Marathon Patent Group

Paying Damages Based on an Invalid Patent? A $44 Million Question

March 19, 2015

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Paying Damages Based on an Invalid Patent? A $44 Million Question

Can a company be ordered to pay damages for infringing an invalid patent?

It sounds absurd, but it might be possible following passage of the America Invents Act (AIA) in 2011.

A recent court case, Ultratec Inc., v. Sorenson Communications, Inc. and CaptionCall LLC, highlights the problem.

CaptionCall was ordered to pay $44 million to its competitor, Ultratec, for infringing eight patents related to communications equipment for the hearing impaired.

There's just one catch: four months after the verdict in the case (and before CaptionCall actually paid the money) the Patent Trial and Appeal Board (PTAB) declared the patents invalid.

What now? Does CaptionCall still have to pay the $44 million, because the patents were valid at the time of the ruling? Or are they off the hook because you don't pay damages for "infringing" invalid patents?

No one knows - yet. The US Court of Appeals for the Federal Circuit will likely have to figure it out.

One could dismiss this case as a fluke, except that it's not. Congress, in its infinite wisdom, created a set of rules that will make cases such as this one common.

The AIA created the PTAB as a successor to the Board of Patent Appeals and Interferences. The PTAB is an administrative arm of the US Patent and Trademark Office (USPTO).

The AIA created several new ways to challenge the validity of a patent after it has been issued: the inter partes review (IPR), the post-grant review, and the Covered Business Method Patent review.

When a patent is challenged in court, the judge and jury operate on the assumption that the patent is valid. When it comes to validity, the burden of proof is on the company charged with patent infringement to prove that the patent is not valid by "clear and convincing evidence."

Thanks to the AIA, the same burden of proof doesn't apply to the PTAB: the PTAB makes no such assumption of validity. The Board takes a fresh look at everything submitted and if its opinion differs from the original patent examiner's the patent is invalidated.

As a result, you could present the same exact evidence to a court and to the PTAB, and people acting objectively and reasonably could come to opposite conclusions about a patent's validity. There is enough room for subjectivity in determining patent validity that such split decisions could be very common.

In the Ultratec case, CaptionCall had applied for an IPR before the case went to trial, but by the time the trial started still had not heard back from the PTAB whether it would consider the case or not.

U.S. District Court Judge Barbara Crabb decided against putting the litigation on hold while the petition worked its way through the PTAB. In her ruling she said, "The benefits of a stay are speculative and granting the stay would unduly prejudice plaintiffs."

According to data from Docket Navigator, about half (47%) of the motions for a stay pending a review at the PTAB were granted in the first half of 2014. This means that half the time the judge decided NOT to wait for the results of the review before proceeding with the case. This suggests that situations such as the one CaptionCall found itself in could become increasingly common in the future.

There's a simple solution: harmonize the standards used at the PTAB and in federal courts. This increases the likelihood that the PTAB and a court would come to the same conclusion when reviewing the same evidence on patent validity.

A patent is a property right. The patent owner has invested substantial resources in that property right, either through direct investment in research and patent prosecution, or by buying the patent from a previous patent owner. Once the property right has been granted, it seems only reasonable that there should be an assumption that the patent is valid. The burden of proof properly should be on the party that wants to take the right away.

The STRONG Patent Act would accomplish this alignment: it would harmonize the standards that the courts and the PTAB use in "claim construction," which is the process of determining what the patent claims actually protect, and it would require the PTAB to use the same standard of evidence used by district courts.

By allowing the PTAB to use a different standard in reviewing the validity of patents, Congress has cast a shadow over the value of every patent currently in effect. The uncertainty of the validity of patents has created real financial damage - how do you know what a patent is worth if you can't even assume that this government-granted right is valid?

While we've recently commented that it would be good to go slow on patent reform, if patent reform is inevitable it should strengthen the patent system instead of damaging it. Aligning the standards for claim construction, and requiring the PTAB to follow the standard of evidence used in the court system, would be a good start.