A Consideration with Post-Issuance Practice: Intervening Rights

The day you have been waiting for has finally come. The patent application that your company believes covers key technology has issued. Your company may be, for example, a startup with its first marketable product or an established business trying to extend its presence in a niche market or enter into a new one. The patent provides your company the desired protection of the marketplace. There's just one problem. It appears that the scope of the patent may need to be altered to improve your position in the marketplace. For instance, a competitor may have successfully designed around the scope of your patent's claims. In some such instances, there may not be a pending application by which you, the patent owner, can capture the competitor, and post-issuance practice is the only mechanism. So, amending your claims, eg, to read on your competitor's products may seem like a sure way to capture him as an infringer and strengthen your position.

Although valid mechanisms for amending a patent may be used to improve your patent's claim scope, careful consideration beforehand of the apparent need of the amendment and its possible effects should be made. One potentially large effect is the triggering of intervening rights for an infringer of the amended patent. A patent owner needs to understand what they are, when they can be used, and the possible effect arising from them.

What Are Intervening Rights?

Under the concept of fairness, intervening rights provide an infringer a defense to patent infringement. A successful intervening rights defense does not mean that infringement did not occur. Rather, it means that damages owed to the patent owner may be limited once infringement has been determined. Giese v. Pierce Chem. Co., 43 F. Supp. 2d 98, 112 (D. Mass. 1999). Under certain circumstances, an infringer may be afforded reduced damages because of his good faith reliance upon the patent landscape at the time of taking action, eg, developing a new product, where the landscape subsequently changed when the infringer was not able to firmly predict its final scope.

When Are Intervening Rights an Option?

In general, there are three scenarios in which intervening rights can apply. See 35 U.S.C. ”252, 307(b), and 41(c)(2) (2004). Briefly: It is worthy to note that there is no substitute for doing the job of preparing and prosecuting a patent application as precisely and correctly as possible initially.

Re-examinations. In this case, the patent at issue has been re-examined by the USPTO, at the request of either the patent owner (ex parte), or a third party (inter partes). Perhaps, for example, in ex parte re-examination, a patent owner realizes his patent was entitled to more claims of equivalent scope than acquired or the granted claims should have been narrower in scope in view of prior art that could invalidate the patent. Or maybe a third party can assert that a mistake was made by the examiner when a patent was originally granted and seeks inter partes re-examination of another's patent. Re-examination, therefore, can result in a patent with a scope that is further defined by additional claims, a narrower scope, or in some cases, in no patent at all. In no instance, though, can the patent scope be broadened.

Reissues. In reissue cases, which are brought only by the patent owner, a patent is sent back to the USPTO for examination because it is deemed by the owner to claim the invention either too narrowly or too broadly. The original patent is surrendered, and the claims of the reissued patent, assuming one is granted, may be narrower or broader in scope than the original claims. Narrowing reissues are more common than broadening reissues, the latter being available only within 2 years of the grant of the original patent. In either case, reissued claims are for the invention as originally disclosed.

Reinstated patents. Here, a patent that lapsed for failure to pay a maintenance fee has been reinstated. In the United States, for utility patents, fees are due at 3 1/2, 7 1/2 and 11 1/2 years from the date of the patent granting, though a grace period of 6 months of each of these deadlines allows for late payment. If the fees are paid later than the 6-month grace period, or are not paid at all, the patent will lapse and become unenforceable. The patent may be revived if the patent owner petitions the USPTO to accept a late payment of the maintenance fee and sufficiently shows that the nonpayment was unintentional or unavoidable.

In each of these scenarios, an accused infringer may have been fairly confident that he did not infringe any existing patent or, if infringed, there was a good faith belief that the patent was either invalid or had lapsed. He then may have taken calculated steps to proceed with business plans in good faith. Hence, under the concept of fairness, a defense of intervening rights to patent infringement may exist.

Even though the number of infringement cases in which the intervening rights defense can apply is relatively small, it is a great possibility when the infringed patent has undergone post-issuance amendment. A wise patent owner is aware that changing patent scope can provide a potential infringer this possible defense, and that if successful, the defense may effectively spoil the benefit received in garnering a finding of infringement.

How Does an Infringer Qualify for Intervening Rights?

Regarding re-examined and reissued patents, intervening rights are accorded when infringement is not of a “substantially identical” claim to that found in the original patent. See e.g., Bloom Eng'g Co., Inc. v. N. Am. Mfg. Co., Inc., 129 F.3d 1247 (Fed. Cir. 1997); see also, D. Chisum, Chisum on Patents, '15.05[1] Cumulative Supplement, 4A (August 2004). Thus, none of the infringed claims of the reissued or re-examined patent must have been present in the original patent. Chisum, at '11.07[4][f][ii] n. 336 citing Giese, at 1820. Conversely, with reinstated patents, the infringed claims are those of the original patent.

Where an accused infringer asserts that an adversely held patent is invalid, the infringer must have acted in good faith with a well-founded belief that the original patent was invalid Loral Corp. v. B. F. Goodrich Co., 14 USPQ2d 1081, 1100 (S.D. Ohio 1989), rev'd on other grounds, 15 USPQ2d 1396 (Fed. Cir. 1989). Some courts have also recommended that the infringer show that he relied upon the scope of the original patent. Although reliance is not a prerequisite for intervening rights to attach, it behooves a patent owner to show the infringer did not reasonably perform due diligence before infringing, and possibly, that he did not rely on the original patent to reduce the likelihood of intervening rights being found. Because it likely will be difficult for a patent owner to know there was a lack of due diligence or reliance on the part of an accused infringer prior to litigation, when considering the prospect of re-examination or reissue, the patent owner needs to carefully consider the possibility that a potential infringer may be able to show he acted in good faith, believing the patent was invalid; and, thus, entitled to intervening rights.

Yet it is also important as a patent owner to remember that if the infringer is deemed a “willful infringer,” it is unlikely that intervening rights could ever apply. See e.g., Shockley v. Arcan Co., Inc., 248 F.3d 1349, 1361 (Fed. Cir. 2001). So, for example, if a company pushed forward with its new business without acting as a reasonably prudent business person to avoid infringing your adversely held patent, and then is later held to infringe, chances are that asserting intervening rights as a defense to infringing your patent will not offer the infringer any relief.

Types of Intervening Rights ' Absolute vs. Equitable

There are two classes of intervening rights that a court may apply when assessing infringement damages. The first class is absolute (35 U.S.C. '252, '1), which protects the right of infringers with regard to “a specific thing” that is used or sold, but which was made, purchased or used prior to the granting of the reissue or re-examined patent. Windsurfing Intern'll, Inc. v. Fred Ostermann GmbH, 655 F. Supp. 408 (S.D.N.Y. 1987). This class covers the “specific thing” that a company has actually produced, in contrast to what it has merely offered for sale. Shockley at 1360.

The second class of intervening rights is based on equity. 35 U.S.C. '252, '2. To qualify for equitable intervening rights, the infringer must have engaged in the infringing activity, or made “substantial preparations” for the same, prior to the issuance of the reissued or re-examined patent or reinstatement of the original patent. Id. It is worth noting that because these intervening rights are applied in the context of the court's equitable discretion, the court can exercise wide discretion in determining exactly what “substantial preparations” means; and even if substantial preparations are found, the court then decides whether equity requires a finding of intervening rights. Westvaco Corp. v. Int'l Paper Co., 991 F.2d 735, 743 (Fed. Cir. 1993). Because there is always room for interpretation, a patent owner should pay close attention to the possibility of equitable intervening rights when considering post-issuance practice.

The Effect of Intervening Rights

If a court finds that an infringer is entitled to intervening rights, this may affect the infringer's liability for damages to the patent owner. The damages owed by an infringer may be, for example, reduced by the cost of ingredients, equipment, packaging and/or product that could not be used for non-infringing goods. Seattle Box, Co. v. Indus. Crating & Packing, Inc., 756 F.2d 1574 (Fed. Cir. 1985). But if equipment could be adapted to a non-infringing use, a court might not deem the purchase of the equipment a “substantial preparation” for triggering equitable intervening rights. Plastic Container Corp. v. Cont'l Plastics of Oklahoma, Inc., 607 F.2d 885, 903, (10th Cir. 1979), cert. denied, 444 U.S. 1018 (1980). However, where a court finds equipment investment unworthy of triggering intervening rights, it may still determine that an infringer is entitled to such rights because equity requires the infringer be allowed to recoup his investment in converting to a non-infringing alternative by offsetting any infringement damages. Plastic Container, at 903. In other cases, a court may require the patent owner to provide the infringer a compulsory license.

Again, absolute intervening rights will extend only to existing product, while equitable intervening rights are only limited by a court's imagination. Traditionally, courts have tailored equitable intervening rights narrowly so as to not prejudice the patent owner unfairly. Nevertheless, broadened reissue claims are likely to afford some intervening rights absent infringement of a claim “substantially identical” to an original claim or bad faith of the infringer. Though it is unsettled whether intervening rights apply to narrowing reissues, an assumption that the rights will not attach is unwise. The same can be said for re-examinations. Since it is well recognized that potential infringers, who have relied on the patent as issued (or abandoned), need protection from the changing scope (or enforceability) of a patent, if you are a patent owner, you need to carefully consider whether post-issuance practice should be undertaken. Because with intervening rights looming, understanding them is important to assessing whether any damages you may be awarded for infringement of your reissued or re-examined patent may be reduced or denied.

The day you have been waiting for has finally come. The patent application that your company believes covers key technology has issued. Your company may be, for example, a startup with its first marketable product or an established business trying to extend its presence in a niche market or enter into a new one. The patent provides your company the desired protection of the marketplace. There's just one problem. It appears that the scope of the patent may need to be altered to improve your position in the marketplace. For instance, a competitor may have successfully designed around the scope of your patent's claims. In some such instances, there may not be a pending application by which you, the patent owner, can capture the competitor, and post-issuance practice is the only mechanism. So, amending your claims, eg, to read on your competitor's products may seem like a sure way to capture him as an infringer and strengthen your position.

Although valid mechanisms for amending a patent may be used to improve your patent's claim scope, careful consideration beforehand of the apparent need of the amendment and its possible effects should be made. One potentially large effect is the triggering of intervening rights for an infringer of the amended patent. A patent owner needs to understand what they are, when they can be used, and the possible effect arising from them.

What Are Intervening Rights?

Under the concept of fairness, intervening rights provide an infringer a defense to patent infringement. A successful intervening rights defense does not mean that infringement did not occur. Rather, it means that damages owed to the patent owner may be limited once infringement has been determined. Giese v. Pierce Chem. Co. , 43 F. Supp. 2d 98, 112 (D. Mass. 1999). Under certain circumstances, an infringer may be afforded reduced damages because of his good faith reliance upon the patent landscape at the time of taking action, eg, developing a new product, where the landscape subsequently changed when the infringer was not able to firmly predict its final scope.

When Are Intervening Rights an Option?

In general, there are three scenarios in which intervening rights can apply. See 35 U.S.C. ”252, 307(b), and 41(c)(2) (2004). Briefly: It is worthy to note that there is no substitute for doing the job of preparing and prosecuting a patent application as precisely and correctly as possible initially.

Re-examinations. In this case, the patent at issue has been re-examined by the USPTO, at the request of either the patent owner (ex parte), or a third party (inter partes). Perhaps, for example, in ex parte re-examination, a patent owner realizes his patent was entitled to more claims of equivalent scope than acquired or the granted claims should have been narrower in scope in view of prior art that could invalidate the patent. Or maybe a third party can assert that a mistake was made by the examiner when a patent was originally granted and seeks inter partes re-examination of another's patent. Re-examination, therefore, can result in a patent with a scope that is further defined by additional claims, a narrower scope, or in some cases, in no patent at all. In no instance, though, can the patent scope be broadened.

Reissues. In reissue cases, which are brought only by the patent owner, a patent is sent back to the USPTO for examination because it is deemed by the owner to claim the invention either too narrowly or too broadly. The original patent is surrendered, and the claims of the reissued patent, assuming one is granted, may be narrower or broader in scope than the original claims. Narrowing reissues are more common than broadening reissues, the latter being available only within 2 years of the grant of the original patent. In either case, reissued claims are for the invention as originally disclosed.

Reinstated patents. Here, a patent that lapsed for failure to pay a maintenance fee has been reinstated. In the United States, for utility patents, fees are due at 3 1/2, 7 1/2 and 11 1/2 years from the date of the patent granting, though a grace period of 6 months of each of these deadlines allows for late payment. If the fees are paid later than the 6-month grace period, or are not paid at all, the patent will lapse and become unenforceable. The patent may be revived if the patent owner petitions the USPTO to accept a late payment of the maintenance fee and sufficiently shows that the nonpayment was unintentional or unavoidable.

In each of these scenarios, an accused infringer may have been fairly confident that he did not infringe any existing patent or, if infringed, there was a good faith belief that the patent was either invalid or had lapsed. He then may have taken calculated steps to proceed with business plans in good faith. Hence, under the concept of fairness, a defense of intervening rights to patent infringement may exist.

Even though the number of infringement cases in which the intervening rights defense can apply is relatively small, it is a great possibility when the infringed patent has undergone post-issuance amendment. A wise patent owner is aware that changing patent scope can provide a potential infringer this possible defense, and that if successful, the defense may effectively spoil the benefit received in garnering a finding of infringement.

How Does an Infringer Qualify for Intervening Rights?

Regarding re-examined and reissued patents, intervening rights are accorded when infringement is not of a “substantially identical” claim to that found in the original patent. See e.g., Bloom Eng'g Co., Inc. v. N. Am. Mfg. Co., Inc ., 129 F.3d 1247 (Fed. Cir. 1997); see also, D. Chisum, Chisum on Patents, '15.05[1] Cumulative Supplement, 4A (August 2004). Thus, none of the infringed claims of the reissued or re-examined patent must have been present in the original patent. Chisum, at '11.07[4][f][ii] n. 336 citing Giese, at 1820. Conversely, with reinstated patents, the infringed claims are those of the original patent.

Where an accused infringer asserts that an adversely held patent is invalid, the infringer must have acted in good faith with a well-founded belief that the original patent was invalid Loral Corp. v. B. F. Goodrich Co ., 14 USPQ2d 1081, 1100 (S.D. Ohio 1989), rev'd on other grounds , 15 USPQ2d 1396 (Fed. Cir. 1989). Some courts have also recommended that the infringer show that he relied upon the scope of the original patent. Although reliance is not a prerequisite for intervening rights to attach, it behooves a patent owner to show the infringer did not reasonably perform due diligence before infringing, and possibly, that he did not rely on the original patent to reduce the likelihood of intervening rights being found. Because it likely will be difficult for a patent owner to know there was a lack of due diligence or reliance on the part of an accused infringer prior to litigation, when considering the prospect of re-examination or reissue, the patent owner needs to carefully consider the possibility that a potential infringer may be able to show he acted in good faith, believing the patent was invalid; and, thus, entitled to intervening rights.

Yet it is also important as a patent owner to remember that if the infringer is deemed a “willful infringer,” it is unlikely that intervening rights could ever apply. See e.g., Shockley v. Arcan Co., Inc ., 248 F.3d 1349, 1361 (Fed. Cir. 2001). So, for example, if a company pushed forward with its new business without acting as a reasonably prudent business person to avoid infringing your adversely held patent, and then is later held to infringe, chances are that asserting intervening rights as a defense to infringing your patent will not offer the infringer any relief.

Types of Intervening Rights ' Absolute vs. Equitable

There are two classes of intervening rights that a court may apply when assessing infringement damages. The first class is absolute (35 U.S.C. '252, '1), which protects the right of infringers with regard to “a specific thing” that is used or sold, but which was made, purchased or used prior to the granting of the reissue or re-examined patent. Windsurfing Intern'll, Inc. v. Fred Ostermann GmbH , 655 F. Supp. 408 (S.D.N.Y. 1987). This class covers the “specific thing” that a company has actually produced, in contrast to what it has merely offered for sale. Shockley at 1360.

The second class of intervening rights is based on equity. 35 U.S.C. '252, '2. To qualify for equitable intervening rights, the infringer must have engaged in the infringing activity, or made “substantial preparations” for the same, prior to the issuance of the reissued or re-examined patent or reinstatement of the original patent. Id. It is worth noting that because these intervening rights are applied in the context of the court's equitable discretion, the court can exercise wide discretion in determining exactly what “substantial preparations” means; and even if substantial preparations are found, the court then decides whether equity requires a finding of intervening rights. Westvaco Corp. v. Int'l Paper Co ., 991 F.2d 735, 743 (Fed. Cir. 1993). Because there is always room for interpretation, a patent owner should pay close attention to the possibility of equitable intervening rights when considering post-issuance practice.

The Effect of Intervening Rights

If a court finds that an infringer is entitled to intervening rights, this may affect the infringer's liability for damages to the patent owner. The damages owed by an infringer may be, for example, reduced by the cost of ingredients, equipment, packaging and/or product that could not be used for non-infringing goods. Seattle Box, Co. v. Indus. Crating & Packing, Inc., 756 F.2d 1574 (Fed. Cir. 1985). But if equipment could be adapted to a non-infringing use, a court might not deem the purchase of the equipment a “substantial preparation” for triggering equitable intervening rights. Plastic Container Corp. v. Cont'l Plastics of Oklahoma, Inc ., 607 F.2d 885, 903, (10th Cir. 1979), cert. denied , 444 U.S. 1018 (1980). However, where a court finds equipment investment unworthy of triggering intervening rights, it may still determine that an infringer is entitled to such rights because equity requires the infringer be allowed to recoup his investment in converting to a non-infringing alternative by offsetting any infringement damages. Plastic Container, at 903. In other cases, a court may require the patent owner to provide the infringer a compulsory license.

Again, absolute intervening rights will extend only to existing product, while equitable intervening rights are only limited by a court's imagination. Traditionally, courts have tailored equitable intervening rights narrowly so as to not prejudice the patent owner unfairly. Nevertheless, broadened reissue claims are likely to afford some intervening rights absent infringement of a claim “substantially identical” to an original claim or bad faith of the infringer. Though it is unsettled whether intervening rights apply to narrowing reissues, an assumption that the rights will not attach is unwise. The same can be said for re-examinations. Since it is well recognized that potential infringers, who have relied on the patent as issued (or abandoned), need protection from the changing scope (or enforceability) of a patent, if you are a patent owner, you need to carefully consider whether post-issuance practice should be undertaken. Because with intervening rights looming, understanding them is important to assessing whether any damages you may be awarded for infringement of your reissued or re-examined patent may be reduced or denied.