This column appeared in the April 18 TOP INTELLECTUAL PROPERTY LAWYERS special report.
Damages drive most lawsuits, and patent litigation is no exception. Thus, limitations on damages available to the plaintiff -- such as the marking and notice requirements imposed by 35 U.S.C. Section 287(a) -- can be critical, even case-dispositive. The U.S. Supreme Court long ago placed "the duty of alleging, and the burden of proving, either [marking or notice] upon the plaintiff." Dunlap v. Schofield, 152 U.S. 244, 248 (1894). But until December, when the U.S. Court of Appeals for the Federal Circuit issued Arctic Cat Inc. v. Bombardier Recreational Products Inc., 876 F.3d 1350 (Fed. Cir. 2017) [opinion attached below], the practical application of these duties and burdens in litigation was hotly disputed, with little guidance from appellate courts.
Although district courts are just beginning to apply Arctic Cat, it appears to have significant ramifications for litigation and licensing alike.
The Marking Statute and Licensees
"If a patentee who makes, sells, offers for sale, or imports his patented articles has not 'given notice of his right' by marking his articles pursuant to the marking statute, he is not entitled to damages before the date of actual notice" or filing suit. Id. at 1366 (quoting Dunlap, 152 U.S. at 248). "A patentee's licensees must also comply with § 287, because the statute extends to 'persons making or selling any patented article for or under [the patentee].'" Id. (quoting Maxwell v. J. Baker, Inc., 86 F.3d 1098, 1111 (Fed. Cir. 1996)).
Licensee marking obligations have become increasingly important due to the rise of nonpracticing patent plaintiffs. Particularly after eBay Inc. v. MercExchange, LLC, 547 U.S. 388 (2006), essentially foreclosed injunctive relief for nonpracticing patentees, these plaintiffs derive income only from enforcing or granting licenses to their patents, whether through or outside litigation.
In Arctic Cat, the plaintiff did not manufacture patented products, but licensed a competitor of the defendant to do so. It was undisputed that the licensee did not mark its products, but disputed which party bore the burden of proving whether those products were covered by the asserted patent, and therefore, should have been marked. Without guidance from the Federal Circuit "as to which party properly bears the burden of proving ... compliance with the marking statute," the trial court placed that obligation on the defendant.
On appeal, the Federal Circuit vacated that decision, holding that "[o]nce the alleged infringer meets its burden of production" by identifying specific unmarked products sold by the patentee or its licensees, "the patentee bears the burden to prove the products identified do not practice the patented invention." 876 F.3d at 1368.
Strategies in Light of Arctic Cat
Before Arctic Cat, the Northern District of California had already begun to require the plaintiff to either produce "documents sufficient to show marking" of the patentee's "own or its licensee's ... product [that] practices the claimed invention," or waive any argument that it marked. N.D. Cal. Pat. L.R. 3-2(i), 3-1(g) (2017). But even absent explicit disclosure requirements, the plaintiff's obligation to "prove the products identified do not practice the patented invention" can present a strategic quandary for patentees, and strategic opportunities for accused infringers.
Expired Patents: Complaints asserting patents that expired prior to suit, or accusing products discontinued prior to suit, must plead marking or actual notice, or risk almost certain dismissal. Cf., e.g., Babbage Holdings, LLC v. Activision Blizzard, Inc., 2:13-cv-750, D.I. 43 (E.D. Tex. May 14, 2014) (dismissing indirect infringement claims for lack of pre-suit notice where patent expired a few days after filing). Note that a plaintiff that brings such a facially insupportable suit may risk fee-shifting.
Temporal Scope: Where the complaint fails to plead marking or notice, but the claim continues to accrue post-suit, the accused infringer may consider a motion to bar pre-suit damages, e.g., for partial judgment on the pleadings. Although not case dispositive, such an order can conclusively limit the available damages, and may justify restricting discovery related to both liability and damages, particularly into discontinued products.
Serial Plaintiffs: A plaintiff that files a series of cases may find that its prior infringement contentions require it to either forego pre-suit damages or "argue for an outcome that, under their own theory of the case, is not consistent with their infringement claim." American Technical Ceramics Corp. v. Presidio Components, Inc., 14-cv-6544, D.I. 126, slip op. at 20 n.9 (E.D.N.Y. Mar. 27, 2018).
Prior to Arctic Cat, courts had held that even explicit licenses to prior defendants might not trigger a marking obligation, so long as those licensees "expressly denied infringement in their respective settlement agreements." In re: NeuroGrafix ('360) Patent Litigation, 1:13-md-2432, D.I. 327 (D. Mass. Aug. 1, 2016). After Arctic Cat, however, once the defendant clears the "low bar" of identifying products that should have been marked, the burden shifts to "the patentee ... to prove the products identified do not practice the patented invention." 876 F.3d at 1368. In one of the few cases to date applying Arctic Cat, the Eastern District of Texas held that the defendant met its burden by merely identifying a complaint which accused the eventual licensee's products of infringing the patent. Semcon IP Inc. v. Huawei Device USA Inc., 2:16-cv-437, D.I. 486, slip op. at 5 (E.D. Tex. Dec. 12, 2017). If identifying a complaint suffices, identifying the list of products contained in the plaintiff's previous infringement contention should as well.
Going forward, Arctic Cat may discourage serial suits and favor simultaneous suits.
Licensing Considerations: In Arctic Cat, although the licensor plaintiff explicitly advised the prior licensee that "[i]ncluding the patent numbers on the product would be helpful to Arctic Cat in enforcing its patent rights against potential infringers," the licensee had refused to undertake a marking obligation. That omission manifestly compromised the plaintiff's later damages case. Although willingness to mark has frequently colored license and settlement discussions in the past, and ultimately, it is only one potential term for negotiation, patentees now have a stronger rationale for requesting a marking requirement.