Review of the Recent Trend in Patent Litigation from the Viewpoint of Innovation
Senior Fellow, RIETI
In spite of the current economic downturn, Japanese companies continue to be active in the development of intellectual property. In response to this, the Japan Patent Office (JPO) has increased the number of patent examiners it employs. As a result, the number of registered patents has been increasing year-on-year to amount to some 160,000 in 2007, with the total number of existing patents reaching a record high level of 1.2 million.
In comparison, however, the number of patent infringement lawsuits, measured in terms of the number of new cases filed at district courts, is rather modest and has exhibited a downward trend over the past few years (Table 1).
The number of patent infringement cases filed in the fiscal year ending March 2008 (FY 2007), though slightly up from the preceding fiscal year, was down by approximately 30% compared to the peak of 217 filed in FY 2004. This should not necessarily be viewed as a cause for concern because the 30% decrease amounts to a reduction of only several dozen cases. The modest number of lawsuits does not necessarily mean that patents have been underutilized, either.
Nevertheless, the downward trend in the number of patent infringement lawsuits is disturbing given the fact that Japan has been implementing "pro-patent" policies-including the improvement of patent infringement litigation proceedings and the establishment of the Intellectual Property High Court-over the past decade. In this regard, there are those who say that rights holders are hesitant to take legal action because court decisions regarding patent validity have been harsh on patentees, with rulings against them reaching as high as 80%. Is this argument correct? If it is, what exactly is wrong with having fewer patent infringement lawsuits? And what needs to be done to solve the problem? In the following, I will attempt to identify such problems and explore possible measures from the viewpoint of promoting innovation.
Infringement court cases and patent validity decisions
The main points at issue in patent infringement lawsuits are whether or not infringement exists and, if it does, what amount of damages has been sustained by the patentee. However, as a premise for making such decisions, the validity of the patent in question is often contested. Previously, such cases had been dealt with in one of two ways: (1) the matter was referred to an invalidation trial by JPO appeal examiners, with court proceedings beginning or resuming only after the validity was upheld by the JPO; or (2) court proceedings went ahead on the assumption that the patent was valid.
Under the previous system, protracted court proceedings or unjustifiable conclusions could occur. To avoid this state of affairs, court judges took reasonable solutions on a case-by-case basis, for instance, deriving a non-infringement decision by narrowly defining the scope of patent rights where a patent should be invalidated. This approach was not adopted by the Supreme Court in its April 2000 decision in Texas Instruments v. Fujitsu, known as the Kilby case. By taking a more straightforward approach than in preceding cases, the Supreme Court ruled that a "court may decide whether or not sufficient grounds to invalidate the patent obviously exist," and concluded that in cases where the existence of such grounds is obvious, the "enforcement of the patent would constitute misuse of the patent and must not be allowed."
Following the Supreme Court decision, a 2004 amendment to the Patent Act took a further step forward: Article 104 ter provides that patentees may not enforce their patents in cases "where the court concludes that the patent should be invalidated in an administrative invalidation trial," even when the existence of reasonable grounds for invalidation is not obvious. This provides court judges hearing patent infringement cases with a statutory ground from which to determine the validity of the patent in question in the same manner as JPO appeal examiners do in invalidation trials.
Such reforms were made in response to the needs of the business community, which had been calling for an effective and adequate solution to the problems surrounding patent infringement litigation and patent validity decisions. There has been a marked improvement, particularly in terms of shortening the average length of court proceedings, partly due to efforts by the judiciary. At the same time, however, following the Kilby case there has been a significant increase in the proportion of patent infringement cases where the defense claimed patent invalidity and the court accepted such defense. This situation, according to some, may have made patentees hesitate to take legal action against infringement.
Decreasing infringement lawsuits and future policy priorities
Although it is clear that the number of patent infringement lawsuits has exhibited a downward trend, it is questionable whether this can be attributed to the high defeat rate for patentees. First, it is true that patentees' defeat rate (B/A) is high at around 80% (Table 2), but this is nothing new.1 Second, the number of cases settled without ruling (Table 1), many of which are in favor of patentees, has been increasing relative to the number of rulings. Thus, there is little basis for inferring that the number of patent infringement lawsuits has decreased simply because 80% of the cases have resulted in rulings against patentees.
What then makes patentees hesitate to take legal action? There are various possible factors: litigation tends to involve huge costs; the amount of court-awarded damages tends to be much lower than the amount claimed; and only the Tokyo and Osaka district courts may serve as courts of the first instance in patent litigation. Apart from these reasons, one major factor may be changes in the grounds on which patentees have lost cases.
According to the JPO statistics, as shown in Table 2, while the ratio C/A (percentage of cases in which the defendant asserted patent invalidity over the total number of rulings) increased from 22% in 2000 to 80% in 2007, the ratio D/C (percentage of cases in which the court upheld such invalidity arguments) did not change drastically. As a result, the ratio D/B = (C/A)×(D/C)÷(B/A), i.e., the proportion of cases that resulted in patent invalidation to the total number of cases in which rulings were made against patentees, increased from 11% in 2000 to 63% in 2007.
In other words, patentees' defeat rate did not change much, but the number of cases lost on grounds of patent invalidity increased relative to the total number of cases lost. Generally, facts and materials taken into consideration in determining whether or not infringement exists are in the hands of patentees. However, those taken into consideration in determining patent validity are held by the other party. Faced with the fact that cases lost on grounds of patent invalidity have accounted for 40% to 60% (66% at a record high in FY 2006) of all cases lost, patentees must be apprehensive about taking legal action now that the outcome has become so unpredictable.
Of course, in general, the fewer the number of lawsuits the better; yet it is problematic if patentees hesitate to take legal action for fear of the risk of patent invalidation. In such a situation, patentees or licensees will be loath to invest much in commercializing the patented inventions, which is obviously undesirable for innovation.
From this point of view, the real problem with patent infringement litigation is not the decreasing number of lawsuits as such, but the growing anxiety among members of the business community that their patents may be invalidated. In this context, future policy should be focused on enhancing the stability and credibility of patent rights.
Recent trends in court decisions regarding patent validity and other such matters
What should be done to enhance the stability of patent rights? To find some clues, let us examine how often JPO decisions have been reversed by court judges, using average figures for the past four years (FY 2004-07). As shown in Table 3, it is rare for court judges to reverse JPO decisions to reject a patent; only 10% of such decisions were cancelled by the court. Equally, the cancellation rate for JPO decisions invalidating a patent, i.e., cases in which JPO appeal examiners accepted a claim seeking the invalidation of a patent, is very low at about 10%.
However, JPO decisions upholding the validity of a patent, i.e., cases in which appeal examiners rejected a claim seeking the invalidation of a patent, have been overturned in approximately 50% of cases. Similarly (although the type of litigation is different), district court judges hearing patent infringement cases have accepted the defendant's assertion of invalidity in approximately 50% of cases, too.
Simply put, while JPO decisions rejecting or invalidating a patent are mostly upheld, roughly 50% of decisions granting a patent or upholding the validity thereof are cancelled by the relevant court. This seems to suggest that court judges are generally stricter than JPO examiners and appeal examiners in the application of requirements for patentability. However, a closer look at court rulings shows that this is not necessarily the case.
In order not to deviate from the argument at hand, I will confine my analysis here to patent infringement cases (district court cases) in which court judges accepted the assertion of invalidity. These cases are broadly classified into three categories based on different grounds for invalidation, namely, (i) submission of new prior art, (ii) procedural mistakes made by JPO examiners or appeal examiners in reaching their decision, and (iii) differences in judgment of inventive step and other patentability requirements between the JPO and the courts. Although not all cases can be distinctly classified like this, it may be said that the greatest number of cases belong to category (iii), followed by those in category (i). Thus, in the next section I would like to discuss possible measures to increase the stability of patent rights by focusing on categories (i) and (iii).
Issues to be addressed
(1) Submission of newly discovered prior art
Increasing the quality of prior art search is fundamental to reducing the number of cases in category (i). By improving prior art search, patentees can reduce the risk of their patent being invalidated at a later stage by the discovery of new prior art. In this sense, high-quality search contributes to innovation.
The task of improving the quality of prior art search should not be left to the Patent Office alone. Patentees also need to make an effort by conducting an adequate prior art search for themselves to confirm the validity of their patent before filing a lawsuit. Since the computer-assisted search environment has improved remarkably in recent years, it is worthwhile for patentees to conduct an updated prior art search for inventions of theirs patented more than 10 years previously, for example. If such a renewed search does lead to the discovery of new prior art, patent holders might be advised to refrain from taking legal action. Alternatively, if they choose to file a lawsuit, they can do so after making the appropriate corrections to their original patent, or making appropriate preparations for a possible invalidity defense. These precautions can help patent holders reduce the risk of losing a case because of a surprise attack based on invalidity.
There are also some policy issues on the part of alleged infringers that need to be addressed. From the standpoint of alleged infringers, revealing grounds for invalidation at an early stage (e.g., filing a claim of appeal for invalidation before the patentee files an accusation of infringement) would give the patentee a chance to correct the original patent, which otherwise might be invalidated. Thus, it is beneficial for the alleged infringers to strategically choose the timing of filing an invalidation claim, for instance when using such a claim as a defensive measure to catch the patentee off guard. However, if all players were to resort to such a "submarine" strategy, it would be likely to hamper innovation. Therefore, it makes good sense as a public policy to create a mechanism to encourage the early revelation of grounds for invalidation.
As one such mechanism, reviving a statute of limitations on invalidation is possible but requires cautious consideration.2 Apart from this enactment, there should be some cases in which invalidation claims that are intentionally filed late could be dismissed as an overdue offense or defense under the existing laws on civil procedures. I propose strictly applying this existing general provision (or explicitly stipulating the provision in the Patent Act if necessary) to deal with such intentional submarine tactics against bona fide patentees. It is my belief that it is a reasonable policy to reduce, with the passage of time, the risk of invalidation for bona fide pioneers who have made contributions to the public realm by investing much in commercializing their inventions.3
(2) Procedural mistakes and other such matters
Cases in category (ii), which are due to misinterpretation of the invention, procedural violations, and so forth, are basically a matter of quality control of patent examination within the JPO. In order to prevent the occurrence of these cases, it is necessary to closely examine the cause of mistakes and make sure feedback is provided to examiners and other relevant staff. At the same time, it is desirable that the JPO work toward enhancing the capabilities of its professionals through cooperation with experts such as retired court judges having expertise in intellectual property rights.
(3) Differences in judgment of an inventive step
With respect to cases in category (iii), there is much room for improvement in patentees' strategies in terms of presentation and performance before the court. Court judges tend to perceive a lack of inventive step in cases of incremental inventions involving technologies for familiar and simple products such as household appliances. Patentees should be aware of this tendency and make efforts to convince judges that the complexity of a technology and the difficulty of inventing the technology are two different things.
Also, while JPO examiners (including appeal examiners) routinely deal with a number of patent applications and tend to grasp the evolution of technologies as a continuum, recognizing an inventive step in inventions even though such inventions may appear simple in hindsight, court judges tend to see the technology in question as a singularity. This is another tendency that patentees must keep in mind when explaining their invented technology in court. Specifically, patent applicants need to make conscious efforts to define their technologies within the sphere of relevant technological developments.
In other words, patentees must recognize that a court is a forum for resolving dispute based on the principle of adversarial argument. Before grieving over harsh decisions handed down by court judges, patentees should make every effort to persuade the judges of the inventive step in their invention by collecting and submitting all of the available evidence and facts supporting their claim.
At the same time, there is also room for policy considerations on the side of court judges. We should consider establishing a rule that would require court judges to respect, wherever possible, decisions made by the JPO as a technological and specialized agency of the government, in particular, in cases where court judges have found it difficult to determine whether or not an invention meets the inventive-step or other technological requirements, i.e., in gray cases. This proposal, which would narrow the discretion of judges, could be controversial given the fact that a significant number of JPO decisions have been cancelled by the court. However, from a macroeconomic point of view, to prioritize the preservation of incentives for investing in technological development it seems worthwhile to presume the validity of a patent and require those contesting its validity to bear the burden of proof.4
In the past decade, the infrastructure for "strong patent rights" and "expeditious patent examination" has been substantially improved under the government's pro-patent policy. In order to link this to innovation, the government needs to focus its policies on stabilizing or increasing the credibility of such rights, particularly in this era of "open innovation" where companies are increasingly harnessing the patented knowledge and technologies that belong to others.
In order to increase the stability of patent rights, there is no other way but to seek to ensure rigorous examination and assessment of patents or patent applications based on careful and sufficient search of prior art. In regard to court decisions on infringement, my personal view is that we should consider the industrial policy viewpoint and establish a law requiring court judges to rule in a way that would prevent intentional submarine tactics in the submission of evidence of invalidity; and respect, to the greatest possible extent, technical decisions made by JPO appeal examiners.
The essence of my message in this article is as follows. In dealing with cases where it can be recognized that a patentee with a bona fide belief in the validity of his patent has made a substantial capital investment and has been contributing to society through the use of the patent, it may be a viable option-at least from the viewpoint of promoting innovation-to partially limit a potential challenger's right to invalidate the patent in consideration of the social benefits that might be lost by exposing the patentee to the risk of invalidity over the long term.
- Patentees' defeat ratio tends to be high, because cases reaching the ruling stage are generally those in which the defendant accused of infringement has confidence in his non-infringement position and does not agree to a settlement.
- The former patent law (Law No. 96 of 1921) stipulated that a trial for invalidation may not be requested after five years have elapsed since the date of registration of the patent (Article 124). This provision was intended to prevent a situation where patentees were unable to enforce their rights because of the patent's unstable status, but was repealed because it produced more negative effects than positive ones. (For instance, there were cases in which patentees, being aware of the invalidity of their patent, filed accusations of infringement only after the lapse of the five-year limitation period to take advantage of the provision.) Should the government intend to reinstitute a statute of limitations, it must be sure to implement appropriate measures to prevent the negative effects of the statute.
- For exactly the same reason, I believe that it is a reasonable policy to provide the court with the authority to partially restrict patentees' enforcement of their patent rights in cases involving patentees that have left inventions unused over long periods, and unreasonably delayed the enforcement of their rights against alleged infringers.
- Section 282 of the U.S. Patent Act presumes the validity of a patent and court precedents indicate that those challenging the validity must present "clear and convincing evidence" to prove invalidity. The Japanese legal system is different from that of the U.S. and it would be difficult to simply import the U.S. rule. Nevertheless, it is worthwhile to consider the policy implications of doing so.
September 3, 2008
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