Breaking the law to break into the black: patent infringement as a business strategy.

• Author: Wrzesinski, Eric C.

INTRODUCTION I. APPLICABILITY OF U.S. PATENT INFRINGEMENT LAWS TO CORPORATIONS A. Current U.S. Patent Laws Deterring Unintentional Infringement B. Current U.S. Patent Laws Deterring Willful Infringement II. ANALYSIS OF INADEQUATE PROTECTIONS OF U.S. PATENT INFRINGEMENT LAWS TO PATENT OWNERS A. Inadequate Protections Afforded by Statutory Damages and Remedies to U.S. Patent Owners B. Inadequate Protections Afforded by the Read Factors Test to U.S. Patent Owners III. PROPOSAL FOR CHANGES TO CURRENT U.S. PATENT INFRINGEMENT LAWS FOR UNIVERSAL FEDERAL JUDICIAL ADOPTION CONCLUSION INTRODUCTION

Corporations and businesses make important decisions every day that affect their financial viability and market image relative to other competitors in a particular industry. For those organizations that produce innovative technologies, the aggregate of the many decisions made throughout the various stages of development manifests itself through the final product presented to the marketplace or utilized by the organization internally. However, as evidenced by the drastic increase in patent infringement cases brought before U.S. courts each year (there were 2,120 patent suits filed in 19981 and filings increased 111% from 1991 to 20002), circumstances in which organizations produce inventions that infringe the legal rights of other entities occur routinely in the United States.

U.S. patent laws (3) influence the decision-making processes for these technology-producing organizations through the economic consequences (the costs of litigating an average patent case are estimated to be one to four million dollars (4)) and time costs resulting from actual and potential patent infringement litigation, settlements, and liability rulings. Yet despite organizations' knowledge of the possible legal and business repercussions associated with patent infringement, a multitude of U.S. court cases addressing this issue continue to arise each year. (5) Accordingly, a proper analysis of the phenomenon of patent infringement prompts the natural inquiry of whether firms consciously decide to infringe certain patents as a sound business strategy or whether such cases arise spontaneously due to incomplete and careless research of prior art by the infringing firms. Regardless of what empirical research studies indicate as the most frequent explanation, (6) patent infringement may remain an effective business strategy for technology-producing firms, even when not employed willfully, due to the inadequate deterrence function of current U.S. patent laws.

1. APPLICABILITY OF U.S. PATENT INFRINGEMENT LAWS TO CORPORATIONS

   1. Current U.S. Patent Laws Deterring Unintentional Infringement U.S. patent laws do not explicitly consider the intention of the alleged infringer in determining whether that entity or person is liable for patent infringement under 35 U.S.C. [sub section] 271, 284, 285, (7) and the "doctrine of equivalents." (8) Consequently, federal courts are not explicitly required to consider the fact that a company willfully produced an infringing technology when determining its liability or the remedy granted to the plaintiff under a facial interpretation of these aforementioned laws. (9) As a result, the deterrence effect of these patent laws works to instill a more comprehensive and careful research effort of prior art by inventors in order to discourage and minimize unintentional infringement.

      Under 35 U.S.C. [section] 284, the damages assessed by the jury and/or judge serve this deterrence function against unintentional infringement and are distinct from those awarded in willful infringement cases, (10) except when the unintentional infringement is also considered "exceptional" by the court. (11) However, the inability of these patent laws (12) to effectively deter potential infringers from consciously developing a strategy to infringe upon a patented technology creates a tangential incentive for firms to develop business plans directed at violating these laws.

   2. Current U.S. Patent Laws Deterring Willful Infringement

      Consequently, the Court of Appeals for the Federal Circuit has begun to recognize the failure of U.S. patent laws and judicial precedent to explicitly address the business problems created by willful infringement and has responded with a series of decisions aimed at directly admonishing such action. (13) The pressing need for federal courts to adopt a strong policy stance against intentional abuses of U.S. patent laws by willful infringers can be traced back to the creation of the Court of Appeals for the Federal Circuit by Congress in 1982.14 Subsequent to its formation, the Federal Circuit proceeded to rule that an infringer has a "legal obligation to respect valid patent rights" (15) in a concerted effort to halt the "widespread disregard of patent rights [that] was undermining the national innovation incentive." (16)

      Interestingly, however, the Federal Circuit has provided neither an express definition for willful infringement, which could be applied to all patent infringement cases, nor statutory authority, which explicitly prohibits such actions. (17) Instead, the Federal Circuit derived its authority to pronounce willful infringement as contrary to U.S. patent law solely from analogizing that the common law principle disfavoring an intentional disregard of legal rights should apply not only to civil laws, but patent laws as well. (18) In fact, the only statutory authority associated with the Federal Circuit's application of the principle of willful infringement is in reference to damages and remedies and not the actual wrongful conduct. (19) This strongly suggests that the judicial doctrine against willful infringement is fundamentally premised upon deterrence of intentional infringement through a primarily damages-based approach, despite suggestions otherwise by the Federal Circuit. (20)

      However, adding to the convoluted and tenuous derivation of the concept of willful infringement by the Federal Circuit is the absence of any reference to willful or intentional infringement by either the damages or remedies statutes addressed under 35 U.S.C. [section] 284 and 35 U.S.C. [section] 285, respectively. As a result, a judge is entitled to apply [section] 284 in assessing "increased" damages for all infringement judgments, including willful infringement, (21) and to apply [section] 285 in awarding attorneys' fees because the Federal Circuit has ruled that willful infringement constitutes "exceptional" infringement under the statute. (22) Consequently, the relatively confusing and tenuous statutory foundation for willful infringement liability, damages, and remedies may serve to support intentional patent infringement as a viable business strategy.

      While the only U.S. patent laws to exhibit any deterrence effect upon potential infringers are the aforementioned [section] 284 and [section] 285 statutes, the Federal Circuit has created a more sophisticated test for determining whether willful infringement has occurred. (23) This test is beneficial to both the federal courts and patent lawyers (24) because it adds substance and certainty to the general judicial philosophy that infringers who intentionally disregard the patent rights of other inventors should be punished. (25) However, this test is limited in its capabilities because it is used by the courts only to classify infringement as intentional and does not directly serve a deterrence function.

      Expanding upon the general judicial doctrine that willfulness is to be determined in "consideration of the totality of the circumstances," (26) the Federal Circuit determined that courts should consider nine factors established in Read Corp. v. Portec, Inc. that include:

      (1) whether the infringer deliberately copied the ideas or design of another; (2) whether the infringer, when he knew of the other's patent protection, investigated the scope of the patent and formed a good-faith belief that it was invalid or that it was not infringed; ... (3) the infringer's behavior as a party to the litigation[;] ... (4) [d]efendant's size and financial condition[;] (5) [c]loseness of the case[;] (6) [d]uration of defendant's misconduct[;] (7) [r]emedial action by the defendant[;] (8) [d]efendant's motivation for harm[; and] (9) [w]hether defendant attempted to conceal its misconduct. (27)

      If the judge or jury determines that an infringer's actions qualify as willful in consideration of these nine factors, then the judge may proceed to punish the infringer under the damages and remedies statutes. (28)

2. ANALYSIS OF INADEQUATE PROTECTIONS OF U.S. PATENT INFRINGEMENT LAWS TO PATENT OWNERS

   When considering the current U.S. patent laws prohibiting infringement, the federal courts' reliance upon the aforementioned statutes (29) as the principal deterrent against potential infringers (30) may prove to be both misguided and ineffective. (31) This is because these statutes fail to adequately address and resolve the business innovation problems that the judicial concept of willful infringement should work to combat. (32) The Federal Circuit and Congress have failed to adequately address one of the primary problems for which that court was originally created; (33) the reasons for this failure are outlined here.

   1. Inadequate Protections Afforded by Statutory Damages and Remedies to U.S. Patent Owners

      First, the statutory damages (34) and remedies (35) that the federal courts may apply to those liable for willful infringement are exactly the same as the potential damages and remedies that can be applied to all "exceptional" patent infringement cases. (36) These maximum damages and remedies imposed upon a liable party in both "exceptional" and willful infringement cases are statutorily limited to "up to three times the amount found or assessed" (37) plus "reasonable attorney fees to the prevailing party." (38) Therefore, when analyzed from a damages-based approach, the judicial concept of willful...