The Suing Game

By Rel S. Ambrozy

End users can take steps to guard against patent infringement liability.

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Every few years, consumer demand for products based on a certain technology results in a wave of patent litigation. In the late 1990s, for example, improvements in the manufacturing of liquid-crystal displays and plasma-display panels caused sales to increase dramatically. As a result, the patent owners of the underlying technology sued the flat-panel display manufacturers to determine who owned the basic rights to that technology. Now, with the growth of the RFID industry, patent litigation involving the technology has begun.

Last summer, RFID World Ltd. filed suit in Texas claiming infringement of its patented RFID-based inventory-control system. What's interesting is that the lawsuit was brought against retailers and end users of the technology—including Home Depot, Gillette, Target and Wal-Mart—rather than against the manufacturers that make the technology.

Traditionally, end users were rarely sued by patent owners because they were either current or potential customers. But patent holders have begun suing end users for two reasons: The retailers arguably inflict the most pain on the patent holder because they represent the lost sale; and they are often quick to accept a license or settlement rather than face a long, disruptive and costly lawsuit.

Accordingly, all end users purchasing and employing RFID technology must acknowledge the likelihood of being sued for patent infringement and prepare for that possibility. Here are several steps an end user should consider taking to reduce its potential liability.

Secure appropriate indemnity from a vendor. Before you enter into a contract with a vendor, make sure there is a well-defined indemnity clause included in the warranty that specifically addresses patent infringement. Such clauses must be reviewed carefully, as they vary widely.

Purchase a patent-infringement insurance policy. It can include a range of coverage from just legal costs to full indemnification for damages. Large insurers often carry such policies, or an insurance broker can help in tailoring the right policy for a given product.

Obtain a license from a patent pool. Some RFID vendors formed a consortium into which they will "pool" their patents. Obtaining a license from this pool might allow manufacturers and/or end users to avoid infringing those pooled patents. But no RFID patent pool has been approved by the U.S. Department of Justice, so it may be some time before this potential protection becomes available.

Consult a qualified patent attorney. A patent attorney can evaluate the technology your company is considering, compare it with the relevant patents and advise on potential problems. If the patents are infringed by the manufacturer's or the end user's purchase of the technology, the attorney can suggest ways to avoid or "design around" the claimed technology, or can aid in obtaining a license. Keep in mind that obtaining an opinion of counsel does not guarantee that an infringement suit will not be filed, but it might lessen a company's exposure to a request for punitive damages if a lawsuit is filed and patent infringement is found to have occurred.

Rel S. Ambrozy, a partner with the intellectual property practice of McKenna Long & Aldridge LLP, specializes in enforcing clients' patent rights and defending against claims of patent infringement. Illustration by Alan King.