Trent S. Dickey, Scott D. Stimpson, Tod M. Melgar, Steven Z. Luksenberg
August 07, 2018
In recent years, companies in the LED industry have increasingly resorted
to, or been forced to defend, patent infringement litigation. Hundreds of complaints involving LED
technology have been filed in district courts all over the United States (“U.S.”)
and in the International Trade Commission (“ITC”) in the last three years alone. Retailers and manufacturers – large and small
and throughout the supply chain – have been engaged in these patent disputes.
The authors have defended LED patent infringement cases in a variety of forums
and provide in this paper thoughts on strategies, and the sometimes unique
applications of these strategies to the LED arena for foreign manufacturers and
Can Asian Entities Be Sued?
Until recently, plaintiffs were
permitted to file patent infringement suits in any district court in the U.S. where
the products of the defendants were sold.
For companies with products sold nationwide, this effectively allowed
plaintiffs to sue them in nearly any district court of their choosing, even if
they had little-to-no corporate presence there. The preferred plaintiff forum
was the Eastern District of Texas due to its perception of having pro-patentee procedures,
such as a restrictive approach to granting summary judgment and a preference
for broad and expedited discovery. The Supreme Court recently ended this “sue
anywhere” approach for American
defendants, however, finding a defendant may be sued only where the defendant
(i) has allegedly committed acts of infringement and has a regular place of
business, or (ii) is incorporated.
Foreign defendants were no so lucky.
Indeed, in TC Heartland, the
Supreme Court left intact the law applying a much broader statute to patent
cases against foreign defendants, such that “a defendant not resident in the
United States may be sued in any judicial district.” This
broader statute’s application to foreign patent defendants was recently
confirmed by the Federal Circuit in In re
HTC Corp., 889 F.3d 1349 (Fed. Cir. 2018). To avoid being sued in
pro-plaintiff districts, at the first sign of an impending suit, potential
foreign defendants may consider filing a declaratory judgment action for
non-infringement and invalidity in a more favorable district. This however submits
the foreign defendant to the jurisdiction of the Court and should be considered
For some foreign manufacturers with no U.S. presence, patent plaintiffs frequently
choose to sue a downstream customer or retailer with a U.S. presence, rather
than suing the foreign manufacturer. In
these situations, there may be hope to change the location of suit to a more
favorable forum, depending on corporate relationships. For example, in one recent case defending a
nationwide United States LED retailer and a Chinese related party, the authors
were successful in dismissing the case against one of the defendants and thus
moved to transfer the case against the other defendant to a more-favorable
forum. Strategies such as this might
work well, particularly for Asian defendants with American subsidiaries or customer/retailer
II. Supply Chain Coordination: Indemnification
It is relatively common for master supply and purchasing contracts to
contain provisions whereby the supplier agrees to indemnify the purchaser in
the event the purchaser is faced with infringement claims regarding the
supplier’s goods. For some U.S. transactions
the law expressly provides for such indemnification. Indemnity provisions often provide that the
supplier will defend the purchaser if an infringement suit is filed. Some
indemnity provisions permit the supplier to participate or even control the
defense of the lawsuit. Regardless of
which party is in control, careful and strategic coordination between suppliers
and purchasers is necessary for the best possible defense and to ensure that
all discovery needs are met. Indeed, it
is often the case that the purchasers know little about the technical aspects
of the supplied goods and it is the suppliers that have the relevant technical
documents as well as the expertise to develop non-infringement and invalidity
defenses whether named as a defendant or not. Thus, suppliers and purchasers
should begin coordinating a litigation strategy as early as possible when made
aware of infringement allegations.
Chain Coordination: Privity and Real Parties in Interest for IPR’s
Pursuing inter partes review
(“IPR”) petitions to challenge the validity of a patent can dramatically shift
the balance of litigation and often put defendants on the offensive as far more
patents are invalidated in IPR proceedings than in litigation. The
degree of litigation control between suppliers and purchasers can be important
when filing IPR petitions of asserted patents.
First, there is a statutory
requirement that an IPR petitioner must identify all “real parties in interest”
(“RPI”). Second, there is a statutory bar against
instituting an IPR petition if it is filed more than one year after the
petitioner, real party in interest or
privy of the petitioner was served
with an infringement complaint.
While the relevant statute does not provide explicit definitions for RPI or
“privy” of the petitioner, the Federal Circuit Court of Appeals has recently provided
some guidance on these terms. A RPI
determination evaluates whether some party other than the petitioner is the “party
or parties at whose behest the petition has been filed.” The primary factors suggesting an entity is a
RPI are funding, directing, and/or control of the IPR proceeding. With regard to whether a party is a “privy of
the petitioner,” the PTAB performs a “flexible” analysis that “seeks to
determine whether the relationship between the purported ‘privy’ and the
relevant other party is sufficiently close such that both should be bound by
the trial outcome and related estoppels.” Similar to the
RPI test, factors suggesting privity with the petitioner include “whether the
non-party ‘exercised or could have
exercised control over a party's participation in a proceeding,’ and whether
the non-party is responsible for funding and directing the proceeding.”
It is critical to carefully review and account for the specific rights
and obligations of indemnity provisions if petitioning for IPR to avoid filing
a deficient petition (i.e., not
including all RPIs) or being time-barred from filing a petition (i.e., RPI or privy of petitioner being
served with complaint more than one year before filing and thus being barred
of Foreign Suppliers in U.S. Litigation
As the targets of patent enforcers have expanded to include downstream
distributors and retailers, the location of relevant technical documents may
not always be in the possession, custody or control of named litigants, but
rather with the foreign suppliers. For
those foreign suppliers unfamiliar with U.S. litigation, it may come as a surprise
that the permissible scope of discovery is far more liberal in the United
States than those of other foreign jurisdictions.
In some circumstances, discovery may be sought from foreign suppliers,
even if they are not parties to the litigation.
One way such discovery may be pursued is through the language of the
supply agreements themselves – if the defendant/purchaser is provided with the
legal right to obtain documents from its supplier, the patent plaintiff may
argue that it has sufficient “control” over the documents to obtain them and
produce them in the litigation. Another
approach of the patent plaintiff might be by subpoena to American subsidiaries
of the foreign supplier, arguing that the subsidiary has “control” sufficient
to obtain and produce the documents.
These types of arguments are common, but not always successful – courts
tend to recognize the formalities and practicalities of whether one company
truly has the power and control to obtain documents from another.
There is another option for patent plaintiffs to obtain discovery from
foreign manufacturers, pursuant to the Convention on the Taking of Evidence
Abroad in Civil or Commercial Matters—more commonly referred to as the Hague
Evidence Convention (“HEC”). Seeking discovery under the HEC, however, is
typically a rather long process, particularly for evidence in China – the process
that can take 6-12 months without any guarantee of approval.
Another, practical approach should also be considered – agreeing with
plaintiff on a limited, discrete set of discovery from the foreign
manufacturer. Remember, the
purchaser/defendant in the litigation often needs discovery from the supplier
as much as the patent plaintiff does – to show that the claims of the patent
are not met, for example. So, agreement on a limited, discrete set of
production can often reduce costs and help defend against the patent.
Based on our significant experience
handling United States patent litigations and IPR’s involving Asian LED
suppliers, and their customers, these entities must coordinate closely in
defending patent infringement proceedings in the United States – cooperation
and coordination can be the difference between winning and losing.
See, e.g., Daniel Klerman & Greg
Reilly, Forum Selling, 89 S. CAL. L. REV. 241, 251–70 (2016).
TC Heartland LLC v. Kraft Foods Grp.
Brands LLC, 137 S. Ct. 1514, 1521 (2017).
See, TC Heartland, 137 S. Ct. at
1520, n.2; 406 U.S. 706, 713-14 (1972); 28 U.S.C. § 1391(c)(3).
35 U.S.C. § 312(a)(2).
Wi-Fi One, LLC v. Broadcom Corp., 887
F.3d 1329, 1336 (Fed. Cir. 2018) (quotes omitted).
Id. at 1337 (emphasis added) (quotes
As of the date of this publication, there are 61 Contracting Parties to the
HEC, including China, South Korea, India, Germany, Russia, and the United
Kingdom. See, https://www.hcch.net/en/instruments/conventions/status-table/?cid=82.
The views and opinions expressed in
this article are those of the authors and do not necessarily reflect those of
Sills Cummis & Gross P.C.