US Patent Law
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Patents are temporary monopolies granted to inventors by the government, in exchange for public disclosure of how the invention works. They are one of the basic forms of intellectual property. A patent is a property right. Essentially, a patent gives the holder the right to exclude others from, among other things, using, selling, and making the claimed invention.
This text outlines patent law as it is applied in the United States.
- 1 Introduction
- 2 Patentability
- 3 Infringement
- 4 Exploitation of Patents
History of patent law
The idea of patents dates back to Aristotle, but the earliest patent system was implemented in Venice in 1474. England issued its first patents under Elizabeth I and established a patent system in the Statute of Monopolies of 1624, the country's first antitrust law as well as its first patent law (barring all monopolies except over disclosed inventions).
Colonial governments in British North America issued patents as early as 1641, but the separate patent systems in each state led to problems as the colonies became better interconnected. The best-known of these problems was a conflict over the steamship patent in the late 1700s. These issues led the Constitutional Convention to add a clause to the Constitution permitting Congress to enact a national patent regime.
The Patent Act of 1790 created a very simple structure for granting patents, consisting of a three-member panel led by the Secretary of State (at that time, Thomas Jefferson). In 1836, the law was revised to provide for a system of patent examiners, similar to that which is used today. Today's patent law mostly dates to the Patent Act of 1952.
In 1982, Congress created the Court of Appeals for the Federal Circuit (CAFC) to hear patent appeals from across the country. One of the purposes for the Federal Circuit was to bring patent doctrine under the watch of a specialist court. Under the Federal Circuit, patents have strengthened, and more inventors have filed to take advantage of this stronger patent protection.
Parts of a patent
The key legal component of a patent is the claims, which set the legal scope of the patent. The claims are found at the very end of a printed U.S. patent. These claims are supported by the rest of the patent, generally described as the specification. The patent is also required to have an abstract, providing a summary of the claimed invention in non-legal language.
The claims are the most important component of a patent. The claims are what define the scope of the patent—which devices/compositions/processes its monopoly will cover, and which devices/compositions/processes are outside the monopoly. Infringement cases always revolve around the claims, not the specification, although the specification can be used to clarify the meaning of terms appearing in the claims. Despite any language in the specification to the contrary, (such as “The invention is ...“ or "The invention includes ...“), only the claims determine the scope of the monopoly right.
Some claims may include one or more means plus function elements, which define that element by the desired result of the element and will encompass well-known or later-discovered substitutions that perform that function. A "means for attaching part A to part B" could include various well-known types fasteners, such as nails, screws, bolts, glue, etc. and any equivalent means discovered after the filing date of the patent application. For instance, a "means for attaching part A to part B" element in a patent issued before the invention of velcro may cover the claimed device using velcro as a fastener. A claim cannot be composed entirely of "means plus function" elements.
Unless defined otherwise in the specification, all terms of the claims must be construed according to their common usage in the field of the invention at the time the patent application was filed.
From a researcher's perspective, the specification preceding the claims is the most interesting part of a patent. It shows how the invention works and how it is made and used.
The chief legal requirements for the specification is that it must "describe" the claimed invention in sufficient detail to "teach others how to make and use the invention". These are referred to as the written description and enablement requirements, respectively. The written description and enablement must match the breadth of the claims. If a claim includes devices/compositions/processes which are not described or are not enabled by the specification, that claim is invalid. It is not necessary for the specification to teach anything that is already well-known in the field of the invention, the written description and enablement requirements are judged assuming the reader of the patent to be a person having ordinary skill in the field.
The written description requirement is often considered to have an evidentiary purpose: it shows exactly what the inventor has discovered. In some cases, an insufficient written description can show that inventors are not due the full breadth of the claims. A famous example is Sawyer and Man's patent on the light bulb, in which the description discussed various filaments made of paper and wood, none of which were particularly superior for use in light bulbs. When Sawyer and Man tried to use their patent against Thomas Edison, his lawyers had it invalidated because its claims, covering all fibrous materials, were much broader than the materials Sawyer and Man had actually outlined in the description. The Incandescent Lamp Patent, 159 U.S. 465 (1895).
Additionally, the description must disclose the best mode for carrying out the invention, as known by the inventors at the time the patent application is filed. The idea is that a person cannot gain the monopoly of a general patent while keeping secret their best embodiment of the invention. In Bayer AG v. Schein Pharmaceuticals, 301 F.3d 1306 (2002), the Federal Circuit established a two-prong test for finding best mode violations:
- Did the inventor have a best mode of practicing the invention at the time they filed for the patent? If they didn't know of, or believe in, a best mode at that time, then there is no best mode violation.
- Is the disclosure in the patent specification adequate to enable a person having ordinary skill in the art to practice the best mode of the invention?
The specification may (but is not required to) include a "background section", which is used to describe the state of the art before the arrival of the instant invention and often describes the challenges or problems with the prior art that the instant invention seeks to solve.
Types of patent
Most patents are utility patents, so called because they cover "useful" processes and products. This text focuses on utility patents.
A utility patent can cover a physical product (e.g. a chemical compound), or it can cover a process for using a product (e.g. a method for creating a chemical compound). The scope of these concepts has changed over time. For example:
- Artificially-created organisms were not patentable as products until the Supreme Court's decision in Diamond v. Chakrabarty, 447 U.S. 303 (1980), which held that a genetically-engineered bacterium was a "nonnaturally occurring manufacture or composition of matter" entitled to product protection.
- Business methods were not patentable until the Federal Circuit's decision in State Street Bank v. Signature Financial Group, 149 F.3d 1368 (1998), holding that a patentable process must accomplish "a useful, concrete and tangible result".
A utility patent is in effect from the date the patent issues until twenty years from the date the application for patent was filed, so long as periodic maintenance fees are paid.
Design patents are awarded to original designs for articles of manufacture. Like utility patents, design patents require novelty and nonobviousness. There is no utility requirement, but there are two other criteria for design patents. First, they must have ornamentality—they must be "the product of aesthetic skill and artistic conception." Design patents must also be not primarily functional. If the design is primarily functional, it should be the subject of a utility patent, not a design patent.
Design patents last for fourteen years.
Plant patents can be granted for any distinct and new variety of asexually-reproducing plant. Overall, plant patents are not as strong as utility patents in terms of protection.
Plant patents last twenty years from the date of application.
Two terms often used to describe the procurement of a patent are preparation and prosecution. Preparation refers to the actual drafting of the patent application, whereas prosecution refers to the negotiation process with the U.S. Patent and Trademark Office to obtain a patent. Collectively, many practitioners refer to this process as prep. and pros. or simply, prosecution for short. The duration of prosecution varies greatly. The average successful prosecution takes about three years from start to finish, but exceptional prosecution cases can be completed within one year or drag on for more than a decade. Much prosecution delay is due to backlogs in the Patent Office caused by too many applications and not enough qualified examiners. Partly because of this backlog, in many art units an examiner's goals require averaging no more than 18 hours to perform the entire prosecution of each application. Nevertheless, in art units like software, backlogs have been known to extend to 5 years. Where delay is demonstrably due to patent office personel not meeting their timetables for responding to applicants, the term of the patent can be extended by the period of delay.
The process starts when an application is filed with the Patent Office. The application contains the components which will form the final patent—the specification (summary and description) and the claims (the "new" portions of the invention, which will be protected by the patent). The application must be signed under oath and accompanied by a filing fee.
If an inventor is not ready to file a full utility application, they can file a provisional application. The provisional application mainly serves to establish a priority date for the invention, a concept discussed later. After filing a provisional application, the inventor has twelve months to file their utilty application, claiming the earlier priority date of the provisional application.
An inventor can file for a patent on their own, but most inventors enlist the help of a person who has passed the Patent Bar Examination. If this person has a law degree, they are known as a patent attorney. Trained scientists and engineers can also take the examination: they have the title of patent agent. The only practical difference, besides educational background, is that patent attorneys are also qualified lawyers and (if admitted to a state bar) can take patent infringement cases to court.
Inside the Patent Office
The Patent Office is divided into eight Technology Centers, each of which deals with a specific area of technology:
- Technology Center 1600: biotechnology and organic chemistry
- Technology Center 1700: chemical and materials engineering
- Technology Center 2100: computer architecture software and information security
- Technology Center 2600: communications
- Technology Center 2800: semiconductors, electrical and optical systems and components
- Technology Center 2900: designs
- Technology Center 3600: transportation, e-commerce, construction, agriculture
- Technology Center 3700: mechanical engineering, manufacturing and products
- Technology Center 3900: reexaminations
Each center is divided into several examining groups, and each examining group is divided into several art units. Some groups are highly specialized to deal with fields that deal with many patent applications (Electronic Commerce). Other groups are more diverse (e.g. Aeronautics, Agriculture, Fishing, Trapping, Vermin Destroying, Plant and Animal Husbandry, Weaponry, Nuclear Systems, and Licensing and Review—a single examining group).
The art units are staffed by patent examiners who perform the actual examination of the application, usually after a waiting period of about a year. The examiner reviews each claim separately.
If the examiner considers a claim unpatentable, because of prior art or for other substantive reasons, the examiner issues an "office action" with a rejection of the claim. The applicant can either acquiesce (agree) to the rejection by deleting the claim from the application, or traverse (contest) the rejection. Traversal can involve arguing against the rejection on scientific and/or legal grounds or amending the claim or submitting a new claim to overcome the rejection. If the examiner considers the traversal and finds it unpersuasive, he will issue the rejection again in a "final office action". Although applicants can respond to the "final office action", the examiner is not compelled to continue prosecution of the application beyond considering applications after-final response.
If the claim is unpatentable for merely formal reasons, the examiner issues an objection. This often happens when more than one invention is claimed in a single application: in such cases, the examiner issues a "restriction requirement" and the inventor must divide their claims into separate applications, which are then processed on their own.
Should the applicant and the examiner reach an impasse (often demonstrated by a final office action), the applicant can file an appeal to the Board of Patent Appeals and Interferences, an administrative tribunal within the Patent Office. Alternatively, applicants may respond to a final office action by filing a continuation application, a fee, and a response to the final office action; the examiner must then issue a new office action, completing the circle of patent prosecution.
Once all rejections of the claims or objections to the claims or the specification are overcome, the examiner issues a "Notice of Allowance" and a patent will be granted, if an issue fee is paid.
Eighteen months after its priority date, the patent application is published by the U.S. Patent and Trademark Office. The print format of these publications appears very similar to an issued U.S. patent and published applications are often mistaken for issued patents. The publications say "United States Patent Application Publication" in line 12 and have a number in the upper right corner in the format US YYYY/XXXXXXX or US YYYY/XXXXXXX A1, where YYYY is the year of publication. Issued U.S. patents are labeled "United States Patent" in line 12 and are numbered US X,XXX,XXX, or lately US X,XXX,XXX B2. Published patent applications are not patents and do not have the effect of patents, they are simply a public record of the application.
Contesting a patent
Once a patent is granted, it can be contested in a number of ways. One way is to produce the patented device, and then argue the patent's validity when a suit for infringement is brought.
A person may also request a reexamination of a patent by the Patent Office. Historically, the patent office only considered prior art (e.g., documents) that were not considered in the initial examination, that is, on the face of the patent. However, recent revisions to PTO regulations enable the PTO to consider previously considered art so long as a substantial new question of patentability is raised.
Note that two types of reexamination exist- ex parte reexamination and inter partes reexamination. In ex parte reexamination, a 3rd party requestor's involvement is curtailed after filing the request for reexamination. In the case of inter partes reexamination, the requester is allowed a degree of participation- but note that estopped provisions may apply.
Finally, a person can bring suit against the patentee in federal court for a declaratory judgment of the patent's invalidity. As federal courts can only consider "cases and controversies" under article III of the constitution, a defendant seeking a declaratory judgment must demonstrate reasonable apprehension...typically in the form of threatening communications from the patentee.
As described above, utility patents can be granted for products or processes. They cannot be granted for ideas; they must pertain to the application of an idea. That application must meet the basic requirements of utility, novelty, and nonobviousness.
Utility [35 U.S.C. § 101]
To be patentable, an invention must be "useful." This requirement is known in patent law as utility. There are three "types" of utility that appear in precedent: together, they form the notion of "utility" as it is applied by the Patent Office.
General utility is the notion that a patentable invention must "do something." It must have a useful function of some kind. In practice, it is not difficult to find a function for an invention: an invention can be purely entertaining and still be useful.
Specific utility refers to the ability of the invention to perform its function. It is the most commonly invoked form of utility. The specific utility doctrine is used to invalidate inventions such as perpetual motion machines, which may have a formal function but which are highly unlikely to fulfill that function.
Moral utility is a theory that an invention designed for an immoral purpose should not be patentable. It has not been invoked to invalidate patents in recent years, leading many to conclude that it is a dead doctrine. Some examples of moral utility:
- Gambling devices. The doctrine was used to invalidate many gambling machine patents in the 19th and early 20th centuries. A number of other patents were invalidated simply because they could be used for gambling—inventions like coin return devices and horse racing games. However, by the 1970s, gambling machines were routinely receiving patents despite the moral utility arguments.
- Misleading devices. One well-known early example was a patent for seamless stockings with fake seams: at the time (the 1920s), stockings with seams were widely viewed to be higher-quality than seamless stockings, so the fake seams were seen as an attempt to defraud consumers, and the patent was rejected. This line of jurisprudence ended in 1999, when the Federal Circuit upheld a patent for the Juicy Whip machine. The Juicy Whip is a lemonade dispenser which circulates an inert yellow liquid inside a visible tank while dispensing actual lemonade from a hidden tank below the counter: the Federal Circuit said that deceptiveness should not affect the utility of an invention.
- Medicines of questionable safety. Today, the Patent Office leaves such issues to the judgment of the FDA, and does not deny drug patents on the basis that the drug is unsafe.
Novelty [35 U.S.C. § 102]
35 U.S.C. § 102 governs all of the conditions for novelty. In particular, § 102(a)-(g) govern the myriad of conditions that must be met for an invention to be novel. The two key novelty provisions, explained below, are set out in § 102(a) and § 102(b).
Novelty as to Invention Date
"A person shall be entitled to a patent unless the invention was known or used by others in this country, or patented or described in a printed publication in this or a foreign country, before the invention thereof by the applicant for a patent." 35 U.S.C. § 102(a).
Novelty is the requirement that an invention be different from everything that has been published, known or marketed before.
The following definitions apply when discussing novelty and its related issues of statutory bar and priority:
- Knowledge or use by others must be in public. Personal or experimental use does not count, but giving or selling the invention to any third party usually counts as public knowledge or use, unless the third party is expressly bound to secrecy.
- Description in a printed publication occurs when the publication is made available to at least one member of the general public before the invention date of the patentee.
Novelty as to Filing Date - The Statutory Bar
"A person shall be entitled to a patent unless the invention was patented or described in a printed publication in this or a foreign country or in public use or on sale in this country, more than one year prior to the date of the application for patent in the United States." 35 U.S.C. § 102(b).
Statutory bar is similar to novelty, but not the same. Novelty can only be destroyed by others because it is based on the date of invention. Statutory bar is based on the date of filing. The doctrine essentially prevents inventors from waiting too long to request a patent. Once an inventor patents, publishes, publicizes or sells their invention, they have only one year to file for a U.S. patent, or else they lose their right to it.
So when a magazine is sent to subscribers or a dissertation is shelved in a library, the one-year clock begins for any inventions described therein.
Another way to conceptualize statutory bar is as priority of application, while novelty is priority of invention. That is, § 102(a) is evaluated with respect to the patentee's invention date whereas § 102(b) is evaluated with respect to patentee's filing date
Experimental use is an exception to what is considered public use for determination of whether an invention is novel or not. An inventor can use their invention in public for experimental purposes without that use counting as "public use," so long as the use is a bona fide effort to bring the invention to perfection or ensure that it will answer its designated purpose. The best known example of this exception is found in City of Elizabeth v. Pavement Company, 97 U.S. 126 (1877), where an inventor tested an experimental pavement on a public street for several years. This use was held to be "experimental use" and novelty was not affected.
In the United States, a patentee must be the first to invent. This is different from many other countries where the patent is given to the first to file. To be the first to invent, the inventor must generally be:
- the first person to reduce the invention to practice
- without abandoning the invention.
There is one exception. If someone conceives the invention first but is not the first to reduce it to practice, they receive priority if they were diligent in reducing the invention to practice.
"Reduction to practice" is the earliest date where the inventor can prove that they produced or applied the product or process successfully. Filing for a patent is considered to be the legal equivalent of reducing to practice if no earlier date can be proven.
Occasionally, a fight will break out in the patent office to determine who was the first to invent among patentees who claim the same invention. This fight is called an interference. 35 U.S.C. § 102(g).
"A patent may not be obtained... if the differences between the subject matter sought to be patented and the prior art are such that the subject matter as a whole would have been obvious at the time the invention was made to a person having ordinary skill in the art to which said subject matter pertains. Patentability shall not be negatived by the manner in which the invention was made." 35 U.S.C. § 103.
Nonobviousness adds an additional inquiry to novelty: is the invention new enough? The standard inquiry to determine nonobviousness is:
- Would the prior art suggest to those of ordinary skill in the art that they should make the claimed device or carry out the claimed process?
- Would the prior art have revealed that those of ordinary skill would have a reasonable expectation of success in doing so?
To reach this conclusion, the factfinder must examine:
- The scope and content of prior art
- The differences between the claimed invention and the prior art
- The level of ordinary skill in the art
- "Objective evidence of non-obviousness"—commercial success, long-felt unsolved need, failure of others, copying, and unexpected results.
The case of KSR v. Teleflex, 550 U.S. 398, 127 S. Ct. 1727 (2007), raised the threshold considerably as to what is considered nonobvious. Now, applicants must meet a higher bar to show patentability of their inventions.
Literal infringement is found when a person makes, uses, sells, offers for sale or imports an invention described in the claims of someone else's patent. The invention must contain every element of at least one claim in order to infringe the patent: if it fails to meet any part of the claim, it does not infringe that claim.
Infringement by equivalents
Even if the invention does not meet the literal criteria of a claim, it can infringe that claim by equivalents. To do so, it must have the "substantial equivalent" of every limitation or element of the claim. The general test for whether an element in an accused infringing device is an equivalent of a recited claim element is whether the element satifies the triple-identity test. In short, the triple-identity test requires that the equivalent element perform the recited claim element in the same way, to perform the same function, to achieve the same result.
The doctrine of equivalents has certain limits. That is, the doctrine of equivalents cannot be used to expand a claim to an extent that would have made the claim invalid. It cannot, for instance, broaden the claim to include prior art. Further, the doctrine of prosecution history estoppel prohibits the recapture of claim scope that was given up during prosecution. That is, if the patentee gave up claim scope during the negociation process with a USPTO examiner to overcome prior art rejections, the patentee cannot regain this scope later on during litigation by claiming equivalency under the doctrine of equivalents.
One difficult area for equivalents doctrine is improvements in technology. Claims are sometimes interpreted to include new technological advances that do not literally fall within their scope. For example, the patent for a light beam-assisted pipe-laying tool was held to cover laser-assisted tools as well in Laser Alignment v. Woodruff & Sons, 491 F.2d 866 (7th Cir. 1974). But other patents have not received protection under equivalents doctrine based on an entirety of the technology argument. A Texas Instruments patent on handheld calculators was not extended to cover models with MOS transistors and LCD readouts, on the grounds that "all of the claimed functions are performed in the accused devices by subsequently developed or improved means." Tex. Instruments v. U.S. Intl. Trade Commn., 805 F.2d 1558 (Fed. Cir. 1986).
"Whoever offers to sell or sells within the United States or imports into the United States a component of a patented machine, manufacture, combination or composition, or a material or apparatus for use in practicing a patented process, constituting a material part of the invention, knowing the same to be especially made or especially adapted for use in an infringement of such patent, and not a staple article or commodity of commerce suitable for substantial noninfringing use, shall be liable as a contributory infringer." 35 U.S.C. § 271(c).
Unlike direct infringement, contributory infringement requires knowledge of the patent's existence.
A related concept is inducement. "Whoever actively induces infringement of a patent shall be liable as an infringer." 35 U.S.C. § 271(b). Inducement can be found in a variety of activities: telling someone to violate a patent, selling parts to builders of infringing devices, and so on.
Obviously, one defense to infringment is simply that the defendant products or processes do not infringe the plaintiff's patents.
The defense of invalidity argues that the patent should not have been issued as a patent in the first place because the invention is not novel or is obvious. One example of patent invalidity would be where the defendant can show a printed publication that completely describes the invention before the invention date of the patentee. This defense is usually more difficult to prove than noninfringement, because the patentee is given a presumption of validity on the patent once it issues. Therefore, to invalidate a patent, a defendant must show patent invalidity by clear and convincing evidence, a much harder standard to overcome than the usual preponderance of the evidence or more likely than not standard.
If a patent is obtained through inequitable conduct or fraud on the patent office, it may be rendered unenforceable (but not invalid). Patent applications that contain blatant falsehoods or omissions (e.g. concealing prior art known to the inventor) can lead to the entire patent being rendered unenforceable.
Patent misuse refers to the use of a patent to illegally stifle competition: it is closely tied to antitrust law. The doctrine was first applied in Motion Picture Patents Co. v. Universal Film Mfg. Co., 243 U.S. 502 (1917), where manufacturers licensed a film projector patent under the condition that the projectors must be licensed to end users so that they could only be used with films covered by the manufacturers' patent. A finding of patent misuse renders the entire patent unenforceable until the misuse is purged.
Generally, patent misuse prohibits the misuse of a patent through prolonging the duration of the patent beyond its expiration and tying the products not covered by the a patent's claims to the patent. For example, requiring a licensee of a patent to accept a contract duration for royalty payments over a 25 year term when only 10 years remain on a patent's term would be prohibited extension of the patent beyond its expiration. An example of tying misuse would be requiring licensees to sell certain accessories with a patented product and requiring licensees to pay royalties on the accessories that are not non-covered by the patent's claims.
Remedies for infringement
Injunctions [35 U.S.C. § 283]
Following a complaint for infringement, a court can issue a preliminary injunction to stop the accused infringing action. The Federal Circuit has enunciated several factors that should be considered to decide whether a preliminary injunction should issue:
- Reasonable probability of eventual success in the litigation
- Complainant will be irreparably injured if relief is not granted
- Possibility of harm to others from the grant or denial of the injunction (optional)
- Public interest militating in favor of or against injunction (optional)
If the complainant prevails at trial, a permanent injunction against the infringement is almost always issued.
Damages [35 U.S.C. § 284]
Damages for patent infringement are generally lost profits, which are based on (1) demand for the product; (2) presence or absence of non-infringing substitutes; (3) the patent holder's manufacturing or marketing capacity to exploit demand; and (4) and the amount of profit the patent holder would have made. Panduit Corp. v. Stahlin Bros. Fibre Works, 575 F.2d 1152, 1156 (6th Cir. 1978).
- Demand for the patented product can usually be presumed from infringement itself. The fact that there were buyers who wanted the product and willing to pay the infringer’s price proves demand.
- The absence of noninfringing alternatives assures loss causation because, in the absence of infringing products, the demand could only be satisfied by the patentee's products. Courts tend to avoid speculative damage awards; therefore the patentee must show a reasonable likelihood that without the infringement it would have made the infringer’s sales. One factor is whether the alternatives proposed by the defendant compete in the same market for the same customers as the patented device. The alleged alternative must also not sell at a disproportionately higher price than the patented device. Finally, the availability of non-infringing alternatives may not preclude all recovery if, in a multi vendor marketplace, the patentee can show a reasonable market share with modest assumptions.
- The patentee must also show that it had, or could have obtained the manufacturing and marketing capability to make all the sales in question. It can satisfy this factor by reliance not only on its own manufacturing capability, but also by evidence of the potential for licensing and contracting for the manufacture.
- Finally, the amount of profits must be calculated using an incremental income approach that excludes the patentee’s fixed costs.
- Lost Profits = Lost Revenues – Incremental Costs
- Lost Revenues = the number of additional sales that the patentee would have made without the infringement, multiplied by the plaintiff’s historical (pre-infringement) prices
- Incremental Costs = the number of additional sales that the patentee would have made without the infringement, multiplied by the variable cost per unit
- Finally, the amount of profits must be calculated using an incremental income approach that excludes the patentee’s fixed costs.
- A patent owner can also potentially recover lost profits on lost sales of unpatented products (or products covered by patents other than the one in question) that compete with the infringing device, so long as the patentee can establish loss causation. Rite-Hite Corp. v. Kelley Co., 56 F.3d 1538, 1545(1995).
- The patentee may also seek to recover damages for the lost profits he would have made on accessory items that typically are purchased with the patented item. For these tag-along or convoyed sales, the Rite-Hite court held that those damages may also be recoverable. For such recovery, however, all of the components (patented item and the tag-along items) must work as a functional unit. If the tag-along items and the patented item can function as stand-alone products, then this type of damages may not be recoverable
- As part of lost profits, the patentee may seek damages for price erosion in the patent holder's selling prices which is caused by the alleged infringement by creating competing supply of products or services. As with lost damages, the patentee seeking price erosion damages must prove causation, i.e. but for the infringement, it would have sold the products at a higher price. The patentee may fail if the accuser can show that the price erosion was due to factors other that the presence of the infringer in the marketplace, such as changing consumer preferences or an influx of imported products.
If lost profits cannot be proven, a reasonable royalty analysis can be substituted, in which damages are based on the amount a manufacturer would pay on the market for a license to produce the patented article. § 284 provides that the reasonable royalty is the minimum or floor below which the damages assessment cannot go. In analyzing how much is reasonable, courts may ask what the royalties would have been in a hypothetical negotiated license at the time of first infringement. The following factors are generally considered: (1) other competitors; (2) number of licenses; (3) future business and profit the patentee would lose by licensing to a competitor (cannibalization); and (4) how central the patent is to what is being marketed. Alternatively, courts may use the analytical approach and take the infringer’s net profit margin, leave it an “industry standard” profit and give the rest back to the patentee as reasonable royalty.
§ 284 also provides for enhanced damages up to three times (treble damages) in exceptional cases. The standard for enhanced damages is willful infringement demonstrated by egregious conduct based on facts and circumstances, i.e. deliberate copying. Although a good faith belief of non-infringement, such as an opinion letter from outside counsel may shield a defendant from enhanced damages, the defendant may still be liable for actual damages discussed above.
In addition to § 284 damages, a defendant, under § 285, may have to pay attorney fees if defendant (generally through its attorneys) commits litigation misconduct that is exceptionally bad, such as tampering with evidence, frivolous lawsuit or defenses. Attorney fees award amount usually bears some relation to the extent of the misconduct in question.
Exploitation of Patents
Because patents are a property right, they may be owned or transferred to another much like any other property right.
To transfer ownership of a patent, one "assigns" the patent to another.
A patent may also be licensed. A license provides permission for another party to engage in conduct that would otherwise be infringing.