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In the wake of the fast pace of innovation in communications and information management technologies, patent lawsuit have become a recurrent news item. Most recently, in an area most consumers can closely relate to (DVRs & TV), a web of suits and countersuits, cross-licenses, settlements, and alliances have created a veritable overload of patent lawsuits. In this context, it may be useful to stop and analyze just exactly can is involved in a patent litigation case. In this post will briefly comment on what a patent covers, what types of allegations are made in a patent suit, the key steps of discovery and the Markman hearing, and end with the trial and appeal phases.

What a patent covers

A patent for an invention is the grant of a property right to the inventor, issued by the United States Patent and Trademark Office. The intellectual property right that the patent represents is “the right to exclude others from making, using, offering for sale, or selling” the invention in the United States or “importing” the invention into the United States (USPT info).

The invention covered by a patent has to be specified to the US Patent Office through an application that is to be examined to ascertain if it qualifies for such a grant (USPTO info). The application comprises a description and a listing of claims. These claims define the boundaries of the invention, not unlike the boundaries of a piece of real estate property.

For example, back in 1998, TiVo, Inc. applied (technically, six inventors applied and simultaneously assigned the application to the company) for a patent covering an invention which claimed to allow “…the user to store selected television broadcast programs while the user is simultaneously watching or reviewing another program” (Patent 6,233,389). Claim number 1 (of 61) of this patent, which was issued May 15, 2001, describes the invention as follows:

A process for the simultaneous storage and play back of multimedia data, essentially comprising the following steps (edited):

• accepting television (TV) broadcast signals;
• tuning said TV signals to a specific program;
• converting the program to MPEG format for internal transfer and manipulation;
• separating the MPEG stream into its video and audio components;
• storing said video and audio components on a storage device;
• extracting the video and audio components from the storage device;
• assembling the video and audio components into an MPEG stream;
• sending said MPEG stream to a decoder;
• converting said MPEG stream into TV output signals;
• delivering said TV output signals to a TV receiver; and
• accepting control commands from a user, which are sent through the system and affect the flow of said MPEG stream.

The patent thus gave TiVo protection, for 20 years beginning in 1998, with regards to the market for systems fitting the description given in the patent documentation. When the patent grant was announced in 2001, industry observers noted: “News of the patent has competitors, such as ReplayTV and Microsoft, scratching their heads as they try to sort out how the patent will affect their businesses. But it’s clear that Wall Street has taken a shine to the news…and will watch with eager anticipation as TiVo creates a separate revenue stream around licensing activities” (CNET news).

Three sets of allegations

Patent lawsuits typically begin with a complaint that frames the issues and lists the plaintiff’s list of claims. This complaint is filed in federal court pursuant to Section 287 of US Code Title 35 (“Limitation on damages and other remedies; marking and notice”) and it specifies the patent claims of a patent (or set of patents) that are alleged to be infringed by the named defendant through such actions as: making, using, selling, importing, or offering for sale the innovation covered by the patent(s).

In our example, TiVo, Inc. filed a patent infringement lawsuit January 5, 2004 against Echostar Communications, then owners of the Dish Network (Case 2:05-cv-00001-DF before the US District Court for the Eastern District of Texas). Count one of the complaint directly stated that “Defendants have been and are now willfully and deliberately infringing … the [6,233,389] patent by making, using, offering to sell and/or selling in the USA digital video recording devices…within the scope of the [6,233,389] patent.” (Complaint, at paragraph 10).

Again reflecting patent law in the complaint, TiVo then states “[it] is entitled to recover damages adequate to compensate it for the infringement…but in no event less than a reasonable royalty” (Complaint, at §11). For an outline of what intellectual property infringement damages specifically entail, see the corresponding expert witness section of our website.

In the typical patent case, if the facts presented by the plaintiff seem to support the allegations, the defendants usually deny any infringement on the basis of the mismatch between the patentee’s claims and the literal interpretation of the invention the patent actually covers. Going even further, the defendant may counterclaim in order to have the patent invalidated on the grounds, for instance, that it does not comply with one or more of the various legal requirements (technicalities of the application process or substantive issues as to the patentability of the invention). In other situations, the defendant may counter-sue the original plaintiff for infringement of its own patents.

In our example, EchoStar filed this type of suit against TiVo in 2005 alleging the infringement of four of its patents. As a defense, TiVo successfully obtained a stay in this litigation by arguing for a re-examination of these patents by the USPTO. Three of the patents were invalidated in the process and, today, the court lifted the stay and the EchoStar suit vs. TiVo will go forward (News Report).

Discovery

If the patent suit is to go forward after the initial filing of the complaint and the defendant’s initial responses, the parties will most likely enter the discovery phase, where the relevant subject matter for interrogatories, depositions, and document production are exchanged and the core of the cases are carefully built by the opposing legal teams. This phase is common to all civil litigation and its details are specific to each set of facts.

Markman Hearing

Specifically in patent cases, the interpretation of the claims in the patent, or “claim construction,” is handled through this type of hearing before a determination of liability for infringement can be made. Claim construction is considered solely a matter of law (Since the original Markman v Westview case in 1995). The courts will typically interpret the patent claims at issue relying both on the claims, the written description, and the prosecution history of the patent, as well as external evidence from expert witnesses, investor testimony, and other resources to clarify the terms of the claims defining the invention.

Trial

In a small percentage of cases, a patent dispute ends up being resolved at trial in a US District court. There, the parties bring forward their respective cases, including the concrete evidence (or defenses) regarding the alleged infringement and have experts testify as to the technical and damages aspects of their side. The jury then decides whether or not there is a preponderance of evidence of infringement and, if warranted, what amount of damages are to be awarded to compensate the plaintiff.

In the TiVo vs. EchoStar case, the jury decided that the Dish Network Digital Video Recorders (DVRs) did infringe the patent at issue, and awarded TiVo $200 million in damages. EchoStar, naturally, proceeded to the next stage of litigation: the appeal.

Recent damages awards

During the last 3 months of 2010, we found 268 verdicts in patent infringement trials throughout the USA. In one out of every four of these cases, no damages were awarded as the defendants prevailed. In another one of four cases, damages awards were for under the average cost of litigation of $2.5 million. Thus, in half the trials the awards were significant: 18% (47 cases) ranged between $2.5 and $10 million, 26% (70 cases) ranged between $10 and $100 million, 6% (17) cases resulted in awards between $100 million and a Billion dollars, and 1% (2 cases: Centocor v. Abbott and Alcatel-Lucent v. Microsoft) resulted in verdicts for over $1.5 billion or more. The chart below illustrates the concentration of mid-level awards.

Data provided by www.PatStats.org

Appeal

In a not insignificant proportion of cases that go through trial, defendants exercise their option to appeal the verdict. The situation in patent litigation is unique among other civil litigation, including other intellectual property cases; all appeals are handled by the United States Court of Appeals for the Federal Circuit. Not being limited by geographic scope, the decisions of this court in matters of patent law are unique in that they are binding precedent throughout the U.S. Finally, a few patent law issues have been granted further review on appeal by the Supreme Court.

In our example, last March (2010) the Federal Circuit affirmed the $200 million damages award, among other issues related to the case. Litigation continues, however, as the decision was not unanimous and further arguments were heard later that year by the full court (in a En Banc review).