Wednesday, June 22, 2005

PROTECTING END-USERS AGAINST PATENT INFRINGEMENT FROM THE MANUFACTURER'S PERSPECTIVE: In an interesting article from Managing Automation, a question was raised regarding the targeting of end-users for patent infringement. Consider the following:

Earlier this year the Gillette Company sued Energizer Holdings Inc., alleging Energizer's QUATTRO, a four-blade, wet-shave safety razor, infringes on Gillette's 777 patent (U.S. Patent Number 6,212,777 issued in April of 2001). The 777 patent outlines a disposable safety razor with a group of blades placed in a particular geometric position.

But what if Gillette decided it wanted to go after every person who uses the QUATTRO? If one ignores the public-relations nightmare from such an act, this scenario is certainly possible. Over the last decade, the manufacturing community has struggled with machine vision patents held by the late Jerome Lemelson, the named inventor of 12 patents pertaining to this specific area. More recently, Solaia Technology LLC has assumed Lemelson-like status by suing everyone under the sun under its 318 patent (US Patent No. 5,038,318), which it acquired from Schneider Automation Inc. in 2001 ("Device for Communicating Real-Time Data Between a Programmable Logic Controller and a Program Operating in a Central Controller.")

What's interesting is that in both of these instances the patent holders didn't go after the manufacturers that were selling a product each claimed infringed on their IP. Instead, they went after the end users. In fact, Lemelson can be credited with starting this trend (other companies like Solaia and Acacia have followed suit).

And now, as the volume of patent disputes among vendors escalates -- the latest public battle is between Intermec Technologies Corp. and Symbol Technologies over wireless data capture and laser scan engines -- customers are fearful of getting caught in the crossfire. Moreover, some of the patents at the center of these legal wranglings are part of emerging industry standards, which muddies the waters even more.

So what is a technology buyer to do?

There's no easy answer here, but, ultimately, the legal responsibility must lie with the vendor from which the product was purchased:

Get the Vendor to indemnify - Before entering into any contract with a technology vendor, make sure there is a well-defined indemnity clause included. Often times products have an implied UCC warranty that the purchased product does not infringe on anything. However, explicitly stating the terms of the warranty should help remove any potential ambiguities.

Consider Patent Infringement Insurance - A patent infringement insurance policy can include a range of coverage from just legal costs to full indemnification for damages. However, insurance can be pricey. A policy's cost can range from $7 to $12 per $1,000 of coverage, but it can be worth the extra expense, especially given the "chain of commerce" in which liability can shift from one company to the next. For instance, many large companies require that their suppliers have a defense policy in place prior to doing business.

Join a Working Group or Defense Group - plaintiffs love to target end-users that are perceived as being too weak to defend themselves. 99% of the time, these types of targets settle quickly (usually at a cost between $40-300k, depending on the circumstances) to avoid escalating legal costs. By teaming up with others, your ability to actually fight back becomes much greater.

Manufacturers will always need to formulate various types of defense mechanisms to protect their companies from IP litigation. Of course, it's always best to get legal counsel before doing anything, but the bottom line for manufacturers purchasing technology is that someone else's IP is not necessarily your responsibility. Remember that if you are an end user that bought a product and you are sued for infringement, the vendor has an obligation to defend you.

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