Los Angeles partner Dennis Loomis authored an article, "License To Lawsuit: The Path Grows Shorter," which was published as the exclusive guest column in the June 2, 2009, edition of all Law360's "IP Newsletter."
According to Loomis: "Conventional wisdom regards a consensual, negotiated patent license agreement—or an invitation by the patent owner to enter into such an agreement—as a means to avoid or preempt litigation concerning the underlying patent. Until recently, case law, notably including settled precedent in the Federal Circuit Court of Appeals, supported that view. But a series of Supreme Court cases, extended by a chastened Federal Circuit, have changed the landscape dramatically.
"No longer must a licensee breach or terminate a license agreement as a precondition to challenging the licensed patent in court. Nor must a third party receive an overt threat of infringement litigation in order to have standing to sue to invalidate the patent. The implicit threat inherent in the patentee's invitation to negotiate a patent license may be enough, even where the patentee disavows any present intention to file suit. These cases also evince an evolving judicial attitude toward patent interpretation and enforcement that, in significant respects, is less hospitable and more restrictive toward patentees than in times past. The upshot is that patentees involved in licensing their inventions should be alert to the enhanced risk of being drawn into patent litigation not of their choosing, and of increased challenges to vindicating and enforcing their patent rights in court."
Loomis' article goes on to detail the recent cases and the implications of the decisions. Loomis concludes: "Current law makes the risk of a declaratory judgment lawsuit challenging one's patent a virtually inevitable concomitant of any licensing activity. The first and most obvious action item for any patent owner, before engaging in any potentially triggering activity, is to exercise due diligence that the patent in question has a high likelihood of overcoming any such challenge, and that the scope of the patent fairly encompasses the existing or proposed license grant. "Thus, for example, before proposing a new license, or asserting that an existing license covers the licensee's new product, the patentee should have competent patent counsel confirm the integrity of the patent. This should specifically include, in appropriate cases, that the patent is likely to survive an obviousness challenge under current law. Do not send up a 'trial balloon' if you are not prepared for it to blow up into a lawsuit. Similarly, a patentee is well advised to be conservative in seeking to secure new licenses or to extend the scope of existing ones. The prospect for additional incremental royalty income should be weighed thoughtfully against the cost and risk of defending a declaratory judgment suit. "Finally, the patentee may be able to avoid, or at least to defer, a declaratory judgment action by seeking to have the potential licensee execute a confidentiality agreement at the outset of communications. Such an agreement would recite that the discussions and disclosures are intended exclusively to support discussions toward a voluntary business agreement, and that neither party will rely on such negotiations, whether successful or otherwise, as grounds for initiation of a declaratory judgment lawsuit."
To read the full article on the Law360 website, click here.