Fortunately, by managing litigation effectively, those costs can be greatly reduced. For several years I served as Director of Legal at a multi-billion dollar tech company based in Taiwan and was responsible for resolving all disputes and litigation. Cost-down was our corporate mantra, with every invoice closely scrutinized by management. Below are a few of the lessons I learned.

1. Seek Internal Solutions. Before retaining outside counsel, a company should promptly investigate whether the matter can be resolved internally. Often the business unit, management or in-house counsel can resolve the matter through informal discussions, saving considerable time and costs. For example, we routinely received licensing threats and demands, but disposed of more than 90% without the need for licensing, litigation or outside counsel.

2. Select Counsel Carefully. The key factor in the cost and success of legal representation is the attorney handling the case. Hire the attorney, not the firm. Utilize referrals, past representations, Martindale-Hubbell, and other sources to identify several candidates who appear well-qualified in terms of credentials, experience, practice areas, and so forth. Consider attorneys in smaller firms or lower-cost markets. Contact a few candidates, let them know you are speaking with several firms and ask them to perform a conflict check and notify you of their potential interest.

If they express interest, provide each attorney with a detailed statement of facts and request them to provide certain legal, procedural and financial information, including an opinion on the strength of your case, suggested strategies, potential challenges, responsible attorneys and their rates, expected timeline of events and estimated fees per phase. Be sure to clearly define your goals and expectations. You should receive responses from several attorneys and will have valuable information to help choose the best-qualified. In particular, make sure the attorney you select really “gets it” – understands what is important to your company and demonstrates an ability to handle the case in accordance with those values and objectives.

3. Negotiate Fees. First learn the attorneys’ hourly rates; then demand discounts. As reported in the Wall Street Journal last month, U.S. law firms have raised their hourly rates to record levels, but are also discounting them by record levels, in response to client demands. As described in that article, an hourly rate is basically analogous to the sticker price on a car: it’s the beginning of a negotiation.

While reduced rates help, to reduce risk it is often essential to obtain fee caps, whether per month, per phase, or for the entire case. Attorneys often resist such requests, based on the excuse that litigation is fraught with too much uncertainty. While that may be true, if the client has a legitimate need for certainty, it should insist on counsel finding a way to satisfy that need. Otherwise, alternative fee arrangements may also make sense, such as contingency or low hourly rate with success fee, and the client may wish to explore such options with counsel.

4. Negotiate Terms. The prudent client will insist upon receiving a signed legal services agreement and will negotiate terms to protect its interests, such as the following types of provisions:

• Identify staffing and scope of work
• Describe hourly rates or other fee arrangements
• Require hourly rates to remain fixed for one year
• Requirement for detailed monthly bills
• Prior approval for preparing motions
• Prior approval for substituting attorneys
• Prior approval for expenses over a certain limit
• Economy-class air travel and daily caps on meals/hotel
• No charge for travel time or online legal research
• Prior approval for legal research exceeding a certain limit
• Prior approval before more than one attorney per meeting/hearing
• Prompt notice if it becomes clear a fee estimate will be exceeded

5. Assess Case Early. Engage in frank discussion with counsel about potential strategies, the odds of prevailing at different stages, potential liability (best, worst, most likely) and consider performing a decision tree analysis, or otherwise calculating likely risks and damages, in order to better evaluate strategic options, advise management, plan budgets and calculate reasonable sums to set aside in reserve.

6. Review Invoices Promptly. Promptly review each invoice and discuss with counsel any questions, concerns or objections. Verify that each item is consistent with your records. Problems may relate to vague descriptions; changes in staffing; excessive time spent on preparation, conferences, memos, research or drafting; motions to compel or for sanctions; events that counsel failed to anticipate but should have; and sums exceeding fee caps or estimates. Seek explanations. If charges seem excessive or improper, demand that they be written off or reduced, not just once, but every time an invoice appears questionable. At the very least, just letting counsel know you are reviewing each invoice closely will motivate them to use extra care to work efficiently and bill honestly.

7. Review Strategy Regularly. Strategy may evolve as the case develops and the client should communicate regularly with counsel to ensure that all parties are made aware of any new business or legal developments. Client should clearly instruct counsel that it has no interest in legal procedures for the sake of legal procedures; instead, all actions should be directed towards achieving the client’s objectives in the most cost-effective manner. Motions for early resolution or other purposes should be explored, but wasteful actions unlikely to prevail or to provide meaningful advantage should be rejected. Opportunities for settlement should be explored early and often.

8. Invest in the relationship. Develop a friendship with outside counsel, meet in person, meet socially, show them your facilities, invite them to corporate functions. The better your attorneys understand your corporate operations, culture and personnel, the more effectively they can perform. Good relations are more likely to result in honesty, integrity and trust.

9. Switch Horses if Necessary. If counsel appears to be wasting resources on ineffective legal tactics or strategies, promptly express concerns. Don’t be afraid to suggest switching tactics. While a client should consider counsel’s suggestions and explanations, ultimate responsibility lies with the client. If concerns with the quality or cost of representation persist, don’t be afraid to switch counsel, but consider first whether the problem is truly counsel’s fault, or may arise from unforeseeable external challenges or unrealistic expectations.

10. Evaluate Performance. At the close of each representation, in-house counsel should enter into a database information such as the name and type of case, names of counsel, billing rates, hours billed, total cost and satisfaction with the representation, to help guide future hiring decisions and develop a list of preferred providers.

For a company that just wants to do business, the costs and uncertainties of litigation will always cause great consternation – particularly if the client fails to properly manage and supervise the case. However, by taking the types of steps described above, one can minimize excesses, inefficiencies and uncertainties and keep the matter on track towards the most cost-effective resolution.

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Please contact Asia Law for a free consultation if you have any questions concerning Managing Litigation.

Nothing has fundamentally changed about the nature of design patents. The first US design patent was granted in 1842. The Statue of Liberty, Coke bottle, Volkswagen Beatle, Stealth Bomber and Star Wars’ Yoda are all protected by design patents. Design patents have long played an important role in consumer electronics, automotive, apparel, jewelry, packaging and other industries.

But industrial design is becoming increasingly important, Mr. Kappos explains, because the increasing functionality of man-made devices brings with it increasing complexity, so innovative companies are constantly seeking superior designs, a convergence of form and function that helps make the complex simple and sets their companies apart; and protecting such designs is critical.

While that explanation sounds reasonable, in China there are additional factors and – as always – the picture is complex and uncertain, but it is perfectly clear that companies doing business in China, from manufacturing to sales, should seriously consider the roles design patents can play with respect to brand protection, counterfeiting and unscrupulous business practices.

Explosion of Patents

To start with, it should be noted that China grants far more design patents than any other jurisdiction. According to WIPO statistics, Japan’s Patent Office led the world in design patent applications from the 1950’s through the 1990’s; Korea’s Intellectual Property Office and the USPTO have shown a steady upward trend; but starting about 2000, the number of design applications filed in China has skyrocketed, so China’s Intellectual Property Office (SIPO) now issues more design patents than the next twenty offices combined and ten times the volume of the USPTO.

The vast majority of all design patents in China are granted to domestic applicants. Surely that is due, in part, to China’s indigenous innovation programs that provide cash bonuses and other financial incentives for the filing of patents and have been blamed for rewarding quantity at the expense of quality.

But perhaps there’s more to it than just that. More than one-third of all patent applications filed in China by domestic entities are for design patents, compared to just 10 percent for foreign applicants. Perhaps Chinese applicants have greater confidence than foreigners do that Chinese design patents, regardless of their quality or legitimacy, can give them an edge.

Applying for Design Patents

The scope of a design patent in China is essentially the same as in the U.S., where protection is allowed for any new, original, ornamental design for an article of manufacture.

China employs an absolute novelty standard, and includes no grace period, so prior use or publication anywhere in the world will render the design un-patentable. In theory, one may not patent a design that is merely an aggregate of two or more prior designs or design features and the design must be strictly ornamental, not functional, although courts sometimes appear to overlook those requirements. Unlike the U.S., graphical user interface (GUI) designs – one of the three design patents found to be infringed in the Apple/Samsung case – may not be protected by design patents in China.

However, the biggest difference between design patents in the U.S. and China is that in the U.S. design patens must pass a substantive examination, including a review of obviousness and prior art, but in China only a cursory examination is required, which looks into whether the application has been completed properly, drawings and power of attorney are attached, and the like.

The application must include either drawings or photographs of the design, along with a brief explanation used to interpret the drawings or photos and to indicate the essential portion of the design. Unlike the U.S. and other countries, in China the drawings may not include shading or broken lines to indicate non-essential features, so it may be prudent to eliminate non-essential features from the drawings to the extent possible.

Test for Infringement

The test for infringement in the U.S., as expressed by the Supreme Court and affirmed by the Federal Circuit in Egyptian Goddess v. Swisa, is whether an “ordinary observer” (as opposed to an expert) familiar with the prior art, would be deceived into thinking the accused design was the same as the patented design. The Federal Circuit has explained further, in Contessa Food Products v. Conagra, that the overall features of an accused product must be compared to the patented design as a whole, as depicted in all of the drawings.

China’s test is roughly equivalent. The courts inquire whether an “ordinary consumer,” familiar with the prior art and looking at the patented design as a whole, rather than focusing on minor differences, would find the two designs confusingly similar. Admittedly, even in the U.S. a fair amount of subjectivity is involved in determining when there is too much similarity – it’s more of an art than a science – but, in China the outcome seems especially uncertain.

In one case, Fiat sued the Great Wall Motor Company for producing a car that bore a striking resemblance to Fiat’s Chinese design patent. Fiat had already won a verdict against Great Wall in Italy, based on the same facts and an EU design patent, with the Italian court finding Great Wall essentially copied Fiat’s design and just substituted a different front end on its car. The Chinese courts found otherwise, ruling Great Wall did not infringe, due to minor differences that outweighed the general similarities.

[Note: Several photos of accused designs and prior designs are shown below for reference. Of course, the proper test employed by the courts is a comparison of the accused product and the design patent drawings or photos.]

Similarly, in Honda v. The Patent Reexamination Board, the Supreme People’s Court examined a Chinese company’s SUV to decide if it infringed Honda’s design patent and found the ordinary consumer wouldn’t be confused by overall visual similarity due to minor differences between two designs. Although the Laibao SRV closely resembles Honda’s CR-V, the court found differences in the headlamps and side windows were sufficient to distinguish between the two designs.

On the other hand, when German bus-maker Neoplan sued a competitor for infringing its Chinese design patent, the Beijing court chose to disregard minor differences, finding infringement and awarding Neoplan over $3 million in damages, based on similarities between the two overall designs. Unfortunately for Neoplan, the defendant appealed the decision and then succeeded in invalidating the patent based on Neoplan having published the design in Germany prior to applying for the patent in China.

Is Enforcement Possible in China?

Some foreigners may be reluctant to patent their designs in China, because they fear the risks of bias, corruption and incompetence may render enforcement of their rights too uncertain, so the costs will likely exceed the benefits. Such fears are not wholly unjustified, but China’s legal system is improving rapidly and many foreign companies have successfully protected and enforced their intellectual property rights in China.

Motorola, Osram, Sony, Siemens, Kenwood, Bridgestone and Pfizer have all won patent lawsuits in China. In the design case described above, Neoplan won a $3 million verdict (though it was overturned on appeal). Apple is just one of many companies that have sought comprehensive design patent protection in China, including for the design of its stores (also protected by design patents in the U.S.).

While damage awards tend to be smaller across the board in China, infringement of a design patent could, in theory, result in a larger damage award in China, as in the U.S., because both countries allow for recovery of lost profits for infringement of a design patent; not just reasonable royalties. Injunctive relief may also be available and, unlike the U.S., in China one may enforce intellectual property rights through the courts or by filing a complaint with the local administrative office. Damages are unavailable through administrative enforcement, but an accused party may be fined and have the infringing goods seized. Of course, when seeking local administrative relief, it is especially critical to work with an experienced local lawyer, who knows not just the procedures but the people.

Finally, if you don’t register your designs in China there’s a good chance a Chinese company will and you may be forced to pay a toll for use of your own design. U.S., Japanese and Korean auto-makers have repeatedly accused Chinese companies of stealing their designs, only to find the accused patented the designs first in China, in some cases based on models being sold first by the accusers in the U.S. (before 2009, prior use outside of China did not conflict with China’s novelty requirement).

Or take the case of Volkswagen and its Chinese partner First Automobile Works (FAW). It was reported last year that VW was investigating whether FAW was preparing to use technology stolen from VW to manufacture its own-brand vehicles, which FAW intended to export to Russia. Or the incident with iPhone 5, when Apple was preparing to launch its product, but GooPhone, a notorious Hong Kong maker of knock-offs, claimed it had patented the design first and would sue Apple if it dared to sell the real thing in China.

These are the types of cases where foreign companies likely regret that they didn’t patent their designs early in China.

Conclusion

For the company that does business in China, manufacturing or selling products whose overall appearance or particular features have innovative designs that provide competitive advantage, it’s hard to imagine a reasonable justification for not seeking design patent protection.

Due to the absence of substantive examination, the application process is relatively cheap and fast. While the term of protection is just 10 years, amendments to China’s Patent Act are being considered that will likely increase the term to 15 years, to bring China into compliance with the Hague Agreement concerning International Registration of Industrial Designs (Hague Agreement).

It is generally prudent to patent not just the overall design for the entire product, but the designs of separate features and components, in order to protect against both cherry-picking infringers who seek to produce a hybrid design and companies that seek to copy only portions of the design in order to manufacture illegitimate spare parts.

Eventually it will be simple to obtain design protection worldwide pursuant to the terms of the Hague Agreement. The U.S. signed legislation last year that should come into effect about the end of 2013, to implement the Agreement. China will take longer, but they too will eventually implement the Agreement. When that time comes, it will be possible to obtain patent protection for up to 100 designs (in the same classification) in any jurisdiction that is a member of the Agreement, based on a single application and payment of the corresponding fees.

For now, until the Hague Agreement takes effect in China, one must file directly in China to protect ones design there. Make sure to file early, though, and keep the design confidential in the meantime, because China’s patent law requires absolute novelty and patent protection is only as strong as the patent.

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Please contact Asia Law if your require assistance with patents in Asia.

This was not the first time Apple faced patent infringement claims in China. Last summer a Taiwanese man sued the company in China for alleged infringement relating to its Facetime technology; in 2010 a Shenzhen company threatened to sue concerning iPad design; in 2008 Apple was sued for the iPod; and in 2012, a Hong Kong company launched GooPhone I5, an android-based replica of the iPhone 5, reportedly based on leaked photos of the iPhone. GooPhone claimed to have patented the design and threatened to sue Apple if it dared to sell the genuine article in China.

Nor is Apple alone. French company, Schneider Electric lost a $48 million patent infringement verdict in China and Samsung lost one for $7.4 million. Sony, Phillips, Canon and Dell have all had their battles and GooPhone sells knockoffs of other smartphones in China with apparent impunity. Of course it’s possible in some cases the Chinese technology may be first and the Chinese patent legitimate. However, foreign companies face a growing risk that Chinese entities may unscrupulously patent foreign technology in China and demand a toll to do business there. Not only that, but in coming years companies will increasingly face challenges worldwide from the growing landslide of patents coming out of China.

It has been less than three decades since China adopted its first modern patent law (bear in mind that lawyers, scientists and engineers were denounced during the Cultural Revolution), but the number of patents granted to Chinese inventors, in China and worldwide, has been growing exponentially and the consequences will be profound. While Chinese patents are often criticized as lacking in quality, and there may be some truth to that, it misses the greater point – that sometimes lack of quality is more than compensated by sheer volume.

In 2012, China’s State Intellectual Property Office (SIPO) granted more patents than any other patent office in the world, including the U.S. Patent and Trademark Office (USPTO). Those 1.26 million Chinese patents represented a 31% increase over the number granted in 2011. But that’s just the beginning. China’s government has set a goal of granting 2 million patents per year by 2015, something former USPTO Director David Kappos called “mind blowing,” but a target many believe is realistic. Moreover, almost 80% of China’s patents were awarded to domestic applicants in 2012, while fewer than 50% of all U.S. patents went to U.S. citizens.

Internationally in 2012, Chinese inventors filed 18,627 applications under the Patent Cooperation Treaty (PCT), just 228 applications fewer than third-place Germany, behind the U.S. and Japan. At the USPTO in 2012, Chinese inventors filed fewer patent applications than eight other nations (U.S., Japan, Germany, South Korea, Taiwan, Canada, U.K. and France), but their applications increased by 41% over the prior year, more than twice the rate of increase of any of those other countries and 2012 marked the first year a Chinese company entered the rankings of the top 50 U.S. patent recipients (Hong Fu Jin Precision Industry Corp., at #40, with 782 U.S. patents granted). Over the past decade, U.S. patent applications from Chinese inventors have increased more than 1,000%.

The explosion in Chinese patent applications results partly from the nation’s emphasis on R&D. China’s telecom giant, Huawei Corporation, increased R&D spending by more than 25% in 2012, to $4.7 billion, and holds more than 50,000 patents worldwide. China’s other telecom giant, ZTE Corp, invested $1.4 billion in R&D in 2012 and led the world in PCT filings for the second straight year, with more than 3,900 applications (32% more than second-place Panasonic). Overall, China spends almost $300 billion on R&D, second only to the U.S., with one recent study predicting R&D spending in China will exceed that of the U.S. by 2023.

Additionally, China, Japan and Korea are more efficient at converting R&D dollars into patents than U.S. or European countries. According to the World Intellectual Property Organization (WIPO), for every million dollars spent on R&D, Korean entities apply for 3.7 patents, Chinese 3.5 patents, Japanese 2.9 patents and Americans just 0.9 patents.

For China, the difference may be largely due to government incentives, such as financial remuneration, tax breaks and other benefits offered by the government in exchange for the filing of patents, domestically and internationally, which causes applicants to focus on patent quantity rather than quality. In support of that argument, critics point at the abundance of Utility Model (UM) patents in China. UM patents, also known as “petty patents,” are widely perceived as being inferior to true invention patents, though that characterization may not be completely fair.

While UM patents are not available in the U.S. or U.K., they exist in more than 50 countries, including France, Germany, Japan, Korea and Taiwan. UM patents are essentially the same as invention patents, but have a shorter term and less stringent patentability requirements, making them cheaper and faster to obtain and more suitable for inventions with a short commercial life. In China, UM patents protect only new shapes or structural features, have a term of 10 years (compared to 20 years for invention patents) and no substantive examination is required (only a brief formality exam). They are typically granted in about a year.

However, China’s UM patents are controversial because they are so abundant. According to WIPO statistics, China’s patent office received 585,467 applications for UM patents in 2011 – more than 30 times the number received by any other patent office. Second place Germany received just 16,024 UM applications. Not only that, but the vast majority of all UM patents in China are granted to domestic applicants.

Perhaps because they are unfamiliar with UM patents, or because they feel they lack value, U.S. and other foreign entities seek far fewer UM patents in China than locals do. Of the three types of patents available in China, in 2011 Chinese entities applied for 26% invention, 39% UM and 35% design patents, while U.S. entities applied for 89% invention, 3% UM and 8% design. Foreigners may look down their noses at China’s UM patents, deriding them as poor quality, due to their lower inventiveness standard and lack of substantive examination, but that attitude could land them in trouble.

For example, the Schneider Electric case involved a UM patent. Schneider was a French manufacturer of electrical power equipment and Chint was a multi-billion dollar competitor, based in Wenzhou, China. Schneider filed several patent lawsuits against Chint in Europe, so Chint responded with an infringement action in Wenzhou, seeking statutory damages amounting to less than $75,000. Schneider requested SIPO to invalidate Chint’s patent, but the request was denied and upheld on appeal. Chint then increased its damage request to $48.5 million, based on new evidence of Schneider’s sales revenue. The Wenzhou court found in favor of Chint, awarding a judgment for the full $48.5 million. Finally, after two years of appeals, the parties entered a global settlement in 2009 for $23 million.

The Schneider case was a milestone in China patent litigation. It remains China’s largest patent verdict to date and helped raise awareness, locally and internationally, of the potential value of Chinese patents. Admittedly, damage awards in China are usually much smaller than in the U.S. If a patent owner cannot prove lost profits, wrongful gains or reasonable royalties, related to the infringement, it must settle for statutory damages that are capped at RMB 1 million (about US$160,000). Because China lacks formal discovery procedures, that is the usual outcome. Enhanced damages for willful infringement are also unavailable in China, so multi-million dollar judgments are rare.

However, China’s government is presently considering potential revisions to the Patent Law, including adding possible treble damages for willful infringement. And in the Proview case, just last year, a Shenzhen company sued Apple in China for trademark infringement relating to use of the iPad mark and forced Apple to pay $60 million to settle the dispute. While that case involved a trademark, not a patent, it may be indicative of a broader trend. Many have noted that nations (including the U.S., Germany and Japan) tend to be indifferent to the protection of intellectual property rights when the nation is in an early stage of developing innovation and technology, because at that point its citizens benefit from pirating from others; but as the nation develops, it tends to become more protective of IPR, because its citizens have property to protect. That may be the case in China.

In any event, despite the smaller judgments, far more patent lawsuits are filed in China than the U.S. In 2011, 7,819 patent suits were filed in China, compared to 4,015 in the U.S. Admittedly, fewer than 5% of all lawsuits in China involve intellectual property and foreigners are involved in fewer than 5% of those cases. (China IPR blog counted 1,296 intellectual property cases filed in 2011 involving foreigners compared to more than 8,000 maritime cases involving foreigners.) However, those statistics provide little comfort to the foreign defendant.

Not only are patent lawsuits plentiful in China, but they’re fast, often taking just six months from filing of the Complaint to trial and another three months for appeal, compared to several years in the U.S. That may be part of the reason why more than 70% of all Chinese patent lawsuits go all the way to trial, without being settled or dismissed, compared to fewer than 10% in the U.S. And, with no formal discovery procedures for a defendant to investigate the charges, defendants in China tend to be at a huge disadvantage, especially when the Chinese plaintiff filed the action in its home province.

Chinese companies are also starting to file patent lawsuits in other countries. In 2006, Shenzhen’s Netac Technology sued a U.S. company in Texas for infringing a patent relating to USB flash memory drives. Three years later, a Changzhou company sued Wal-Mart, Best-Buy and several other retailers for selling products that infringed its U.S. patents relating to GPS devices. Lenovo Group, China’s biggest computer maker, has filed actions concerning patents it obtained when it acquired IBM’s PC division. Huawei sued Motorola and Nokia Siemens Networks in the U.S. And ZTE and Huawei have filed patent lawsuits in Germany, France, Hungary and China.

Of course, the U.S. remains the most important venue for patent litigation and Americans still hold vastly more U.S. patents than Chinese applicants do (in 2011, U.S. entities applied for 247,750 U.S. invention patents, compared to just 10,545 for Chinese applicants), but the global patent landscape is rapidly changing and China is increasingly becoming more relevant.

In particular for the foreign company that wishes to manufacture in China or sell in China’s giant, growing market, it would be foolish to disregard the potential threats posed by China’s home-grown patents. The foreign entrant should perform a careful freedom to operate analysis before commencing business, recognize the need to play by local rules, and strongly consider building its own portfolio of Chinese patents – including UM patents – to be prepared for the inevitable.

The case, FTC v. PCCare247 Inc. (S.D.N.Y. 2013), involves allegations that several individuals located in India operated a scheme that tricked American consumers into spending money to fix non-existent problems with their computers. The FTC applied to the court and obtained a temporary restraining order enjoining defendants’ business practices and freezing some of their assets.

Because India is a signatory to the Hague Convention on Service Abroad, the FTC submitted the Summons and Complaint to the Indian Central Authority, requesting service of process pursuant to Federal Rule of Civil Procedure (FRCP) Rule 4(f)(1) and Article 3 of the Hague Convention. The FTC also attempted to serve process on the defendants by e-mail, FedEx and personal service. FedEx confirmed delivery for most of the defendants and a process server personally served all of the defendants.

However, for five months the Indian Central Authority failed to act, failing to formally serve the defendants and failing to respond to the FTC’s inquiries regarding the status of the service, so the FTC filed a motion requesting leave to serve all subsequent documents, other than the Summons and Complaint, on the defendants by e-mail and Facebook, only. On March 7, the Court granted that motion.

As the Court explains, FRCP 4(f)(3) authorizes the Court to “fashion means of service on an individual in a foreign country, so long as the ordered means of service (1) is not prohibited by international agreement; and (2) comports with constitutional notions of due process.” Cases hold that Rule 4(f)(3) is neither a last resort nor extraordinary relief, but merely one of the possible means of service on foreign defendants. Nor is a plaintiff required to first attempt service through other provisions of Rule 4(f), although a Court may require proof that the party first attempted service by other means before requesting the court’s intervention under Rule 4(f)(3).

Ordinarily, service of judicial documents in a member state of the Convention is handled by the Central Authority in the foreign state, as stated at Article 2 of the Convention. However, the Court noted that Article 10 of the Convention also allows for service through certain alternative means, such as “postal channels,” provided the destination state does not object to those means. The Court further noted that India had objected to the methods specified at Article 10, although it had not specifically objected to service by e-mail or Facebook. Consequently, the Court found the Hague Convention did not bar such service.

At Letters Blogatory, Ted Folkman makes a convincing argument that the court was mistaken in that respect. First, compliance with the Hague Convention is mandatory in all cases to which it applies. That is, so long as the party to be served is located in a member state and no exception applies (e.g., Article 1 provides an exception where the address of the party to be served is not known), service of judicial and extrajudicial documents must be effected by means authorized under the Convention. Second, no provision of the Convention authorizes service by e-mail or Facebook.

In other words, the Court was wrong to find the Convention doesn’t prohibit service by e-mail and Facebook, so it must be allowed. Instead, service by such means is proper only if the Convention expressly permits it, and the only provision that might be seen as permitting such service is Article 10, which refers to “postal channels” (bear in mind that the Convention was drafted in 1965 and has never been amended, so it’s no surprise it doesn’t expressly refer to electronic communications), but India has formally objected to service under Article 10.

Perhaps the Court was exasperated with the lack of cooperation from the Indian authorities. As the court explained, “This litigation must move forward, and it is not tolerable to wait five months (or more) for every motion in this case to be served by the Central Authority.” However, the Convention doesn’t appear to authorize other means of service in cases where a member state fails to comply with its responsibilities.

Aside from the Hague Convention, it should be noted that the Court also examined whether the proposed means of service would deprive the defendants of due process, and the Court found—based on the facts at issue—that it would not. The service was reasonably calculated to provide the defendants with actual notice, because defendants had used the same e-mail addresses in connection with the accused activities and to send e-mails to the FTC and the Court. There was evidence the Facebook accounts had been set up by the defendants and not by some other party. And, it was already established that the defendants had actual notice of the lawsuit.

So, what can one learn from this case?

First, whether it was decided rightly or wrongly, the question was whether service by e-mail and Facebook may be authorized when the defendant is located in a Hague Convention member state and its address is known (so the Convention is applicable). Many countries are not members, including most of Southeast Asia, South America, Africa and the Middle East. The question was also complicated by the fact that India has objected to Article 10 of the Convention, which refers to service by “postal channels.”

Second, when considering whether to attempt service of process by less orthodox means, once should always keep in mind the nature of the relief being sought and whether foreign assistance may eventually be required. For example, a plaintiff seeking monetary damages from a foreign defendant that lacks assets in the U.S. should recognize the strong likelihood that foreign courts may refuse to enforce a judgment if service of process was made by e-mail or Facebook.

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Please contact our firm if you have any questions on Taiwan service of process.

Specifically, in the case of Mondis Technology v. ChiMei InnoLux Corp., et al., No. 2:11-CV-378 (E.D. Tex. Sept. 30, 2011), a jury found InnoLux liable for infringing certain computer monitor patents and ordered it to pay $15,000,000 in damages, plus royalties of 0.5% per monitor sold in the final months prior to judgment, for which sales figures had not yet been available.

Following the verdict, the defendant’s CEO was quoted in a Taiwan newspaper as having said, “The issue of patent infringement is being taken too seriously sometimes.”

Regrettably, the case was still pending, ongoing royalties had not yet been decided, and plaintiff’s counsel brought that statement to the Court’s attention. The Court then issued an Order setting ongoing royalties at 1.5% per monitor – three times the pre-judgment royalty rate determined by the jury. While the Court gave several other reasons for trebling the royalty rate, it also stated as follows:

The Court finds this statement by InnoLux’s CEO shows InnoLux’s lack of respect for this Court and the jury’s verdict. It is also an affront to the United States patent system. . . The Court, therefore, finds that this also warrants a strong enhancement because it further reflects the egregiousness of InnoLux’s conduct.

We’ll have to wait to see if the Federal Circuit confirms the above decision, but in the meantime one thing is certain: there is still disagreement among district courts on the proper method for calculating ongoing royalty rates.

The subject of ongoing royalties gained importance following the Supreme Court’s decision in eBay Inc. v. MercExchange, LLC, 547 U.S. 388 (2006), which reversed the rule of granting injunctions against infringers absent “exceptional circumstances” and now requires application of the standard, four-factor test for injunctive relief. Since eBay, courts increasingly find that injunctions against adjudicated infringers may not be appropriate, particularly when the plaintiff is a non-practicing entity (NPE).

In such a case, where a defendant is found to have infringed a patent but injunctive relief is deemed inappropriate, the Federal Circuit has ruled that district courts may award ongoing royalties pursuant to 35 U.S.C. §283, for the defendant’s anticipated post-judgment infringement. Paice LLC v. Toyota Motor Corp., 504 F.3d 1293 (Fed. Cir. 2007). The judge, not the jury, should determine the appropriateness and amount of such an award (Id.), but exactly how the royalties should be calculated is less clear.

First, while it is common to order ongoing royalties in lieu of injunctive relief, the Federal Circuit has stated that they should not be granted as a “matter of course.” Id. at 1314. Second, before the court makes a determination concerning ongoing royalties, it should permit the parties to attempt to resolve the issue by negotiated agreement. Id. at 1317. After that, it gets fuzzy.

The Federal Circuit has found no particular reason why the rate for ongoing royalties should be the same as pre-judgment royalties, explaining that an ongoing rate requires its own justification, because “pre-suit and post-judgment acts of infringement are distinct, and may warrant different royalty rates given the change in the parties’ legal relationship and other factors.” Id. But the Court has not clearly defined how the ongoing rate should be determined.

Some argue (including the plaintiff in ChiMei InnoLux) that post-judgment royalties should be enhanced based on the plaintiff having stronger bargaining position after prevailing at trial, because royalty awards are meant to reflect the rate a hypothetical willing buyer and seller would agree to, and greater bargaining power should yield a higher rate. Proponents of that argument find support in Amado v. Microsoft Corp., 517 F. 3d 1353, 1362 (Fed. Cir. 2008), which states “Prior to judgment, liability for infringement, as well as the validity of the patents is uncertain, and damages are determined in the context of that uncertainty. Once a judgment of validity and infringement has been entered, however, the calculus is markedly different because different economic factors are involved.”

However, most courts (including the ChiMei InnoLux court) distinguish Amado (which involved an award of royalties during the period when an injunction was stayed on appeal) and suggest that language has been misconstrued, because “In determining the reasonable royalty rate during trial, both parties assumed the […] patent was valid and infringed.” Presidio Components Inc. v. American Technical Ceramics Corp. (S.D. Cal. August 5, 2010). “[I]t is logically inconsistent to argue that a calculation based upon assumptions of infringement and validity would change when those assumptions are replaced by jury findings of the same facts.” Ariba, Inc. v. Emptoris, Inc., 567 F. Supp. 2d 914, 918 (E.D. Tex. 2008). See, also, Cummins-Allison Corp. v. SBM Co., Ltd., 584 F.Supp.2d 916 (E.D. Tex. Nov. 3, 2008).

Similarly, some suggest post-judgment royalties should be enhanced on the ground that defendant is then a willful infringer. See Paice LLC v. Toyota Motor Corp., 609 F. Supp. 2d 620, 626 (E.D. Tex. Apr. 17, 2009) (“Toyota never considers the fact that its continued infringement is willful and that a new lawsuit by Paice would likely result in treble damages.”); Bard Peripheral Vascular v. W.L. Gore & Assoc.,(D. Ariz. Sept. 8, 2009) (“As [plaintiff] has noted, there has been a post-verdict change in the Parties’ legal relationship in that [defendant] is now an adjudged willful infringer…”)

However, the Federal Circuit rejected that argument in Amado (517 F. 3d at 1362), and for good reason. Not only does it seem odd for a court to punish a defendant for committing post-judgment acts that the court essentially permitted, but one could argue infringement is not willful until after the defendant has exhausted its appellate rights. In fact, defendant made that argument in Chimei InnoLux, but the court rejected it, finding any post-judgment infringement by defendant to be willful. Not only that, but the court seemed to take offense at the defendant’s position: “InnoLux would have the Court effectively adopt a standard that a party is not a willful infringer until after it has resolved all its rights on appeal and lost. Implicit in this argument is InnoLux’s obvious lack of respect for the jury’s verdict or this Court’s judgment” [emphasis added].

Ouch! Isn’t it possible InnoLux merely believed the trial court was mistaken and wished to file an appeal with the Federal Circuit – a perfectly legitimate procedure that many litigants engage in, often successfully? Which brings us back to the initial question: Is it appropriate for a court to enhance an ongoing royalty rate based, at least partially, on a statement of frustration made by the defendant’s CEO following his company’s loss at trial? It’s hard to see how such a statement changes the anticipated conduct that a defendant may engage in post-judgment, to the extent that it should be required to pay an increased ongoing royalty rate – especially three times the pre-judgment rate.

In any event, two things are clear. First, the CEO should not have made that statement. Corporate officers should refrain from making public statements about pending litigation and use extreme care to avoid taking actions that reflect badly on the company during the pendency of litigation. Second, InnoLux’s counsel should have immediately objected to the statement. Clearly it was inadmissible hearsay, but in response to a Motion for Reconsideration filed by InnoLux, the court explained that no timely objection had been made to admission of the statement so it was therefore binding upon the defendant.

Defendant’s Motion for Reconsideration was Denied. The case is now pending in the U.S. Court of Appeals for the Federal Circuit, as Mondis Technology Ltd. v. ChiMei InnoLux Corp., Case. No. 12-1304.

It’s no secret patent litigation costs are immense. According to the American Intellectual Property Law Association, the cost of an average patent lawsuit, where $1 million to $25 million is at risk, is $1.6 million through the end of discovery and $2.8 million through final disposition. Adding insult to injury, more than 60% of all patent suits are filed by non-practicing entities (NPEs) that manufacture no products and rely on litigation as a key part of their business model.

However, whether one represents a plaintiff or defendant, manufacturer or NPE, there are actions one can take to help manage the costs.

Below are some general guidelines.

Preliminary Matters

As always, it starts with precautions. A company should investigate the patent landscape when designing new products and consider developing its own portfolio of patents that can be asserted defensively in the event of actions by competitors. It should establish a sound document retention policy, keeping documents only as long as reasonably necessary or required by law; then discarding them to avoid potential costs of gathering, reviewing and producing them in future litigation. It should treat demand letters seriously and respond to them with the utmost of care.

Prior to filing suit, a patent owner or its agent should carefully examine the defendant’s products, prepare detailed claim charts, investigate defendant’s sales and confirm that jurisdiction is proper, to avoid meritless claims and wasteful motions. Better yet, consider attempting to negotiate a license without filing litigation.

Upon being sued, defendant should promptly investigate internally to determine its relevant sales volumes (past and future), the date it first received notice, whether the accused technology was supplied by vendors (in which case indemnification demands should be sent), and the feasibility of switching to licensed or non-infringing suppliers or designing around the patent. Business solutions, if they exist, will invariably be cheaper than litigation.

The client should consult with several law firms before selecting one. Request preliminary opinions and suggested strategies. Ask which attorneys would be assigned to the case. A lean team with relevant experience and varying levels of seniority is best, and client approval should be required before changes are made to the team. Ask for their hourly rates; then negotiate the rates down and request the rates to remain fixed for the duration of the suit. Inquire about alternative fee arrangements, such as fixed monthly fees, contingency, hourly with a cap for each stage of the proceedings, or a discounted rate with potential success fee.

Budget, Strategy & Cooperation

Sound budget and billing practices are critical. Client and counsel should work together to develop a realistic budget, with firm figures for each stage of the proceedings; then review it together regularly as the case proceeds, to update as needed and ensure there will be no surprises. Counsel should make clear which budget items are mandatory and which are discretionary, so the client can make informed choices. Counsel should be required to provide timely, detailed invoices and the client should promptly review each invoice and voice any questions or objections.

A thorough case evaluation should be performed, developing strategy early and updating periodically. Client and counsel should review patents and other documents, interview witnesses, investigate related lawsuits and licenses, investigate infringement, validity and damages, and calculate potential exposure, in order to evaluate settlement or litigation strategies, establish themes and priorities, and narrow the dispute, to keep the team focused on key issues and reduce the expenditure of time and money on low priority tasks.

In-house counsel should play an active role, appointing a contact window for outside counsel and assembling a designated team of internal legal, technical and IT staff to assist with discovery and support the litigation. Client approval should be required before any motion is prepared, and attorney/client discussions should take place regularly to discuss the status and ensure the case is on track.

In the event of multiple defendants, a joint defense agreement can result in substantial cost savings, by allowing the parties to share legal counsel and split the costs of shared tasks. It may also contribute to a more favorable outcome by allowing the parties to share strategy and present a unified defense.

Despite the adversarial relationship, attorneys should strive to develop cooperative relations with opposing counsel and seek to reach agreement whenever possible, from granting extensions of time and establishing discovery parameters, through good faith settlement discussions and stipulations at trial, in order to minimize costly motions and disagreements.

Early Resolution

Both sides should seriously explore the possibility of settlement, initially and throughout the case. Sharing evidence relating to validity, infringement and damages may help the parties to re-assess the value of the case and decide litigation is not worth the cost.

Counsel should attempt to get claim construction hearings scheduled early, as claim construction often facilitates settlement. Additionally, scheduling such hearings prior to the exchange of expert reports may save costs by eliminating the need for experts to prepare alternate reports (in case of alternate rulings), or amend reports that were based on a rejected construction.

Defendants should investigate invalidating the patent. Whether one files a request with the USPTO for ex-parte re-examination or inter-partes review, either option will be considerably cheaper than litigation. Moreover, in such proceedings there is no presumption of validity, as there is in court, and a lesser, preponderance of the evidence standard applies. Even if one fails to invalidate the patent completely, it still may be possible to cancel or modify a few claims, which could simplify the litigation or lead to settlement.

Summary judgment and other motions for early disposition can be great, but only if the motion will likely prevail and won’t result in a comparable action being filed in an equally unfavorable forum. Client and counsel should investigate all potential motions to end the case early, but carefully evaluate the likely outcome and whether the benefits will outweigh the costs.

Discovery

Discovery, in general, and e-discovery in particular, is widely blamed for most of the excess costs of litigation. As Federal Circuit Chief Judge Randall Rader explained in a 2011 speech, “I saw one analysis that concluded that .0074% of the documents produced actually made their way onto the trial exhibit list – less than one document in ten thousand. And for all the thousands of appeals I’ve evaluated, email appears even more rarely as relevant evidence.”

Consequently, Judge Rader endorsed a model order drafted by the Federal Circuit Advisory Council, containing measures intended to help rein in the costs of discovery, such as excluding e-mail and metadata from FRCP Rule 34 and 45 requests, absent good cause; imposing presumptive limits of five custodians and five search terms for e-mail requests; and shifting costs for disproportionate e-discovery requests. Courts in Texas, Illinois, California, Colorado, Delaware and other jurisdictions have adopted that model order or variations of it and prudent counsel will urge their court to do the same.

Even without a court order, one can reduce discovery costs by tailoring requests precisely (and narrowly) to avoid creating discovery disputes or receiving overly voluminous responses, much of which will be of limited relevance and usefulness, but all of which will require costly hosting, processing and reviewing the documents.

According to a Rand Corporation study, $0.73 of every dollar spent on e-discovery goes to document review. Review costs can be reduced by outsourcing or using contract counsel with low billing rates. Additionally, voluminous responses can be winnowed down using predictive coding or other computerized methods that employ algorithms to determine the likelihood that documents are relevant, responsive or privileged, so humans will then have a more manageable stack of documents to examine. The Rand Corporation study found such methods at least as accurate as humans for large-scale review. Consequently, one Delaware court ordered the use of predictive coding to enhance the efficiency of e-discovery (EORHB, Inc. v. HOA Holdings, LLC (Del. Ch. 2012)), despite no attorney having raised the subject. Clients should inquire with their counsel about all such options and seek explanations and justifications.

Conclusion

Patent litigation will always be costly, in particular when at least one participant favors aggression or believes the stakes are especially great. However, even in such hard-fought cases, by taking the sorts of actions described above – planning, preparing, assessing, narrowing and focusing – the attentive client or counsel may succeed in achieving some predictability and keeping costs to a minimum.

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If you require assistance managing and minimizing costs of litigation, contact a Taiwan litigation attorney.

Well, they do. While patent lawsuits grab the big headlines, plenty of licensing takes place without threats or coercion. Often it results from business discussions between willing participants. The licensor may be unwilling or unable to fully develop and commercialize its technology, while the licensee may believe use of the technology will generate increased revenue or other benefits that should outweigh the costs of licensing.

Take Microsoft, for example. They license out a variety of technologies that improve the performance of computers, monitors, keyboards and more. But, they hit a jackpot with their android patents, licensing their technology to cell phone manufacturers who paid more than $400 million in licensing revenue in 2012. Or consider IBM, Intel, Qualcomm and Texas Instruments, each generating roughly $1 billion in annual licensing revenue. Of course, those are extreme cases, but the point is licensing deals are often entered into not in response to litigation but as a strategic, mutually-beneficial business transaction.

Of course, it’s not easy locating potential licensing partners and convincing them that paying royalties makes business sense. In fact, it usually requires a great deal of work. But, technology licensing agreements are often negotiated as a business deal, with the licensor wielding a carrot not a stick, sparing both parties the stress and expense of litigation. I know, because my former employer, on several occasions, succeeded in doing the same.

Here are 10 tips intended to help your company out-license its technology through business means.

1. Develop a Plan. Before taking action one should define the objectives. Is your company seeking revenue from its non-core patents, or looking for a partner to commercialize its technology? Does it hope to grant a pure IP license or transfer all of its rights concerning a product or technology and assist with the development, manufacturing, training and maintenance? Is it considering one ad hoc deal or a regular out-licensing program? Regardless of the objectives, success will depend on carefully formulating a plan, discussing with top management and receiving their full support.

2. Develop a Team. In addition to the support of management, contributions will likely be required from various functions within the company, including business units, R&D and marketing, as well as outside counsel, licensing professionals and more. Ideally, the company will establish a dedicated licensing team to lead and coordinate efforts. Companies like Phillips, Toshiba and Hitachi, for example, have hundreds of employees devoted specifically to the licensing of their companies’ patents. Your company may not be on the same scale, but even a staff of one or two dedicated licensing professionals can help handle the heavy workload, send a company-wide message about the importance of out-licensing and ensure that licensing projects are handled in a systematic manner.

3. Do your Due Diligence. Locating potential partners and convincing them to license will require in-depth knowledge of not just your company’s patents, products or technology, but those of potential partners and an understanding of the industries, markets and business environments within which they operate.

What benefits does your technology offer? What are its primary applications and other potential uses? How does it compare to competing technologies, in terms of performance, cost, reliability and other factors? How strong is the IP? How easily can it be designed around? What industries might benefit from it? What types of companies make up those industries? Who are the decision-makers in those companies? What are the primary factors that drive their purchasing decisions? What are the product life-cycles in those industries and how does your technology fit in? What are the regulatory requirements, the pricing policies, and so forth?

In short, it will be difficult selling another company on your technology unless you have a thorough grasp of that company and the technical, legal, marketing and business factors that affect it. Once that research has been performed, it’s time to prepare a brief prospectus, describing your product or technology and demonstrating precisely how it will benefit the other company with respect to new customers, new markets, increased sales and the like.

4. Create a Buzz. Because it can be difficult foreseeing all potential applications for a technology, it may help to actively publicize your technology. On your company website, in press releases, at seminars and trade shows, in announcements by your CEO, do whatever it takes to get out the word that your company is making available its innovative technology that will benefit some lucky business partner. And, after signing up each licensee, a press release announcing the deal may be a good way to help generate future business, so long as the announcement does not violate confidentiality obligations.

5. Study Potential Partners. Any potential partners should be subject to additional scrutiny. Do they appear to have the necessary expertise in business, technology, marketing, management, sales and distribution, to make a deal worthwhile? Do they appear to be capable of fulfilling their financial obligations and honoring their half of the deal? Particularly if it’s a product or technology license, and not merely an IP license, confidence in your licensing partner is critical.

6. Prepare Preliminary Documents. Preparation of a sales prospectus was mentioned above, but it may also help to prepare a term sheet for internal use, listing issues to be addressed in the intended license, defining the subject matter (i.e., patents, other IP, technology, specifications, software, etc.), scope of rights granted (i.e., make, use, have made, reproduce, modify, etc.), term, territory, exclusivity, financial terms, and so forth. Discuss the proposed terms internally and seek consensus before discussing them with potential partners. And, don’t forget to prepare a Confidentiality Agreement to be signed prior to any detailed external discussions.

7. Meet Potential Partners. Try to arrange for a face-to-face meeting as early as possible. In a non-threatening, business manner, present your proposal, show your prospectus and bring along any supporting documents, such as patents, specifications, product sheets, test results, calculations, public information, and so forth. Come prepared to explain any technical, legal and business issues, but recognize that a series of meetings will be required. Do they wish to see samples or schedule meetings between technical staffs? What issues require further clarification and exploration? Try to establish an agreed timetable to move the process forward and schedule a date for the next meeting.

8. Negotiate Wisely. All of the standard advice concerning negotiating applies. Engage in principled, good faith discussion based on objective standards. Listen closely and focus on interests, rather than positions. Search for high value/low cost concessions. Invent options to expand the pie for mutual gain. Know your BATNA and don’t yield to pressure, but work together amicably, exploring all options in search of a win/win solution.

9. Get a Signed Formal Agreement. I can’t count how many times I’ve been called in to help, because the business guys negotiated a deal, deliverables were delivered, payments transferred, equipment purchased, tooling designed and substantial other investments made, before a major dispute arose and it was discovered the parties never did sign an agreement. Don’t make that mistake. Considerable risks and uncertainty can be avoided by ensuring that a proper agreement is negotiated and drafted by an attorney, signed by both parties and filed where it belongs.

10. Maintain the Agreement. Whether it’s a pure IP license or a more complex technology transfer, it may be prudent to check from time to time for any concerns that may need addressing. Does the agreement contain milestones that must be met? Are royalty payments being timely made? Does the licensee require assistance with the technology? By showing your concern and making a few simple inquiries, you never know what other opportunities may arise.

These ten tips are aimed primarily at companies seeking licensees who are not yet using your technology – introducing it to them and convincing them of its value. However, even where a company appears to be already using your technology, business solutions are almost always more efficient than litigation, so it usually can’t hurt to offer them a carrot first, and maybe a celery or a parsnip, and save the stick for later.

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If you have any questions or require assistance, please contact a Taiwan licensing lawyer.

However, for many companies the cost of obtaining and maintaining intellectual assets – in particular patents – may be a huge waste of corporate resources, either because the company files patents indiscriminately, without sufficient consideration for which technologies, markets and regions may be most deserving of investment, or because it fails to devise and implement a sound plan for monetization of the patents.

Monetization of a patent portfolio usually begins with an IP audit. Working with the company’s business units and engineers, one should evaluate the company’s patents and divide them into three or four categories: those which are presently being used by the company; those which are not being used, but might have value to others; and those which are not being used and appear to have little value. One may also distinguish between patents that relate to the company’s core v. non-core technologies.

The IP audit may include both a business assessment, exploring actual and potential use of the patents by your company and others, and a preliminary technical valuation, considering their apparent strength and value. Is the invention significant or trivial? Is it in a strong or growing industry? How original is the technology? How easily could one design around it or omit the relevant product feature? Do the claims appear to be novel and non-obvious? How easily can one detect and prove infringement?

When considering which patents to monetize, a company will usually retain patents related to its core business. Companies also may be reluctant to monetize core patents, because that might require going after customers or business partners and it opens the door to potential counter-suits, which could threaten the company’s business. However, those concerns can be alleviated, to a certain extent, by transferring the patents to a subsidiary that does not share the parent company’s name and performs no business other than holding the patents, prior to launching the monetization campaign.

Next is the search for potential targets. Naturally, a company that appears to be already using the patents may be a strong candidate. If there is clear evidence of infringement, the patent owner may prefer to license rather than sell the patents. Products suspected of infringement may be dismantled in-house or by a third-party tear-down specialist, to confirm the infringement. Additionally, companies whose patents cite your patents may be interested in acquiring the patents.

As for methods of monetization, there are various options. A company may seek to license directly or may retain a law firm or licensing agent (e.g., IP Value, Thinkfire, General Patent Corp), giving up some revenue and control, but allowing the company to focus on its core business instead of on protracted negotiations. Licensing may be exclusive, non-exclusive or limited to a particular field of use, geographic region or market. If infringement seems clear, it may be possible to sell a covenant not-to-sue. Or, one may seek to sell the patents, usually through a broker (e.g., Ocean Tomo, Inflexion Point, IAG) or at auction (e.g., ICAP, PatentAuction.com). In some cases it may be possible to monetize patents by joining a patent pool. And, in rare circumstances, it may be possible to raise revenue through securitization of the patents.

Whatever option one chooses, the price will be greatest if one can locate targets that are using the patents and present them with clear proof of infringement (i.e., detailed claim charts). As with any good sales pitch, one should seek to maximize the scope of the transaction. That is, while the target may be interested in just one particular patent, the seller/licensor should insist that various related patents and foreign counterparts must also be included (at a correspondingly higher price).

Of course, a business solution is usually best, but most companies will not agree to enter into a costly license or acquisition without litigation, or a credible threat of litigation, so one must be prepared to take legal action.

If there are several potential targets, the patent owner may choose to sue the largest company first, as that target may have the greatest sales volume and should produce the greatest return. But that company also may put up the strongest defense and may have its own patents to assert in a counter-claim. Others prefer to go after smaller targets first, in the hopes of securing a few quick settlements, in order to build up a war chest to fund future actions, boost the credibility of the patent(s) and help establish a reasonable royalty rate.

Finally, one should be able to extract value from even the least valuable patents identified in the IP audit: the patents that appear to be totally unenforceable and of interest to no one. At the very least, one can abandon those patents, resulting in considerable savings in maintenance fees and perhaps gaining valuable information on how the company can improve its patenting strategies and procedures in the future.

There is no single solution for all patent owners. Each monetization plan will vary based on countless variables. But one thing is certain: unless a company engages in the types of activities described above, its patents are unlikely to generate revenue and their value will remain just a theoretical possibility.

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For advice or assistance, please contact a Taiwan licensing lawyer.

However, there may be a solution under U.S. law. 28 U.S.C. §1782 states that the U.S. district court where a person or entity is located may order that person or entity to give testimony or produce documents or things, for use in a foreign or international tribunal, upon application of an interested person. So, is that the answer? May a party to legal proceedings in Taiwan use §1782 to obtain discovery from a U.S. party? Perhaps, but subject to certain limitations.

First, there’s the question of whether the demanding party qualifies as an interested person. Fortunately, if the demanding party is a litigant there should be no problem, as the U.S. Supreme Court has explained in Intel Corp. v. Advanced Micro Devices, Inc., 542 U.S. 241, 254 (2004) that, “litigants are included among, and may be the most common example of, the ‘interested person’ who may invoke §1782.”

Second, is whether the Taiwan proceeding qualifies as a foreign “tribunal.” A lawsuit clearly qualifies, but other adjudicative proceedings may be less clear. In the Intel case, the Supreme Court found the Directorate-General for Competition of the Commission of the European Communities was a tribunal for purposes of §1782, and lower courts have found various other agencies and commissions to be “tribunals,” but there’s less certainty with respect to arbitral tribunals.

In the Intel case, the Supreme Court noted, in dicta, that arbitral tribunals might qualify under §1782, but there appears to be a split between lower courts. The Fifth Circuit and Second Circuit have held arbitral tribunals do not qualify under §1782. El Paso Corp. v. La Comision Ejecutiva Hidroelectrica Del Rio Lempa, 341 F.3d 31 (5th Cir. 2009); Natl. Broadcasting Co., Inc. v. Bear Stearns & Co., 165 F.3d 184 (2d Cir. 1999). The Eleventh Circuit found arbitral tribunals do qualify. Consorcio Ecuatoriano de Telecomunicaciones S.A. v. JAS Forwarding (USA), Inc. (11th Cir. 2012). Consequently, if the §1782 discovery is sought for use in arbitration outside the U.S., the demanding party should consider filing the request with a district court within the 11th Circuit, assuming the target of the request is located there.

Next is the question of where any requested documents are located. While §1782 clearly requires the person or entity that is the target of the request to be located in the federal district where the request is filed, it does not address the location of the documents or things sought to be produced. In that respect, courts are also split. In Four Pillars Enterprises v. Avery Dennison Corp., 308 F.3d 1075 (9th Cir. 2002), a Taiwanese company filed a §1782 petition seeking an order for a U.S. company to produce documents located in China. The court rejected the request, because the documents were located outside the U.S. and could presumably be obtained through discovery procedures in China. See also Norex Petroleum Ltd. v. Chubb Ins. Co. of Canada, 384 F.Supp.2d 45 (D.D.C. 2005). But see In re Gemeinshcaftspraxis Dr. Med. Schottdorf, (S.D.N.Y. 2006) (finding the court has discretion whether to compel production of documents located abroad).

Courts have struggled with various other questions concerning §1782 requests, such as whether the target of the request can be ordered to produce documents in the possession of its subsidiary, whether the requested information must be admissible in the tribunal for which it is sought or discoverable in that country, whether proceedings must be actually underway in the tribunal or only reasonably contemplated, and whether ordering the U.S. party to submit to discovery would be unfair because it may lack means of obtaining discovery from the other party. As with so many questions, the answers depend largely on the particular facts and the court where the petition is filed.

In any event, it is undisputed that the decision whether to grant a §1782 request lies within the discretion of the court. In Intel, the Supreme Court identified several factors that courts should consider when making that determination:

(1) Whether the material sought is within the foreign tribunal’s jurisdictional reach and thus accessible absent Section 1782 aid;
(2) The nature of the foreign tribunal, the character of the proceedings underway abroad, and the receptivity of the foreign government or the court or agency abroad to U.S. federal-court jurisdiction assistance;
(3) Whether the Section 1782 request conceals an attempt to circumvent foreign proof-gathering restrictions or other policies of a foreign country or the United States; and
(4) Whether the subpoena contains unduly intrusive or burdensome requests.

In other words, a U.S. court may order the requested discovery for use in a foreign tribunal if it feels such an order would satisfy 28 U.S.C. §1782’s “twin aims of providing efficient means of assistance to participants in international litigation in our federal courts and encouraging foreign countries by example to provide similar means of assistance to our courts.” Intel, 542 U.S. 241, 254.

Thus, where one files a §1782 petition in an attempt to circumvent foreign restrictions on information gathering, or in the face of an order from the foreign tribunal expressly denying a comparable discovery request, the petition will likely be rejected. See Kestrel Coal Pty Ltd. v. Joy Global, Inc., 362 F3d 410 (7th Cir. 2004) (rejecting a §1782 petition because the petitioner had already made a similar request in Australia that was denied).

However, if a litigant in Taiwan, or some other country, files the request in U.S. district court in a good faith attempt to obtain information located in the U.S., which would not otherwise be accessible to such litigant (see In re Ex Parte Application of LG Electronics Deutschland GMBH, et al. (S.D. Cal. 2012), it’s entirely possible §1782 may be the solution.

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For assistance with Taiwan litigation, please contact our Taiwan litigation attorneys.

However, the process may be especially difficult if the inventor is located in Taiwan, is unwilling, and is no longer, or never was, employed by a party. First, Taiwan is not a signatory to the Hague Convention, so any attempt to compel the unwilling witness will have to proceed by way of letters rogatory. Second, if the inventor is not an officer, director or managing agent, the FRCP won’t apply and one must find another legal basis for ordering the testimony.

A number of courts have found that legal basis in the invention assignment agreement that the inventor signed in order to give up his rights in the patent. Invention assignment agreements usually contain language requiring the inventor to render certain assistance to the assignee of the patent. Depending on the particular facts and contract language, it is not unusual for a U.S. court to order a party to produce a foreign inventor to testify at deposition or trial, overseas or in the U.S., based on the notion that the assignment agreement gives the party “control” over the inventor.

What the courts gloss over is the extreme difficulty a party may encounter attempting to compel the inventor to comply with the order if the inventor refuses. In Taiwan, in particular, parties generally lack such control.

Perhaps the leading case is Minebea v. Papst (D.D.C. 2005), in which the plaintiff sought voluntary depositions of several German inventors of defendant’s relevant patent, but the inventors declined, so the Special Master ordered defendant to sue the inventors in Germany, if necessary, to obtain their cooperation. Defendant objected that it had no control over the inventors, since they were not employees, and even if it had some control it had no duty to exercise it. The court disagreed.

The inventors in that case had signed assignment agreements requiring them to, “testify in any legal proceeding” and “generally do everything possible to aid assignee . . . to obtain and enforce proper patent protection for this invention in the United States.”
Defendant argued even if that language gave defendant a right to demand the inventors’ testimony, it was only meant to benefit defendant and not a third party. Again, the court disagreed, finding defendant’s requests for the inventors to appear at deposition were “made with a wink and a nod,” such that the inventors’ “failure to appear must be attributed to [defendant].” The court concluded that defendant had willfully failed to produce the witnesses and if it failed to produce them at trial the jury would be permitted to draw adverse inferences from their absence.

Likewise, in Amgen v. Ariad Pharmaceuticals (D. Del. 2007), a party was ordered to produce foreign inventors for deposition based on alleged “control” arising from the assignment agreements. The court admitted the inventors were not employees, officers, directors or managing agents of defendants, so FRCP 30 would not apply, but noted that each inventor executed an assignment requiring the “giving of testimony” in any proceeding concerning the invention. On that basis the court ordered the defendant to produce the foreign inventors of its patent for deposition in the U.S. See also, In re Nifedipine Capsule Patent Litigation (S.D.N.Y. 1989), which reached the same conclusion.

Admittedly, courts don’t find all language in assignment agreements sufficient to order a party to compel the testimony of its inventor. Notably, the agreement must require the inventor to provide “testimony.” Other witnesses in the Minebea case signed agreements merely requiring them to render assistance and not using the word testify, which the court found “too tenuous” to support an order compelling their appearance. See also, Litetronics Intl. v. Technical Consumer Products (N.D. Ill. 2006); Aerocrine AB v. Apieron, Inc. (D. Del. 2010).

And it must be clear the inventor’s obligation under the assignment agreement is owed to the party in the lawsuit. In Medpointe Healthcare v. Apotex (D. Del. 2002), the inventor signed an assignment agreement with a predecessor company to the party in the lawsuit and the agreement failed to mention successors and assigns, so the court declined to order the party to compel the attendance of the inventor.

However, as illustrated emphatically in the Minebea case, when an assignment agreement requires the inventor to testify in legal proceedings on behalf of a party to the lawsuit, courts are not afraid to brashly order the party to compel the inventors to testify and to sue them if necessary to bring about their compliance. As noted above, the court is asking for the impossible if the inventors live in Taiwan and refuse to testify.

To compel the inventors to comply, one must sue them in Taiwan and convince the local court that their signing of the invention assignment agreement creates an obligation for the inventors to submit to U.S.-style depositions, either in Taiwan or elsewhere. When ascertaining the meaning of contract provisions, Taiwan courts look at the intent of the parties. Unless the agreement explicitly refers to depositions, it is extremely unlikely an inventor in Taiwan ever considered that such an agreement might create such an obligation.

Unlike the common-law, adversarial system of the U.S., Taiwan is a civil-law country, which uses an inquisitorial legal system, in which the court plays an active role investigating the facts of a case. There is no public policy in favor of broad discovery and there are no formal discovery procedures. The closest one gets to a deposition is to convince the judge to question a witness on one’s behalf. Consequently, even most Taiwan lawyers have only a hazy notion of depositions; non-lawyers are generally completely ignorant about the subject. It is therefore, inconceivable that a Taiwan inventor would have anticipated being haled in for a formal deposition when he signed the assignment agreement.

Moreover, even if one succeeded in convincing a Taiwan court to order the inventor to testify at a deposition or trial, which seems extremely unlikely, the inventor could simply disregard the Taiwan court’s order. In general, refusal to comply with a Taiwan court’s order to appear can result in only a small fine, at most. So, it’s interesting to read the strong words of angry U.S. judges, ordering parties to compel recalcitrant individuals to comply with their demands, but here in Taiwan, at least, those words seem a little detached from reality.

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For assistance with depositions in Taiwan, please contact a Taiwan deposition lawyer.