Warranting Rightful Claims

Author:Karen E. Sandrik
Position:Visiting Assistant Professor, Florida State University College of Law. I am grateful to Kelli Alces, Shawn Bayern, Curtis Bridgeman, Elizabeth Chamblee Burch, Thomas Burch, Larry Garvin, David Landau, Jake Linford, Wayne Logan, Dan Markel, Paul McGowan, and Amelia Rinehart for helpful discussions and comments on earlier drafts. I am especially...
Pages:873-922
SUMMARY

Damage awards for patent infringement have sky-rocketed and sparked significant debate in recent years. A part of this patent damage debate focuses on non-practicing entities, or so-called “patent trolls.” A patent troll is a patent owner that demands a royalty based on patented technology yet does not actually use the technology to provide an end product or service. Their strategy is simple:... (see full summary)

 
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Warranting Rightful Claims
Karen E. Sandrik*
ABSTRACT
Damage awards for patent infringement have sky-rocketed and
sparked significant debate in recent years. A part of this patent
damage debate focuses on non-practicing entities, or so-called
“patent trolls.” A patent troll is a patent owner that demands a
royalty based on patented technology yet does not actually use the
technology to provide an end product or service. Their strategy is
simple: create nuisance and inflict fear. Patent trolls employ this
strategy against the buyers of goods that use or practice the
patented technology. Increasingly, buyers are availing themselves
of the “warranty against infringement” (“WAI”) in sales contracts
under the Uniform Commercial Code when sued by patent owners
for alleged patent infringement. The WAI provides a guarantee
that goods bought or sold in a given transaction are free from a
“rightful” third-party infringement claim when delivered. A party
protected by the WAI can receive an indemnity of sorts from the
other party for costs and damages associated with expensive and
high-risk patent infringement suits.
Under the current definition of rightful, the mere threat of
litigation is sufficient to trigger protection under the WAI. As
damage awards for patent actions continue to fall consistently in
the million-dollar-plus range, and patent trolls target dozens of
companies at one time, this low threshold for determining when a
rightful claim exists opens the door for litigious, and perhaps
abusive, conduct on the state level. Scholars have overlooked the
significance of the WAI because of the unique blend of two areas of
law: intellectual property and commercial law. This Article
corrects this oversight. It argues that courts should adopt a new
framework for determining when a rightful claim has been made
against a buyer or seller, therefore providing the buyer or seller
protection under the WAI.
Copyright 2012, by KAREN E. SANDRIK.
* Visiting Assistant Professor, Florida State University College of Law. I
am grateful to Kelli Alces, Shawn Bayern, Curtis Bridgeman, Elizabeth
Chamblee Burch, Thomas Burch, Larry Garvin, David Landau, Jake Linford,
Wayne Logan, Dan Markel, Paul McGowan, and Amelia Rinehart for helpful
discussions and comments on earlier drafts. I am especially thankful to T.
Brooks Collins and Tessa Davis for invaluable research assistance. All errors are
my own.
874 LOUISIANA LAW REVIEW [Vol. 72
TABLE OF CONTENTS
Introduction ..........................................................................874
I. Warranty of Title and Against Infringement........................880
A. The Warranty Against Infringement ..............................880
B. The First Problem: Big Money and Uncertainty ............884
C. The Second Problem: Buyer Playing with
Seller’s Money ...............................................................890
II. Contrasting Definitions of Rightful .....................................891
A. The Early Definitions Created by Federal Courts ..........892
B. The Recent Definitions Created by State Courts ...........894
III. Theoretical Justifications of Warranty Law .........................898
A. Theories of Warranty Law .............................................898
B. The Breakdown ..............................................................901
IV. A “Uniform” Framework .....................................................905
A. Preliminary Injunctions: Reasonable Likelihood
of Success .......................................................................908
1. Patent ........................................................................909
2. Trademark & Copyright ...........................................912
B. The Standard Applied ....................................................916
1. Reasonable Likelihood of Success ...........................916
2. Settled with Good Faith ...........................................918
3. The Exception: Money and Sophistication ..............921
Conclusion ...........................................................................922
INTRODUCTION
Damage awards for patent infringement have sky-rocketed and
sparked significant debate in recent years.1 Although Congress
1. See PRICEWATERHOUSECOOPERS, 2010 PATENT LITIGATION STUDY: THE
CONTINUED EVOLUTION OF PATENT DAMAGE S LAW 8 (2010), available at http://
www.pwc.com/us/en/forensic-services/publications/assets/2010-patent-litigation-
study.pdf [hereinafter PWC PATENT LITIGAT ION STUDY] (highlighting two a wards
of over $1.5 billion); Barnaby J. Feder, Boston Scientific Loses Patent Suit But
2012] WARRANTING RIGHTFUL CLAIMS 875
recently passed the America Invents Act (“Act”), the Act fails to
address these increasingly-high damage awards.2 A part of this
patent damage debate focuses on the non-practicing entity (NPE),
or so-called “patent troll.”3 “A favorite villain,” the patent troll is a
patent owner that demands a royalty based on patented technology
yet does not actually use the technology to provide an end product
or service.4 This lack of personal investment enables the troll to be
less risk-averse than patent owners who rely on using the
technology and, therefore, more likely to take risks in alleging
patent infringement.5 Patent trolls are known for aggressive and
opportunistic behavior.6 Their strategy is simple: create nuisance
and inflict fear. A common response upon receiving a cease-and-
desist letter from a patent troll is to pay the nuisance, the troll, to
go away; this is accomplished through a license-based settlement.
One of the most famous patent licensing campaigns resulted in a
Plans to Appeal, N.Y. TIMES, Feb. 13, 2008 at C10, (discussing Dr. Bruce
Saffran’s $431 million win against Boston Scientific). Scholars have also played a
part in this debate. See e.g., John M. Golden, Principles for Patent Remedies, 88
TEX. L. REV. 505 (2010); David W. Opderbeck, Patent Damages Reform and the
Shape of Patent Law, 89 B.U. L. REV. 127 (2009); Thomas F. Cotter, Patent
Holdup, Patent Remedies and Antitrust Responses, 34 J. CORP. L. 1151 (2009).
2. See U.S. HOUSE OF REPRESENTATIVES, COMM. ON THE JUDICIARY,
AMERICA INVENTS ACT OF 2011, available at http://judiciary.house.gov/issues/
issues_patentreformact2011.html.
3. See John M. Golden, Commentary, “Patent Trolls” and Patent
Remedies, 85 TEX. L. REV. 2111, 2112 (2007); see also John R. Allison, Mark
A. Lemley & Joshua Walker, Extreme Value of Trolls on Top? The
Characteristics of the Most-Li tigated Patents, 158 U. PA. L. REV. 1 (2009).
4. Golden, supra note 3, at 2112 (trolls charge a “price for authorizing the
work of others”); see also Mark A. Lemley & Carl Shapiro, Patent Holdup and
Royalty Stacking, 85 TEX. L. REV. 1991, 2009 (2007) (“Defining a patent troll
has proven a tricky business, but that does not mean the problem does not
exist.”).
5. See Christopher A. Harkins, Fending Off Paper Patents and Patent
Trolls: A Novel “Cold Fusion” Defense Because Changing Times Demand It, 17
ALB. L.J. SCI. & TECH. 407, 443 (2007) (finding patent troll will more likely
“roll the dice and ‘game’ the patent system”).
6. “Patent troll” was apparently coined after “patent extortionist” invoked
an action for libel. Golden, supra note 3, at 2112 n.7. Another account states the
term “patent troll” was first used by Peter Detkin of Intel Corporation to
describe small companies suing Intel for patent infringement and achieving
“nuisance-value settlements.” Steve Seidenberg, Troll Control: The Supreme
Court’s eBay Decision Sets Back Pesky ‘Patent Trolls’ or American Innovation
Depending Upon Which Side You Are On, 92 A.B.A. J. 50 (2006).

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