United States Patent Disputes and the Asian LED Industry

In recent years, companies in the LED industry have increasingly resorted to, or been forced to defend, patent infringement litigation.  Hundreds of complaints involving LED technology have been filed in district courts all over the United States (“U.S.”) and in the International Trade Commission (“ITC”) in the last three years alone.  Retailers and manufacturers – large and small and throughout the supply chain – have been engaged in these patent disputes.

The authors have defended LED patent infringement cases in a variety of forums and provide in this paper thoughts on strategies, and the sometimes unique applications of these strategies to the LED arena for foreign manufacturers and suppliers.

I.  Where Can Asian Entities Be Sued?

Until recently, plaintiffs were permitted to file patent infringement suits in any district court in the U.S. where the products of the defendants were sold.  For companies with products sold nationwide, this effectively allowed plaintiffs to sue them in nearly any district court of their choosing, even if they had little-to-no corporate presence there. The preferred plaintiff forum was the Eastern District of Texas due to its perception of having pro-patentee procedures, such as a restrictive approach to granting summary judgment and a preference for broad and expedited discovery.[1]  The Supreme Court recently ended this “sue anywhere” approach for American defendants, however, finding a defendant may be sued only where the defendant (i) has allegedly committed acts of infringement and has a regular place of business, or (ii) is incorporated.[2]

Foreign defendants were no so lucky.  Indeed, in TC Heartland, the Supreme Court left intact the law applying a much broader statute to patent cases against foreign defendants, such that “a defendant not resident in the United States may be sued in any judicial district.”[3]  This broader statute’s application to foreign patent defendants was recently confirmed by the Federal Circuit in In re HTC Corp., 889 F.3d 1349 (Fed. Cir. 2018). To avoid being sued in pro-plaintiff districts, at the first sign of an impending suit, potential foreign defendants may consider filing a declaratory judgment action for non-infringement and invalidity in a more favorable district. This however submits the foreign defendant to the jurisdiction of the Court and should be considered carefully.

For some foreign manufacturers with no U.S. presence, patent plaintiffs frequently choose to sue a downstream customer or retailer with a U.S. presence, rather than suing the foreign manufacturer.  In these situations, there may be hope to change the location of suit to a more favorable forum, depending on corporate relationships.  For example, in one recent case defending a nationwide United States LED retailer and a Chinese related party, the authors were successful in dismissing the case against one of the defendants and thus moved to transfer the case against the other defendant to a more-favorable forum.  Strategies such as this might work well, particularly for Asian defendants with American subsidiaries or customer/retailer co-defendants.

II.  Supply Chain Coordination: Indemnification

It is relatively common for master supply and purchasing contracts to contain provisions whereby the supplier agrees to indemnify the purchaser in the event the purchaser is faced with infringement claims regarding the supplier’s goods.  For some U.S. transactions the law expressly provides for such indemnification.[4]  Indemnity provisions often provide that the supplier will defend the purchaser if an infringement suit is filed. Some indemnity provisions permit the supplier to participate or even control the defense of the lawsuit.  Regardless of which party is in control, careful and strategic coordination between suppliers and purchasers is necessary for the best possible defense and to ensure that all discovery needs are met.  Indeed, it is often the case that the purchasers know little about the technical aspects of the supplied goods and it is the suppliers that have the relevant technical documents as well as the expertise to develop non-infringement and invalidity defenses whether named as a defendant or not. Thus, suppliers and purchasers should begin coordinating a litigation strategy as early as possible when made aware of infringement allegations.

III.  Supply Chain Coordination: Privity and Real Parties in Interest for IPR’s

Pursuing inter partes review (“IPR”) petitions to challenge the validity of a patent can dramatically shift the balance of litigation and often put defendants on the offensive as far more patents are invalidated in IPR proceedings than in litigation.[5] The degree of litigation control between suppliers and purchasers can be important when filing IPR petitions of asserted patents.   First, there is a statutory requirement that an IPR petitioner must identify all “real parties in interest” (“RPI”).[6]  Second, there is a statutory bar against instituting an IPR petition if it is filed more than one year after the petitioner, real party in interest or privy of the petitioner was served with an infringement complaint.[7]

While the relevant statute does not provide explicit definitions for RPI or “privy” of the petitioner, the Federal Circuit Court of Appeals has recently provided some guidance on these terms.  A RPI determination evaluates whether some party other than the petitioner is the “party or parties at whose behest the petition has been filed.”[8] The primary factors suggesting an entity is a RPI are funding, directing, and/or control of the IPR proceeding.[9] With regard to whether a party is a “privy of the petitioner,” the PTAB performs a “flexible” analysis that “seeks to determine whether the relationship between the purported ‘privy’ and the relevant other party is sufficiently close such that both should be bound by the trial outcome and related estoppels.”[10]  Similar to the RPI test, factors suggesting privity with the petitioner include “whether the non-party ‘exercised or could have exercised control over a party’s participation in a proceeding,’ and whether the non-party is responsible for funding and directing the proceeding.”[11]

It is critical to carefully review and account for the specific rights and obligations of indemnity provisions if petitioning for IPR to avoid filing a deficient petition (i.e., not including all RPIs) or being time-barred from filing a petition (i.e., RPI or privy of petitioner being served with complaint more than one year before filing and thus being barred from IPR).

IV.   Discovery of Foreign Suppliers in U.S. Litigation

As the targets of patent enforcers have expanded to include downstream distributors and retailers, the location of relevant technical documents may not always be in the possession, custody or control of named litigants, but rather with the foreign suppliers.  For those foreign suppliers unfamiliar with U.S. litigation, it may come as a surprise that the permissible scope of discovery is far more liberal in the United States than those of other foreign jurisdictions.

In some circumstances, discovery may be sought from foreign suppliers, even if they are not parties to the litigation.  One way such discovery may be pursued is through the language of the supply agreements themselves – if the defendant/purchaser is provided with the legal right to obtain documents from its supplier, the patent plaintiff may argue that it has sufficient “control” over the documents to obtain them and produce them in the litigation.  Another approach of the patent plaintiff might be by subpoena to American subsidiaries of the foreign supplier, arguing that the subsidiary has “control” sufficient to obtain and produce the documents.  These types of arguments are common, but not always successful – courts tend to recognize the formalities and practicalities of whether one company truly has the power and control to obtain documents from another.

There is another option for patent plaintiffs to obtain discovery from foreign manufacturers, pursuant to the Convention on the Taking of Evidence Abroad in Civil or Commercial Matters—more commonly referred to as the Hague Evidence Convention (“HEC”).[12]  Seeking discovery under the HEC, however, is typically a rather long process, particularly for evidence in China – the process that can take 6-12 months without any guarantee of approval.

Another, practical approach should also be considered – agreeing with plaintiff on a limited, discrete set of discovery from the foreign manufacturer.  Remember, the purchaser/defendant in the litigation often needs discovery from the supplier as much as the patent plaintiff does – to show that the claims of the patent are not met, for example.  So, agreement on a limited, discrete set of production can often reduce costs and help defend against the patent.

V.  Conclusion

Based on our significant experience handling United States patent litigations and IPR’s involving Asian LED suppliers, and their customers, these entities must coordinate closely in defending patent infringement proceedings in the United States – cooperation and coordination can be the difference between winning and losing.