Keep Patent Infringement Risky Business—Some Reflections on the Proposed Patent Reform Bill (S23 February 2011).

A long time ago in a galaxy far far away, the Federal Circuit was presented with a case of careless and reckless infringement.  Based upon its facts, the Federal Circuit decided that it was appropriate in many circumstances to charge an infringer with willfulness, to multiply the actual damages, and to charge interest on the deferred actual damages.

 Now that’s a lawsuit.

 That case, Underwater Devices, was one of the foundations for opinion and infringement analysis work for the better part of two decades.  Admittedly, it knocked over a few unintended dominoes such as an implication of willfulness derived from a failure to produce an opinion.  This in turn tended to mitigate the public policy benefits of the attorney-client privilege.

Nevertheless, Underwater Devices made it clear that patent infringement was measurably risky.

For now, initial drafts of S23 attempt to mitigate the risks of willful infringement (e.g., proposed Section 4 on Damages).

Should we be concerned, however, with a reduced risk of willful infringement?  Does good public policy call for reducing risk to a point where patent infringement does not matter, or matters very little?

Prior to Underwater Devices and prior to the Federal Circuit, it was a well established patent law practicality that certain circuits rarely if ever enforced patents.  Typically, the defeat would be assigned to obviousness which is, of course, the most subjective aspect of patentability.

(The “second derivative” of obviousness—i.e., whether a particular inventor or practitioner should have subjectively cited any particular reference in the subjective obviousness context—deserves a world of comment all by itself).

Furthermore, in many pre-CAFC cases because infringement and willfulness were not subject to adequate remedies, the price of patent infringement generally turned out to be the same as a license.

This presented the infringer with two possible outcomes, both of which were low risk. 

Under the first low risk outcome, the infringer litigated and won.  Thus, the cost of infringement was limited to the cost of the lawsuit.  In turn, the cost of a lawsuit may be proportionally acceptable to the potential risk that was mitigated.  If the cost of the lawsuit represented only a few percentage points of the potential risk, then the outcome was highly favorable to the infringer.

Under the second low risk outcome the infringer litigated and lost.  Nevertheless, because courts rarely found willfulness or granted prejudgment interest, the eventual remedy was the total of the cost of a license plus the cost of litigation.  Because licensing calculations have always assumed that the licensee is entitled to make a profit, the resulting cost to the infringer remained potentially minimal.

Accordingly, the disincentive to avoid infringement—was minimal.

Unless patent infringement carries a relatively steep risk, the value of individual patents and the associated innovation will necessarily be reduced.  IP practitioners and their clients have long recognized that jurisdictions in which the risk of infringement is minimal or nonexistent are jurisdictions in which innovation is correspondingly stunted, minimized, or simply nonexistent.

Therefore, I would encourage practitioners to raise their voices to make sure that the new patent act (if there ever is one) keeps patent infringement a risky business.

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