Auto Insurers: Prepare for assertion letters! In a late breaking development, the first ever patent infringement lawsuit related to an auto insurance product was filed in June.  Progressive has sued Liberty Mutual for infringing one of its patents related to Usage Based Insurance.  Many other auto insurance companies are developing usage based insurance products and should prepare accordingly.     Editors

Did you ever wonder what to do with one of those pesky letters suggesting that your company consider licensing a particular patent, or accusing your company of patent infringement?[1]  A hook shot to the waste bin, perhaps?  All kidding aside, this article concerns procedures for dealing with assertion letters so that they are handled correctly and efficiently, while minimizing the risk of creating “bad paper.”[2] 

If proper procedures are put in place ahead of time, there will be fewer embarrassments and headaches both in the short term, and in the long term, in the event the assertion letter morphs into a patent infringement lawsuit. 

            Step 1 – Respond.  The first thing to do upon receipt of an assertion letter is to respond in a reasonably amount of time (e.g., two or three weeks, if possible).  Do not, I repeat, do not ignore assertion letters.  In the eyes of a judge or a jury, ignoring an assertion letter creates the impression that your company does not take the intellectual property rights of others seriously, and that is not the impression you wish to create.  

The content of the response will depend on what the assertion letter says.   If the assertion letter sets forth the patents involved and identifies which product is implicated or accused of infringing, respond explaining that your company takes the intellectual property rights of others very seriously, that your company will undertake an analysis of the patent, the file history[3] and the accused product or products, and get back to them.  Also, in the same letter, you should ask for claim charts[4] (unless they are already attached to the assertion letter). 

A claim chart should provide two important pieces of information: (1) it should identify exactly how the patentee maps the various components of your product to each element of each asserted claim; [5] and (2) it should disclose (by implication or otherwise) how the patentee is construing the claims to read on your product. 

Often, however, the assertion letter neglects to mention any products.  Therefore, your response should ask which products should be analyzed.  Something to the effect, “While we take the intellectual property rights of others very seriously, we cannot analyze the claims made in your letter unless and until you identify which products might be implicated by your patent(s)”, will do the job here.[6]

Step 2 – Investigate and Analyze.  Now that a response has temporarily put the ball back in the patentee’s court, an investigation should be undertaken.  Do not merely write an email to your chief technologist, asking something to the effect of, “Hey, do we run afoul of U.S. Patent No. X,XXX,XXX?”, unless you are a masochist.  At this stage, in-house communications must be tightly controlled because what your technical staff says can and will be used against you. 

How, then, should the assertion letter be investigated?   First, understand that your chief technologist, no matter how bright, is not a patent law expert.  In other words, your chief technologist is not adept in determining what is and what is not covered by a U.S. patent (i.e., claim interpretation).  However, your chief technologist can tell you, better than anyone else, exactly how your product works and how it is made.  Hence, you must corral your technical staff so that they do not venture from their area of expertise.

Get a patent attorney (either in-house or outside counsel) in the loop early, before anyone jumps to a premature or incorrect conclusion.  Let the patent attorney do what he or she does best, which is to read the file history, study the patent and its claims, and figure out what is and what is not covered by the asserted patent.  Next, appoint one of your technical staff to be the point person to deal with the patent attorney.  Make sure the appointee understands that the patent attorney can see anything he or she wants to (e.g., source code, flow diagrams, etc.).  The appointee must also understand that all communications about the asserted patent must be between the patent attorney and appointee (or the appointee’s designee, such as the technologist who designed the accused product).  Communications about the patent between the appointee and other members of the technical staff, or between technical staff members, should be forbidden.

These types communications must be proscribed because an email between two members of your technical staff commenting that the asserted patent is infringed will become ammunition for the patentee in the event a lawsuit is filed; while communications between a patent attorney and your technologists are attorney-client privileged communications that are not turned over to the patentee in a lawsuit. 

Further, the communications between the patent attorney and your appointee are best left unmonitored, which avoids the appearance that your appointee felt pressured by a manager’s presence on the phone to say what the manager wanted him or her to say.  Although it might be nerve racking, do not micromanage this process. 

Step 3 – Execute.  After completing his or her investigation, the patent attorney should be able to report his or her thoughts via a conference call or meeting.  Do not ask your patent attorney to reduce anything to writing until you get his or her opinion verbally.  During the conference call or meeting, the patent attorney might say:  (1) you have a problem (i.e., the product in question probably infringes); (2) you don’t infringe; (3) the patent is invalid; or (4) some other information, such as, the patent will expire in a few weeks. 

Case (1):  If the patent attorney believes that you have a problem, nothing should be reduced to writing at this time.  Instead, a two-part response should be considered.  First, commission a prior art[7] search.  If the search turns up some relevant prior art, the patent might be invalid (an invalid patent cannot be infringed).  If such prior art is located, your patent attorney may be able to provide an invalidity opinion, in other words, the patent attorney may be willing to send you a letter stating that in his or her opinion, the asserted patent is invalid. 

Second and simultaneously, you should ask the patent attorney for advice regarding a design around.[8]  A design around can range from very easy to very difficult, depending on the claims of the asserted patent, the complexity of the accused product, and the ease or difficulty in changing the accused product.  For example, if the asserted patent is a method of manufacture and the accused product is an assembly line that costs millions of dollars to build, a design around might be cost prohibitive.  Alternatively, if the accused product is software that implements a method of calculating an annuity payment, perhaps the software can be modified relatively easily to avoid the asserted patent.

Cases (2 & 3):  If the patent attorney believes that the patent is not infringed or invalid, request a written opinion.  Why?  Because an opinion will shield your company from a finding of willful infringement in the event a patent infringement suit is filed against it.  What type of opinion is necessary?  If the patentee is litigious, a full-blown litigation opinion might be called for.  Full-blown litigation opinions are somewhat lengthy and are designed to be used in court as a shield to avoid treble damages, which can be assessed in a patent case if your company is found to be a willful infringer.  On the other hand, if the patentee is not litigious or threatening, a short, informal opinion may suffice.

Case (4):  Finally, the patent attorney might provide you with some other information about the patent, along with a plan of attack.  For example, if the patent expires in several weeks, the patentee’s ability to get an injunction[9] will expire in several weeks as well.  Once the patent expires, the patentee loses the ability to exclude others from using the patented invention.  The patentee’s sole remedy in this type of case is money damages for past infringement, which may still be substantial.  However, the patentee’s most potent weapon, the injunction, is off the table.  At this point, your company is well advised to determine its exposure and formulate a plan of attack that is commensurate with that exposure.

Conclusion.  Hopefully, by implementing some or all of these procedures, assertion letters can be handled more effectively and efficiently, while simultaneously avoiding the creation of “bad paper.”

About the author:   

Eric D. Kirsch is a partner with the firm of Cooper & Dunham LLP, specializing in intellectual property law.  Mr. Kirsch can be reached at ekirsch@cooperdunham.com or (212) 278-0507.