Amazon has been quietly testing a program called “Utility Patent Neutral Evaluation” that allows patent owners who sell their products on Amazon’s website to challenge potential infringers who also sell products on Amazon’s website. At present, the program is by invitation only. The overall objective of the program is to reach decisions very quickly and relatively affordably. Since almost half of American retail ecommerce sales already passes through Amazon’s website (projected to reach 50% by 20211), the ability to have a patent infringer’s product quickly and fairly cheaply removed from the website is a very powerful tool for patent owners. Patent owners who simply don’t have the money to spend on a traditional patent lawsuit can now go after their infringers efficiently on Amazon.
The system itself is simple, and the full decision process takes no more than 4 months. First, the patent owner approaches Amazon and identifies the potential infringer (or infringers), selects 1 claim of a US utility patent that it believes is infringed, and requests an evaluation. The patent owner must also identify the purported infringing product by its Amazon Standard Identification Number or “ASIN.”
The patent owner pays Amazon $4,000. Amazon then notifies the potential infringer(s) and the infringer(s) must also pay $4,000 to Amazon.
The patent claims are then evaluated by an attorney selected by Amazon, and this attorney must return a decision in a matter of weeks. If the patent claim is found to cover the accused product, then Amazon will remove the product from its website within 10 days of the decision. The accused product will also be removed from the website if its seller does not agree to participate in the program.
The program is very streamlined. There are no depositions, no discovery, no document requests, no hearings, no trial, and no experts. There is also no appeal process. The whole process done in writing.
First, the patent owner contacts Amazon to start the process. After Amazon agrees to start the process, the patent owner has only 21 days to submit its arguments (limited to discussing claim from 1 US utility patent). These written arguments are limited to 20 pages (not including claim charts or exhibits). The patent owner must pay the $4,000 to Amazon within 2 weeks of the start of the program.
Next, the seller must also pay $4,000 and is given 14 days to respond. The seller’s response is limited to 15 pages (not including claim charts or exhibits). The possible arguments the seller can made are actually quite limited. The seller can argue only: (a) non-infringement; or (b) invalidity based on sales of the patented product more than 1 year before the patent’s earliest effective filing date; or (c) that the patent has already been invalidated by a court or the Patent Office. Moreover, should the seller argue that the patented product has been on sale for more than a year before the patent’s earliest effective filing date, the evidence presented must be independently verifiable (i.e., affidavits and declarations are not permitted evidence). Should the seller decide not to participate in the program, or fail to pay their $4,000, the seller’s goods are automatically removed from Amazon’s website.
Finally, the patent owner is given 7 days to submit an optional reply to the seller’s response. No modifications to the above 21-day, 14-day, and 7-day schedule are permitted. Once the clock starts ticking, it cannot be turned off.
The attorney evaluator selected by Amazon is given only 14 days to make their decision. To further speed up the process, the attorney evaluator only has to provide the basis for their findings if they find in in favor of the seller. The evaluator uses a “likely or not likely” standard to determine infringement.
Any product determined to be infringing will be removed from Amazon’s website within 10 days of the evaluator’s final decision. Neither the patent owner nor the seller can contact the attorney evaluator regarding their final decision. The entire process is bound by confidentiality agreements and all parties agree not to seek discovery from the other participants, from Amazon, or from the attorney evaluator after the process has concluded.
After the evaluator makes their final decision, the winner then gets its money back, and the loser’s $4,000 is used to pay the attorney. Amazon states that it does not keep any of the money.
Of course, Amazon cannot run its own court system, and it cannot limit the rights of plaintiffs and defendants in court or at the Patent Office. As such, the patent owner can still go to court and sue for infringement (and damages). Conversely, the accused infringer can still go to court and file a Declaratory Judgement action or go to PTAB for a review of the patent in question. Amazon can’t limit these rights, and Amazon confirms it will respect all judgments and arbitrations concerning the patent in question. Amazon also states that it will comply with the evaluator’s decision pending any litigation or settlement. However, Amazon’s huge market power as the world’s largest retailer makes this new system a very fast, cost-efficient, and effective tool to shut infringing products out of the market.
In addition to pleasing patent owners, this new program can also be good news for defendant sellers. Specifically, prior to this program, sellers’ products were simply removed from Amazon’s website after a charge of patent infringement. As such, these sellers had no recourse other than obtaining a declaration of non-infringement from a federal court.
One important limitation of this program is that it can only be used to challenge products that are sold by third-party sellers on Amazon’s website. As such, it cannot be used against products that are sold by Amazon itself. Currently, about 50% of the sales made through Amazon’s website are made by Amazon itself. What this means is that only about half of the goods sold on Amazon’s website can be challenged under this new program (however, that percentage is expected to continually increase as Amazon continues to diversify to more sellers).
The program also has provisions to deal with multiple sellers of the accused infringing products. Specifically, each accused seller has to put up $4,000 to participate in the program. If none of the accused sellers remits its $4,000, then the accused goods are automatically removed from Amazon’s website. If multiple sellers lose, the $4,000 cost is divided evenly among them. Interestingly, however, if more than $4,000 has been paid by multiple sellers, the surplus funds received (i.e.: above the $4,000 paid to the attorney evaluator) are to be given to a charity selected by Amazon.
Other interesting provisions include instances where if the patent owner lists multiple products and only some of them are found to infringe the patent, then the patent owner pays $2,000, and the infringing sellers pay $2,000 (in even shares). Also, if the patent owner and the seller settle prior to the evaluation decision, the evaluator gets $1,000 (or $2,000 if settlement occurs after the patent owner’s reply has been filed).
Lastly, as can be seen, this new program is fundamentally different from traditional “early neutral evaluation” since it is not trying to get the parties to an agreement, or provide a non-binding evaluation of the merits of the case. It is also different from traditional mediation since the program is not intended to get the parties to settle. Amazon’s objective is speed and containment of cost in reaching a decision, not on trying to avoid costly litigation.
Amazon may now be the first private business entity to run its own patent infringement dispute resolution system. It will prove interesting to see what happens next as this system expands and is used more and more. It will also prove very interesting to see whether other retailers will try to develop similar programs or work together to build a system that they could all collaborate on.