Avoiding Patent Infringement in the Design Process: How a Recent Decision May Help Everyone

By Marc Hubbard

Knowledge of a patent is not necessary for proving patent infringement. Neither is copying the patentee’s product. Therefore, independent development, and even your own patent on the allegedly infringing product, offers no defense. When developing complex, highly integrated circuits or embedded systems, with multitudes of features and functions, is it possible to avoid patent infringement?

Inverse Logic

The logical thing for a designer or manufacturer to do, at least when adding a new feature or changing a design, is to locate pertinent patents and, if problems are found, design around them. However, this is not what patent lawyers typically recommend doing, and it’s not because they want their clients to be sued. There are a couple of reasons why looking for patents may not be a good idea.

First, there is the practical problem of time and money. It is impractical and too costly to look for and study every patent relevant to every feature and function of an integrated circuit, not to mention the combination of that circuit with other circuits. At minimum, candidate features must be isolated for successful searches. Furthermore, one can never be sure that every relevant patent has been found. Studying just one feature can be expensive. And, there is the cost of the legal opinion that you will probably want.

Second, finding a troublesome patent may mean having to choose between changing a design or not selling the product, on the one hand, or risking of being tagged for infringement and enjoined from making the product on the other. No one likes to be faced with this choice.

Third, there is another, overriding consideration – liability for “increased damages.” To discourage willful infringement, courts are empowered by the patent laws to order a willful infringer to pay up to three times actual damages – in other words, to pay up to three times the amount that would have otherwise been owed. And, to rub it in, they can also order a willful infringer to pay the patentee’s attorneys fees.

Just knowing about a patent substantially increases the exposure for infringement. The potential of being punished by being saddled with enhanced damages and attorneys fees thus leads to steadfast refusal to look at other’s patents – the proverbial sticking of one’s head in the sand, but in this case not so much as an irrational reaction to fear, but as a way to ensure ignorance. The rationalization for doing so is that a manufacturer, for example, is better off with the risk of infringement than the risk of increased damages.

Ancillary Strategies

Some companies devote substantial sums to developing “defensive” patent portfolios. The potential for a counterclaim of patent infringement tends to discourage all competitors, big and small, from bringing claims in the first place. Valuable portfolios also confer leverage for settling patent infringement claims and cross licensing.

Adopting old designs, for example those disclosed in expired patents, which are more likely to be free from infringement, may reduce risk. Risk can be shifted to others by, for example, licensing designs from third parties who are willing to accept the risk of infringement through infringement indemnities. And, of course, making it difficult, if not impossible, for the patent owner to discover the infringement can be effective.

Defensive patent pools for collectively purchasing relevant patents are being formed, and new “IP markets” are starting, in each case with intention of granting licenses to needed patent rights on more reasonable terms.

However, for designers, these strategies are often not feasible or available. Reverse engineering of chips will expose infringement. Even if old circuit designs can be used, their adaptations for use in integrated circuits could still be the subject of unexpired patents. Licensing designs from others adds cost. Emerging strategies such as defensive patent pools and IP markets are really more in the pre-emergent state and are very unlikely to be of much help in the near future.

Reassessing Willfulness

In August of 2007, an order sought by Seagate Technology caused the Court of Appeals for the Federal Circuit, an appeals court in Washington D.C. that hears most appeals in patent cases, to reassess the standard for determining whether an infringement is “willful.”

The Patent Act allows a court the discretion to increase damages and award attorneys’ fees in “special” cases. Prior to Seagate’s case, the Federal Circuit held that everyone has a duty to exercise “due care” to avoid patent infringement, and that the failure to act with due care constitutes willfulness, making makes the case “special.”

There’s always been a lot of debate over “willful infringement.” It is pled as a matter of routine. Juries inevitably find any infringement to be willful. In short, it has been used, and continues to be used, both justifiably and unjustifiably, to coerce larger settlements.

Two reports from the earlier part of this decade, one from the Federal Trade Commission and the other from the National Academies, found a number of problems with thencurrent standards of willful infringement. The FTC proposed that actual notice of infringement must have been given in order for there to have been willful infringement. The National Academies went further and proposed eliminating it altogether. Currently pending bills in Congress include provisions for codifying the standards for finding “willfulness” and awarding increased damages.

With its decision in In Re Seagate Technology, LLC, 497 F.3d 1360 (Fed. Cir. 2007), the Federal Circuit threw out its old rule and tightened the standard. Now, the infringer must be shown to have acted recklessly, in spite of an objectively high likelihood of infringement that the infringer either knew or should have known about.

Although this distinction may sound like legal gobbledygook— and maybe it is just that—it effectively means that, instead of acting negligently, an accused infringer must now act with recklessness to be found guilty of willful infringement.

The expectation is that the new standard will make it harder for patentees to make a charge of willful infringement stick. Because the new standard is, well, new, we don’t really know if it will. But early signs are somewhat encouraging.

New Strategies For Avoiding Infringement?

Is it time to start looking for and reading patents when designing new systems?

In the year and half since the Seagate decision, willful infringement still appears to be plead with the same frequency, but that may be just out of habit. A number of judges have thrown out jury determinations of willfulness, which is a good sign. However, what remains to be seen is whether judges will dismiss claims of willfulness earlier in the cases, on motions for summary judgment. So far they have not been, but that may change with more decisions from the Federal Circuit to flesh out the new standard.

There also seems to be a general consensus in the courts and in Congress that a new balance must be struck that discourages egregious conduct by infringers and encourages legitimate review of competitors’ patents. This further boosts confidence that the risks arising from reviewing third party patents can be controlled.

Although uncertainties remain, the Seagate decision nevertheless gives confidence to review third party patents in carefully controlled situations in which the benefits clearly outweigh the perceived risks. It probably does not make sense for engineers to read every patent of a competitor or in a particular field. However, targeted infringement studies of new features, for example, may be worthwhile, preferably early in the design process. This may be especially true where an infringement claim might be particularly disruptive and the risk of infringement appears high due to, for example, extensive competitor activity in the area.

Although the risk of infringement can never be avoided, iterative patent searches directed to new or changed features, combined with ancillary strategies mentioned above, should decrease risk of infringement, without substantially increasing exposure to charges of willful infringement.

Although the risk of infringement can never be avoided, iterative patent searches directed to new or changed features, combined with ancillary strategies mentioned above, should decrease risk of infringement, without substantially increasing exposure to charges of willful infringement.