Answering questions about IPR claims, counterclaims

A strong patent portfolio will often include multiple patents that cover different aspects of a single product or manufacturing process.

Likewise, a competitor's infringing business activities will often involve practicing inventions claimed by different patents.

While enforcing the rights conferred by a patent portfolio against such competitors is often considered the most important manner in which a company can protect its intellectual property rights, many business disputes also touch upon valuable intellectual property rights that exist in the form of unpatented trade secrets, as well as other claims that exist by reason of the prior relationships between the parties.

However, a company seeking to protect its rights against a competitor need not always choose between suing solely for patent infringement, trade secret misappropriation or to enforce rights arising from law or contract.

Simultaneous claims

Where the facts support the assertion of a variety of claims, a plaintiff is well advised to consider pursing all of its claims simultaneously.

In the appropriate circumstances, when a party could have included all of its claims in an earlier proceeding, the decision to pursue only some of the claims might result in losing the ability to file a subsequent lawsuit against the competitor on the remaining claims.

The potential loss of a claim, or theory upon which relief can be obtained, involves the doctrine of "claim preclusion." This doctrine has the goal of avoiding piecemeal litigation.

Thus, when relief is sought through the courts in the United States, a subsequent lawsuit might be barred where a prior lawsuit (1) involved the same parties or their privies, (2) involved the same claim of cause of action as the later suit, and (3) was terminated by a final judgment on the merits.

Prior and current claims

To determine whether the prior and current claims are the same, a court will consider a number of factors.

For example, would the rights or interests established by the judgment in the prior lawsuit be destroyed or impaired by prosecution of the second lawsuit?

Would substantially the same evidence be considered in the latter that was presented in the former? Do the two suits involve the same transactional nucleus of facts?

If the court answers the foregoing questions in the affirmative, the second lawsuit might be barred even if, for example, the first lawsuit sought relief for the improper use of a party's trade secrets and the second suit focused on infringement of a published patent.

A similar result can occur when a plaintiff tries to pursue separate suits on different patents that accuse the same products of the competitor.

While the elements of a claim for trade secret misappropriation and patent infringement protect different aspects of a plaintiff's intellectual property rights, and the claims of different patents speak to different inventive aspects of a particular technology, the concept of claim preclusion (which protects a defendant against multiple and serial litigation) focuses on the conduct and not the separate rights of the plaintiff.

Claim preclusion

In deciding whether to apply claim preclusion to bar a subsequent suit, many courts will also find significant whether the source of damages in both suits would be from the same "pool" of money.

This outcome is illustrated by the situation where the defendant's same product is in issue in both actions, the plaintiff has already recovered damages for lost profits based on product invoices, and the second suit looks to the same product sales in order to calculate "additional" damages.

Having already received compensation from the pool, the courts will look to avoid an opportunity for a double recovery by the plaintiff.

A defendant being sued for infringement faces a similar decision in formulating its responsive strategy. It must consider the extent to which it should escalate the dispute and assert available counter claims against the plaintiff.

In evaluating that option, in addition to considering the expense of broadening the lawsuit, the defendant must consider the risk that the court in a subsequent proceeding will deem its claims to have been "compulsory counter claims" that should have been asserted in the prior action, and thus bar that defendant from asserting those claims.

The requirement that a defendant must file all compulsory counterclaims in the pending action or thereafter be barred from raising those claims also reflects the policy of avoiding piecemeal litigation between the same parties.

In general, a compulsory counter claim that a defendant must assert or lose is one that arose out of the transaction or occurrence that is the subject matter of the opposing party's claim.

Logical relationship

This determination considers whether the issues of law or fact are largely the same for both the claim and counterclaim, whether the same evidence will support or refute both and whether there is a logical relationship between the claim and the counterclaim.

For example, a declaration that a patent is invalid is a compulsory counterclaim in response to a claim of infringement of that patent. Likewise, a party claiming that it is the correct inventor in response to a claim of patent infringement must carefully consider the risk of failure to affirmatively plead a claim for a correction of inventorship.

However, there are recognized exceptions to the compulsory counterclaim rule. Where the claim against the plaintiff does not arise out of the same transaction or occurrence it may be (but is not required to be) stated as a "permissive" counter claim.

These types of counterclaims are often considered as a means to place leverage on the plaintiff to induce a more favorable business resolution to the litigation.

Thus, while defendants in patent infringement suits sometimes assert anti-trust claims against the plaintiff despite an overlap in the factual and legal issues, the defendant has the choice of either asserting such claims as counterclaims in the patent action or in a separate antitrust action.

Finally, an otherwise compulsory counterclaim need not be raised where the parties have previously agreed to a forum selection clause in their agreement, which provides for a different forum than the one in which the plaintiff filed suit.

Chris Scott Graham is managing partner, Silicon Valley, for the law firm Dechert LLP in Mountain View, California

(China Daily 11/23/2009 page9)