Chip Law

Foreign or Domestic, All Have Access to the Courts

Campbell Chiang — Tue, 17 Nov 2009 08:55:51 -0800

When conducting an infringement threat assessment in your industry, don't write off the foreign companies. Foreign companies can and do file in US courts, whether against domestic or foreign competitors. As the US market becomes more competitive and foreign companies become more sophisticated, a greater diversity of plaintiffs' country of incorporation can be expected.

Japan-based Nichia Corp. filed a patent infringement lawsuit against Chinese solar products company Jiawei North America Inc. The complaint was filed in, of all places, the U.S. District Court for the Eastern District of Texas. Nichia alleges that Jiawei has infringed four LED-related patents.

This is not the first time Nichia has been to the Eastern District of Texas. Previously, Nichia settled two lawsuits filed by Seoul Semiconductor Co., also involving LED patents. It would appear Nichia now has a taste for Texas.

ITC Exclusion Orders - Verify the Impact of General Exclusion Orders

Campbell Chiang — Wed, 28 Oct 2009 09:32:27 -0800

We've written quite a bit about ITC 337 proceedings. One of the issues to watch out for is collateral damage from your general exclusion orders. General exclusion orders usually prohibit the importation of all infringing articles, regardless of their owner, importer, and place of origin, and whether or not the owner or importer participated in the investigation.

Imagine your client, patentee A, wins a general exclusion order against foreign manufacturer B. The order is implemented, and the next thing you know patentee A receives an irate call from a customer or licensee asking why their products are being excluded at the US border. The licensee can be importing a legitimately licensed product manufactured by manufacturer B. The customer can be importing a downstream product excluded on the basis of including a component covered by the exclusion order.

When you receive an exclusion order, you'll need thorough due diligence to ensure current customers and licensees aren't impacted.

Qimonda Strikes Out at ITC

Chun Ng — Tue, 20 Oct 2009 10:16:55 -0800

We've written before about the increasing popularity of the ITC as a patent litigation forum, particularly for semicon companies. However, success at the ITC is turning out to be a bit more elusive than hoped for by patent owners. In the latest setback for a semicon company at the ITC, Qimonda last week lost the first round to LSI and Seagate. Last year, Qimonda asked the ITC to investigate LSI's and Seagate's importation of certain chips. Of the four patents asserted (USP 6495918, USP 5851899, USP 5646434, and USP 5213670), three were found to be not infringed and one was invalid.

Perhaps more interesting is that Judge Rogers found that a domestic industry doesn't exist - i.e., Germany based Qimonda doesn't have enough activity in the U.S. to qualify for protection under Section 337.

Increasing Foreign Complainants in Section 337 Actions

Campbell Chiang — Fri, 16 Oct 2009 14:54:55 -0800

US companies will increasingly find themselves as respondents in Section 337 actions. Given the advantages to the complainant in such actions (fast docket, lower threshold for standing, and exclusion orders), the advice we previously gave foreign companies now also applies to US companies. React quickly when you receive a complaint, and ideally, have a short list of counsel familiar with your industry and market. Given the fast docket, you want to minimize the amount of time spent obtaining counsel and getting counsel up to speed.

Foreign companies are increasingly initiating Section 337 actions to protect their US market share and intellectual property. Over one-third of the Section 337 cases instituted in 2009 to-date named foreign complainants. In part, this can be attributed to the importance of the US market in the global economy and the growing patent portfolios held by foreign companies.

Section 337 actions were originally intended to protect American industry from foreign competition by allowing US manufacturers to bar imports infringing US patents. Previously, Section 337 required a complainant's product to be made in whole or significant part within the US to satisfy the domestic industry requirement. The domestic industry requirement was later changed to include "sufficient investments" in US activities related to the asserted patents. With the lower threshold for standing, foreign companies are finding it easier to pursue Section 337 actions, against both foreign and domestic competitors in the US market.

ITC Staff Approves Proposed Settlement Between Cognex & Multitest

Campbell Chiang — Wed, 23 Sep 2009 07:03:18 -0800

The US ITC staff has endorsed a proposed settlement between Multitest Electronic Systems Inc. and Cognex Corp. in a patent infringement case over machine vision software. Multitest was the first the nearly 20 named respondents to reach a settlement with Cognex.

Interestingly, several of the other respondents, including MVTec and Delta Design Inc., filed confidential partial oppositions to the motion. Some possible reasons for opposition can include keeping as many respondents in the case as possible to dilute complainant's efforts moving forward, overbroad language in the proposed settlement, or other tactical and strategic considerations.

The complaint alleges that MVTec Software GmbH manufactures machine vision software that infringes Cognex patents. The software is then sold to third parties, including Multitest, who incorporate the software into their manufacturing equipment products. The case is In the matter of Certain Machine Vision Systems, Software and Products Containing Same, investigation number 337-TA-680, in the U.S. International Trade Commission.

Advanced Ion Beam Technology Inc. v. Varian Semiconductor Equipment Associates Inc. - intersection of antitrust and patent law

Campbell Chiang — Tue, 08 Sep 2009 11:58:47 -0800

On Aug. 31, Advanced Ion Beam Technology ("AIBT") had its antitrust counterclaims dismissed without prejudice from a patent infringement suit for failing to properly allege specific antitrust injury. On the same day, AIBT filed a new Sherman Act suit refining its antitrust allegations against Varian Semiconductor Equipment Associates Inc. ("Varian"), attempting to rectify the problems with its previous counterclaims.

Antitrust counterclaims are frequently raised by the defendant in patent infringement cases. A patent, by definition, is a monopoly providing the patentee with power to exclude others from making, using, selling, or offering to sell the patented invention. Such claims can be Walker Process fraud claims, alleging the asserted patent was procured by fraud in an effort to create or gain monopoly power in a market. Antitrust claims can also be "sham litigation" claims, alleging the patentee sought to create or maintain a monopoly by enforcing a patent knowing it to be invalid and by filing and maintaining an objectively baseless lawsuit.

Fortunately for the patentee, successfully asserting an antitrust counterclaim requires a high level of proof. Before initiating a patent infringement suit, it would be wise to review the asserted patents with an eye towards possible antitrust issues.

The Perils of Ignoring ITC Complaints - Default Judgment

Campbell Chiang — Wed, 02 Sep 2009 12:52:01 -0800

As a follow up on our earlier post on Tessera's ITC action, the Administrative Law Judge (ALJ) recently made an Initial Determination that respondents TwinMOS Technologies Inc. and TwinMOS Technologies USA Inc. (collectively "TwinMOS") are in default for failure to respond. Given the speed of ITC actions, it is crucial to bring your attorneys into the loop as soon as possible. This decision is a reminder that burying your head in the sand will not make the problem go away.

On March 12, 2008, the ALJ issued an order to show cause regarding entry of default against TwinMOS. TwinMOS replied in a letter to the ALJ, asserting it replied to Tessera's Complaint on January 8, 2008 and stating it is "a memory module house" and is "not in a position to involve in the patent litigation matters or to be liable to the charge."

The ALJ found that since TwinMOS' letter, TwinMOS has failed to participate in the investigation, including failing to participate in discovery, appear at evidentiary hearings, and filing any requested briefings. As a result of the entry of default, TwinMOS have waived their right to appear, to be served with further documents, and to contest the allegations at issue in the investigation.

Change in Method Patent Protection Scope - Cardiac Pacemakers

Campbell Chiang — Mon, 24 Aug 2009 08:26:19 -0800

The Federal Circuit's recent decision in Cardiac Pacemakers represents a shift in method patent protection scope. Generally, activities outside the U.S. do not trigger U.S. patent liability. But 35 U.S.C. Section 271(f) creates patent liability for certain import and export activities, such as exporting components of a patented invention and actively inducing the combination of the components outside of the US, if such combination would infringe within the US.

Under previous case law, the Federal Circuit found that 271(f) applied to method claims, and a defendant's export of a catalyst needed to perform a patented method could result in liability. Union Carbide Chemicals & Plastics Technology Corp. v. Shell Oil Co. (Fed. Cir. 2005).

In Cardiac Pacemakers, the Federal Circuit reversed its previous position and ruled that the section does not apply to method patents. Cardiac Pacemakers had sued over a patent claiming a method of using an implantable stimulator that detects heart arrhythmias. The Federal Circuit held that the defendant's implantable cardioverter defibrillators practicing the method of Cardiac’s patent outside the U.S. cannot constitute infringement under that statute. Because method or process patents do not include the required "physical components" of a patented invention and because one cannot "supply the step of a method," the statute cannot apply to method or process patents.

It is now more important than ever to ensure your patent portfolio protects not only the methods of producing semiconductor products, but also the products themselves if at all possible.

LSI and Agere Systems settle with ITC respondants

Campbell Chiang — Wed, 12 Aug 2009 09:13:43 -0800

We've covered the value of ITC 337 actions in prior posts, and the recent events have continued the trend. MagnaChip has settled its patent dispute before the ITC with LSI and Agere Systems. On July 21, the Administrative Law Judge issued an initial determination terminating the investigation against MagnaChip after it reached a settlement and patent licensing agreement. Just the previous week, two respondents, Microchip Technology and Dongbu HiTek Semiconductor were also dropped from the suit based on a settlement with the complainants.

The settlement terms are all confidential, which makes it difficult to analyze any settlement trends. With flat to sequential growth in the semiconductor industry, respondents may be more open to settlement in order to conserve resources and capitalize on market opportunities. On the other hand, complainants may be more open to settlement in light of the fact that many competitors are struggling and are unable to pay out large settlements.

Elpida Buys Qimonda Patents out of Bankruptcy

Chun Ng — Fri, 07 Aug 2009 11:07:31 -0800

Digitimes reports that Qimonda has sold its technology licenses and patents related to GDDR memory to Elpida. Businessweek reports the same thing.

Recall that Germany based Qimonda entered bankruptcy in 2009 due to the difficult DRAM pricing environment. Interesting to note that Elpida is simply acquiring the technology and some employees, but not any of the capital equipment or plants of Qimonda. Anyone still doubting where the true value of a tech company lies?!?!?

(Hint: Engineers and IP)

Kappos Confirmed

Chun Ng — Fri, 07 Aug 2009 11:04:58 -0800

The Senate today confirmed the appointment of IBM's David Kappos to the position of Director, USPTO. It is likely that Mr. Kappos will overhaul aspects of the USPTO's practice.

Judiciary Committee Chairperson Committee Chairman Patrick J. Leahy (D-Vt.) issued a statement that he looks forward to working with the new Director on patent reform.

See prior blog entries on Kappos' signals and IPReview article.

Light at the End of the Tunnel

Chun Ng — Wed, 29 Jul 2009 10:11:09 -0800

After a downcycle, it looks as if growth is returning to the semiconductor industry. In this article, many big names in the industry are predicting at least sequential growth. That has to be good news for everyone in the entire semiconductor ecosystem, from capital equipment makers, software design makers, testing and packaging houses, and yes, even patent attorneys.

What's a Patent Worth?

Chun Ng — Thu, 16 Jul 2009 14:17:41 -0800

Just how do you figure out how much a patent is worth? Valuation of a patent portfolio may be useful when, among other things, an entity desires to:

determine whether to pursue a patent application;
evaluate a company's value (e.g., for merger, acquisition, or stock price); or
estimate damages.

The value of a patent can depend on a multitude of factors including but not limited to:

breadth of a patent claim;
scope of the patent claim given up during prosecution;
validity of the patent given changes in patent laws;
price customers would be willing to pay for a product embodying the claimed invention;
license fees paid for similarly important components;
costs to substitute the claimed technology with an alternative.

Often, the value of a patent is not publicly known because parties often settle matters out of court. Other times, the value of a patent becomes abundantly clear after a blockbuster court case. For example, a jury recently awarded nearly $1.7 billion to Johnson & Johnson, whose patent the jury determined was infringed by Abbott Laboratories' drug, Humira. Abbott Labs plans to appeal the verdict.

What's even more interesting is that a patent can be worth nothing to one party and worth quite a bit to another party. I have seen companies overpay for patents where they desperately need the patent as leverage against a competitor. In that case, the patent is worth a lot to that particular company, but much less to another third party.

There are also situations where a company will overpay for a patent to "complete" their portfolio and have an airtight lock on a technology.

But I think what it boils down to is that a patent is worth whatever you can get someone else to pay for it. Simple, but true.

New Commissioner of Patents?

Chun Ng — Thu, 18 Jun 2009 15:15:58 -0800

David Kappos, IBM's assistant general counsel for intellectual property, has just been nominated to be the new Commissioner of the Patent and Trademark Office. PatentlyO called it right last month.

Mr. Kappos has testified recently before Congress on patent reform legislation, though that was on behalf of IBM. Whether or not those are truly his views or he was simply giving the opinions of IBM, we will soon find out if he is confirmed. In his testimony, he mentions enhanced inter partes reexamination, enhanced third party submission of prior art, and "first window" post grant review. These reforms will go a long way to improving the validity and quality of patents issued from the patent office.

Bottom for Semiconductor Industry?

Chun Ng — Thu, 18 Jun 2009 13:33:11 -0800

It's been no secret that the semiconductor industry has been hit hard by the downturn in the economy. Much of what is produced by the industry is used in consumer electronics, and with little consumer appetite these few quarters, obviously there is less need for chips. But everything I have been reading and watching seems to indicate that we aren't going any deeper into the tank, but are starting to stabilize.

What are the ramifications of this? For startups and smaller companies, this may mean more dealmaking and easier fundraising. I was talking to my partner, Scott Joachim, yesterday and we agreed that if we can put a bottom in, hopefully that will loosen up transactions. For the past 9 months, companies have been handing onto their cash like it was their lifeblood (which of course it is!). But keep your eyes open for my prediction of more deals being done later this year - VC funding, mergers & acquisitions, and the like.

Motorola Settles Patent Fight with Tessera

Campbell Chiang — Sat, 06 Jun 2009 07:34:48 -0800

ITC exclusion orders and cease and desist letters have teeth. Faced with an uncertain economic outlook, an unfavorable ITC decision, and unclear appeal prospects, Motorola signed a license with Tessera settling all outstanding litigation. Under the worldwide licensing agreement, Motorola will pay Tessera royalties on shipments into the U.S. of certain electronic products incorporating semiconductor chips that use Tessera's technology. In a statement Wednesday, Motorola called the licensing deal a "prudent business action" allowing the company to continue to meet its customers' needs.

With the addition of two administrative law judges in the last 2 years (Carl. C. Charneski in April ’07 and Robert K. Rogers in July ’08 - bringing the total to five administrative law judges), the ITC is an attractive option for US patentees seeking to protect their IP in the post-eBay world. For patentees finding injunctions difficult to obtain, an ITC exclusion order almost as effective.

As this case illustrates, ITC exclusion orders and cease and desist letters put an inordinate amount of pressure on respondents to settle, or risk being unable to import infringing goods into the US. In today's distributed world, preventing the importing of infringing products can be almost as good as a injunction.

Patent Reexamination - A Renaissance

Chun Ng — Wed, 03 Jun 2009 08:49:02 -0800

When I began practicing nearly 20 years ago, the conventional wisdom was that an alleged infringer of a patent should VERY RARELY request reexamination in the U.S. Patent Office. I think the reasons were many. To list just a few:

The reexamination process back then was "ex parte", and once a third party requested the reexamination and submitted the papers to the Patent Office, the third party nearly always was completely shut out. Furthermore, the patent owner could have several opportunities to lobby the Examiner on a one-on-one basis.
If the Patent Office decided to reconfirm the patent, the third party had no right of appeal.
Patent litigators just didn't trust the quality of the reexam process in the Patent Office and preferred to litigate in the courts the issue of validity

But then the tide began to very slowly turn in 1999 with the introduction of "inter partes" reexam. A series of further law changes and internal Patent Office changes over the following decade has resulted, I believe, in the almost routine use of inter partes reexam by patent defendants. So what happened?

2002 law change to allow a third party requester to appeal adverse decisions of the Patent Office to the Federal Circuit
2005 establishment of a central reexam unit (CRU) within the Patent Office. The CRU is made up of experienced patent examiners who frankly really know what they are doing.
2005 establishment at the Patent Office of "panel review". This is a fancy way of saying that a few experienced Examiners are going to do a quality check before decisions go out.

Not only are more reexams being filed, the preliminary statistics indicate that the "kill rates" in inter partes reexam are upwards of 70%!

Given this, it is certainly no surprise the patent infringement defendants have been using the reexam strategy more and more. The semiconductor field is no different. Two well known patent enforcers in the industry, Tessera and Rambus have seen their patents thrown into reexam by various parties that are the targets of their licensing programs. Furthermore, I have also seen evidence that courts are willing to stay litigation if a quick reexam request is filed in the Patent Office, though obviously this is very judge and district specific.

Hynix Ordered to Take a Lien to Satisfy Patent Judgment

Kirupa Pushparaj — Sun, 31 May 2009 08:14:45 -0800

While patent litigation between "real" companies may be waning, possibly due to the challenging economy (as Chun notes below in his article about Samsung and Sandisk), damages resulting from semiconductor patent litigation cases remain nonetheless real and substantial. In a recent decision, a California district court ordered the South Korean memory maker Hynix to pay chip designer Rambus about $397 million for infringing on Rambus' DRAM patents.

Several newspapers and analysts commented that Rambus may have won a "hollow" judgment, fearing that Hynix may go bankrupt before being able to comply with the judgment. However, the district court appears to have taken into account the difficult (and definitely uncertain) economy in identifying Hynix's potential inability to act on the judgment. The district court seems to have addressed the apprehension of a "hollow" judgment by ordering Hynix to take a lien against its manufacturing facilities in South Korea for a substantial portion of the judgment. The court also ordered Hynix to pay ongoing royalties for infringing the patents to an escrow account (until an upper court rules on an appeal filed by Hynix), rather than allowing the damages to accrue for the duration of the appeal. Financial markets responded favorably to the court's decision -- Rambus' share jumped 5.17% subsequent to the court ordering Hynix to take the lien and pay ongoing royalties. This case perhaps illustrates how courts are responding to the tough economy in protecting the rights of patent holders.

Samsung and Sandisk Extend Patent Agreement

Chun Ng — Fri, 29 May 2009 09:59:35 -0800

I've talked about in the past how big heavyweights in the semiconductor space are using their patents in innovative ways. Well, earlier this week Samsung (both a patent and business heavyweight) and Sandisk (certainly a patent heavyweight and a flash memory heavyweight) signed an extension of their previous broad patent license agreement. The extension runs to 2016 and continues the royalty payments from Samsung to Sandisk for Sandisks patents, albeit at a much lesser amount. In addition, Samsung agrees to guarantee Sandisk access to its foundry. The Wall Street Journal had estimated that Samsung was previously paying hundreds of millions of dollars a year to Sandisk under the old agreement. Not a bad return on investment for a patent portfolio!

This follows my general feeling that patent litigation between "real" companies may be waning. Instead, chip companies in this tough economy are preferring to come to terms using creative business arrangements. This may also signal a trend where there is more "bartering" of services instead of a straight license and royalty model popular in the past. Companies want a win-win that makes sense and the Samsung/Sandisk deal may be one example of this.

Are we still patent MAD?

Chun Ng — Sat, 09 May 2009 23:08:16 -0800

EETimes has run a series of recent articles discussing the concept of "mutual assured destruction" (MAD) in the context of a patent arms race for electronics companies. The thesis is that it doesn't matter whether your patents actually cover anything important - the only thing that matters is the number of patents in your portfolio. By having a huge arsenal of patents, you protect yourself from competitors. The corollary is that if you have more patents than the other guy, you can bully them into paying big royalties solely on the basis of a bigger patent portfolio.

This strategy to me is incorrect for at least the following reasons:

A huge arsenal of patents does absolutely nothing against an attack by a non-practicing entity (i.e. patent troll). By definition, the NPE has no product and therefore has no fear of a counterattack from your patents.
Companies are not going to simply fork over seven-figure settlements just because you have a big stack of patents. They are too sophisticated now. They are willing to call the bluff and more likely to get you to identify specific patents you think are truly important. If the quality is not there, companies won't be intimidated.
Quality ALWAYS trumps quantity. I would take one truly high quality patent that covers a lot of product revenue over a hundred patents that are written poorly or have questionable breadth.
Patent reform is coming - the pendulum is swinging back towards patent defendants. A string of cases over the past 5 years have been anti-patent plaintiff. Furthermore, it looks as if Congress may finally pass legislation that would generally also be anti-patent plaintiff.
Large companies are much more willing to fight now. It seems as if, for whatever reason, large companies are not buying into this idea of MAD. We are seeing more and more huge worldwide patent battles.