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Corporate Counsel Connect collection

December 2014 edition

Successfully navigating the increasingly complex intellectual property rights environment

Craig J. Blakeley and Jeffrey H. Matsuura, Barnes & Thornburg, LLP

Craig J. Blakeley and Jeffrey H. MatsuuraIndividuals and businesses now routinely create and use materials protected by copyrights, trademarks, patents, and other forms of intellectual property rights on a daily basis. Website content, social media, other forms of digital materials, and a range of proprietary technologies are integrated into the core activities of enterprises around the world.

In this environment, virtually every organization is both an active developer of its own intellectual property and a vigorous user of the intellectual property of other parties. As enterprises recognize the growing commercial significance of intellectual property rights, many of them move to assert and enforce those rights more aggressively. In this setting of active intellectual property rights (IPR) enforcement, many parties not accustomed to the world of IPR management are forced to be involved in IPR disputes and many of those disputes lead to unintended consequences.

Flow-through claims involving customers

Traditionally, IPR claims were resolved between the companies that owned specific IP and those that integrated the IP into products or services. For example, patent owners enforced their IPR claims against the companies that manufactured products using their patented technology. If a patent owner believed that a specific product made use of the patented technology without an appropriate license, then the patent owner would pursue any legal claims against the manufacturer of the product.

Today, it is increasingly common for patent owners to threaten and at times initiate legal action against businesses that use products containing allegedly infringing technology. In addition to pursuing legal action against the product manufacturer involved, it is now common practice for patent owners to threaten legal action directly against users of the allegedly infringing products.

Examples of this strategy of asserting flow-through liability to product users for alleged IPR violations associated with the products have surfaced in many different fields. One of the most highly visible involved patent infringement claims associated with WiFi wireless data communications equipment. In the WiFi technology patent dispute, the patent owner initiated infringement actions against manufacturers of WiFi equipment. The owner also sent cease and desist letters to businesses that used the allegedly infringing products, including various hotels, restaurants, and retailers. The patent owner threatened litigation against those product users unless they agreed to pay license fees.

These flow through IPR claims force product users to participate in patent and other IPR disputes. In most cases, the product users are not in a position to dispute or contest the IPR infringement claims. This strategy is presumably based on the theory that by exerting pressure on product users, those users will either agree to pay a license fee or place pressure on the product manufacturer to reach some type of settlement agreement quickly in order to resolve the dispute.

Backlash against aggressive IPR enforcement

As a growing number of individuals and businesses recognize the potential commercial value of the intellectual property they own, IPR enforcement activities have increased dramatically. Enterprises now routinely include intellectual property among their highly valued commercial assets. Accordingly, they are more likely to engage in litigation and other enforcement actions than in the past in an effort to derive maximum commercial benefit from their IPR.

More aggressive IPR enforcement is not, however, a riskless exercise. It is increasingly common for parties who actively assert their IPR to encounter cross-claims from other parties. Now that companies routinely establish portfolios of their own intellectual property, it is relatively easy for them to use that property for defensive purposes in response to IPR claims raised by others.

For example, in an ongoing patent dispute involving Sprint and Comcast, Sprint originally sued Comcast alleging infringement of several patents associated with Internet telephony technology. In response, Comcast counter-sued alleging Sprint infringed on Comcast patents. The Comcast litigation actually went to trial before the Sprint lawsuit. Sprint was ordered to pay Comcast several million dollars before the original case filed by Sprint even went to trial.

The cases involving Sprint and Comcast illustrate a now common dynamic associated with active IPR enforcement. Aggressive enforcement actions raise the risk that the party seeking enforcement may, in turn, become the target for cross-claims raised defensively by the defendant. Had Sprint been somewhat less aggressive in its IPR enforcement strategy, it is possible that Comcast would never have raised its own patent claims against Sprint. Thanks at least in part to Sprint's decision to assert its IPR aggressively, it is now required to pay a significant sum to Comcast based on Comcast's intellectual property portfolio.

Closing thoughts

Widespread attention to the significant commercial potential of IPR has contributed to development of an environment in which many individuals and enterprises assert and enforce those rights actively. That highly active enforcement forces many parties not traditionally involved in IPR disputes to become involved. It also leads to serious unanticipated consequences as targets of IPR claims rely on their own substantial intellectual property portfolios to respond to the IPR challenges raised by others.

In this complex IPR environment, all businesses and organizations must recognize that they may be affected by IPR claims, despite the fact that they are not directly involved in the manufacture or distribution of technology-based products. Even if they are only users of products that incorporate intellectual property, organizations should understand their potential IPR legal exposure, and they should implement policies and procedures to be applied in the event that they are targeted in IPR enforcement actions.

Additionally, individuals and organizations that rely on aggressive enforcement of their own IPR for commercial advantage should recognize the potential risks associated with that strategy. The targets of those enforcement actions are now likely to control their own intellectual property portfolios. Those targets have every incentive to use their intellectual property assets as the basis for counter-claims in response to the original IPR actions. Before aggressively asserting IPR claims, all parties should carefully assess the intellectual property assets of their targets. Based on such assessments, decisions regarding litigation, cross-licensing, and negotiated settlements should be carefully evaluated.

The IPR management climate is complex and continues to grow more challenging. Even businesses and other organizations that do not develop or directly rely on intellectual property must recognize that the success of their commercial activities can be substantially affected by IPR management strategies applied by others. IPR management strategies have substantial commercial impact and often carry unanticipated consequences.