Before Sue-rise

10 August 2017

IP litigation has increased over the years in many jurisdictions.

 

According to an informal survey that Kusnandar & Co in Jakarta has conducted among fellow IP practitioners and the public in general, it seems that the common causes of conflict is partly due to the ever-increasing utilization of the internet, especially social media and other networking tools.

 

The increasing accessibility of the internet has provided a rather plush platform enabling various individuals to commit counterfeiting and piracy which, although previously possible, are significantly easier to do nowadays, says Arno F.D. Rizaldi Kwok, a partner at the firm. “Although probably not intended, social media platforms such as Facebook and Instagram have played a significant role in enabling individuals to commit IP offenses. It’s definitely a recent phenomenon.”

 

One may argue that these challenges can be easily ameliorated through public IP education. Kwok says. “However, in young jurisdictions and new markets, such as Indonesia, this would not only seem ignorant but may also open a Pandora’s box as counter arguments will undoubtedly include education standards and may stretch from poverty and sociopolitical issues to moral and ethical values of such jurisdiction, etc.”

 

 

Trends

 

IP provides an exclusive right to its owner to exclude others from the fruits of their intellectual activities. Accordingly, IP serves as an incentive for technological innovation and development. However, governmental authorities regulating fair competition may find that IP runs counter to free market mechanisms. This conflict is an ongoing issue that is getting more attention.

 

IP holders are doing their best to expand the types of protectable IP – such as software and business methods – in addition to the more traditional IP rights such as patents, trademarks and copyright. “An example of such expansion occurred when the South Korean Supreme Court determined that the unauthorized use of something that was ‘achieved by another’s substantial investment or efforts’ constituted an act of unfair competition. This decision was later incorporated, as an addition, into the Unfair Competition Act. This court precedent and the enactment provided means for content developers, such as mobile game companies, to file suit against upcoming start-ups with similar products,” says Hong Yul Ryoo, a partner in the IP practice group at Lee & Ko in Seoul. “For example, the court determined that Avocado Entertainment’s Forest Mania was based on King.com’s Farm Heroes Saga, and awarded King.com damages under the Unfair Competition Act. Although this case was successfully appealed and is pending before the Supreme Court, it was a significant case where the courts expanded IP under the rubric of competition law.”

 

Although IP protection has greatly expanded, South Korea’s Fair Trade Commission has provided checks and balances by enforcing regulation to prevent abuse of such expanded rights by non-practicing entities and patent abusers.

 

“The regulatory intent was to maintain the free market mechanism and to regulate against monopoly, while still upholding the IP holder’s right to exclude,” Ryoo says. “For example, in Samsung v. Apple, the Korean courts looked into the question of whether Apple’s enforcement of its standard essential patents was unlawful under the Unfair Competiton Act. Subsequent to this trial, defendants used unfair competition as one of their defenses in IP infringement cases. This trend does not appear to be limited to South Korea, but also appears relevant in the US and EU.”

 

The term “fourth industrial revolution” is a trendy topic in South Korea, Ryoo adds “The main theme is that industry is shifting from labour and efficiency to ideas and technology, naturally emphasizing the importance of IP. Multinational corporations are already using IP as barriers to entry and will continue to do so. Competition authorities will keep regulating with more specificity to limit the abuse of IP holders while maintaining free market mechanisms. It will be interesting to see how this balancing act plays out.”

 

In Indonesia, IP litigation has also always been infamously marred by the ongoing trend of unfair competition.

 

According to data provided by Facebook, in 2016 more than 30 percent of Indonesia’s 260 million population are active social media users. Off of this number, there is a growing rate of businesses using social media as a platform to market goods and services as opposed to using the traditional physical store/ address.

 

“This trend is clearly different from the more traditional concept of using the internet and/or social media as a support of a real registered business,” Kwok says. “Although this trend undoubtedly creates jobs and promotes productivity, due to virtually non-existent regulations, the social media platforms have increasingly become a hotbed for unlawful businesses which infringe upon various legalities such as licenses, permits, certifications and IP, which provokes relevant litigation.”

 

Pursuing infringement on social media is near impossible, as not only there is almost no entry barrier to start a social mediabased business, those businesses are also well-supported by not only payment gateways but also the privacy protections from banking regulations, Kwok says. “Therefore, unfortunately, there has not been a solution yet found to effectively combat this new trend which fuels IP litigation.”

 

Notwithstanding the challenge, the government has endeavored to introduce new stipulations in the various newly-ratified IP laws enabling any party of concern to claim an injunction for (i) importation of, (ii) storage of, (iii) protection and arrest of and (iv) cease and desist of infringed goods to curb further damages thus prohibiting the sale and distribution of such infringed goods, at least until a judgment is reached by the court, Kwok adds. “This stipulation is much welcomed and long-awaited by IP owners here.”

 

In the US, it has been five years since inter partes review (IPR) was first implemented, which allows a third party to challenge the validity of a patent, as long as that challenge is brought within one year of the date on which the challenger is served with a complaint for patent infringement.

 

Unlike an ex parte reexamination (EPR) proceeding, which is evaluated by a patent examiner, an IPR proceeding is adjudicated by the Patent Trial and Appeal Board (PTAB), an administrative court at the USPTO, and allows the challenger to reply to the patent owner’s response to an institution decision, as well as to obtain limited discovery and to present evidence at an administrative hearing on the merits.

 

An IPR proceeding is also more likely to result in a stay of any district court litigation, because the IPR process creates estoppel for the challenger in district court.

 

“The IPR process has been used to a greater extent than was anticipated, primarily because the initial decisions by the PTAB over the first several years generally invalidated the challenged patents. Because the IPR process was so effective at invalidating patents, the PTAB developed a reputation of being a patent death squad,” says Christopher Rourk, a partner at Jackson Walker in Dallas. “The PTAB proceedings were a contributing factor to the decrease in 2016 of the number of patent infringement lawsuits filed in the US to the lowest level in many years.”

 

However, several recent decisions by the Court of Appeals for the Federal Circuit (CAFC), which has appellate authority over decisions by the PTAB, have resulted in decisions in more recent PTAB proceedings being more favourable to patent owners.

 

“In part, these CAFC decisions were the result of improper practices that were implemented by the PTAB, such as in the case In re Magnum Oil Tools, which I briefed on appeal to the CAFC. The CAFC corrected certain improper evidentiary practices that were being used by the PTAB as a result of that appeal, which made it more difficult for the PTAB to place the burden on patent owners to prove the validity of their patent – the IPR legislation specified that the burden of proving patent invalidity should remain on the challenger. In addition, the institution rates for IPRs have also decreased. These changes and others have increased the risk that an IPR will not be instituted, will not result in a stay of any associated litigation or otherwise will not have a successful outcome. Furthermore, the cost to prepare an IPR filing can be substantial, and a decision on whether or not to institute is not made until six months after the IPR is filed,” Rourk adds. “As such, while IPRs remain an effective tool for third parties to challenge patents that are being asserted against them, they require increased attention to the facts and law to be successful.”

 

 

Local v. Global

 

Major IP cases are routinely global in nature, with a key consideration being the interaction of differing domestic laws. Some clients are then increasingly comfortable using the same firm across jurisdictions while some prefer local expertise, but which approach is the best? Lawyers across the region say they are both important.

 

“The region I represent is always handled as region cumulatively. With several small countries in the Middle East and North Africa region, we see all our local and international clients looking for a one-stop solution,” says Raka Roy, head of the trademark department in the Dubai Office at United Trademark & Patent Services. “One of the reasons why our firm has established 14 offices across the region is to service clients through a centralized office and to maintain quality as well as turnaround time.”

 

“As for tackling multi-jurisdictional cases for countries where we do not have our own offices, we try to associate with a particular firm with whom we already have association and have had valid experiences of working together,” Roy adds. “We would, however, explain the uniformity of the legal strategies and steps that we would follow, and discuss the acceptability or non-acceptability of those as per the local laws. Based on that, a customized strategy evolves and a case manager for the case will coordinate and thereby update and make recommendations to the client.”

 

Identical or similar patents and trademarks can be registered in multiple jurisdictions due to these rights’ territorial limitations. This allows for infringement or invalidity actions on the same rights to occur in multiple jurisdictions, says Hwan Sung Park, a partner at Lee & Ko. “As Korean corporations become globally competitive, the same rights are asserted by or against them in multiple jurisdictions such as in the US, EU, and Japan. Further, as some Korean corporations have become important customers for major multinational corporations, the Korean market is becoming an important one for them. As such, these MNCs frequently assert their patents against other MNCs in Korea on the same patents that they are asserting in other major jurisdictions.”

 

In some cases, a defendant in a patent dispute in one country may sue the plaintiff on a different patent dispute in another country. “For example, a Japanese company can sue a Korean company for patent infringement in the US. The Korean company, as one of its defense strategies, can sue the Japanese company in Korea for infringing the Korean company’s patent,” Park says. “Since the recent Apple v. Samsung case, it appears that many companies are acquiring and stocking up on patents in multiple jurisdictions for defensive purposes. Accordingly, it is becoming more often where the same parties initiate patent disputes in other jurisdictions as defensive measures.”

 

As IP is territorially limited, it is imperative that one retains experienced local counsel, Park says. “It is uncommon for Korean companies to use a single global law firm that has offices in multiple global locations to handle cases in multiple jurisdictions based on the same patents. Instead, Korean companies often retain a Korean law firm and utilize its international network to select and work with local counsel. Thus, the role of the Korean law firm is very important in recommending local counsels for its client and coordinating work between the Korean company and local counsel and among the local counsel in multiple jurisdictions for a Korean client.”

 

As part of the coordination efforts, South Korean law firms advise their Korean clients on controlling the pace of trial and recommending offensive/defensive strategies regarding trials in multiple jurisdictions, Park says. “Further, Korean law firms assist in developing and gathering relevant facts (such as cause of action, client products/alleged infringing products, R&D history, etc.) and providing them to local counsel. Korean law firms also provide assistance managing local counsel’s legal fees to assure it stays within the client’s budget. Specifically, if the Korean law firm is handling a Korean case related to the same patents, it may actively engage in providing valuable strategic advice to local counsel based on its knowledge and experience from the Korean case.”

 

In order to provide the best services to clients as a coordinator, Korean law firms must be knowledgeable with dispute procedures and the legal systems of relevant multiple jurisdictions.

 

“Clients know that it is important for a local counsel not only to have a good reputation locally but also provide priority accessibility to its clients. Therefore, it is also important for Korean law firms to have an extensive network and knowledge of foreign law firms (as well as solid contacts) so that it may provide its clients with recommendation on local counsels if requested,” Park says. “Based on the aforementioned knowledge and network, Korean law firms must be able to effectively communicate with local counsel retained for the client, effectively manage work and fees, and assist the client in making the best decisions on various issues that come up during dispute proceedings such as settlement meeting, mediation, and trial. The Korean law firm, based on this expertise, must be able to provide a good understanding of the case to the Korean client who is unfamiliar with the disputes in foreign jurisdictions, and thereby gain the trust, support and assistance from the client. This would help the local counsel to manage the disputes in an effective and appropriate manner.”

 

 

The Strategies

 

Nobody is completely immune from litigation, but a wellplanned strategy to resolve potential IP disputes can definitely save much time and money before anything reaches courts.

 

“It is very important for companies to respond to any threatened IP litigation, be it patent, trademark, copyright or trade secret,” Rourk says. “Any cease and desist letter that is received from a third party should be taken seriously, and might also trigger certain document retention requirements to avoid sanctions that can be imposed in response to the destruction of relevant evidence after receiving notice of a claim.”

 

It is also a good idea to be aware of patents that are being actively asserted by other companies, particularly potential competitors. “It is relatively easy to search litigation records to see if any patents are being asserted against similar products, and there are many ways to address the potential threats posed by such patents before litigation commences,” Rourk says. “For example, it is often possible to modify the design of a product to avoid the claims of a patent, and such modifications can often improve the functionality of the product.”

 

If modifications are not feasible or if the patent of concern is very broad, then it might be necessary to try and invalidate the patent (which is generally easier for patents with broad claims). “Although the EPR process mentioned has largely fallen out of favour with law firms because the IPR proceedings were initially more effective, the decreasing institution rates for IPRs and CAFC reversals of PTAB decisions have diminished the attractiveness of the IPR proceeding slightly. Furthermore, an EPR can be used to anonymously challenge a patent, costs substantially less than an IPR, and results in a decision ordering EPR usually within several months of filing. The EPR process also does not create estoppel for the challenger, and the same prior art that is used for an EPR can subsequently be used in litigation against the same patent,” Rourk says. “The EPR process can be used to improve the chances of quickly resolving an IP dispute, and I have been able to obtain a stay of litigation and ultimately invalidate patents through the use of the EPR process, at a fraction of the cost of an IPR.”

 

In addition to patent office challenges, another strategy is to identify and acquire patents that can be asserted against a potential challenger, Rourk adds. “There are a number of patent brokerages for US patents, and it is often possible to acquire such patents for licensing or litigation purposes.”

 

With the strategies in hand, companies should designate specific persons or departments to take charge of enforcement, or authorize law firms to handle all related issues.

 

“IP monitoring and enforcement are time and resource consuming that need professionals with legal education to devote themselves for the tasks. A proper use of the search platform could also be helpful to dig out those infringers out of sight,” says Bin Zhang, deputy director of the legal department at CCPIT Patent and Trademark Law Office in Beijing. “Following the discovery of the infringement, a quick response by relevant legal measures without tolerance will effectively warn the potential infringer in shadow not to take a risk to cross the line.”

 

Also to prevent breach of contract, clauses such as the liability of breach and arbitration agreement as well as the laws that will be applied in dispute, the language of the contract that has priority, etc,, should be included in commercial agreements, adds Zhang.


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