Use Patent Due Diligence to Lower Your Patent Litigation Risks

By Lily Li

Due diligence is a key concept in the business world. Before buying a new company or investing in a new product, companies spend millions of dollars reviewing financial statements, accounting methods, and market reports to ensure that their investments have no hidden risks. In contrast, many companies turn a blind eye to their competitors’ patents when developing their own R&D efforts and patent filing strategies. Unaware of the patent landscape, these companies risk costly infringement lawsuits and even the potential shutdown of an entire product line.

Patent searches and patent landscape analysis are necessary due diligence tools in the high-tech world. Patent searches give companies’ notice of potential IP litigation risks from competitor patents. This gives the company time to refocus R&D efforts to different products, obtain a license, or design-around relevant patents before a product is put on the market.

Research in Motion’s costly lawsuit with NTP provides a stern reminder of the importance of patent due diligence. In March 3, 2006 Research in Motion (producers of Blackberry) announced a settlement of $612.5 million dollars to settle its infringement suit with NTP, ending a five year court battle over the validity of NTP’s wireless email patents, and ending a patent saga that threatened to shutdown RIM’s Blackberry sales in the United States entirely.

The IP battle began in January, 2000, when NTP sent RIM a letter regarding six of its wireless email patents and offering RIM a license. Instead of conducting an in-depth analysis of NTP’s patents, Charles Meyer, RIM’s in-house attorney, discussed NTP’s patents with his staff and quickly concluded that there was no infringement. When the case first came before Judge Spencer in the U.S. district court for the Eastern District of Virginia, Spencer ruled in favor of NTP, finding Meyer’s opinions incompetent because they were based on insufficient information. This decision sparked five years of costly litigation and appeals before RIM finally conceded to the gigantuan $612.5 million settlement.

If RIM had spent just a little time and money conducting patent searches before producing the Blackberry, RIM would have noticed NTP’s patents and avoided a significant threat to its product line and bottom line. A patent search would have given RIM the opportunity to design work-arounds for their products, or figure out a way to narrow their product claims to differentiate Blackberry technology from NTP technology.

After all, a simple title, abstract, and claim search of “electronic mail” and RF in worldwide patent databases from the years 1991-2000 reveals only 21 patent documents – 8 of which are assigned to NTP or Thomas J. Campana Jr., the inventor behind NTP technology. Even if RIM had failed to catch these patents while developing the Blackberry, a significant oversight, NTP’s license request letter should have been enough to put RIM on notice that it needed to conduct an in-depth patent search.

Relevant electronic mail and RF patents from 1991-2000. Data from IP Checkups’ PatentCAM service.

The Research in Motion case study shows that no company is immune from patent litigation, and that the stakes are too high to risk not conducting patent due diligence. Unfortunately, many companies and patent lawyers fail to conduct patent searches due to the fear of “willful infringement.”  In a patent litigation suit, a defendant can incur treble damages if the defendant willfully infringes a patent – i.e. knows about the patent in question and yet goes ahead to produce an infringing product in an objectively reckless manner. (See the Supreme Court’s opinion in In re Seagate Tech., LLC.)

Patent searches in and of themselves, however, are not objectively reckless and therefore do not constitute willful infringement. After all, patent searches are a prudent use of company resources and gives a product developer time to design a product in a way that does not constitute infringement. Research in Motion, on the other hand, was found to willfully infringe NTP’s patents –  because the company was on notice of NTP patents, conducted no investigation, and still moved forward to produce its product. In fact, in an interview with former Chief Judge of the United States Court of Appeals, Paul Michel, Judge Michel adamantly supports patent literature searches. As Judge Michel states: “I think any chief patent counsel who advises the scientists and engineers in his company that they should never read patents is practically incompetent. There is no reason in my judgment why company researchers should have to ignore the patent literature. Hardly any damage awards are ever enhanced. In most cases, willfulness isn’t even established, and even when it is, enhanced damages are not automatic” [emphasis added].

Besides avoiding costly litigation, patent searches can help bolster the strength of a patent application and increase its likelihood of passing patent examiner scrutiny.  Patent landscape searches provide your patent application with relevant prior art references. Knowledge is power. By showing how your patent differs from current technologies, you show the patent examiner (and courts in future litigation) that you have done your due diligence and conscientiously made an effort to create innovation. After all, innovation is what the patent system is all about.

[This article originally appeared on the CleanTech PatentEdge blog]