Amazon program to thwart infringers is complicated by federal circuit ruling. Once again, we are left trying to fix a mess the courts created where none existed before.
BY LOUIS CARBONNEAU
As the saying goes, no good deed goes unpunished.
Under pressure to fight counterfeit products on its online platform and those accused of violating third-party patents, Amazon created its APEX program. It’s sort of an intramural arbitration process whereby someone claiming its patents were being infringed upon by an article sold on the Amazon website could—for a $4,000 fee—file a complaint and be bound by the final decision of the patent specialist retained by Amazon.
Although the cost is extremely reasonable compared to the alternative, there is no appeal if you don’t like the decision. But the process has the merit of providing an off-ramp to small inventors who do not have the resources to take serial infringers to court.
Lately, though, one unintended consequence of this private remedy showed its ugly head. The United States Court of Appeals for the Federal Circuit ruled that using Amazon’s APEX patent enforcement process to target an alleged infringer’s listings can subject the patent owner to personal jurisdiction in the accused infringer’s home state, as it purposefully directs enforcement activities affecting the seller there.
This indirectly provides a way for an alleged infringer to bring a preemptive challenge to the patents before the courts, and on its own turf!
This is exactly what the APEX program was trying to avoid.
The logical next move, in my opinion, would be for Amazon to require those selling on its platform to agree to subject themselves to the exclusive jurisdiction of the APEX program so they can’t have standing to sue in court.
Once again, we are left trying to fix a mess the courts created where none existed before.
IPR Losers Don’t Have to Pay
Since the U.S. Supreme Court decision a few years ago in the Octane Fitness case, the prevailing party in a patent case can ask the court to force the losing party to pay the entirety of its legal fees, which can often amount to millions of dollars after a full trial. The court will grant such a request only in “exceptional cases,” which the courts have interpretated many ways.
Needless to say, this has had a chilling effect on some small plaintiffs who can only sue with a contingency arrangement and who do not have the resources to face any payment to the other side should they lose a case.
As a result, defendants in patent cases have systematically used this tactic aggressively to deter more lawsuits—with a certain degree of success. One defendant recently tried to extend the rationale in the Octane case to inter partes reviews (IPRs) before the Patent Trial and Appeal Board in the case of Dragon IP vs. Dish Network.
The irony is that such a request came from Dish itself, the party challenging the validity of a given patent—which, it is worth reminding, benefits from a legal presumption of validity. After it succeeded (no big feat, because the PTAB invalidates more than 75 percent of patents it reviews), Dish asked the court to award its legal fees on the basis arguably that the patent should never have been issued in the first place or its validity defended by its owner.
Fortunately, this rather twisted view of loser/payer did not sway the U.S. Court of Appeals for the Federal Circuit, which ruled that such a doctrine did not apply to IPRs.
UPC Strict on Bonds in Disputes
Recently, the Unitary Patent Court issued two interesting decisions, both having to do with the payment of a bond after issuance of a preliminary injunction to guarantee payment to the other party should it succeed in lifting such an injunction later.
First, UPC’s Paris local division ordered U.S.-based plaintiff ICPillar to provide security for potential reimbursement of litigation costs to the defendant Arm. The Paris court found ICPillar’s assets were unclear.
The Paris court rejected ICPillar’s proposal to use a U.S. insurance policy or bank guarantee, requiring instead a guarantee from an EU bank.
This highlights that although the UPC aims to avoid discrimination against foreign parties, there are procedural requirements that can make it more challenging for U.S. entities to enforce patents at the UPC compared to EU-based plaintiffs.
In the other case, the UPC’s Munich local division denied requests by Volkswagen, Audi and Texas Instruments to require U.S.-based plaintiff Network System Technologies to post security for potential reimbursement of litigation costs. The court said defendants must show a clear bankruptcy risk to justify such orders, not just argue the plaintiff is small and foreign.
Network’s valuable patent portfolio acquired from Philips gave comfort on recovering costs. If upheld on appeal, this pro-access to justice stance favors smaller entities and litigation funders enforcing patents at the UPC against larger companies.