Patents of damocles

Indiana Law Journal

Volumn 83, Issue 1, 2008, Pages 133-179

  Leslie, Christopher R ^a,b  

^a NEW YORK UNIVERSITY   (United States)

^b CHICAGO KENT COLLEGE OF LAW   (United States)

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EID: 44449120079     PISSN: 00196665     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Review

References (267)

1. United States v. E.I. du Pont de Nemours & Co., 351 U.S. 377, 391 (1956).
2. See William M. Landes, Optimal Sanctions for Antitrust Violations, 50 U. CHI. L. REV. 652, 653 (1983).
3. United States v. Grinnell Corp., 384 U.S. 563, 570-71 (1966).
4. 35 U.S.C. § 154(a)(1)-(2) (2000).
5. E.g., Brenner v. Manson, 383 U.S. 519, 534 (1966);
6. Graham v. John Deere Co., 383 U.S. 1, 6-9 (1966).
7. Ill. Tool Works, Inc. v. Indep. Ink, Inc., 547 U.S. 28 (2006).
8. See John R. Allison, Mark A. Lemley, Kimberly A. Moore & R. Derek Trunkey, Valuable Patents, 92 GEO. L.J. 435 (2004).
9. Rochelle Cooper Dreyfuss, Are Business Method Patents Bad for Business?, 16 SANTA CLARA COMPUTER & HIGH TECH. L.J. 263, 275 (2000).
10. See John R. Allison & Mark A. Lemley, Empirical Evidence on the Validity of Litigated Patents, 26 AIPLA Q.J. 185, 205 (1998);
11. Mark A. Lemley, An Empirical Study of the Twenty-Year Patent Term, 22 AIPLA Q.J. 369, 420 (1994). Invalid is, of course, different than fraudulently procured. Courts can invalidate a patent as improvidently issued even though the patent applicant committed no fraud or any wrong conduct against the U.S. Patent and Trademark Office.
12. FEDERAL TRADE COMMISSION, TO PROMOTE INNOVATION: THE PROPER BALANCE OF COMPETITION AND PATENT LAW AND POLICY, EXECUTIVE SUMMARY, 9-10 (2003), http://www.ftc.gov/os/2003/10/innovationrpt.pdf [hereinafter FTC INNOVATION REPORT].
13. Patent Quality Enhancement in the Information-Based Economy: Oversight Hearing Before the Subcomm. on Courts, the Internet, and Intellectual Property of the H. Comm. on the Judiciary, 109th Cong. 2 (2006) (statement of Jon W. Dudas, Under Secretary of Commerce for Intellectual Property), available at http://judiciary.house.gov/media/pdfs/dudas040506.pdf
14. John R. Thomas, Collusion and Collective Action in the Patent System: A Proposal for Patent Bounties, 2001 U. ILL. L. REV. 305, 314-15 (2001) ("Concerned that the failure to disclose a known reference will lead to the unenforceability of the patent, some applicants prefer to await the examiner's search results rather than consult the prior art themselves.").
15. Clarisa Long, Patent Signals, 69 U. CHI. L. REV. 625, 669 n.127 (2002) (citation omitted) ("According to Glenn S. Tenney, past chair of the Intellectual Property Committee of the Institute for Electrical and Electronic Engineers, patent attorneys advise their clients only to reveal information they already know, and not to search for additional information, lest it reveal material that adversely affects the patentability of the invention.").
16. See Rochelle Cooper Dreyfuss, Dethroning Lear: Licensee Estoppel and the Incentive to Innovate, 72 VA. L. REV. 677, 755 (1986) ("Patent applications are prosecuted ex parte and, although the PTO keeps extensive files of prior art, the absence of an interested party adverse to the patentee makes it improbable that every argument against patentability will be considered in every case.").
17. FTC INNOVATION REPORT, supra note 10, ch. 5, at 5.
18. Id. at ch. 1, p. 34.
19. See id.
20. Id. at ch. 5, p. 8.
21. 6 DONALD S. CHISUM, CHISUM ON PATENTS § 19.03[2][b][iv], at 19-20 (Matthew Bender 2007) (1978) ("A patent owner need not disclose to the PTO information that comes to its attention after a patent issues.").
22. See infra notes 36-37 and accompanying text.
23. See Warner-Lambert Co. v. Teva Pharms. USA, Inc., 418 F.3d 1326, 1342-43 (Fed. Cir. 2005);
24. Nobelpharma AB v. Implant Innovations, Inc., 141 F.3d 1059, 1070 (Fed. Cir. 1998) ("a fraudulent omission can be just as reprehensible as a fraudulent misrepresentation."). In many instances, the applicant omits references to relevant prior art, but other omissions can be important as well. For example, a patent may also be invalid because the applicant failed to disclose the best mode for practicing the invention: The patent statute requires that a patent specification "shall set forth the best mode contemplated by the inventor of carrying out his invention."
25. U.S.C. § 112 (1994). Determining whether a patent fails to comply with the best mode requirement and is thus invalid involves two factual inquiries. First, the fact-finder must determine whether at the time an applicant filed an application for patent, he or she had a best mode of practicing the invention, which is a subjective determination. Second, if the inventor had a best mode of practicing the invention, the fact-finder must determine whether the best mode was disclosed in sufficient detail to allow a skilled artisan to practice it without undue experimentation, which is an objective determination.
26. See United States Gypsum Co. v. National Gypsum Co., 74 F.3d 1209, 1212 (Fed.Cir. 1996).
27. Nobelpharma, 141 F.3d at 1064 .
28. 35 U.S.C. § 102(b) (2000).
29. See, e.g., Walker Process Equip., Inc. v. Food Mach. & Chem. Corp., 382 U.S. 172 (1965).
30. See Christopher R. Leslie, The Anticompetitive Effects of Unenforced Invalid Patents, 91 MINN. L. REV. 101 (2006).
31. AM. INTELLECTUAL PROP. LAW ASS'N, REPORT OF ECONOMIC SURVEY 22 (2003).
32. E.g., Nobelpharma, 141 F.3d at 1065 ("[T]he burden is on an accused infringer to show by clear and convincing evidence facts supporting the conclusion that the patent is invalid.").
33. See Leslie, supra note 24, at 135-36.
34. FTC INNOVATION REPORT, supra note 10, ch. 2, at 22 ("In still other contexts the design-around may add little value, merely requiring that competitors 'work harder to get to the same place.'").
35. See infra notes 105-109 and accompanying text.
36. FTC INNOVATION REPORT, supra note 10, Executive Summary at 5-6.
37. Allan N. Liftman, Restoring the Balance of Our Patent System, 37 IDEA 545, 556 (1997).
38. In its amicus brief in support of the petitioner, Walker Process, the government took note of "the public policy favoring the elimination of fraudulently obtained patents, which otherwise would clog our system of free competition." Brief for the United States as Amicus Curiae Supporting Petitioner at 14, Walker Process Equip., Inc. v. Food Mach. & Chem. Corp., 382 U.S. 172 (1964) in 17 ANTITRUST LAW: MAJOR BRIEFS AND ORAL ARGUMENTS OF THE SUPREME COURT OF THE UNITED STATES 1955 TERM-1975 TERM at 730 (Philip B. Kurland & Gerhard Casper eds., 1979).
39. Walker Process Equip., Inc. v. Food Mach. & Chem. Corp., 382 U.S. 172, 174 (1965).
40. Handgards, Inc. v. Ethicon, Inc., 601 F.2d 986 (9th Cir. 1979).
41. Id. Justice Harlan, in his concurrence in Walker Process, foreshadowed this development: [A] treble-damage action for monopolization which, but for the existence of a patent, would be violative of § 2 of the Sherman Act may be maintained ... if two conditions are satisfied: (1) the relevant patent is shown to have been procured by knowing and willful fraud practiced by the defendant on the Patent Office or, if the defendant was not the original patent applicant, he had been enforcing the patent with knowledge of the fraudulent manner in which it was obtained; and (2) all elements otherwise necessary to establish a § 2 monopolization charge are proved.
42. Walker Process, 382 U.S. at 179 (Harlan, J., concurring).
43. United States v. Grinnell Corp., 384 U.S. 563, 570-71 (1966). The plaintiff could also pursue an attempted monopolization claim, which would require her to show "(1) that the defendant has engaged in predatory or anticompetitive conduct with (2) a specific intent to monopolize and (3) a dangerous probability of achieving monopoly power."
44. Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 456 (1993).
45. See Al-Site Corp. v. VSI Int'l, Inc., 174 F.3d 1308, 1323 (Fed. Cir. 1999).
46. See Leslie, supra note 24, at 165-70.
47. See, e.g., Brunswick Corp. v. Riegel Textile Corp., 752 F.2d 261 (7th Cir. 1984).
48. Struthers Scientific & Int'l Corp. v. Gen. Foods Corp., 334 F. Supp. 1329, 1332 (D. Del. 1971) (emphasis in original).
49. Id. at 1331;
50. Cal. E. Labs., Inc. v. Gould, 896 F.2d 400, 403 (9th Cir.1990) ("Without some effort at enforcement, the patent cannot serve as the foundation of a monopolization case.").
51. Walker Process Equip., Inc. v. Food Mach. & Chem. Corp., 382 U.S. 172, 175 (1965) ("Both Walker and the United States . . . argue that if Food Machinery obtained its patent by fraud and thereafter used the patent to exclude Walker from the market through 'threats of suit' and prosecution of this infringement suit, such proof would establish a prima facie violation of § 2 of the Sherman Act.").
52. Indium Corp. of Am. v. Semi-Alloys, Inc., 566 F. Supp. 1344, 1352-53 (N.D.N.Y. 1983).
53. Unitherm Food Sys., Inc. v. Swift-Eckrich, Inc., 375 F.3d 1341, 1358 (Fed. Cir. 2004),
54. rev'd on other grounds, 546 U.S. 394 (2006) (discussing attempted monopolization). Other courts have also reasoned that the standard for showing "enforcement" sufficient to survive a summary judgment motion in a Walker Process case is essentially equivalent to the test for declaratory judgment standing in patent cases.
55. See Northlake Mktg. & Supply, Inc. v. Glaverbel S.A., 861 F. Supp. 653, 660 (N.D. Ill. 1994);
56. Indium Corp., 566 F. Supp. at 1353 ("The [Walker Process enforcement] standard also parallels the case and controversy requirement for declaratory judgment jurisdiction over patent suits, thereby obviating the contradictory possibility that a complaint alleging patent invalidity might be sufficient under the antitrust laws, but not under the Declaratory Judgment Act.").
57. Teva Pharms. USA, Inc. v. Pfizer, Inc., 395 F.3d 1324, 1330 (Fed. Cir. 2005);
58. In re Ciprofloxacin Hydrochloride Antitrust Litig., 363 F. Supp. 2d 514, 541 (E.D.N.Y. 2005).
59. The Supreme Court's abandonment of the reasonable apprehension test is discussed below, see infra notes 144-154 and accompanying text.
60. Any delay could be worth a significant amount of money to an antitrust violator. Edwin A. Blackstone & Gary W. Bowman, Antitrust Damages: The Loss from Delay, 32 ANTITRUST BULL. 93, 95 (1987).
61. AM. INTELLECTUAL PROP. LAW ASS'N, supra note 25, at 22.
62. 35 U.S.C. § 285 (2000) ("The court in exceptional cases may award reasonable attorney fees to the prevailing party.").
63. Thomas, supra note 12, at 320 (discussing software and business method patents).
64. HERBERT HOVENKAMP, THE ANTITRUST ENTERPRISE 153 (2005).
65. Plastic Container Corp. v. Cont'l Plastics of Okla., Inc., 515 F. Supp. 834, 856 (W.D. Okla. 1980) ("The defendant's costs in defending a patent infringement suit are generally substantially greater than those of the plaintiff." (citation omitted)).
66. HOVENKAMP, supra note 49, at 153 ("But actual or threatened litigation is an effective exclusion device when the rival has not yet begun to produce, or is producing at such a low level that the costs and risks of litigation overwhelm it.").
67. See Thomas, supra note 12, at 320 ("However, competitors of the patentee may face delays of several years as they seek to strike down such [software and business method] patents.").
68. Ian Ayres & Paul Klemperer, Limiting Patentees' Market Power Without Reducing Innovation Incentives: The Perverse Benefits of Uncertainty and Non-Injunctive Remedies, 97 MICH. L. REV. 985, 993 (1999) (emphasis omitted).
69. See Ann Bartow, Separating Marketing Innovation from Actual Invention: A Proposal for a New, Improved, Lighter, and Better-Tasting Form of Patent Protection, 4 J. SMALL & EMERGING BUS. L. 1, 3 (2000).
70. See, e.g., Cygnus Therapeutics Sys. v. Alza Corp., 92 F.3d 1153, 1160 (Fed. Cir. 1996).
71. Hydril Co. v. Grant Prideco, 385 F. Supp. 2d 609, 611 (S.D. Tex. 2005),
72. rev'd on other grounds, 474 F.3d 1344 (Fed. Cir. 2007);
73. see also Northlake Mktg. & Supply, Inc. v. Glaverbel S.A., 861 F. Supp. 653, 661 (N.D. Ill. 1994) ("But whatever that hypothetical lesser quantum of conduct might be [to constitute patent enforcement for a Walker Process claim], it surely would have to be more than the Delphic reference to the existence of a patent or patents that Northlake offers here. If it were otherwise, any such reference -however innocuous - could trigger exposure to an antitrust claim. Any such rule would be absurd, for common sense teaches that some more assertive conduct is required before a patent holder can be said, within the meaning of the antitrust laws, to be enforcing its patent." (emphasis omitted)).
74. See, e.g., Cygnus Therapeutics, 92 F.3d at 1160.
75. See Mark A. Lemley, Essay, Rational Ignorance at the Patent Office, 95 NW. U. L. REV. 1495, 1516 (2001) ("[C]ompetitors or potential competitors may have received a letter alerting them to the existence of the patent, though that letter will likely have been couched in extremely bland terms, purporting merely to make the competitor aware of the patent in case it should want to take a license.").
76. See, e.g., Hewlett-Packard Co. v. Genrad, Inc., 882 F. Supp. 1141 (D. Mass. 1995);
77. see also Super Sack Mfg. Corp. v. Chase Packaging Corp., 57 F.3d 1054, 1059 (Fed. Cir. 1995);
78. Evans Med. Ltd. v. Am. Cyanamid Co., 980 F. Supp. 132, 136 (S.D.N.Y. 1997) ("Such agreement need not be unconditional nor covenanted to divest the jurisdiction of the court."). Fortunately, the Federal Circuit has recently held that a patentee's assurances of nonenforcement can be outweighed by the patentee's other acts that do indicate an intent to enforce.
79. Sandisk Corp. v. STMicroelectronics, Inc., 480 F.3d 1372, 1382-83 (Fed. Cir. 2007) ("[A patentee's] direct and unequivocal statement that '[it had] absolutely no plan whatsoever to sue [the declaratory judgment plaintiff]' . . . [does not] eliminate[] the justiciable controversy created by [its] actions, because [the patentee] has engaged in a course of conduct that shows a preparedness and willingness to enforce its patent rights despite [that] statement.").
80. See K-Lath v. Davis Wire Corp., 15 F. Supp. 2d 952, 962 (CD. Cal. 1998);
81. Ryobi Am. Corp. v. Peters, 815 F. Supp. 172, 174 (D.S.C 1993).
82. See Dataline, Inc. v. MCI Worldcom Network Servs., No. 00 CIV. 1578 LAP., 2001 WL 102336, at *5 (S.D.N.Y. Feb. 6, 2001).
83. Firms can also acquire patents for reasons unrelated to enforcement against actual and potential infringers. First, some firms "engage in 'defensive patenting,' obtaining patents to stake their claim to an area of technology in hopes of preventing other companies from suing them. Indeed, there is anecdotal evidence that at least among high-technology and start-up companies, the primary purpose of patents is defensive." Lemley, supra note 58, at 1504;
84. Mark A. Lemley, Reconceiving Patents in the Age of Venture Capital, 4 J. SMALL & EMERGING BUS. L. 137, 143 (2000) ("One of the major reasons that companies get patents is that they're afraid that their competitors have them, and they don't want to be the only one left who doesn't have the ability to play in this game."). Second, the mere possession of even unenforced patents can communicate relevant information to capital markets and labor markets. Professor Clarisa Long shows how "patents can serve as a signal of firm quality. By acting as a signal, possession of intellectual property may reduce the cost of communicating private information to the market regarding the financial prospects of the firm."
85. Long, supra note 13, at 637;
86. see Gideon Parchomovsky & R. Polk Wagner, Patent Portfolios, 154 U. PA. L. REV. 1 (2005).
87. Merely possessing patents may inform capital markets, investors, and consumers that a firm is innovative. See Long, supra note 13, at 651.
88. This signaling function occurs independently of patent enforcement. Third, "[e]stablished companies may patent out of inertia, to maintain a reputation as a market leader, or simply for the marquee value of selling a product with 'patented technology.'" Lemley, supra note 58, at 1506.
89. See Golden Blount, Inc. v. Robert H. Peterson Co., 438 F.3d 1354, 1369-70 (Fed. Cir. 2006);
90. Clontech Labs., Inc. v. Invitrogen Corp., 406 F.3d 1347, 1357 n.6 (Fed. Cir. 2005) ("Failure to take on the costs of a reasonably competent search for information necessary to interpret each patent, investigation into prior art and other information bearing on the quality of the patents, and analysis thereof can result in a finding of willful infringement, which may treble the damages an infringer would otherwise have to pay.");
91. Knorr-Bremse Systeme Fuer Nutzfahrzeuge GmbH v. Dana Corp., 383 F.3d 1337, 1342-43 (Fed. Cir. 2004) ("Determination of willfulness is made on consideration of the totality of the circumstances ....").
92. See Knorr-Bremse, 383 F.3d at 1342 ('"[T]he court may increase damages up to three times the amount found or assessed.'" (citing 35 U.S.C. § 284 (2000))).
93. See In re Portola, 110 F.3d 786, 789 (Fed. Cir. 1997) Discussing the policy justifications for a reexamination proceeding, the court cited the congressional testimony of Donald R. Dunner, the president of the American Patent Law Association, who stated, "[I]t is inevitable . . . that all of the prior art will not be uncovered [by the PTO]. A determined advocate, desiring to do in a patent, spending tens of thousands of dollars in litigation situations, can often, if not always, find something that has not been considered by the [PTO]."
94. Id. (citation omitted).
95. See Thomas, supra note 12, at 345.
96. See 35 U.S.C. § 287(a) (2000) ("In the event of failure so to mark, no damages shall be recovered by the patentee in any action for infringement, except on proof that the infringer was notified of the infringement and continued to infringe thereafter, in which event damages may be recovered only for infringement occurring after such notice."). Professor Lisa Dolak argues that it is wrong to allow marking to constitute notice but not to trigger standing to pursue a declaratory judgment: Any inconsistency between the standards for notice of infringement and declaratory judgment jurisdiction is also contrary to the policies underlying the patents clause of the Constitution and the patent statute, in that a potentially invalid patent may be used to deter the accused infringer from pursuing activities that are potentially beneficial to society. At the same time, the accused infringer is powerless to litigate and resolve the merits of the patent.
97. Lisa A. Dolak, Declaratory Judgment Jurisdiction in Patent Cases: Restoring the Balance Between the Patentee and the Accused Infringer, 38 B.C. L. REV. 903, 946 (1997).
98. Furthermore, it is conduct that serves absolutely no other legitimate purpose.
99. See Joseph Borkin, The Patent Infringement Suit - Ordeal by Trial, 17 U. CHI. L. REV. 634, 644 (1950) ("An arrow in the quiver is more valuable than one expended on a missed target.").
100. Leslie, supra note 24, at 114-19.
101. While there may be nonexclusionary reasons to inform venture capitalists of one's patents, see supra note 62, the reason that a firm informs its competitors of its patents is to warn infringers about the prospect of litigation.
102. See supra Part II.
103. See, e.g., Agron, Inc. v. Lin, No. CV0305872MMM(JWJX), 2004 WL 555377 (C.D. Ca. Mar. 16, 2004).
104. See, e.g., Bourns, Inc. v. Raychem Corp., 331 F.3d 704, 714 (9th Cir. 2003) (Pregerson, J., concurring in part and dissenting in part) ("Raychem informed Bourns that it could never enter the market without a patent license and that it had successfully enforced the patents in question against another competitor, Therm-O-Disc").
105. Cygnus Therapeutics Sys. v. ALZA Corp., 92 F.3d 1153, 1159 (Fed. Cir. 1996)
106. (quoting B.P. Chems., Ltd. v. Union Carbide Corp., 4 F.3d 975, 978 (Fed. Cir. 1993)).
107. See, e.g., Shell Oil Co. v. Amoco Corp., 970 F.2d 885, 888-89 (Fed. Cir. 1992).
108. Premo Pharm. Labs., Inc. v. Pfizer Pharms., Inc., 465 F. Supp. 1281, 1283-84 (S.D.N.Y. 1979).
109. See, e.g., Kustom Signals, Inc. v. Applied Concepts, Inc., No. 96-2274-JWL, 1996 WL 568817 (D. Kan. Sept. 6, 1996) (denying standing for declaratory judgment).
110. Cygnus Therapeutics, 92 F.3d at 1156.
111. Id.
112. Id. at 1159.
113. Id. at 1160.
114. Dolak, supra note 67, at 908 (emphasis in original).
115. Asahi Glass Co. v. Pentech Pharm., Inc., 289 F. Supp. 2d 986, 990 (N.D. Ill. 2003) (Posner, J.) (citations omitted).
116. Id.
117. See Leslie, supra note 24, at 119, 123.
118. Paul Stephen Dempsey, Predatory Practices & Monopolization in the Airline Industry: A Case Study of Minneapolis/St. Paul, 29 TRANSP. L.J. 129, 185 (2002).
119. Michael J. Meurer, Controlling Opportunistic and Anticompetitive Intellectual Property Litigation, 44 B.C. L. REV. 509, 518 n.59 (2003) ("The reputation for being tough makes the frivolous claim more credible and more valuable.");
120. see also Patrick Bolton, Joseph F. Brodley & Michael H. Riordan, Predatory Pricing: Strategic Theory and Legal Policy, 88 GEO. L.J. 2239, 2300-01 (2000) (discussing suing others to create a reputation for aggressively going after competitors).
121. Bourns, Inc. v. Raychem Corp., 331 F.3d 704, 714 (9th Cir. 2003) (Pregerson, J., concurring in part and dissenting in part) ("In May 1994, Raychem informed Bourns that it 'should never think about' manufacturing PPTCs and reminded Bourns of its 1986 suit against Therm O Disc [sic].").
122. Id. at 714-15.
123. See, e.g., Valley Drug Co. v. Geneva Pharms., Inc., 344 F.3d 1294, 1300 (11th Cir. 2003).
124. See, e.g., Bourns, 331 F.3d at 712 ("The threats that Bourns showed were made by Raychem to enforce its patents were made in May 1994 and September 1994. They were threats to a bystander who was pawing the ground: don't get into our turf. They were not threats to a competitor or to a business prepared to be a competitor.").
125. See, e.g., Miller Pipeline Corp. v. British Gas PLC, 69 F. Supp. 2d 1129, 1138-39 (S.D. Ind. 1999) ("[T]he patentholder's competitors who receive infringement notices . . . have available to them the vehicle of a declaratory judgment action ....").
126. Phillips Plastics Corp. v. Kato Hatsujou Kabushiki Kaisha, 57 F.3d 1051, 1052 (Fed. Cir. 1995).
127. Shell Oil Co. v. Amoco Corp., 970 F.2d 885, 889 (Fed. Cir. 1992).
128. Oetiker v. Jurid Werke GMBH, 671 F.2d 596, 601 (D.C. Cir. 1982) (quoting Virtue v. Creamery Package Mfg., 227 U.S. 8, 37-38 (1912)).
129. See, e.g., Am. Needle & Novelty Co. v. Schuessler Knitting Mills, Inc., 379 F.2d 376, 378 (7th Cir. 1967).
130. See supra text accompanying note 54.
131. See generally, e.g., Handgards, Inc. v. Ethicon, Inc., 743 F.2d 1282 (9th Cir. 1984);
132. Arcade, Inc. v. Minn. Mining & Mfg. Co., No. CIV-1-88-141,1991 WL 185155 (E.D. Tenn. July 2, 1991).
133. One notable recent change involves the treatment of threats against customers. Until recently, courts had held that informing the alleged infringer's customers that the products infringe a patent - and thus could make the customers liable for infringement - did not constitute a threat of enforcement. Bourns, Inc. v. Raychem Corp., 331 F.3d 704, 714 (9th Cir. 2003) (Pregerson, J., concurring in part and dissenting in part) ("Finally, Raychem informed its customers that Bourns' potential PPTC products would be in violation of its patents.");
134. see also Publ'ns Int'l, Ltd. v. Futech Educ. Prods., Inc., No. 97 C 0236, 1997 WL 627641 (N.D. Ill. Oct. 1, 1997) (involving a patentee threatening a customer, though threats to at least one customer were made by a fifty percent owner of the joint venture that had exclusive rights over the patent and not by the joint venture itself).
135. However, the Federal Circuit just held that "a valid Walker Process claim may be based upon enforcement activity directed against the plaintiff's customers." Hydril Co. v. Grant Prideco, 474 F.3d 1344, 1350 (Fed. Cir. 2007);
136. see also In re Ciprofloxacin Hydrochloride Antitrust Litig., 363 F. Supp. 2d 514, 544-45 (E.D.N.Y. 2005).
137. See, e.g., Livorsi Marine, Inc. v. Nordskog Publ'g, Inc., 268 F. Supp. 2d 994 (N.D. Ill. 2003).
138. Id. at 999.
139. See, e.g., Gardiner v. Gendel, 727 F. Supp. 799, 805 (E.D.N.Y. 1989) ("The Court concludes that plaintiffs have engaged in unfair competition based upon the false and misleading threats of patent infringement sent to defendants' customers prior to the time that plaintiffs had acquired any enforceable rights. The false cease and desist letters were knowingly sent in bad faith with the intent to injure defendants' business, and resulted in the loss of at least one of the defendants' distributors, who testified at trial that he dropped defendants' product as a direct result of receipt of plaintiffs' letter.").
140. Gregory Gelfand, Expanding the Role of the Patent Office in Determining Patent Validity: A Proposal, 65 CORNELLL. REV. 75, 104 (1979).
141. See Agron, Inc. v. Lin, No. CV0305872MMM(JWJX), 2004 WL 555377, at *3 (C.D. Cal. Mar. 16, 2004) ("[T]hreats of litigation that have been made have purportedly resulted in requests for defense and indemnification . . . .").
142. See MedImmune, Inc. v. Genentech, Inc., 127 S. Ct. 764, 768 (2007) ("If respondents were to prevail in a patent infringement action, petitioner could be ordered to pay treble damages and attorney's fees, and could be enjoined from selling Synagis, a product that has accounted for more than 80 percent of its revenue from sales since 1999. Unwilling to risk such serious consequences, petitioner paid the demanded royalties 'under protest and with reservation of all of [its] rights.'").
143. See, e.g., Dreyfuss, supra note 14, at 717 ("Finally, if the licensee thought the patent invalid, it could refuse to enter any agreement that required royalty payments after lapse; refuse to agree not to challenge the patent itself; refuse to license the patent and instead bring an action to have it declared invalid; initiate the patent's reexamination by the PTO; or simply begin to infringe." (citations omitted)).
144. See supra notes 10-21 and accompanying text (discussing why patent system does not solve problem of invalid patents).
145. See Lemley, supra note 58, at 1507 ("The cost of licensing without going to court is also dramatically lower than the cost of litigation.");
146. Thomas, supra note 12, at 335 ("This analysis may strike some readers as both speculative and rather cynical. Still, patentees from George Seiden to Jerome Lemelson have long recognized that prospective licensees often prefer to pay a modest royalty rather than contest an invalid patent.").
147. FTC INNOVATION REPORT, supra note 10, ch. 3, at 40.
148. Id., ch. 3, at 41 . While a competitor may be willing to pay a license fee for a patent, it is not reasonable for the patentee to accept that money if she knows that her patent is not valid. The rationality of the licensee's decision to pay royalties does not excuse the patentee's misdeed.
149. The Supreme Court's recent decision in MedImmune could ultimately alter the law. In MedImmune, the Court held that a licensee in good standing was not necessarily precluded from challenging the validity of the patent for which it had a license. 127 S. Ct. at 777. While that holding is a step in the right direction, it is a far cry from granting Walker Process standing to competitors who are paying royalties on a patent that they believe to have been procured by fraud.
150. Am. Needle & Novelty Co. v. Schuessler Knitting Mills, Inc., 379 F.2d 376, 378 (7th Cir. 1967).
151. Oetiker v. Jurid Werke GMBH, 671 F.2d 596, 601 (D.C. Cir. 1982).
152. See infra Part E.
153. After all, if the patentee did not intend to enforce its exclusionary rights, she could simply grant a royalty-free license or sign a covenant not to sue. Cashing the royalty checks implies a willingness to sue if the checks cease coming. It also smacks of fraud. When one sells a product, she is representing that she has valid title over the product. Collecting licensing fees on a patent that the patentholder knows to be invalid is as fraudulent as receiving rent for real property that the purported landlord does not own.
154. EMC Corp. v. Norand Corp., 89 F.3d 807, 811 (Fed. Cir. 1996).
155. In re Ciprofloxacin Hydrochloride Antitrust Litig., 363 F. Supp. 2d 514, 533 (E.D.N.Y. 2005).
156. See Cygnus Therapeutics Sys. v. ALZA Corp., 92 F.3d 1153, 1158 (Fed. Cir. 1996).
157. FTC INNOVATION REPORT, supra note 10, executive summary, at 6.
158. It may also represent a hedge against uncertainty.
159. Ciprofloxacin, 363 F. Supp. 2d at 533.
160. Furthermore, because licenses may be relevant to later judicial assessments about whether a patent is obvious, licensing activity can bolster the patentee's case that its patent is valid. See, e.g., In re Hayes Microcomputer Prods., Inc. Pat. Litig., 982 F.2d 1527, 1544 n.12 (Fed. Cir. 1992) ("USR took a license under the patent. This is supportive of the conclusions of infringement and nonobviousness.").
161. See MedImmune, Inc. v. Genentech, Inc., 127 S. Ct. 764 (2007);
162. Lear, Inc. v. Adkins, 395 U.S. 653 (1969);
163. Dreyfuss, supra note 14, at 679.
164. See Thomas, supra note 12, at 335-36 ("Casting doubt on the Supreme Court's view that licensees 'may often be the only individuals with enough economic incentive to challenge the patentability of an inventor's discovery,' Professor Dreyfuss has explained that the interests of patent licensees are often aligned with the patent owner in seeking to maintain the validity of the patent.").
165. See, e.g.. United States v. Gen. Elec. Co., 80 F. Supp. 989, 1003 (S.D.N.Y. 1948) ("The defendants claim that the American Cuttings Alloy and Fansteel licenses were issued to avoid patent litigation . . . .");
166. see also Borkin, supra note 69, at 643 (describing "the situation where a patentee, dubious about the strength of his own patent position, establishes an attractive licensing or pooling system in order to 'buy off' potential infringers while at the same time preventing his patents from reaching adjudication.").
167. Bourns, Inc. v. Raychem Corp., 331 F.3d 704, 714 (9th Cir. 2003) (Pregerson, J., concurring in part and dissenting in part) ("During trial, Bourns introduced evidence that throughout its business relationship with Raychem, it sought to dominate the PPTC market by making it clear to Bourns and other competitors that Bourns could not enter the market because of Raychem's PPTC patents, which were obtained by fraud. On ten occasions from 1986 to 1993, Raychem rejected Bourns' request for a PPTC manufacturing license.").
168. See supra notes 81-82 and accompanying text.
169. Kustom Signals, Inc. v. Applied Concepts, Inc., No. 96-2274-JWL, 1996 WL 568817, at *5 (D. Kan. Sept. 16, 1996)
170. (discussing Cygnus Therapeutics Sys. v. ALZA Corp., 92 F.3d 1153 (Fed. Cir. 1996)).
171. See United States v. Studiengesellschaft Kohle, 670 F.2d 1122, 1127 (D.C. Cir. 1981) ("A patentee has the right to exclude others from profiting from the patented invention. This includes the right to suppress the invention while continuing to prevent all others from using it, to license others, or to refuse to license, and to charge such royalty as the leverage of the patent monopoly permits." (citations omitted)).
172. Cygnus Therapeutics, 92 F.3d at 1160
173. ("As for ALZA's refusal to license the subject matter of the '580 patent, totally apart from the constraints of its contractual relationship with Janssen, ALZA was under no obligation to license its fentanyl patch. The patent statute grants a patentee the right to exclude others from making, using, or selling the patented invention. 35 U.S.C. §§ 154, 271(a) (1994)." (emphasis omitted)).
174. See id.
175. Craig Allen Nard, Certainty, Fence Building, and the Useful Arts, 74 IND. L.J. 759, 774 (1999) ("That is, despite familiarity with the claimed invention, the patentee and a license-seeking competitor may simply fail to come to terms. In such a case, the competitor may decide to design around the patented invention ....").
176. See Leslie, supra note 24, at 119-22.
177. See Cygnus Therapeutics, 92 F.3d at 1157.
178. See Dreyfuss, supra note 14, at 755 ("Moreover, the potential competitor risks liability for treble damages if he practices the invention without a license.").
179. See InfoSys, Inc. v. Billingnetwork.com, Inc., No. 03 C 3047, 2003 WL 22012687, at *6 (N.D. Ill. Aug. 27, 2003) ("Threats of litigation within the context of license negotiations ... do not create a reasonable apprehension.").
180. Shell Oil Co. v. Amoco Corp., 970 F.2d 885, 889 (Fed. Cir. 1992).
181. Id.
182. Neil A. Smith, Fraud Upon the Patent Office as a Violation of the Sherman Antitrust Law, 53 J. PAT. & TRADEMARK OFF. SOC'Y 423, 435 (1971) ("[A] patent may dominate a significant part of trade or commerce by its claims, yet if its owner did not enforce it and gave royalty-free nonexclusive licenses to all who wished them, it is doubtful if the owner would be subject to antitrust liability.").
183. Cygnus Therapeutics Sys. v. ALZA Corp., 92 F.3d 1153, 1160 (Fed. Cir. 1996).
184. See, e.g., Citizen Elees. Co. v. Osram GmBH, 377 F. Supp. 2d 149, 156 (D.D.C. 2005).
185. I have argued previously that the enforcement requirement should be eliminated altogether. Leslie, supra note 24.
186. See HOVENKAMP, supra note 49, at 268.
187. 127 S. Ct. 764, 774 n.11 (2007) ("The [Federal Circuit's] reasonable-apprehension-of-suit test... conflicts with ... Maryland Casualty Co. v. Pacific Coal & Oil Co., 312 U.S. 270, 273 (1941)... and Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 239 (1937)... [and] is also in tension with Cardinal Chemical Co. v. Morton Int'l, Inc., 508 U.S. 83, 98 (1993), which held that appellate affirmance of a judgment of noninfringement, eliminating any apprehension of suit, does not moot a declaratory judgment counterclaim of patent invalidity.").
188. Teva Pharms. USA, Inc. v. Novartis Pharms. Corp., 482 F.3d 1330, 1339 (Fed. Cir. 2007) ("Thus, because the Supreme Court in MedImmune cautioned that our declaratory judgment 'reasonable-apprehension-of-suit' test 'contradict[s]' and 'conflicts' with its precedent, these Federal Circuit tests have been 'overruled by ... an intervening . . . Supreme Court decision.'") (alteration in original).
189. See Sandisk Corp. v. STMicroelectronics, Inc., 480 F.3d 1372, 1380 n.2 (Fed. Cir. 2007) ("In this case, we address only the first prong of this court's two-part test. There is no dispute that the second prong is met. We therefore leave to another day the effect of MedImmune, if any, on the second prong.").
190. 495 F.3d 1340 (Fed. Cir. 2007).
191. Id. at 1343.
192. Id.
193. Id. at 1342.
194. Id. at 1343.
195. Id. at 1344 (citation and internal quotation marks omitted in original).
196. Id. at 1348.
197. Id. at 1350 (Dyk, J., dissenting).
198. Mark A. Lemley, Ignoring Patents,_MICH. ST. L. REV._(forthcoming 2008).
199. The threat of infringement litigation is viewed more seriously in pharmaceutical markets, in part, because the potential infringement damages may far exceed the profits that the prospective infringer could make from entering the market and charging a competitive price.
200. See, e.g., Northlake Mktg. & Supply, Inc. v. Glaverbel S.A., 861 F. Supp. 653, 660-61 (N.D. Ill. 1994) ("But when the Press Release is viewed alone-as it must be because it is really Northlake's only evidence in opposition to the current Rule 56 motion-it is un reasonable to construe the document as supporting any such inference.")(emphasis in original).
201. Citizen Elees. Co. v. Osram GmBH, 377 F. Supp. 2d 149 (D.D.C 2005).
202. Citizen Elees. Co. v. Osram GmBH, 225 F. App'x 890, 892 (Fed. Cir. 2007) ("[O]bjective in taking legal action against Citizen and issuing warnings to Dominant is to prevent unauthorized use of our technology.").
203. SGM Elettronica, S.r.L v. Vari-Lite, Inc., No. 99CIV.11684(BSJ), 2000 WL 977701, at *1 (S.D.N.Y. July 14, 2000).
204. HERBERT HOVENKAMP, MARK D. JANIS & MARK A. LEMLEY, IP AND ANTITRUST 11-15 (2002).
205. See supra notes 57-59 and accompanying text.
206. Indium Corp. of Am. v. Semi-Alloys, Inc., 566 F. Supp. 1344, 1353 (N.D.N.Y. 1983).
207. Indium Corp. of Am. v. Semi-Alloys, Inc., 591 F. Supp. 608, 611 (N.D.N.Y. 1984).
208. Id. at 614 ("The concept [of patent enforcement] must be broad enough to afford a remedy not only to those who actually produced an infringing article and were forced to stop by infringement suit or the threat thereof, but also to those who were ready, willing, and able to produce the article and would have done so but for the exercise of exclusionary power by the defendant.").
209. See Leslie, supra note 24, at 133-34.
210. While the reexamination procedure may bring greater accuracy to the patent system, it probably will not provide a meaningful detenent to fraud in the first place because it does not punish bad behavior.
211. See, e.g.. Arcade, Inc. v. Minn. Mining & Mfg. Co., No. CIV-1-88-141, 1991 WL 185155 (E.D. Tenn. July 2, 1991);
212. Indium Corp. of Am. v. Semi-Alloys, Inc., 591 F. Supp. 608, 613 (N.D.N.Y. 1984) ("[P]laintiff alleges that it lost profits of 'at least about $12.8 million' that it could have earned through sales of tack-welded frame lids, had it not been restrained by Semi-Alloy's [enforcement of invalid patents in violation of the Sherman Act.]").
213. HOVENKAMP ET AL., supra note 161.
214. Lawrence B. Dodds, Fraud on the Patent Office, 56 J. PAT. OFF. SOC'Y 345, 346-47 (1974) ("First, the decisions uniformly hold that a charge of fraud on the Patent Office can be proved only by clear and convincing evidence, not by mere preponderance of the evidence.") (emphasis in original).
215. See supra notes 35-38 and accompanying text.
216. S. William Cochran, Historical Review of Fraud in Patent Procurement: The Standards and Procedures for Doing Business Before the Patent Office, 52 J. PAT. OFF. SOC'Y 71, 77 (1970) ("The threat of incurring treble damages might make everyone having business before the Office more fraud conscious, and this alone may have the effect of reducing the incidence of possible fraud.").
217. See Leslie, supra note 24, at 123.
218. It may seem odd for a patentee that knows its patent was fraudulently procured to sue for infringement. To the extent that patent plaintiffs perceive that Walker Process counterclaims are perfunctory, any firm should be rationally reluctant to bring an infringement suit on a fraudulently procured patent. It would be better to keep the patent as a talisman-threatening competitors without ever entering a courtroom as either a plaintiff (in an infringement suit) or a defendant (in an antitrust suit).
219. While a competitor would rather have antitrust damages than a mere royalty-free license, the competitor who has not yet discovered definitive proof of patent fraud and who is facing infringement liability would probably welcome a quick settlement of the infringement litigation and its Walker Process counterclaim.
220. A firm that did not commit fraud or knowingly enforce an invalid patent, but was unsure about whether its patent could survive attack in court, would settle the case.
221. See supra notes 9-20 and accompanying text.
222. See Leslie, supra note 24, at 140-42.
223. Mark D. Janis, Rethinking Reexamination: Toward a Viable Administrative Revocation System for U.S. Patent Law, 11 HARV. J.L. & TECH. 1, 74 (1997) ("As crucial as these changes may be to creating an administrative review system that provides a litigation alternative, liberalizing third-party participation will accomplish little unless accompanied by more fundamental reforms. Unfortunately, the third-party participation provisions are embedded in a second-generation reexamination scheme that was designed primarily to cure governmental defects, and only secondarily to provide a litigation alternative.").
224. Roscoe Steffen, Invalid Patents and Price Control, 56 YALE L.J. 1, 11 (1946) ("After all, it is a tacit assumption of our patent laws that in a competitive economy the infringement suit will ordinarily suffice to purge the patent system of invalid patents.").
225. See Brunswick Corp. v. Riegel Textile Corp., 752 F.2d 261, 265 (7th Cir. 1984) ("[A] patent known to the trade to be invalid will not discourage competitors from making the patented product or using the patented process.").
226. Though, as Part HI demonstrated, it can be difficult to pursue a declaratory judgment action in the absence of a direct, explicit threat by the patentholder to sue the competitor for infringement.
227. Leslie, supra note 24 at 148-49;
228. Thomas, supra note 12 at 334-35.
229. As with the enforcement requirement in Walker Process cases, the "reasonable apprehension" test for standing to pursue declaratory judgment actions is too rigid to satisfy. The FTC recognized in its report on patents and competition that "cunent standing requirements prevent a potentially infringing party from determining in advance the merits of a questionable patent." FTC INNOVATION REPORT, supra note 10, ch. 3, at 22.
230. Thomas, supra note 12, at 331 ("Each sort of revocation procedure instead includes a unique, readily identifiable defect that almost wholly suppresses potential users.").
231. See supra Part in.
232. Disgorgement is more likely if consumers were granted standing to bring follow-on Walker Process suits.
233. FTC INNOVATION REPORT, supra note 10, ch. 5, at 28 ("Litigation is a mechanism for focusing enhanced attention on those patents that are most likely to hold commercial significance and for weeding out from this group those patents that should not have been granted.").
234. See supra note 6 and accompanying text.
235. Leslie, supra note 24, at 173-74.
236. Id. at 171-75.
237. Oral Argument of United States as Amicus Curiae Supporting Petitioner at 9, Walker Process Equip., Inc. v. Food Mach. & Chem. Corp., 382 U.S. 172 (1965) (No. 13), in 17 ANTITRUST LAW: MAJOR BRIEFS AND ORAL ARGUMENTS OF THE SUPREME COURT OF THE UNITED STATES 1955 TERM-1975 TERM 751 (Philip B. Kurland & Gerhard Casper eds., 1979). This suggests that there has to be enforcement by the holder of the invalid patent, but the DOJ's attorney did not define what precisely he meant by "enforcing" the invalid patent. Although he suggests that it requires something more than "merely" possessing the invalid patent, he then implies that the test is met by a competitor showing lost business. As Part Three argued, this can be done without actually filing a lawsuit.
238. See infra notes 203-04 and accompanying text.
239. However, the concern is not simply that a competitor would necessarily win its lawsuit, but that it would bring antitrust litigation to harass a dominant firm and perhaps even secure a settlement.
240. Also, those patentees with a dangerous probability of acquiring monopoly power could be subject to an attempted monopolization claim.
241. See, e.g., Northlake Mktg. & Supply, Inc. v. Glaverbel S.A., 861 F. Supp. 653, 663 (N.D. Ill. 1994) (rejecting a Walker Process claim at summary judgment, in part, for failure to show relevant market).
242. See, e.g., Forbro Design Corp. v. Raytheon Co., 532 F.2d 758, 765 (1st Cir. 1976) (holding no Walker Process liability because there was no proof of patentee's market power).
243. Buehler AG v. Ocrim, S.p.A., 836 F. Supp. 1305, 1325-26 (N.D. Tex. 1993).
244. See Leslie, supra note 24, at 133-34.
245. Kockums Indus. Ltd. v. Salem Equip., Inc., 561 F. Supp. 168, 173 (D. Or. 1983) ("[A] good faith infringement suit will not violate the antitrust laws even though the patent proves to be invalid.").
246. In re Spalding Sports Worldwide, Inc., 203 F.3d 800, 807 (Fed. Cir. 2000).
247. See, e.g., E.I. du Pont de Nemours & Co. v. Berkley & Co., 620 F.2d 1247, 1273 (8th Cir. 1980);
248. Rogers Corp. v. Arlon, Inc., 855 F. Supp. 560, 571 (D. Conn. 1994) ("Defendant has not produced evidence sufficient to permit a reasonable jury to conclude that the patent was fraudulently obtained, or that plaintiff brought or maintained this lawsuit in bad faith or with an intent to monopolize.");
249. Meurer, supra note 88, at 539-40 ("The Walker Process theory has limited utility because it is difficult to prove fraudulent patent procurement.").
250. See In re Corrugated Container Antitrust Litig., 756 F.2d 411, 416 (5th Cir. 1985) ("To recover in a private antitrust action the plaintiff must prove a violation of the antitrust laws and must further prove that the violation caused damage.").
251. A successful Walker Process claimant would receive reasonable attorneys' fees.
252. See, e.g., 2 PHILLIP E. AREEDA, DONALD F. TURNER, HERBERT HOVENKAMP & JOHN L. SOLOW, ANTITRUST LAW ¶ 335 (2d ed. 2000) (citing cases). If these filters are not sufficient, then they should be beefed up.
253. See supra notes 35-40 and accompanying text.
254. See Leslie, supra note 24, at 179.
255. See supra text accompanying note 169.
256. See supra note 43 and accompanying text.
257. Walker Process Equip., Inc. v. Food Mach. & Chem. Corp., 382 U.S. 172, 176 (1965) ("In fact, one need not await the filing of a threatened suit by the patentee; the validity of the patent may be tested under the Declaratory Judgment Act.") (citation omitted).
258. Lisa A. Dolak, Power or Prudence: Toward a Better Standard for Evaluating Patent Litigants ' Access to the Declaratory Judgment Remedy, 41 U.S.F. L. REV. 407, 408 (2007).
259. 395 F.3d 1324, 1335 (Fed. Cir. 2005).
260. Teva Pharm. USA, Inc. v. Pfizer Inc., 405 F.3d 990, 994 (Fed. Cir. 2005) (Gajarsa, J., dissenting);
261. see Dolak, supra note 206, at 419 ("As discussed below, Judge Gajarsa is right. The Federal Circuit's declaratory judgment jurisprudence has been inconsistent and ambiguous with respect to the distinction between jurisdiction-the power of the lower federal courts to hear declaratory judgment cases-and the appropriate role of policy considerations-the prudence of allowing a particular declaratory judgment action to go forward.").
262. Dolak, supra note 211, at 429.
263. See, e.g., Bell Atlantic Corp. v. Twombly, 127 S. Ct. 1955 (2007);
264. Verizon Commc'ns Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398 (2004).
265. See Leslie, supra note 24, at 182 (advocating elimination of the enforcement requirement).
266. See supra Part III.
267. Robert P. Merges, As Many as Six Impossible Patents Before Breakfast: Property Rights for Business Concepts and Patent System Reform, 14 BERKELEY TECH. L.J. 577, 593 (1999).