Patent Litigation – A Non-Tariff Barrier

Sanjaya MariwalaManaging Director

OMNIACTIVE HEALTH TECHNOLOGIES LTD, MUMBAI

Non-Tariff Trade Barriers

Measures other than High Import Tariffs (Duties) employed to fight trade battles:

Direct price influencers Export subsidies or drawbacks Manipulated Exchange rates Methods of import valuation Customs surcharges Lengthy customs procedures Unreasonable standards Undue inspection procedures

Indirect Barriers Quotas Import licenses Patent litigation

Patent Infringement Litigation In July 2007, Kemin Foods, a US based

company filed an infringement case against OmniActive, in the Middle District of Florida, alleging infringement of their US patent 5382714, though OmniActive has been making the Lutein products by its own patented process.

The case is currently progressing in the US. It would be subjudice to discuss the technical aspects of the case today.

About OmniActive Health Technologies Ltd Manufacturer and Exporter of innovative, patented, indigenously

developed nutraceutical ingredients Manufacturer of Lutemax Lutein preparations for food fortification

and dietary supplementation. First company in India to obtain US patents for the Lutein

compositions and process of manufacture. First company in the world to develop vegetarian platform for

tablet-grade beadlets-patented in EU/Australia and India. Patent pending in the US.

Set up state-of-art manufacturing facility at International Biotech Park, Hinjewadi, Pune.

Patents- Two sides

Beyond doubt….. Patent holder deserves monopolistic rights Patent holder enjoys the fruits of investment in R&DHowever……. An aggressive patent holder may misuse or misinterpret his broad claims and take

action against a competitor. Only after litigation can truth be established. Many young or new companies are intimidated by the threat of litigation and withdraw

rather than establish whether they have a right to operate in that market Aggressive patent holders may also be conveying to customers a message about the

scope of patent rights-and their intent to sue anybody associated with infringement action-thereby creating a barrier to the entry of an otherwise deserving new product/technology.

Proving the validity and the non-infringing nature of a new product where such a competitor with a patent pre-exists requires that expensive legal consultation in that market for providing a “legal opinion”. Legal opinions are a must, but expensive.

Customers also may demand indemnification-providing this can be a challenging task for any start –up or small/medium sized companies.

Impact of Patent Litigation on Indian Exporters… Small Indian exporters lack adequate muscle power

to fight expensive litigation in the US Large, monopolistic companies in the West use

litigation threat as a weapon beat the competition from Indian exporters

Many exporters withdraw from the business due to the fear of litigation.

Growth in export sales will be shunted with severe impact on return-on-investment.

Eventually accessibility to Western markets will be limited for Indian companies

US Patent Litigation – A Long, Expensive Process…

What do Americans say about the US patent laws

"Instead, the US patent system costs companies and individuals billions of dollars and millions of man-hours annually to obtain patents and fight frivolous law suits. Often, patent holders succeed in court, despite their problematic claims. In other cases, the two parties ultimately settle the dispute. In many cases, a small firm will conclude it is just too difficult and uncertain to dispute a patent, despite the fact that the award is very problematic.In making these decisions, the firms are often swayed by the poor odds facing infringers at trial: in recent years, as many as two-thirds of patent-holders have succeeded in litigation at the district court level, as opposed to an average success rate of 32% in the decades before these reforms. The cost of litigation is also a factor. A recent survey suggests that the median cost of litigating a substantial patent case is today about $4 million. ” Source:How to fix the US patent system .Author:     Jaffe, Adam Managing Intellectual

Property Jun2005 Supplement, p9-14 Full Article:Source: Managing Intellectual Property, Jun2005 SupplementSection: US: PATENT REFORM

Facing a patent litigation in US-What it costs…?UNDERSTANDING THE RISKS• Litigation is costly– Attorney’s fees, expert fees, and other discoveryexpenses (travel, depositions, document gathering)– Employees’ time- Gathering documents in response to discovery

requests- Preparing key personnel for deposition and trial

testimony- Overseeing the litigation and working with Counsel

How Litigation can be AvoidedGet a second opinion. Just a patent is not enoughOPINIONS

Written documents prepared by an attorney

identifying the legal and factual basis why an

infringement claim can or cannot be made)

• Opinions can be obtained by both the patent

holder and the accused infringer

• Federal Rules require a patent holder to have a reasonable belief that the patent is infringed before suit is brought

Patent Litigation in US- Discovery ProcessDISCOVERY RULES INU.S. COURTS ARE VERY BROADParties may obtain discovery of anything relevant to

the claim or defense of any partyDiscovery includes• Documents (letters, email, lab notebooks, etc.)• Inspection of equipment and facilities• Deposition of witnesses• Responses to specific questions (interrogatories and

requests for admissions)

Costs of Litigation …

Direct cost: Certain costs in patent litigation are apparent: outside litigation

counsel, expert witnesses, discovery expenses, and associated services are expensive

These costs begin accruing relatively early in patent suits as compared to other types of cases.

The parties typically retain experts specifically to provide opinions regarding the interpretation of the patent.

While the typical costs of litigation can be anticipated, the many hidden costs associated with patent cases are frequently overlooked. These indirect costs can be disruptive and can adversely impact normal business operations, especially in smaller companies.

Discovery costs…

‘Discovery’ in patent cases—in the form of document requests, interrogatories, witness depositions, and expert reports—is a significant source of these hidden costs. Typically requires the disclosure of technical product development,

marketing, executive, and sales documents.

Employees from many departments must be diverted from their daily responsibilities to assist in locating relevant information. In many cases, these are key R&D personnel who may be diverted from focusing on projects vital to the company’s future prospects

Costs inflate further when depositions begin. Witnesses, often as many as a dozen or more, must be prepared for depositions by meeting with lawyers, usually for at least a day.

Costs of discovery…

Expert Witnesses Expensive expert witnesses are usually required in

patent cases. In fact, multiple experts are frequently necessary to cover the technology, as well as the damages calculations

In addition to the experts’ hourly rates, the process of fully educating an expert requires extensive travel, detailed analysis of the relevant technology by attorneys, and company personnel.

Costs Summary

The average patent litigation lasts about two years and costs about $3 million. An appeal can add another $2 million and one year to that estimate.

Risks of patent litigation- Company Secrets The possible disclosure of confidential information is yet another

hidden risk of patent litigation. As part of the discovery process, the parties may be required to divulge sensitive information to defendants and potentially to the public. In patent suits, information relating to product development, manufacturing, marketing, and sales is usually discoverable by the opposing party, as might be pricing information and customer lists.

Courts typically protect the parties’ confidences by issuing a Protective Order that limits the disclosure of confidential information only to the court, the parties, and their lawyers, but given the bulk of documents and witnesses involved in a patent case, vigilance must be observed (and associated costs incurred) to keep confidences within the scope of the Protective Order.

Customers Lost

The company’s relationship with the customer may suffer due to the patent litigation. Customers may hesitate before dealing with companies that are embroiled in litigation if they have another source for similar products.

How Litigations Can Be Managed …. Get your own IP protected and defined with a patent-WITHOUT

A PATENT YOU ARE GREATER RISK OF BEING SUED. Have the IP validated and vetted with legal opinions beforehand

to minimise chances of infringement. Demonstrate through your conduct how you steer clear of

existing patents and educate customers about the same By joining hands – All the exporters suffering from threats of

litigations can form a forum/syndicate and generate adequate muscle power to fight unjustified litigation.

With Government Support-Political and financial, to protect the interests of exporters with indigenously developed, patented technologies/products

Government Support….needed GOVERNMENT SHOULD PROVIDE AID AND SUBSIDY FOR

EXPORTERS WITH VALID PATENTS AND LEGAL OPINIONS TO GET PATENT INFRIGEMENT INSURANCE COVER

GOVERNMENT SHOULD PROVIDE GUIDANCE FOR INDIAN FIRMS FACING LITIGATION BY HAVING EMPANELLED FIRMS WHO CAN PROVIDE APPROPRIATE TERMS AND SERVICES FOR INDIAN COMPANIES

PATENT HOLDERS SHOULD GET SPECIAL INCENTIVES FOR EXPORTS FOR MAINTENANCE AND DEFENCE OF THEIR PATENTS BY EXPANDING THE SCOPE OF MARKET ACCESS INITIATIVE SCHEMES

In summary – our learnings Product's value to your business -- Analyse the financial impact of winning (and losing) the

litigation. In consultation with your attorney, establish a target litigation budget based on these figures.

Product's value to your adversary and their resources -- Make no mistake, your adversary will conduct its own cost/benefit analysis. The greater the potential impact of the litigation on your adversary's business and the greater the resources of your adversary -- the more costly and lengthy the litigation will likely be.

Number of patents, defences and parties involved -- The more patents, defences asserted, and parties to the litigation, the more likely the litigation will cost more and last longer. To reduce costs, pursue only substantial claims and defences, and pool resources with similarly aligned parties.

Volume of evidence -- The number of documents to be reviewed (thousands or, in larger cases, millions) and witnesses to be deposed impacts the cost and duration of litigation.* Venue -- Where a case is brought (i.e., which court) can affect duration by as much as 50% to 100%. Some courts are busier than others; some venues are more favourable to one party or the other.

Law firm and litigation strategy -- Patent litigation specialists can lead to more efficient and better results. There also are substantial differences in the billing rates between the very large firms and smaller, specialised (boutique) firms.

As a potential plaintiff or defendant, you need to plan carefully and consult with your attorney, because you are in a position to substantially influence some of the above factors

THANK YOU