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Anatomy of a patent litigation case

Friday, February 11th, 2011

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).

Posted in Case Law, Economic Damages, Infringement, Intellectual Property, Patents | Comments Off on Anatomy of a patent litigation case

Can consumers confuse a pickup truck with a formula 1 car?

Thursday, February 10th, 2011

That is the underlying question the recent trademark rights enforcement action from Ford [News Report], the source of the “F150” pickup truck, against Ferrari, the source of the “F150” F1 car (since 1975). Ferrari’s F1 cars have always been numbered progressively, 2010’s car was the “F40”, but this year is the 150^th anniversary of Italy’s re-unification, so the full name of the car is “Ferrari F150th Italia” [Ferrari Statement]

The USPTO has been reluctant to grant trademark rights for some less well-known automotive model designations. The TTAB Blog reported in 2009, for example, that Acura failed in getting “Acura TL” registered as a mark in part because, in commerce (on the back of those cars), the make and the model designations do not appear “next” to each other (“Acura” is on the left side of the trunk lid, “TL” on the right side). However, the purpose of trademark law is to protect consumers from confusing one source of goods/services from others and, by the same token, prevent some commercial interest to “ride the coat tails” of another. So, how is the 2011 season Ferrari Formula 1 car, which is not sold to anyone, going to confuse any consumers of the Ford pick-up truck?

F150 badges from the complaint

Going over the trademark dilution, infringement, false designation of origin, and cyberpiracy complaint filed yesterday (February 9, 2011) before the US District Court (Eastern District of Michigan Case: 4:11-cv-10518-MAG-PJK) it is striking how the key claim reads:

Ferrari has misappropriated the F-150® trademark in naming its new racing vehicle the “F150” in order to capitalize on and profit from the substantial goodwill that Ford has developed in the F-150® trademark, and in order to trade off of Ford’s famous and winning trademark…Although Ferrari asserts that the naming of the “F150” is to honor the one hundred and fiftieth anniversary of the unification of Italy, the objective evidence demonstrates that Ferrari is seeking to misappropriate the substantial goodwill that Ford has developed in the famous F-150® trademark.

The Tough F-150® and the elitist F150th Italia

Ford also seems to be concerned not simply with the potential competition between the truck and the F1 car, but points repeatedly to the F-150® apparel merchandising registration. Furthermore, the indignation reaches its peak as:

“…the elitist Ferrari “F150” tarnishes the BUILT FORD TOUGH® F-150® brand.“

F1 fans make light of the situation, and NASCAR Camping World Truck Series fans can be offended over the tarnishment, the suit is not without its interesting points. First of all, trademark owners do have to police their brands and show they do exercise control over the use of their marks and litigate infringement. But, although it is early to know how this case will be resolved, it could be enlightening to examine how courts typically determine the key concept of the “likelihood of confusion.”

The most frequently used checklist of factors is as follows:

Whether or not the goods or services using the same mark compete with one another. – In this case the autos do not compete, and only at some abstract level merchandising and licensed apparel are substitutes as apparel per se, but not as the distinctive branding devices for their consumers (Ford acknowledges the elitist/tough distinction).
Whether or not the goods or services are being marketed through the same channels of distribution. – They are clearly not using the same channels for the vehicles, and the merchandise sales occur at different events. However, the ecommerce brings a potentially confusing channel, if all you are searching for is an F-150 cap, your search engine may accidentally direct you to the www.ferrarif150.com website and lead to a purchase of the wrong brand. That is where Ford’s claim of cyberpiracy comes in.
Whether or not the alleged infringer intended to trade on the plaintiff’s business good will. – This is literally Ford’s initial claim, but it is hard to argue that the “tough” brand image has created such a strong following for anything labeled F-150 that truckers will be led to replace their blue oval gear with red prancing horse apparel.
Whether the marks are similar in appearance, phonetic sound, or meaning. – Here is the strongest claim for Ford, except for meaning as it could lead to a survey duel in court if you ask “people-on-the-street” what F150 means to them.
How careful the consumer is likely to be prior to purchasing. – Buyer sophistication and disparity of price points clearly would not support a confusion argument. Only a handful of F1 collectors will ever buy a Ferrari F1 car, and truck buyers know if they are seeing a tough truck or a wimpy and elitist set of wheels. Again, the battle is only possible among merchandising and t-shirts that only use the F150 designation, not any imagery of the cars, the brand colors, or the merchandise materials themselves.
Whether or not the companies are accessing overlapping customer bases. – There will be plenty of material as to why the likelihood of Ferrari F1 fans being the core Ford F150 demographic is low to negligible.
The legal strength of each of the marks. – Again, while it is likely that a majority of truck consumers know the basic Ford pickup directly as an “F-150®”, most fans will still refer to the “Ferrari” car and only refer to the F150 designation in comparisons with prior models.
Finally, whether there has been any actual confusion. This is obviously going to be fact based but, again, the smoking gun will be that a trucker looking for an F-150® cap would go to the ferrari150.com site to order it (Except the site has been parked while the suit is pending).

We await with interest the response from Ferrari, but this is looking more and more like a quick settlement. But, who knows, Ford may still resent Commendatore Ferrari not wanting to sell the iconic brand back in the mid-sixties (which initially led to Ford’s development of the Ford GT40 to win at Le Mans).

Posted in Case Law, Domain Names, Economic Damages, Infringement, Intellectual Property, IP Management, Trademarks | 1 Comment »

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