals to expand the subject matter of its opinion service and to increase its ability to file revocation actions in relation to patents which it opines are invalid.

The final blog in this three part mini-series looks at the proposed IPO reforms.

The IPO has launched a consultation which outlines proposals to expand the IPO Patent Opinions Service by amendment to the primary legislation. Currently, the service provides non-binding opinions on questions relating to the infringement or validity (limited to novelty and inventive step) of granted UK patents. The IPO has issued over 150 opinions since the service was launched and over 90% of opinions on infringement have been requested by SMEs.

The IPO propose to enhance the Patent Opinions Service by expanding the questions relating to validity that can be the subject of an opinion to align them more closely with the grounds of revocation of a patent (i.e. whether the invention in question is capable of industrial application, relates to matter excluded by Section 1(1)(d) Patents Act 1977, is sufficient, adds matter, or has been extended by an amendment which should not have been allowed). Additionally, the IPO propose to offer opinions as to whether a SPC is valid and/or infringed.

Perhaps the most significant proposal is the expansion of the IPO’s rights to file for revocation of a patent on which it has issued a negative validity opinion. In such circumstances, this will remove the burden, and in particular the cost burden of filing a revocation action. This may be especially beneficial to SMEs. It could also benefit other businesses who have an interest in the patent (e.g. who are worried about infringement) but who were not involved in the opinion process.

The rationale behind the proposals is to enable companies to resolve more of their IP disputes through the Patents Opinions Service without having to resort to costly litigation. The proposals may cause concern for UK patent and SPC holders who may now have to get involved in a dispute at a much earlier stage. Previously, a patent holder would have little concern over a negative validity opinion issued on their patent. This is because the patent would not be revoked unless the opinion requestor commenced revocation proceedings in court or the IPO (which would often be prohibitively expensive for many SMEs). Now there will be a much greater incentive for patent holders to make submissions on validity to the IPO when a patent is challenged using the Opinions Service, as a finding of invalidity may well lead to initiation of costly revocation proceedings by the IPO.

Next week: Permission to Appeal

Portugal's new IP court: no sign yet of hoped-for improvements

"New Intellectual Property Court: first few months prove disappointing" is the sadly informative title of a brief piece by Manuel Lopes Rocha and Joana Trigueiros Reis (PLMJ - AM Pereira Sáragga Leal Oliveira Martins Júdice E Associados - Sociedade De Advogados - RL, Lisbon), recently posted on World Trademark Review but is presumably as relevant to patent litigation as it is to trade marks since the court's jurisdiction is said to cover 'industrial property'.

This piece notes the effect of the Portuguese Decree-Law 67/2012, which established a specialist intellectual property court in order to concentrate litigation within a single, focused tribunal and thus both expedite cases and improve their quality. The new Intellectual Property Court opened its doors to business at the end of March, and ran into trouble immediately: while the law provided for the appointment of two IP judges, only one was appointed -- and he has already been replaced.  In the first four months of its operation, some 244 judicial proceedings were commenced before it, but decisions have been slow to emerge and critics have been pining for the old system. In particular:

" ... the existence of only one court located in Lisbon implies pointless, long and costly journeys to the capital whenever a party is involved in a dispute regarding trade marks or copyright. This makes little sense since - as noted by the former president judge of the Lisbon Commercial Court, Mrs Maria José Costeira - the majority of companies that appeal to the Intellectual Property Court are generally located in the North of Portugal (ie, far away from Lisbon)".

The article concludes:

"Once again, the example of the Intellectual Property Court demonstrates that any reform of the court system should be prepared with care, and tested by lawyers and judges before entering into force".

This blogger notes both the criticism of the inconvenience of travel -- even within just one of the smaller countries within the European Union -- and the need for a proper preparation. Comment regarding the applicability of these points to the ongoing debate over the unified patent court would be superfluous.

Explaining patent litigation 3: All change for smaller businesses - tax benefits

In this, the third in a series of six reader-friendly posts on patent litigation in England and Wales, Liz Cohen (partner, Bristows LLP) moves from activity in the courts to the quest for financial betterment which enables businesses -- particularly the smaller ones -- to become more effective litigants.  She explains:

"All change for smaller businesses: tax benefits 

It is well known that small and medium sized enterprises (SMEs) are important for innovation and job creation. It was acknowledged in the Review of Civil Litigation Costs by Lord Justice Jackson, published in January 2010, and more recently, in the Hargreaves Review of Intellectual Property and Growth, published in May 2011, that more needs to be done to assist SMEs with their intellectual property rights in the UK. A number of measures and reforms have since been introduced to achieve this purpose. These include reforming the Patents County Court (PCC) and introducing various tax reliefs. In addition, the IPO is currently consulting on proposals to expand the subject matter of its opinion service and to increase its ability to file revocation actions in relation to patents which it opines are invalid.

This blog looks at the proposed tax benefits.

The Patent Box will be available to all businesses within the scope of UK corporation tax, including SMEs. It will be phased in over a period from 1 April 2013 to 1 April 2017, assuming that an election for the regime to apply is made. To be eligible, the SME needs to own, or hold an exclusive licence for a qualifying IP right, which they have contributed to the development of, or incorporated into a product, and receive income related to that right. The result is that SMEs could find themselves paying only 10% rather than 20% tax on income related to a product protected by an IP right, including royalties and compensation for infringement.

Additionally, some improvements have recently been made to R&D tax relief. The rate of additional deductions for SMEs will be increased from 100% to 125% (giving rise to a deduction of 225% in total) and the rule capping the amount of any repayable tax credit by reference to the company’s PAYE/NIC liability will be removed. To offset this, the repayable tax credit will be reduced to 11% of the surrenderable loss (from 12.5%, having already been reduced from 14% in April 2011). Additionally, the definition of an “externally provided worker” will be widened to allow more costs to qualify, the minimum expenditure threshold of £10,000 a year will be removed, and the existing definition of “going concern” will be clarified to ensure that companies in administration or liquidation cannot benefit.

R&D tax relief, which can be extremely valuable to SMEs, is often overlooked by them. This is mainly due to the complexity of the legislation and the difficulties in identifying qualifying activities, especially given the frequent changes made by the government to the regime since its introduction in 2000. It is thought that identifying qualifying revenue for the Patent Box will be more straightforward, although some SMEs have expressed concerns that it may be uneconomical for them to claim the tax break due to the advisory and administrative costs required to file a claim.

Following confirmation of the Patent Box in the 2012 Budget, GlaxoSmithKline announced it would invest more than £500m in the UK across its manufacturing sites. This includes £350m for a state-of-the-art biopharmaceutical manufacturing facility in Ulverston, Cumbria and more than £100m across its two manufacturing sites in Scotland, to manufacture key materials for its portfolio of respiratory medicines and vaccines, and to increase production capacity for antibiotics. Hopefully, many SMEs will follow suit and take full advantage of the available tax reliefs in the UK".

Next week: All change for smaller businesses -IPO Reform

Phoning the rapporteur? Think again ...

PatLit wonders what the
EPO's policy is with regard
to phone rage ...

In T 1251/08 Serial bus simulation/TERADYNE, 29 June 2012, a Board of Appeal of the European Patent Office (EPO) has given some handy, if largely negative, guidance with regard to interviews with a rapporteur.

In this decision -- an appeal against a decision of the Examining Division -- the appellant made requests for telephone interviews with the case's appointed rapporteur so that it could discuss with the rapporteur the allowability of certain amendments sought by the appellant and also for an explanation of the Appeals Board's provisional decision.

Said the Board, these requests had been turned down because one of the rapporteur's duties was to act on behalf of the Board in substantive matters and it was necessary for the rapporteur both to tell the other members of the Board and to put them in a position from which they could render an informed opinion on the action to be taken. Unless all of the Board's members were privy to all the evidence and arguments, there would be a breach of the principle of collective decision-making. The telephone interviews sought by the appellant could have led the rapporteur to take a position on an issue where a collective decision was required, or to commit the Board to a particular position without there first being any preliminary discussion.

There is however some good news for people who enjoy phoning the EPO: telephone interviews may be allowed if and to the extent that they assist a Board in conducting proceedings in an orderly manner. As the decision says at para.4:

"The board wishes to avoid giving the impression that it finds that it is never appropriate for parties in ex parte proceedings to telephone the rapporteur. Leaving aside the question of whether it is appropriate to file new requests on the day before an oral proceedings, the representative's telephone call on the day before the oral proceedings to advise the board that several late requests were being filed by fax assisted the board in conducting these proceedings in an orderly manner. The board was consequently at least in a position to ensure that the late submission was distributed to the whole board as soon as possible".

Has it ever happened ...?

Interim injunctive relief for infringement
of a standards-essential patent: have
you ever applied ...?

A curious reader has written in with the following question. Does anyone have an answer?

(a) Has anyone ever applied in the United Kingdom for an interim injunction in respect of a standards-essential patent;

(b) If the answer to (a) is yes, what happened?

This blogger thinks that the answer to (a) is "no" -- but he is equally aware that patent litigation in the UK is a dark and murky pond in which many a large fish may lurk undetected.  In fishing for an answer on behalf of his reader, he hopes that one such fish may bite ...

BGH on Using Cancerogenic Substances

Incentive to use?

In the decision “Glasfasern”, the German Bundesgerichtshof (BGH) had to rule in the novelty and inventivess of a “use” claim. The patent had been granted on the idea of using a particular kind of glass fibre material as glass fibre “not having cancerogenic potential”.

The glass fibre as such was (besides of some very minor differences not giving rise to an inventive step) known from at least one document in the prior art. In the same document, it was noted that the glass fibre would presumably have cancerogenic properties (in particular when  minute fragments accumulate in the lung of workers using the material for building insulation) and that two independent institutes had been entrusted to carry out an investigation on this issue.

According to the established case-law in Germany, the anticipation of “use” claims does not require evidence that the “use” has actually taken place. Rather, it is sufficient if the product or substance has been evidently prepared (“sinnfällig hergereichtet”) for such a use, e.g. by using a design adapted to that use or by supplementing the product or substance with a user manual or package leaflet disclosing the possible use.

In the case at issue, the presumption of cancerogenic properties was not considered sufficient to establish a lack of novelty.

Further, this presumption together with the information that studies in this regard had already been commissioned did not constitute an incentive for the skilled person to carry out these (expensive and complex) studies by himself.

An interesting point in this decision is that the “use” was not limited to a particular technical application of the glass fibre such as building insulation but rather covered all applications where cancerogenic potential was undesired (difficult to imaging where this is not the case). The discovery of a yet unknown property (here: lack of cancerogenic potential) of a known substance gives the discoverer the exclusive right to use the substance in applications where this property is relevant.

Explaining patent litigation 2: All change for smaller businesses - the PCC

Last week PatLit introduced the first in a series of six reader-friendly posts on patent litigation in England and Wales by Liz Cohen (partner, Bristows LLP). This week Liz talks about the aims and objectives of the Patents County Court:

All change for smaller businesses: The PCC

It is well known that small and medium sized enterprises (SMEs) are important for innovation and job creation. It was acknowledged in the Review of Civil Litigation Costs by Lord Justice Jackson, published in January 2010, and more recently, in the Hargreaves Review of Intellectual Property and Growth, published in May 2011, that more needs to be done to assist SMEs with their intellectual property rights in the UK. A number of measures and reforms have since been introduced to achieve this purpose. These include reforming the Patents County Court (PCC) and introducing various tax reliefs. In addition, the IPO is currently consulting on proposals to expand the subject matter of its opinion service and to increase its ability to file revocation actions in relation to patents which it opines are invalid.

In a series of blogs, these three reforming measures will be examined in more detail. The first blog in this series of three looks at the reforms for the PCC.

After widespread reform in late 2010, the PCC is increasingly becoming a court of choice in IP matters, particularly for SMEs. Previously, many SMEs and private individuals were priced out of enforcing or defending their IP rights. The PCC is now suited to handling smaller, less complex, lower value actions, and its procedural rules are targeted to cases of that kind. The result? Shorter, cheaper, quicker litigation better suited to SMEs and private individuals looking to protect and assert their IP rights.

Key features of the PCC are as follows: proactive and flexible case management; concise but complete statements of case (pleadings); early case management conferences; no standard disclosure; no exchange of evidence, experiments, surveys or skeleton arguments as standard; and trials that last a maximum of two days without cross-examination of experts. Of additional benefit to SMEs is the costs cap of up to a maximum of £50,000 and damages cap of £500,000. This limited liability for costs and damages is an important consideration in determining whether to take or defend any action in the PCC.

Despite the name, the PCC has jurisdiction to hear all IP matters. Currently, all IP claims are allocated to the multi-track and the remedies available to the parties are the same as in the High Court of England & Wales. These include preliminary and final injunctions (interdicts), search and seizure and asset freezing orders, capped damages, accounts of profits and delivery up.

From 1 October 2012, there will be a new small claims track for copyright, trade mark, unregistered design and database rights cases in the PCC (patents and registered design cases are excluded). The small claims track will generally apply where the value of the claim is not more than £5,000, the particulars of claim state that the claimant wishes the claim to be allocated to the small claims track and no objection is raised by the defendant in the defence. Interim remedies under CPR part 25 will not be available. This measure should hopefully provide yet further assistance to SMEs and private individuals looking to protect their rights quickly and in a low cost forum.

Next week: All change for smaller businesses - tax benefits.

Discovery is only an option

This blogger might have missed Vernacare Ltd v Environmental Pulp Products Ltd [2012] EWPCC 41 completely if he hadn't been sent a copy of the judgment last week by Judge Birss QC's clerk. It's a 19 July decision in the Patents County Court, England and Wales, which raises no major legal issues -- though it does carry one useful reminder of something that is not always appreciated.

Jurisdictions are sometimes categorised as either being those in which discovery (disclosure) of evidence may be extracted by each party from its adversary -- in which case the cost and complexity of the litigation increase -- or those in which discovery is not available. But the fact that disclosure exists does not mean that the court has to order it. In this dispute, which involved a low-tech patent for disposable washing bowls made of paper pulp, the judge summarised the pre-trial case management arrangements thus, at [4]:

"At the case management conference the order made limited the expert evidence to the issues of obviousness and common general knowledge. There was no disclosure. .. There were time limits on the cross-examination. The limit I set was 45 minutes for each side ..."

Things did not run quite as smoothly as the judge had hoped, though: with the stiff time limits set, the hearing should have been over by lunch -- but an unexpected fire alarm put paid to that good intention.

Explaining patent litigation I: New Term

In this, the first in a series of six reader-friendly posts on patent litigation in England and Wales, Liz Cohen (partner, Bristows LLP and a previous PatLit guest blogger here) introduces the subject for the benefit of (i) those who have never experienced it before and (ii) those who, having experienced it, wonder what on earth it was all about ...

New Term 

As the holidays end, and everyone returns to work, thoughts inevitably turn to the new court term ahead. Michaelmas Term starts in the High Court of England and Wales on 1 October and with it come those court applications that have been contemplated and prepared over the summer vacation, but not considered suitable, or urgent enough, for vacation business.

For those who are less familiar with the Court system in England and Wales (and quite often for those who are...), making a court application can be a confusing and tricky business. There are always several stages. The first stage tends to be to determine the status of the person making the application (for example are they a party or a non party -- hopefully this is not too difficult to do) and to decide what the application is for. Without careful thought an applicant can be flummoxed by the court asking “What is it you want the court to do?”, to which a frustrated applicant is tempted to answer “Isn’t it obvious?!”. This can ideally be avoided by some initial thoughts as to whether a party is seeking a decision, a remedy or permission to do something.

Once that is decided, it is always a good idea to look at the Rules. Generally the Civil Procedure Rules (CPR) Part 23 is a good place to start, but the trick is to appreciate that other parts of the CPR and Practice Directions can also apply and vary CPR Part 23 for specific applications. The Chancery Court Guide, particularly Chapters 5 and 6 can be useful and, for Patents, CPR 63, the Practice Direction and the Patents Court Guide will need to be consulted. In working out which Rules and Guides to take note of, an applicant will need to first determine at least what type of application you are making. For example, will the application be determined on paper, by telephone or at a hearing, will it be made by consent or is it opposed, ex parte or inter parte, on notice, or without notice?

The next stages of completing the application notice, drafting the order sought, working out the fee and issuing and serving the application follow. Evidence in support of the application will need to be drafted, filed at court and served on all parties. If the application is to be determined at a hearing, bundles, a skeleton argument and statement of costs will need to be prepared ahead of the hearing. Once the hearing has taken place the order will be drawn up, sealed and served.

After all that, another holiday is probably in order.

Next week: "All change for smaller businesses"

Patent litigation, the new Europe and litigators' future income

Here's a reminder that the Chartered Institute of Patent Attorneys' annual CIPA Congress is being held in London on 11 and 12 October and that patent litigation unsurprisingly features among the topics under discussion.  One of the speakers on that topic, Willem Hoyng (Hoyng Monegier, Amsterdam), has already given a clue as to what he will be saying:

“The present litigation system is unsatisfactory as it is in general difficult to address European-wide infringement in an efficient way. This is due to unfortunate decisions of the ECJ in GAT-LUK and Primus-Roche (here). With a wise ECJ all the stuff we talk about today would have been superfluous. 

In my CIPA Congress paper I shall explain briefly the present proposals for the litigation system and say something about the procedural rules and the work of the Committee who drafted these rules. I will try to solicit some adverse reactions by preaching in favour of the proposed system, by asking the UK and German audience to forget their idea that they have the best litigation system, by asking the litigators to stop worrying about their future income. There is a lot of cold water fear. In general lawyers are conservative and do not like change. We have to adopt the system and as it stands it could become a success and I will explain why. Not all European measures have a euro doom scenario! Without daring there is no future!”

Readers of this blog may have their own thoughts on this subject, particularly the bit about "asking the litigators to stop worrying about their future income". It is accepted that litigators exist for the benefit of their clients and not vice versa, that patent litigation is expensive and that clients, in a free market and with perfect information at their disposal, will gravitate towards whichever way of resolving a dispute is the most beneficial to them -- in many cases, this means the cheapest.

However, there is a large gap between what clients pay and what litigators take home.  Much of this gap is accounted for by disbursements and expenses necessarily incurred in the course of litigation; more still is swallowed up by a proportion of the litigator's office overheads -- heating, lighting, office rent, salaries of non-fee-earning staff, employers' liability insurance, professional indemnity insurance, subscriptions to legal information services and law reports, and so on.

The Congress programme can be accessed here; registration here.

How to buy a patent-owner in mid-litigation

In Eli Lilly & Company v Human Genome Sciences, Inc [2012] EWCA Civ 1185 the Court of Appeal for England and Wales was retro-fitted with Sir Robin Jacob in order to return to tidy up some loose ends in the straggling litigation between Eli Lilly and HGS over the patentability of a invention where the patent correctly identified the polypeptide as a member of the TNF ligand superfamily, listing a long description of its activities and uses, but without any back-up scientific data to support a description which the trial judge (Kitchin J, as he then was) depicted as being not so much as a description as a prediction based on knowledge of other members of the TNF superfamily.

In short, Kitchin J held the patent invalid here in July 2008 for lack of industrial applicability, insufficiency and obviousness; the Court of Appeal unanimously upheld his decision in February 2010 here,on the industrial applicability point and did not rule on the other issues.  After the Supreme Court -- to the surprise of many and the dismay of quite a few -- reversed this decision, it remitted the case to the Court of Appeal, here, so that the question of insufficiency of three of the claims could be considered: two had been ruled insufficient at trial and HGS appealed, arguing that they weren't, while a third was ruled sufficient at trial and Eli Lilly appealed on the ground that it wasn't.

The Court of Appeal allowed HGS'a appeal and dismissed Eli Lilly's. The reasoning of the Court appears to be based on well-established principles of claim construction rather than on any ground-breaking principles of law.

The decision in this case have been music to the ears of GlaxoSmithKline, which purchased HGS only last month. The patent in this case, for Neutrokine-α, is said to have an important role to play in dealing with autoimmune diseases and B-cell cancers. While the purchase of a patent-based company while it is in the middle of protracted litigation is always a risk, the risk was minimised here by the fact that the case was, unusually, on its way down to the Court of Appeal following a ruling from a superior court rather than on the way up to it, which both limited the scope of the Court of Appeal's decision-making and made it easier for GlaxoSmithKline to refine its purchase plans.

Divided Federal Circuit Sidesteps “Divided Infringement” Issue: Induced Infringement Does Not Require Direct Infringement By Single Actor

One issue that has vexed courts and commentators for several years is whether a method claim may be infringed when all the required steps are performed, but by more than one entity. In an earlier case, BMC Resources, Inc. v. Paymentech, L.P., 498 F.3d 1373 (Fed. Cir. 2007), a panel of the U.S. Court of Appeals for the Federal Circuit held that a single defendant was liable for direct infringement, even if it did not itself perform all the required steps, when the acts were committed by the defendant’s agent or a party acting pursuant to defendant’s direction or control. See Mark Lemley, et al., “Divided Infringement Claims,” 33 AIPLAQJ 255 (2005). To consider conflicting views on the issue, the Federal Circuit recently granted en banc review in two consolidated cases.

On August 28, the court issued a sharply divided en banc decision in the cases. Akamai Techs, Inc. v. Limelight Networks, Inc., Case Nos. 2009-1372, -1380, -1416, and -1417 (Fed. Cir. Aug. 28, 2012). In a 6-5 decision, the court ruled that issues of divided infringement are better handled as induced infringement under 35 U.S.C. § 271(b), rather than direct infringement under § 271(a). In order to permit that approach to work, the court rejected its prior authority holding that induced infringement only exists when a single third party has committed direct infringement. Instead the court majority held that the induced conduct itself could constitute the required direct infringement, even if the required method steps were performed by two or more entities (or even in part by the defendant). Thus, even though a defendant did not direct or control others in performing the various steps, it could be liable as an infringer under §271(b) if (1) it knew of the patent, (2) it performed or induced third parties to perform the steps of the claimed method, and (4) the steps were all in fact performed. (Note that under the Supreme Court’s decision in Global–Tech Appliances, Inc. v. SEB S.A., 131 S.Ct. 2060 (2011), a patentee proving active inducement also must show that the defendant acted with actual intent to cause infringement (or, alternatively, with “willful blindness”).

Five judges dissented. Judge Newman accused the majority of ignoring the issue for which en banc review was granted (and the only issue briefed and argued), namely, the proper standard for direct infringement in divided infringement cases. Judge Linn, joined by three other judges, argued that the majority’s decision usurped the policy-making function of Congress by retooling § 271 in a manner inconsistent with a long line of prior authority. The opinions (all 100-plus pages worth) are available here.

Beware the US jury: two $1 billion dollar patent damage awards in August

PatLit is delighted to host a second guest piece by Marian T. Flattery (Finnegan), following the warm reception of her first post, on pay-to-delay, here.  Following the flood of comment on the Apple/Samsung damages award, Marian felt it only right and proper to let readers know that smartphone technology and design is not the only field of patent infringement in which billion-dollar awards are being made. She explains:

By now, everyone knows about the $1.05 billion patent infringement damage award Apple won against Samsung in the latest verdict in the smartphone wars (see IPKat here and here). Since transgenic crops are not as “cool” as the iPhone®, the $1 billion dollar damage award to Monsanto against DuPont/Pioneer earlier this month received less popular press coverage and analysis. But, the underlying facts and issues in Monsanto v DuPont and Pioneer raise some quite interesting questions. Particularly noteworthy is the fact that Pioneer did not sell even one infringing product.

Monsanto and Pioneer are fierce competitors in the crop seed business and Monsanto is known for relentlessly enforcing its transgenic crop patents, even against its own customers. Monsanto has also widely licensed its transgenic crop patents, including to competitors. Many of Monsanto’s transgenic crop patents relate to technology which makes the crops resistant to the herbicide glyphosate. In 2002, Monsanto and Pioneer entered into non-exclusive, royalty-bearing licenses which gave Pioneer the right to manufacture and sell soybean and corn seed with Monsanto’s patented glyphosate-resistance traits (RR). Pioneer subsequently developed its own glyphosate-resistant trait technology (OGAT), based on a different gene than Monsanto’s, and began to combine or “stack” Monsanto’s traits with OGAT in soybean and corn seed products. 

Monsanto filed suit, in its home forum - U.S. District Court for the Eastern District of Missouri, against Pioneer in 2009 for breach of contract, patent infringement, inducement to infringe and unjust enrichment based on Pioneer’s production of RR/OGAT stacked seeds. Pioneer counterclaimed for a declaratory judgment that the licenses allowed it to stack OGAT with RR and also asserted a number of antitrust counterclaims. In 2010, the judge ruled that the licenses did not permit stacking of a non-RR trait with Monsanto’s RR trait, although there was no explicit language prohibiting it, and the case proceeded to trial on the patent issues. 

On 1 August, after a three week trial, the jury took less than an hour to return a verdict that Pioneer had willfully infringed Monsanto’s US Patent No. RE 39,247, that the ‘247 patent was not invalid, and awarding reasonable royalty damages in the amount of $1 billion. Unlike the jury in Apple v Samsung, which awarded damages of $1,049,343,540 based on infringement of six patents by 28 Samsung devices, the jury in Monsanto v Pioneer did not have to calculate reasonable royalty damages based on sales because Pioneer never sold any OGAT/RR stacked seed. According to Monsanto, Pioneer expected to generate $3 billion revenue from the sale of OGAT/RR stacked seeds prior to expiry of the ‘274 patent in 2014. In fact, Pioneer made no such sales. In the absence of any infringing sales upon which to calculate royalties or lost profits, Monsanto argued that the unlicensed use of the OGAT/RR stacked products for research and field testing gave Pioneer an unfair head start in producing these seeds prior to patent expiration. There is only a de minimis research use exemption in the U.S. and this case shows that patent damages for research use can be significant.

DuPont/Pioneer immediately announced that it would appeal to the U.S. Court of Appeals for the Federal Circuit and this damage award will be closely scrutinized. Prior to August 2012, there had been only three patent damage awards of over $1 billion in the U.S. The two biggest awards, $1.67 billion against Abbott Laboratories in 2009 and $1.52 billion against Microsoft in 2007, were overturned by the Federal Circuit on appeal. The only other $1 billion+ award was $1.2 billion in 1993 against Honeywell in a case that ultimately settled for $440 million.

Monsanto v Du Pont and Pioneer: more information here

Here comes The Patent Lawyer Magazine

The Patent Lawyer Magazine is a new title from Legal Business Media. You can read about it here and click here to take a look at the pilot issue. Sadly, Angelina Jolie's contribution is largely limited to the front cover -- she hasn't written any articles for the new journal and isn't even on the editorial board (though she does briefly reappear on page 17). But that's no reason not to take any further interest in it.  As the publishers explain:

"The Patent Lawyer Magazine is a special focus international legal publication that focuses solely on the patent industry, patent lawyers and patent law firms.

The magazine is packed full of information, special features, interviews, case comments, special country focus, patent litigation roundup, service provider focus, patent people moves, company press releases, recruitment, inventor section and a dedicated patent directory of services.

The aim of The Patent Lawyer Magazine is to fill the gap in the market for a dedicated magazine that exclusivly focuses on patent law, patent lawyers, inventors and those specialist companies that provide patent related services.

The Patent Lawyer Magazine will be sent via hardcopy and online to over 10,000 recepients including in-house Patent Lawyers, Private Practice Patent Lawyers, C Suite Executives within large pharmaceutical and technology companies around the world.

The launch issue will be published in September 2012 ...".

Transferring a revocation action to a junior court: ERT

Environmental Recycling Technologies plc v Stillwell, Rodlsburger and Upcycle Holdings Ltd is a decision of Mr Justice Warren (Patents Court, England and Wales) of 13 July which has not really hit the headlines (the full text is not on BAILII, though this is hardly surprising since the judgment was extempore). Fortunately the decision was briefly noted on the Lawtel subscription-only service.  Despite its relative obscurity, this decision reflects on when it is appropriate to transfer an action for revocation of a patent from the [more formal and expensive] Patents Court to the [cheaper and more cheerful] Patents County Court (PCC) on account of (i) the parties' financial positions, (ii) the simplicity of the case and (iii) the low value of the dispute.

Essentially, Stillwell and Rodlsburger owned a patent for a process for moulding plastic articles. ERT issued proceedings in the Patents Court for revocation. Stillwell and Rodlsburger assigned the patent to a company, Upcycle, which ERT joined to the proceedings. After some delay, Stillwell and Rodlsburger applied to transfer proceedings to the PCC. ERT was not enthusiastic about this. But what did the court say? Granting both the applications sought, Warren J noted that, while the financial position of the parties was an important factor to take into account it didn't determine by itself whether to transfer the action to the PCC -- and the mere fact that a party could afford to pay any High Court costs that might arise didn't mean that the action had to heard in the High Court.

He also noted that there were often competing and irreconcilable matters in relation to costs. In court cases the winner got their costs -- and in tribunal hearings each party had to bear its own. Although cost-capping in the PCC was the middle ground between the two approaches, it was no more right or wrong than shifting the costs to one party or another.

In Warren J's view, access to justice did not mean that it was right to keep a case in the Patents Court because one party felt that it would be denied justice due to on account of costs-capping in the PCC. Regardless of whether Stillwell and Rodlsburger had transferred the patent to Upcycle for the purpose of tax avoidance was neither here nor there: their actions had not been unlawful and the case could not be retained in the Patents Court on that basis.

Ultimately, in the judge's opinion, neither Stillwell nor Rodlsburger could afford High Court costs -- despite the loans made and overseas properties which ERT demonstrated to exist -- and it should be appreciated that an application to transfer a patent revocation dispute from a more costly forum to a cheaper one was not intended to be a trial of the parties' assets.

In reality, held Warren J, this case was not a complex one; the only issue to be decided was revocation, and in light of the case management conference that had already taken place, the need for lengthy discussion was questionable and the PCC would likely deal with the case in two days. The value of the claim was low, being valued at £10,000, which also pointed to a PCC trial.

Significantly, the applicants had to accept that the costs to date would have to be on the higher High Court scale and that their application for transfer should have been made more promptly.

Finally, there was no reason for  Stillwell and Rodlsburger to remain party to the action. Since they had passed the patent on to its new owner, Upcycle, no relief was actually being sought against them -- though, in the event that ERT won the trial and became entitled to costs, it could apply to join Stillwell and Rodlsburger at that stage.

Pharmaceutical, Biotechnology, and Chemical Inventions: a book review

A while back, PatLit posted a notice to the effect that Pharmaceutical, Biotechnology, and Chemical Inventions, edited by Duncan Bucknell, had been published by Oxford University Press -- but it wasn't really a review. That omission has now been made good by Darren Smyth (EIP), who has kindly given this work a rather closer, practitioner-oriented inspection.  This is what Darren has to say:

"This is a most useful and welcome book that is crammed with the sort of comparative information that the internationally-minded patent practitioner (and client thereof) often seeks.

When presented with this – well – it can only be described as a magnum opus in both senses and with an emphasis on the magnum, my first thought was to paraphrase Dorothy Parker “four two volumes, neatly boxed bound, suitable for throwing purposes”. The rupture factor is huge – the pages of a novella at least (comprising the contents, and tables of cases and legislation) before we get to the page which mendaciously purports to be “1”. Then each of the two volumes has around 1,100 pages of real content before wearily giving way to the indices.

Yet the appearance is doubly deceptive. First, each chapter (of which there are 100) is of a perfectly accessible length, not off-putting at all. And secondly, the tomes turn out to be very little restricted to the fields of the title, and are actually a review of patent and related law in general. Much of it (bearing titles of such topics – hardly specialist - of “novelty”, “inventive step”, “technology transfer arrangements”) would be of interest to, and completely accessible to, practitioners in any field of technology.

Naturally, there are chapters which are more specifically focused on the stated field – chapters on drafting bioscience patents and pharmaceutical patents respectively; on patent term extensions and supplementary protection certificates; and extensive sections on regulatory approval and data exclusivity.

The approach taken in this work is that the 15 sections (including: obtaining patent rights, the period of monopoly, patent validity, amendment, invalidity proceedings and strategy, infringement, defences to infringement, patent litigation strategies, regulatory approval, data exclusivity, competition law, and other IP rights) are each divided into chapters. For example, the infringement section has chapters called Infringing Acts and “Literal Infringement”, Infringement by Equivalents/Non-Literal Infringement, Indirect Infringement, Infringement Proceedings, Remedies for Patent Infringement, and Restrictions on Remedies. Each chapter then consists of an essay on that topic for each jurisdiction of Australia, Canada, China, India, Japan, United States, Europe (overview), France, Germany, Italy, Netherlands and the United Kingdom. Each national essay is written by a contributor from that country, and the individual voices of the different authors are clearly maintained. The essays on the same topic in respect of different countries adopt a different internal structure (presumably originating from the contributor). While this is inevitable in view of the way the work was created, it does mean that a piece of information which is supplied in respect of one jurisdiction is not necessarily supplied in respect of another, and, even if supplied, is not always easy to locate. The list of contributors is lengthy and impressive, and the mere creation and assembly of this work is of itself a monumental exercise. Duncan Bucknell is therefore credited as “Editor” rather than “Author”.

Surprisingly given the OUP pedigree, the book is not completely free from typographical errors. However, this is a minor quibble. A more significant quibble is that the writing style of some of the authors can sometimes be difficult to follow, and the sections written by non-native English speakers could often have benefitted from greater editorial intervention.

Books of this type, compiling comparative expositions of the law from multiple jurisdictions, are familiar in loose-leaf format, and it is perhaps surprising that a non-updatable conventionally hardbound presentation has been chosen. It goes without saying that some of the content of the work is already out of date.

I do not expect that the editors or contributors expected that anyone would sit down (or for that matter adopt any posture) and read the whole work cover to cover. This is a work to dip in and out of, and to consult. For the purposes of consultation, however, the index is not as extensive as would be helpful – it is suspiciously short for a reference work of this length, and key terms (such as “diagnosis”) are missing. Some parts of the book have been a joy to read and were clearly set out. Some parts were rather clunky (for example the treatment of the exclusion from patentability under Art 53(c) EPC in Europe Overview on page 514 ff, which was also unduly influenced by the pre-EPC 2000 formulation of this exclusion as relating to industrial applicability. It was also surprising that this section did not reference the seminal decision G1/04 in the discussion of diagnostic methods, referring to it instead in the Netherlands section).

Overall, this is an impressive book with an expansive coverage which is jolly handy to have around, but could have done with more work on the detail".

Further details of this massive work can be found on its web page here.

Pay-to-delay: settlements can cause litigation too

PatLit is delighted to welcome Marian T. Flattery to its readers. Marian is a seasoned patent practitioner at the distinguished practice of Finnegan; she has also guest-blogged for the PharmExec weblog.  You can read all about her here.

Marian has been invited to do some guest blogging for PatLit. Her first piece is on a topic which brings together strands of patent law and the regulation of competition: pay-for delay.  Marian writes:

Pay-For-Delay Patent Settlements Back in the News 

The legality of “pay-for-delay” patent settlements between name brand drug companies and generic drug makers is making news on both sides of the Atlantic. A pay-for-delay settlement is a patent litigation settlement in which a name brand drug company pays a generic drug maker to delay market entry. The European Commission has brought two pay-for-delay cases in recent days. While in the U.S., one U.S. circuit court expressly declined to follow an earlier sister court decision on two such settlements, thereby creating a split among the circuits as to what test to apply to evaluate the legality of pay-for-delay settlements.

In In Re: K-Dur Antitrust Litigation (3rd Cir., July 16, 2012), the 3rd Circuit rejected the “scope of the patent test” for analyzing the legality of pay-for-delay patent settlements. Under a new test announced in In Re: K-Dur, any payment from a drug company patent holder to a generic patent challenger who agrees to delay market entry must be treated as prima facie evidence of an unreasonable restraint of trade, which could be rebutted by showing that the payment (1) was for a purpose other than delayed entry or (2) offers some pro-competitive benefit.

Over seven years ago, the same two patent settlement agreements at issue in In Re: K-Dur were held not to be an illegal restraint of trade in Schering-Plough Corp. v. FTC, 402 F. 3d 1056 (11th Cir. 2005), cert. denied, 548 U.S. 919 (2006) under the “scope of the patent” test adopted by the 2nd, 11th and Federal Circuits. The scope of the patent test permits reverse payments from a drug company patent holder to a generic patent challenger so long as (1) the exclusion does not exceed the patent’s scope, in time or subject matter; (2) the patent holder’s claim of infringement was not objectively baseless; and (3) the patent was not procured by fraud on the USPTO.

In Re: K-Dur is the first time the 3rd Circuit has weighed in on the legality of pay-for-delay patent settlements and represents a significant break from prior decisions of its sister courts. It also creates a new plaintiff-friendly forum for private parties and the FTC to challenge the legality of pay-for-delay patent settlements between name brand drug companies and generic challengers. This 3rd Circuit decision is a victory for the FTC, which has long advocated that reverse payment or pay-for-delay settlements are illegal agreements in restraint of trade, and likely sets the stage for the U.S. Supreme Court to address the legality of such settlements.