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Troublesome competitor IP rights? What are your options?

Date: 24 September 2012
Author: John Hogan
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Have you found yourself in a situation where a competitor has a patent or design that is causing you concern? Perhaps you have received a cease and desist letter from a competitor raising allegations of infringement. If so then there are a number of options that you should consider and which we can assist you with.
 

Preliminary investigation

If you have located a competitor patent or design that may be of concern to your business, your first step should be to contact us so that we can investigate whether the competitor's rights are in force. If the competitor's rights have lapsed, then the fact that they may once have had pending or registered IP rights is of historical interest only and presents no infringement risk to your business. If, on the other hand, the competitor's rights are in force, further investigations will be required to determine whether you infringe the competitor's rights and, if so, whether their rights are valid.
 
An infringement assessment involves determining whether your product has all of the features required by the competitor's patent or design. In the case of patents, this determination requires an assessment of the scope of the claims of the competitor patent. In the case of designs, the determination involves an assessment of the scope of the drawings/photos of the competitor design in light of any accompanying statements that effect how the drawings/photos are to be interpreted.
 
Assessing the validity of a competitor's rights can be a complex and expensive exercise involving searching for earlier publications of similar inventions or designs that may render the competitor's rights invalid and therefore unenforceable. For competitor patent rights, various technical assessments may also need to be undertaken to assess compliance with other aspects of patent law. Accordingly, a validity assessment is generally only undertaken if an infringement assessment indicates that the competitor's rights may be infringed.
 
If preliminary investigations indicate that your product does not infringe the competitor's rights, we can assist you in taking action against the competitor for any unjustified threats of infringement they may have made against you or your customers.
 
However, if preliminary investigations reveal an unacceptable risk of infringing competitor rights, there are a number of possible courses of action, ranging from commercial courses involving negotiation with the competitor, to product modification, to legal courses involving the bringing of proceedings before the Federal Court, with each course having associated advantages and disadvantages as discussed below. Whilst the information below focuses on Australian patent rights, many of the principles also apply to Australian registered design rights.
 

Negotiation

If preliminary investigations reveal an unacceptable risk of infringing competitor rights, it may be worth considering the possibility of negotiating a deal with the competitor. Certain factors may strengthen your negotiating position, such as whether you have evidence that suggests the competitor's rights may be invalid and/or complimentary rights that may be cross-licensed to the competitor. Accordingly, even if you are intending to resolve a dispute by negotiate, it can still be very helpful to have investigated the validity of the competitor's rights beforehand and considered any other factors that may be useful in bolstering your negotiating position.
 
Arguably the greatest benefit of resolving a dispute by negotiation is that the parties themselves decide the outcome. Moreover, a negotiated settlement agreement can include all manner of terms and is therefore highly flexible. In contrast, if a dispute is resolved by adversarially, such as by litigation before the Federal Court or opposition before IP Australia, there is always a winner and a loser and the outcome is taken out of the hands of the parties and is constrained by the remedies available for the particular legal action. In addition, the cost of resolving a dispute by litigation or opposition may be significantly higher than the costs involved in a negotiated deal.
 

Product modification

If preliminary investigations reveal an unacceptable risk of infringing competitor rights, it may be possible to reduce or remove the risk by modifying your product. The degree of modification required will depend on the scope of IP protection that the competitor has obtained. We can advise you on the scope of the competitor's IP protection and may also be able to assist you in developing workable product modifications in an effort to avoid competitor IP rights.
 
If you develop a modified product, you should also consider protecting it with a patent or design in order to deter others from free-riding on your redesigning efforts.
 

Third party observations

If you discover a pending patent application that may negatively impact on your commercial plans, it is possible to make the Australian Patent Office aware of earlier published information to be considered during examination of the patent application by filing "third party observations", anonymously if desired. Third party observations can be particularly worthwhile in cases involving non-patent literature prior art (i.e. prior art documentation that is not a patent publication), since Patent Office searches typically focus on prior art patent publications and can overlook relevant non-patent literature. Once third party observations have been filed, the third party plays no further part in examination of the patent application.
 
Third party observations have also recently become allowable for international (PCT) patent applications.
 
Depending on the number of documents involved, the filing of third party observations may cost as little as $2,000.
 

Opposition

In Australia, when a patent application has passed examination and is accepted for patent grant, it is published and open to opposition by third parties for a period of three months in the case of standard patent applications or indefinitely in the case of innovation patents. Accordingly, if you are concerned that grant of a patent on a competitor's application may negatively impact your business, you should consider having us watch the application to monitor its progress with a view to filing an opposition at the appropriate time. Bear in mind, however, that to succeed in an opposition, it will be necessary to provide evidence proving that the invention claimed fails to comply with any one of a number of provisions of the Patents Act. Typical grounds of opposition pleaded include that the person named as the owner of the invention lacks entitlement (eg. does not have proper title from the original inventor), that the invention is not new or does not possess an inventive step (or innovative step in the case of an innovation patent), and/or that the patent specification fails to provide enough information for a person of ordinary skill in the relevant field to reproduce the invention. In an opposition, both sides have an opportunity to file evidence supporting their positions. Once all evidence has been filed, a Hearing is conducted by the Patent Office and both sides are invited to participate. After the Hearing, the Patent Office issues a decision, which may indicate that the opposition has been completely or partly successful or completely unsuccessful. The opposition decision is appealable to the Federal Court of Australia.
 
A patent opposition typically costs upwards of $20,000, with the cost being dependent on the grounds pleaded, amount of prior art information being considered, and whether expert witnesses are required.
 

Re-examination

Re-examination is another option worth considering if you encounter troublesome competitor patent rights. Re-examination may be requested at any time after a patent application has been accepted, but is typically not requested until after grant of a patent, and can be requested anonymously. To succeed in having a patent partially or completely revoked under re-examination, it is necessary to provide documentary evidence proving that the invention claimed lacks novelty and/or an inventive step (or innovative step in the case of an innovation patent). Other grounds of invalidity are not permitted in re-examination. Once re-examination has been requested, the requestor plays no further part in re-examination of the patent, but will be provided with copies of any re-examination reports issued and informed of the outcome.
 
Depending on the number of documents involved and the complexity of any accompanying submissions, the cost of requesting re-examination may be in the order of $5,000 to $10,000.
 

Litigation

Litigation before the Federal Court tends to be the most expensive option available for dealing with troublesome competitor IP rights. However, litigation also generally provides the greatest range of options for challenging competing rights and is also the only avenue by which an injunction and/or damages can be obtained. If circumstances justify same, a preliminary injunction may be granted relatively quickly pending the outcome of a final hearing, which may not occur for several years. Prior to the final hearing, there is usually a long period of gathering and filing of evidence by both sides. All of the grounds available under opposition and re-examination are also available in litigation, in addition to the ground of the patent being obtained by fraud or misrepresentation.
 
It is not unusual for patent litigation costs to run into the hundreds of thousands of dollars.
 

Summary

We strongly advise that you contact us to conduct a review of competitor IP before launching a new product, as it is generally much easier to redesign products or select non-infringing alternatives if troublesome competitor rights are identified at an early stage. Should troublesome competitor patent rights be encountered, we can work with you to develop an appropriate strategy for your business, taking into account your risk profile and the particular circumstances of your case, including your flexibility to modify your product, the strength of your competitor's IP, your budget, and your competitor's budget.
 
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