Chinese Companies Asserting Patents in the U.S.

U.S. patent protection provides a number of benefits to Chinese companies. Obvious is the potential benefit of monetizing patents through a licensing program, i.e., offering licenses to third parties that may otherwise infringe or otherwise desire to utilize the invention. Additionally, simply owning well-drafted U.S. patents can often deter other companies from targeting your company for infringement claims, because the prospect of an infringement countersuit may not be worth the risk to the would-be patent plaintiff.

Patent owners can also monetize patents by initiating enforcement proceedings against infringers in U.S. District Courts. Risks and costs associated with litigation may seem substantial, but patent plaintiffs have a lot to gain in United States litigation. Indeed, there has been a trend of increased patent damages awarded by juries, with the median award increasing from $6.1 million in 2016 to $10.2 million in 2018.[3] There is also the potential for enhanced (up to triple) damages for willful infringement (one recent report found willfulness determinations in more than half the jury cases). In some circumstances, an award of attorneys’ fees is also possible.

This article addresses some recent changes in U.S. law that tilt in the patent owner’s favor.

In addition to compensatory damages, a court may “increase the damages up to three times the amount found or assessed” upon a finding of “willful” infringement.[4] In a 2016 United States Supreme Court ruling, the Court lowered the bar for patent holders to prove willful infringement, rejecting the notion that an infringer’s actions had to be “objectively reckless” to be willful.[5] Rather, district courts enjoy discretion in deciding whether to award enhanced damages based on any conduct that is “willful, wanton, malicious, bad-faith, deliberate, consciously wrongful, flagrant, or – indeed — characteristic of a pirate.”[6] The Court also removed the heightened “clear and convincing” evidentiary standard for willfulness, and instated the lower “preponderance of the evidence” standard of proof.[7]

After this change, more patent owners are asserting willful infringement claims and seeking enhanced damages, and according to a 2018 study, the requests are more successful – findings of willfulness have increased from 36% to 54% since 2016.[8] This decreased burden to multiply the damages is just as available to Chinese companies as it is to those based in the U.S., and can provide a substantial potential upside to successful patent assertion.

II. Exceptional Cases and Attorneys’ Fees

United States patent law empowers courts to award reasonable attorney fees to the prevailing party in “exceptional cases.”[9] Until recently, for a case to be “exceptional,” “clear and convincing” evidence that “the litigation is both ‘brought in subjective bad faith” and ‘objectively baseless’” was required.[10]  In a relatively recent decision, the Supreme Court rejected this standard, and held that “an ‘exceptional’ case is simply one that stands out from others with respect to the substantive strength of a party’s litigating position . . . or the unreasonable manner in which the case was litigated. District courts may determine whether a case is ‘exceptional’ in the case-by-case exercise of their discretion, considering the totality of the circumstances.”[11] The Supreme Court again found no basis for the high “clear and convincing” evidentiary standard, and imposed the lower preponderance standard.[12] Thus, for a strong patent case, in addition to the possibility of willful infringement, Chinese companies might also seek recovery of attorneys’ fees.

An accused infringer may, within one year of service of a complaint, petition the Patent Office to institute an Inter Partes Review (“IPR”) before the United States Patent and Trademark Office’s Patent Trial and Appeal Board to contest its validity.[13]  This is now a commonly used defense procedure, as it offers a more-streamlined means of challenging a patent with minimal discovery, and can result in a stay of the district court proceeding while the accused infringer asserts its invalidity claims before the Patent Office.

For the first few years after its implementation, the PTAB may have justly earned its “patent death squad” nickname: as of September 2015, 72% of the 575 trials reaching a final written decision found all instituted claims not to be patentable despite their prior grant.[14]  Over time, however, statistics show that the PTAB has begun tilting back towards parity: as of April 2019, just 63% of the 2,707 trials reaching a final written decision found all instituted claims unpatentable.[15]  This trend is significant to patent owners, as any challenged claims not invalidated by the PTAB will likely be more difficult to invalidate in subsequent IPRs or litigation based on the same or similar art.

Not only can an IPR proceeding strengthen a patent, but it can also provide patent owners with tactical advantages in litigation. IPR estoppel is a prime example. That is, if the IPR results in a final written decision, the petitioning defendant is estopped from asserting any grounds of invalidity that it raised or reasonably could have raised in that IPR in the related district court litigation.[16] The recent trend among district courts appears to be applying the estoppel more broadly, thereby significantly limiting an accused infringer’s grounds for asserting invalidity in litigation.[17]

A strong U.S. patent portfolio can prove to be an invaluable asset and contributor to business growth, sustainability and protection. But this is only possible if its patents are utilized in an effective and diligent manner.

[1] 2017 Patent Trends and Insights, IFI Claims Patent Services, https://www.ificlaims.com/rankings-trends-2017.htm (last visited Jun. 26, 2019).

[2] 2018 Trends and Insights, IFI Claims Patent Services, https://www.ificlaims.com/rankings-trends-2018.htm (last visited Jun. 26, 2019).

[3] PwC 2018 Patent Litigation Study (May 2018), at 5, https://www.pwc.com/us/en/forensic-services/publications/assets/2018-pwc-patent-litigation-study.pdf (last visited Jun. 26, 2019).

[4] 35 U.S.C. § 284.

[5] Halo Elecs., Inc. v. Pulse Elecs., Inc., 136 S. Ct. 1923,1933 (2016).

[6] Id. at 1932.

[7] Id. at 1934.

[8] See PwC 2018 Patent Litigation Study (May 2018), at 17, https://www.pwc.com/us/en/forensic-services/publications/assets/2018-pwc-patent-litigation-study.pdf (noting that findings of willfulness increased from 36% to 54%) (last visited Jun. 26, 2019).

[9] 35 U.S.C. § 285.

[10] Octane Fitness, LLC v. ICON Health & Fitness, Inc. 134 S. Ct. 1749, at 1753-54 (2014) (citing Brooks Furniture Mfg., Inc. v. Dutailier Int’l, Inc., 393 F.3d 1378 (2005)).

[11] Id. at 1756.

[12] Id. at 1758.

[13] 35 U.S.C. § 315(b).

[14] United States Patent and Trademark Office, Patent Trial and Statistics at 9 (Sept. 30, 2015), https://www.uspto.gov/sites/default/files/documents/2015-09-30%20PTAB.pdf (last visited Jun. 26, 2019).

[15] United States Patent and Trademark Office, Trial Statistics IPR, PGR, CBM at 10 (April 2019), https://www.uspto.gov/sites/default/files/documents/trial_statistics_apr_2019.pdf (last visited Jun. 26, 2019).

[16] 35 U.S.C. § 315(e)(2).

[17] See, e.g., SiOnyx, LLC v. Hamamatsu Photonics K.K., 330 F. Supp. 3d 574, 601 (D. Mass. Aug. 30, 2018); Cal. Inst. of Tech. v. Broadcom Ltd., No. CV 16-3714 GW (AGRx), 2018 U.S. Dist. LEXIS 221754, at *20-23 (C.D. Cal. Dec. 28, 2018).

The views and opinions expressed in this article are those of the authors and do not necessarily reflect those of Sills Cummis & Gross P.C.