Comparison of Patent Litigation systems in the US, UK, China, and Germany
Sep 5, 2020

Comparison of Patent Litigation systems in the US, UK, China, and Germany

Introduction

Patents provide their owners with legal protection and exclusive rights over his/her invention. A granted patent will have a set of “claims” which determine the breadth of the patented invention. Patent litigation usually involves the unauthorized or illegal use of a patented invention or idea (infringement). Thus, if a non-patent holder seeks to use or distribute patented inventions without the owner’s consent, it may lead to patent litigation. 

The likelihood of success in patent litigation depends on the strength of the patent in terms of the scope and breadth of the patent claims when compared to the prior art (validity) and to a competitor's product (infringement)

Patent litigation is a court process that follows a claim for infringement of a patented invention. Patent litigation normally takes place in situations involving:

-Arguments over the use of the patented invention
-Disputes involving unauthorized distribution or sale of patented products
-Various types of patent infringement claims
-Problems with the expiration of a patent
 

The likelihood of success in patent litigation depends on the strength of the patent in terms of the scope and breadth of the patent claims when compared to the prior art (validity) and to a competitor's product (infringement)

The Steps have to be taken to Prove Infringement

Winning a patent litigation claim requires proof that the offending party has infringed on the patent. To do this, the patent holder must first show he/she owns the patent rights. For this purpose, the patent claims as a boarder of protection come to use. Then, the patent holder must show that the lawbreaker infringed on the patent by using the patent in a restricted manner. The defendant (accused lawbreaker) will then attempt to prove that the patent is either unenforceable, invalid, or was not infringed.

 

Strategic Considerations

If a patentee has patent rights in multiple jurisdictions,  the decision of the patent owner  to litigate in one or multiple jurisdictions and the selection of the specific jurisdictions depends on various strategic considerations, including:

-The goals of the litigation;

 =The expected time to resolution;  

=The patentee’s possible exposure to a countersuit (a legal claim that he could make as a reaction to a claim made against him );

-The anticipated costs;

-The strength of the patents at issue: and other factors such as the benefits of the patent owner or alleged infringer, and ….  

If a patent owner wishes to succeed in licensing patents, it must carefully develop and execute a global licensing campaign that prepares for litigation but avoids it where possible. Different countries are varied in patent law and patent litigation procedure, while their market conditions offer unique benefits to and confer different risks on patent owners.

In the following paragraphs, the patent litigation procedures, its cost, and duration are discussed in jurisdictions of the US, China, the UK, and Germany are discussed briefly. Moreover, the allowability of the contingency fee in these countries is shortly explained. The contingency fee as another factor has considered in this article. Despite many advantages, a contingency-based fee may bring to the patent owner (e.g. managing the cost ), however, the patent-troll economic model is based on lawyers taking a contingency fee. A contingency fee agreement is a form of billing that allows for an attorney to be paid a percentage of the damages awarded at the end of the case instead of an hourly rate. This makes the lawyers more of a partner than a traditional contractor, which factored into the judge’s decision. Therefore in this article allowability of contingency fees in these countries will be considered. 

 

Patent Litigation in the USA

According to US law, an infringement usually occurs where the defendant has made, used, sold, offered to sell, or imported an infringing invention or its equivalent. In US law, there is also a definition for indirect infringement and it means if somebody actively and on purpose convinces another to infringe,  his actions are also liable for that infringement.

Even for large multinational non-US based companies, patent litigation has traditionally focused on the US federal courts. The reasons for this back to the large size of the US market; easy access to the US federal courts; and ability of the US courts and patent law to provide patentees with potentially significant damages awards and significant damages for willful infringement and injunctions. Moreover, according to the US procedural rules, developing claims through broad discovery would be possible. Moreover, according to the US litigation system,  each party pays its own attorneys’ fees and costs, and this different from what there is in Europe jurisdiction.

 

In the US, IP Litigation Process normally contains 4 phases including:

Phase I: Filing of the complaint to the case management conference (CMC)

Phase II: Scheduling conference to claim construction hearing.

Phase III: Claim construction hearing to end of expert discovery.

Phase IV: Pre-trial and Trial.

In the other side, the Us administrative bodies for litigations are:

U.S. Courts:  Since the US has a common law system that relies on judicial precedent, therefore, federal court decisions also play a vital role in US patent law and litigation, by interpreting the Constitution and federal statutes, and in some cases, creating law themselves.

U.S. International Trade Commission (ITC) is entrusted with the enforcement of patents at the border.

U.S. Patent & Trademark Office (USPTO) entrusted with examining and issuing patents. Through its Patent Trial and Appeal Board (PTAB), USPTO also presides over inter partes post-grant proceedings where a party can challenge another party's patent.

 

US patent litigation allows moderate pre-trial discovery. The Federal Rules allow extensive discovery of an alleged infringer’s electronic communications, sales conditions, manufacturing practices, and all other information “related to any party’s claims which need for examining the case”. it also allows a plaintiff to obtain required information that it might struggle to obtain elsewhere. However, these all result in significantly higher litigation costs and longer periods between filing and trial.

 

What percent of the case normally reach in the trial phase?

As an average, 50% of the cases settle in the first 8-11 months [Phase I] and 90% Roughly 90% of Cases Settle Before Claim Construction ([Phase I-II] and almost 95-97% of the cases are settled before the trial phase [Phase I-III]. This means less than 10 percent of cases reach in the trial phase. 

 

Patent Litigation Cost in the US

Patent litigation costs depending on the complexity of the case, and the value of the property at risk. The litigations’ cost may vary from tens of thousands of Dollars to even 5 million dollars or more!. According to the survey report of the American Intellectual Property Law Association's (AIPLA's) in 2009, when less than $1 million dollars is at risk, the litigation cost is about US$350 000 – to US$650 000. and where $1 – $25 million is at risk, litigation costs are $1.5 million to $2.5 million. When more than $25 million is at risk, costs are $3 million to $5.5 million!

The largest piece of patent litigation costs is attorney's fees, which traditionally accept patent litigation cases strictly on an hourly basis, at $100-$500 an hour, However, some attorneys accept litigation on contingency, where the lawyer earns one-third to one-half of any settlement or court judgment (the longer and more complex the case, the higher the percentage paid to the attorney,  especially if it goes to trial). These numbers also include expert witness fees, travel costs, and document management and production costs. In litigation on contingency, an attorney could not owe any legal or other fees if he does not win the case.

The largest damage awarded in the US was $2.54 billion. 

 

Duration of the US Patent Litigations

Table 1. illustrates the main tasks implemented in each litigation phase and the duration of each.  Therefore on average, the litigation process takes almost 24-48 months in the US.

 

Table 1: Main tasks and duration of Litigation in different Phases (source: Wilson Sonsini Goodrich & Rosati Corporation)

 

Patent Litigation in China

For many international companies, patent litigation in China has become an unavoidable prospect. As a series of systemic reforms and the attraction of readily available injunctive assistance, Chinese courts are turning into increasingly attractive forums for patent plaintiffs even those from foreign countries.

It is interesting to know that China had no patent system a few decades ago. But now China is poised to take over the IP systems of the world. There are some shreds of evidence that China for its reform in the patent system and litigation, supervised by Germany who has been training China in patent examination since 1985.

 

Patent enforcement in China begins with first-instance proceedings, which are similar to district court lawsuits in the USA. Since 2014, the patentee can enforce a patent before one of these intellectual Property Courts: Beijing, Shanghai, and, Guangzhou Intellectual Property Courts. There are also 20 IP tribunals in 20 cities of china city in which the patent can enforce his/her patents.

The patentee has the right to choose between the courts and tribunals based on some considerations including the capability of judges, difficulty in gathering evidence, and trial period, etc.

First-instance infringement judgments may be entreated in a second-instance proceeding, which is usually brought before either a High People’s Court or the Supreme People’s Court,. However, China recently disclosed government decision on creating an IP appeals court with centralized jurisdiction. 

In China, filing invalidity claims is not possible to take place in the abovementioned courts and can be brought only in separate administrative proceedings before the CNIPA’s Patent Reexamination Board (PRB).

Unlike the USA or other countries under the common law system, patent cases are not tried to a jury and are conducted with virtually no discovery. This means that the Chinese courts may conduct their own researches and collect evidence, but when parties are unable to do so. In practice, parties must usually collect the evidence themselves to meet what is effectively the Chinese system places on its patent plaintiffs.

In China, filing invalidity claims is not possible to take place in the abovementioned courts and can be brought only in separate administrative proceedings before the CNIPA’s Patent Reexamination Board (PRB).

 

 Litigation Cost in China

The typical costs of proceedings to first instance judgment on infringement/validity comprise court fees, attorney fees, and investigation fees (collecting evidence). For the appeal, the typical costs comprise court fees, attorney fees, and sometimes investigation and evidence collection fees. For the retrial phase, which is not an appellate level but a trial supervision procedure, no court fees would be charged.

Regarding the recovering fees: For infringement litigation, the court fees, a reasonable part of the investigation and evidence collection fees, and attorney fees are recoverable from the losing party. In the case of validity infringement, only the court fees are recoverable from the losing party.

The actual costs of a grant depend on the complexity of the invention, the claims involved, and the patent agency engaged. For an invention patent, the cost may range from CNY30,000–50,000 ($4000 to $7500). Typically, the costs would include official fees, agency service fees, and also translation fees if the application is drafted in foreign languages. Usually, the translation fees are charged based on the number of words translated, and the agency service fee may be charged on an hourly basis.

The average damage award in China is about $5,000, but the largest damage in china awarded in 2016 and was 50 million RMB (approximately 7.24 million USD). 

 

 Duration of Patent Litigations in China 

At first instance Judgement, the  Infringement procedures usually take six to 12 months. In case of involving foreign elements, there is no time limit by which the court must give judgment. If there are parallel validity proceedings, the courts do not usually grant a stay of proceedings.

In spit of several doubts around the patent litigations systems and its transparency challenges which raise this opinion that Chines courts are not friendly to the foreign patent owners, but the result of some research revealed something different:  In 2015 foreign plaintiffs won 100% of the 65 cases that they filed in Beijing’s IP court, although about 75% of those cases concerned trademarks. This is due to reforms that happened to the patent system in China to attract more foreign investment sources.  Notably, foreign plaintiffs continue to prevail in China’s courts at least as much as Chinese plaintiffs.

Allowability of Contingency Fee

The attorney's cost can be paid either as a fixed fee or hourly working fee or contingency. Lawyers can and commonly do act on a contingency fee basis in China. Lawyers can also charge a fixed or hourly rate. 

 

Patent Litigation in the UK

The UK courts are divided into three jurisdictions: England and Wales, Scotland, and Northern Ireland. The great majority of patent litigation takes place in the courts of England and Wales, where patents brought by the patentee or the exclusive licensee to enforce according to civil proceedings.

There are two specialist IP courts in the UK (Placed in London) which are operating in parallel: the Patents Court and the Intellectual Property Enterprise Court (IPEC). The IPEC was established to deal with patent and other intellectual property disputes that are less complex and typically of lower value than those heard in the High Court. 

The Patents Court has specialist judges hearing mainly patent and certain other IP cases. The quality of the technical comprehension of the judges is high and there are no juries for the patent cases.

For smaller matters, the Intellectual Property Enterprise Court (IPEC) is normally applied which is similar to the Patents Court, but is tailored to smaller IP claims and gives parties greater control over costs. There are differences in procedure and shorter trials. The judges in this procedure are also technically competent and there are no juries.

Despite China and German ( which are discussed in this article), infringement and validity in the UK are dealt with in the same proceedings. However, proceedings usually take place in a split trial. For this purpose, at first, liability is determined and, if the plaintiff wins, then a damages inquiry or an account of profits is followed by using a separate procedure. 

Where both validity and infringement are raised by the parties to a patent dispute, these claims will typically be heard at the same time. Claim construction is considered in point of view of infringement and/or validity. 

Patent litigation proceedings in the Patents Court are started when a party files a claim form. The defendant is then required to file an acknowledgment of service, as well as its defense.

About one to two months following the entreating, a Case Management Conference (“CMC”) will generally be held (same as the US), during which the court will make an order for directions set out in detail the timeline for progressing the matter to trial.

A report of such a directions order is provided as an appendix to the Patents Court. The directions consist of orders concerning disclosure, the filing and service of fact and expert evidence, the setting of the trial dates, the exchange of skeleton arguments, and potentially a pre-trial review. The parties are persuaded to agree on the order for directions before the CMC as far as possible.

 

Patent Litigation Cost in the UK

Depending on the complexity of the case the number of challenging issues and experts, the costs of taking an action to trial in the Patents Court will vary. If both infringement and validity are in issue, costs will likely exceed £500,000. The costs (including court fees) can reach £1 million to £2 million or even more if the case is high-value and complex.

In the IPEC procedure, as the matters are smaller and less complex, the costs are generally less and may range between £150,000 and £350,000.

The largest patent damage issued in the UK was around £4 million

 

Patent Litigation Duration in the UK

In the Patents Court, a case will typically take one year from initial filing to trial, with a judgment following one to two months later. However, a patent trial may be advanced by the court in certain circumstances, having regard to factors such as the objective need for urgency, the prejudice faced by the opposing party, and the impact of the expedition on the administration of justice. If there is a suitable degree of urgency (and availability in the Court diary), a case may go to trial within around six months.

Compared to other litigation, the chances of a patent case going to trial are relatively high. From 1 October 2018, the Business and Property Courts, which include the Patents Court, decided to transfer specific cases to the Shorter Trials Scheme to reach trial within ten months of proceedings being issued, with the length limited to no more than four days.

In the IPEC procedure, a judgment is usually handed down within a few weeks of the trial.

 

Allowability of Patent Contingency

The traditional method payment is based on an hourly rate for each fee earner involved. Fixed fees are sometimes agreed for particular stages of litigation. As the course of litigation and the issues that arise are inherently unpredictable, fixed fees are often impractical for all or significant parts of large commercial cases. in large commercial claims, Fees are not fixed by law, and contingency is used as a solution
Lawyers can enter into arrangements with their clients under which their remuneration is related to the outcome of the case. The two types of contingency arrangements are conditional fee agreements (CFAs) and damages based agreements (DBAs). Therefore, contingency is allowable

 

Patent Litigation in Germany

Germany operates a dual patent litigation system in which different courts handle separate and infringement proceedings. However, the final appeals are heard by the same department of the Federal Supreme Court, but still in separate appeal proceedings.

Patent invalidity proceedings in the first instance are linked to the Federal Patent Court. Invalidity cases are decided by five judges, three of which have a science degree in the relevant field of the patent in suit, the remaining two are lawyers by training. in invalidity cases, the appeals are heard by a Senate of the Federal Supreme Court where the cases are decided by five judges, all lawyers by training, who predominantly hear patent cases.

In invalidity proceedings, the disputes are heard in the Patent and Trade Mark Office or the Federal Patent Court, and the parties can also be represented by a German patent attorney. 

For patent infringement proceedings, twelve designated District Courts which having specialized patent litigation chambers (consisting of three legally qualified judges and no technical judge) are opted to hear patent infringement proceedings,

In infringement proceedings, the parties must be represented by at least one fully qualified German lawyer.

German patent litigation is popular because of the strong injunctive powers that German courts wield. Injunctions in German courts provide a patent owner with significant leverage, especially in post-injunction settlement discussions, and especially against competitors that cannot afford to suffer a shutdown.

German courts are more likely to issue injunctions on standard-essential patents than many other EU courts. Such injunctions, however, is expensive, although is less costly than the US.

In German patent litigation, the losing party is ordered to pay court fees and a covered amount of the other side’s attorney fee. This is a different procedure than US litigation and some scholar believes this system could not result in preventing grow of Non-Patent Entities (NPEs or patent trolls )

Patent Litigation Cost in Germany

Depending on the complexity of the case, the technical area and the value of the dispute, the infringement proceedings costs are between 70,000 to 500,000 EUR  (including the court fees which must be paid in advance by the plaintiff). In invalidity proceedings, a normal range lies between 90,000 and 600,000 EUR. The largest damage awarded in Germany is  2.7 million dollars. 

 

Duration of patent litigations in Germany

In infringement proceedings, litigation takes between 8 and 15 months after serving the complaint upon the defendant.

In invalidity proceedings, the duration of the litigations is between 12 to 24 months after the complaint has been served upon the patentee.

 

Allowability of Contingency Fee

Although invoices for legal services in Germany sometimes seem to arrive slowly, true contingency arrangements are not available in German proceedings.

 

Conclusion

In this article, patent litigation procedures in the four countries including the US, UK, Germany, and China, with more focusing on litigation cost and its duration and also allowability of contingency fee was compared, and the results have been illustrated in Figure 1.  

 

Figure 1: comparison of the litigation system of the US, UK, Germany, and China, focusing on  its cost, duration, and allowability of contingency

 

The US patent litigation is significantly the most expensive litigation. However, for the large multinational non-US based companies, patent litigation has traditionally focused on the US due to its large size of the market; easy access to the US federal courts; and meaning potentially significant damages awards. Although the litigations awards (in average it is $3 million to $4 million) in the USA might initially seem somewhat impressive to many patent owners, however,  according to some estimates, regarding litigation cost of fairly non-complex patent litigation through a trial which is around $5 MM for each party, it seems that a prevailing plaintiff will likely spend significantly more to obtain its award than it will ever receive! Although the contingency fee has been set to help plaintiffs to manage the costs, however, the patent-troll economic model seems to be based on lawyers taking a contingency fee!

Although the German patent litigation system is still costly, it is popular in the European countries as it has strong injunctive powers and provides significant leverage for the patent owner. Although it is costly but much less expensive than the US. Moreover, since the contingency is not allowed there, therefore NPEs ( or patent trolls) don't have enough space to grow. 

China with its recent reform in the litigation system has taken concrete steps to encourage investors to put their money to play in the Chinese market, however, it is still in its infancy, and needs making efforts towards a transparent and fair system.

 

 

 

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