Before venturing into the variety of subjects that this Blog will cover, I figured it would be good to bring up one that is timeless. It was written in collaboration with a patent attorney colleague of mine – Craig Kirsch – who was “Of Counsel” to my firm at the time.  Alas, Craig passed away some years ago at a far too young age. It would be awesome to see how he grew and developed as a digital jurist.  I will not forget our conversations and interplay putting this article together.  We did it over a series of weeks; making it a point to have lunch two times a week to discuss the issues and the making of this article. 

There were at that time ( as still are today), a good number of cease-and-desist demand letters for Patent and software Copyright being served upon technology businesses and start-ups throughout Florida and the country.  Some of these had merit, some did not, and some or simply Patent Trolls watching the revenues and marketing efforts of our clients spike and shoehorning the recorded shadow of  their USPTO registrations and copyright deposits.  The Trolls tended to play hardball.

We wrote the article for the Prepaid Press, an industry trade periodical for which I was a columnist at the time.  The industry focus of that monthly trade news was prepaid calling cards, stored value cards and payment systems (now called Fintech), international mobile top ups, wireless MVNOs and VoIP Providers.  The article was written for that niche focus, but the materials we covered were more universal on some of the basic assessments and options.

I think it’s points are still relevant, and I wanted to repost it here as a possible point of venture for attorneys running across similar issues and circumstances. Even though a decade has passed since its publication, it still presents the same thought processes considered by the client when hit with such a demand. In that, it is timeless. 

I hope you find this useful and informative in today’s practice. It may even be a good primer checklist for those attorneys not versed in intellectual property whose clients get hit with something similar.  Here is the Article in its entirety for that purpose. 

Understanding the Risks of Patent Infringement Allegations

Ed Maldonado and Craig Kirsch

From The Prepaid Press, 2/1/2013

Legitimate Patent Holders vs. Patent Trolls

The scenario has unfortunately become more common these days. A certified letter on Monday morning is in fact a Cease-and-Desist notice from a law firm. It alleges that your business is infringing on their client’s intellectual property (IP) because of the use of..[whatever].

The scenario has unfortunately become more common these days. A certified letter on Monday morning is in fact a Cease-and-Desist notice from a law firm. It alleges that your business is infringing on their client’s intellectual property (IP) because of the use of some “patented” technical or electronic function used in your prepaid services. It alleges that although you are not the manufacturer, supplier, or distributor of the technology, you use it in commerce (or e-commerce) and are presumably liable for damages “thereof” unless matters are settled to the favor of their client.

Obviously, this is a watershed moment for any company or business, and indeed for any officer or owner. When it comes to IP infringement defense or settlement, it is essential that you understand the actual risks involved in patent infringement allegations, your rights and the rights of the claimed patent holder, common misconceptions, and legal options available to you.

Once you put the letter down, some questions and conclusions often consume the recipient:  Who are these people? I must be infringing on their patent; otherwise, why did I get this letter. Can I afford to stop using their technology? Do I have to change my business model? Must I pay them money? Are they going to sue? While reasonable questions for business owners, these are not necessarily the first legal concerns you ought to prioritize.  

IP infringement defense requires careful, thoughtful, and planned legal and business decisions. Gut reactions can lead to premature business decisions that place the business in the crosshairs of the equivalent of a legal sniper, who may or may not have the rights they claim. Remember that a cease-and-desist notice from an attorney, not a lawsuit, has just arrived. There is time for assessment and planning of your position…and response.

Assessing and Dissecting the Alleged Patent Claims
This is clearly a legal issue, as the notice came from a lawyer’s office, so it’s probably the time to lawyer-up. Finding the right type of lawyer to support you through the patent infringement defense processes can be confusing. Patents are the “stuff” of patent attorneys, who have specialized skill sets that may be needed to get a solid assessment of the claims within a patent, your individual implications, and to know what may, or may not, await you in the journey ahead. Not all intellectual property attorneys are the same. A Registered Patent Attorney is an attorney authorized to practice before the US Patent and Trademark Office (USPTO). Only a Registered Patent Attorney (or a Patent Agent) can write and file patent applications with the USPTO on behalf of others. This type of attorney tends to be in the best position to assess bona fide patent claims, and those that may fall short.  Insofar that a Registered Patent Attorney wrote the original patent that is behind all of this, seeking the advice of another Registered Patent Attorney well versed in patent law is your best resource to “dissect” the patent at issue and formulate your particular position and response.

To obtain an accurate assessment, your patent attorney must review your business operations and compare the technology that you use with the intellectual property that the other side says is being infringed. The review should include an analysis of the technology contained in the cease-and-desist letter that you just received. Therefore, you need to be able to convey information about the inner workings of your particular prepaid operations in a simple methodical manner, as if you were speaking to someone who knows nothing about prepaid or your particular business. This should include flowcharts and other diagrams that illustrate each step in your business transactions and how your systems interact with other systems or vendors.

Scope of Patent, and its “Shadow”
Before going any further, it is important to make clear some fundamental concepts about patents. Contrary to what many people think, being issued a patent does not give the holder the right to do anything. Instead, it grants the holder the right to exclude others from doing something. This right to exclude is entirely based on the scope of the written claims of the patent. Under this right to exclude, there exists a particular scope, or application, that functions much like “shadow.” Should any method, system or technology fall within the shadow cast by the patent’s claims, it cannot be used without the permission of the owner; otherwise, this could constitute infringement. The broader a patent’s claims are, the larger the shadow it casts and covers. Conversely, the narrower a patent claims are, the smaller the shadow it casts. Broader patent claims are generally tougher for patent holders to obtain and keep intact throughout the litigation process, while narrower claims are more easily obtained, and defended, but have limited application as to what may be excluded.

The ultimate question in any assessment of your possible infringement of a patent is whether your business method, systems or use of a technology fall within the shadow cast by the patent referenced in letter. If so, you may be excluded from the continued use of that method, system, or technology. In some instances, use of the excluded method, system, or technology, may be possible through payment of a royalty and a licensing agreement. If the patent had been issued several years back, and you used that method, system, or technology over a period of time, damages may be due to the patent holder. These are the scenarios where lawsuits usually erupt.  

On Patents, Infringement and Litigation
Holding an issued patent is important, but not a legal conclusion of rights in itself. An issued patent is presumptively valid. It can be invalidated either by re-examination or by court order following litigation. Aside from invalidating a patent through re-examination or litigation, a patent’s claims can be narrowed from the issued claims by either process. If a patent is invalidated, it can no longer exclude others, and if a patent’s claims are narrowed, the patent will cast a smaller shadow than it did before. Likewise, if it is legally concluded that your business method, system, or technology use falls outside the shadow of the patent, you are not infringing that patent. This being said, it is possible that a Legitimate Patent Holder can sue (in good faith) for infringement to ascertain their rights, even if you are later found not to be infringing their patent. In such cases, the patent holder may be liable for your attorney fees.  

It is important to realize that the finding of patent infringement is a legal conclusion, not an allegation. Every element in a patent claim must be found in the accused device, system, or process; or an equivalent of every element in a patent claim must be found in the accused device, system, or process. What does that mean? In order to make such a conclusion the court must first determine the meaning of the express language used in the claims of the patent in question. This is done through a process known as “claim interpretation” where a judge considers evidence and arguments under a hearing called a “Markman Hearing” to determine the meaning of the written words used in the issued patent’s claims. By defining the words used in the patent’s claims, the Court determines the scope of the patent (i.e. the size of shadow it casts) and what information a jury will consider when determining whether infringement has occurred, or not. The Markman Hearing is a great equalizer in many patent infringement cases, and many a claim are won, lost, narrowed, or invalidated during this pre-trial hearing.

Let’s skip ahead to the end of an infringement trial to understand the practical implications of infringement. There is either a finding of infringement or not. In the case a judge or jury finds that patent infringement has occurred, the infringer may be liable to the patent holder for damages including reasonable royalties during the time of infringement, lost profits from royalties or competition, possibly attorney fees, and in exceptional cases, treble damages for willful infringement. Similarly, an injunction may be issued by the Court to prevent you from using the device, system or process going forward. On the other hand, a finding of non-infringement allows you to continue business as usual, minus the expenses of litigation, the ulcers, and countless sleepless nights you have incurred throughout this harrowing process.

Another option…DEC it out!
Now aside from a “waiting to be sued” approach, another option exists that can short-circuit the traditional litigation process and place the accusing party (patent holder) in a defensive position. This is commonly called a “DEC” action. It is a lawsuit for a declaratory judgment of invalidity, or non-infringement, of the patent in question. It is initiated by those who have been accused as infringers. A DEC action can be filed upon receipt of a cease-and-desist letter that clearly accuses you of infringing on patented technology. The filing of an action for a declaratory judgment figuratively transforms the hunted into the hunter and significantly shifts the balance of power by supplying leverage to the accused infringer and placing them in the driver’s seat, with the added bonus of litigating the patent dispute in your home court jurisdiction. Should you prevail in a DEC action, all litigation in your case stops. It is indeed a very useful litigation tool that should not be overlooked.

Beware of Patent Trolls and Trolling
What is a “Patent Troll?” It’s basically the legal ambulance-chaser of the patent world. Operating from the position that all issued patents are presumptively valid and enforceable, the patent troll threatens to sue anyone they think can be scared into a settlement even though their patent was erroneously issued or otherwise is unenforceable. The Patent Troll knows that defending patent infringement litigation, even if it is wrongfully brought to court, can be very expensive for the defendant, in this case you.  The settlement offer usually involves you paying money to the Patent Troll in order to avoid such litigation and continue using the patented technology by entering into a licensing agreement. The Legitimate Patent Holder may make a similar settlement offer, the only difference being that the Legitimate Patent Holder actually holds an enforceable patent, and they are not trying to shake you down for money. They actually will sue with a strong likelihood of winning if a settlement is not reached. So, does this mean that the Patent Troll can be ignored once they are identified? No. All cease-and-desist notices should be taken seriously and assessed and dissected carefully by a Registered Patent Attorney. Like all legal cases, Trolls need to be vetted-out from legitimate patent enforcers. This occurs in the assessment process. 

The decision you make after receiving a cease-and-desist letter is no different than other business decisions and the more knowledgeable you are about your risks, rights, and available options, the better off you are.

Edward A. Maldonado, Esq. is a Florida and federal attorney. He is founder of the Maldonado Law Group, a Coral Gables, FL law firm dedicated to telecommunications, stored value, intellectual property, e-commerce, and regulated business, who has previously defended prepaid businesses in patent and trademark infringement cases. www,maldonado-group.com

Craig S. Kirsch, Esq. is a Registered Patent Attorney and a Florida and federal attorney.  He is founder of the Kirsch Law Firm, a Miami, FL law firm dedicated to patents, trademarks, and intellectual property law. 

This article is written for educational purposes only and not intended as legal advice or to create an attorney client relationship of any kind.  Each case is different and requires individual attention, should you have a specific question about your defending a patent infringement matter, it is strongly suggested that you contact a Registered Patent Attorney for assistance.