By some estimates, defending patent infringement claims in federal court can cost between $1M to $3.5M. By simply including arbitration provisions in patent licenses, parties can control and reduce the cost of resolving alleged infringements. Many arbitrators are experienced in patent litigation and are therefore prepared for the unique issues surrounding patent infringement claims. Accordingly, there are a growing number of patent infringement claims being made through the arbitration process.
What’s Different? In addition to interpreting the bounds of the actual dispute in the written contract, arbitrators must be experienced in reading and understanding patents, prior art (other older patents), and the history of how the patent was approved. Those familiar with patent litigation know that all patent infringement cases must be brought in US District Court, and appeals are heard by the US Federal Court of Appeals. Clearly parties to patent license agreements may choose arbitration if they wish, and courts will enforce those arbitration provision, just like all other arbitration agreements.
Markman Hearings. In 1996, the US Supreme Court (Markman v. Westview Instruments, Inc., 517 U.S. 370 (1996)) established a procedure by which US District Judges hear evidence regarding the interpretation of patent claims during what is now called a Markman Hearing. After the Markman Hearing results, the rest of the case, mostly about whether the defendant’s products or service actually infringe, is adjudicated.
Knowledgeable patent infringement arbitrators normally hold a Markman Hearing as well, where the parties argue the claim construction of the patents in dispute, and the arbitration panel rules on the interpretation. Unlike the US federal court system however, there is no review by any appellate court and whatever the arbitration panel rules then becomes the claim construction.
The results of the claim construction from a Markman Hearing (and Awards) in arbitrations must be made to the US Patent & Trademark Office (PTO) (35 U.S.C. 294). This filing would establish the claims of the patent, and affect the patent for future litigation. Therefore, the parties may choose not to proceed with a Markman Hearing if they do not want precedent to be set with respect to the patent at issue, and this could be an important negotiating point.
Patent Claims at Hearing. The role of the inventor is unique in a patent infringement hearing as the inventor’s bias would be to normally expand the scope of the patent to include very broad interpretations. Hearings are for experts to testify about how they interpret the patent claims, and whether the alleged infringing products actually do infringe the patent in dispute or whether prior art makes the patent in question invalid for some reason. Fact witnesses may provide additional evidence surrounding historical events, but they generally do not provide much insight to the arbitrator regarding whether there is an infringement. Evidence may also be presented at the Hearing regarding relevant patent litigation in courts since that litigation may impact the panel’s view of the infringement alleged in the arbitration.
Awards. Because of the reporting requirement to the PTO, the parties may not want the award to specify if there is an infringement. Rather the parties may request the panel to answer only the question regarding whether the license was breached, or not, and if so, to assess damages.
Lessons for Patent Holders. To reduce the costs of patent infringement litigation it behooves parties negotiating patent licenses to consider arbitration clauses for agreements. When drafting those clauses, the parties may want to determine whether to retain the option to hold a Markman Hearing and whether any award shoud determine if there is an infringment.