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Of course, FestoCorp. v. Shoketsu Kinzoku Kogyo Kabushiki Co. was good news for those wrongly accused of patent infringement. Any decision that reduces the range of equivalents that constitute infringement reduces the likelihood that infringement claims will be brought. And although Festo hasn’t eradicated frivolous infringement suits, it has made it a little easier to fight back. Defending against frivolous infringement allegations can be a nightmare. At best, after spending hundreds of thousands or even millions of dollars, a defendant is restored to the position it held before the case was filed. At worst, a defendant is found liable because the jury was bewildered by the complex technologies at issue. Beyond the legal costs, the business costs can be very high too. Leery customers may stop buying the defendant’s products while litigation is pending. Management may be distracted. And the defendant may be forced to disclose its most confidential business plans to its competitor during discovery. Bringing questionable infringement suits, on the other hand, is not so costly. The plaintiff has presumably filed in a convenient forum. The discovery demands made on the plaintiff tend to be less burdensome than those on the defendant because the focus in a patent infringement suit is on the defendant’s conduct. Most important, in the absence of counterclaims, the only monetary loss the plaintiff faces is being required to pay the defendant’s attorney fees if the court finds the case to be frivolous. What the defendant must do is make the bringing of such sham litigation as costly as possible for the plaintiff. And that means the defendant needs to bring forth nonfrivolous counterclaims. COUNTERATTACK Many defendants bring declaratory judgment counterclaims asking the court to declare the patents invalid, unenforceable, and not infringed. Some also bring antitrust counterclaims contending that fraud was committed by the plaintiff before the Patent and Trademark Office, that the patent litigation is a sham, or both. But the potential costs imposed by these counterclaims may not be sufficient to deter a plaintiff from bringing a lawsuit in bad faith. First, a declaratory judgment of noninfringement doesn’t leave the plaintiff in much worse shape than it would have been in had it never sued. Second, if the defendant has sued its largest competitor, a declaratory judgment of invalidity may not be much worse — for the plaintiff — than a declaratory judgment of noninfringement. In either case, the plaintiff cannot extract damages from its main rival. Finally, the odds of prevailing on an antitrust claim are not good. Nevertheless, counterclaims should be brought where appropriate. Antitrust counterclaims especially raise the stakes for the plaintiff because they can lead to treble damages and because the costs of answering antitrust discovery requests can be quite high for the plaintiff. To prevail on an antitrust counterclaim, the defendant must prove that the plaintiff committed an illegal anti-competitive act. This generally can be shown in three ways. If the plaintiff gets a patent by committing common law fraud on the PTO and the patent would not have issued but for that fraud, the plaintiff can be found liable under the Supreme Court’s 1965 decision in Walker Process Equipment Inc. v. Food Machinery & Chemical Corp. If the plaintiff brought the suit knowing that objectively there was no basis for the suit, it can be found liable for its sham litigation under the Supreme Court’s 1993 decision in Professional Real Estate Investors Inc. v. Columbia Pictures Industries Inc. If a dominant market player buys a patent to achieve monopoly power, it can be found to have violated antitrust laws as stated in dicta in the 2nd U.S. Circuit Court of Appeals’ 1981 decision of SCM v. Xerox. Assuming the defendant proves that the plaintiff has committed an anti-competitive act, the defendant faces two additional hurdles. First, it must prove that the plaintiff has or is likely to get a monopoly in the relevant market based on the fraudulently acquired patent or the sham litigation. But one patent seldom defines a relevant market. Second, those few defendants who can make that link still must prove that they have personally suffered an antitrust injury based on the fraud or the sham litigation. Unless the market is a duopoly, it is hard to show that a defendant’s injury is an antitrust injury that broadly harms competition rather than merely a business injury to one company. Due to the numerous barriers, only a handful of cases that reached the Federal Circuit ever resulted in a finding of antitrust liability under Walker Process or Professional Real Estate. Moreover, there has apparently never been a case in which a party prevailed on the theory found in the SCM dicta. Beyond the likelihood of failure, a public company might not want to bring such a claim for another reason. Such a claim must allege a high likelihood that the plaintiff will achieve a monopoly in the relevant market. If that market is a major part of the defendant’s business, the allegation alone could devastate the company’s stock price. IT’S UNFAIR Instead of, or in addition to, counterclaims based on antitrust law, a defendant should consider bringing a counterclaim based on state unfair-competition laws. The advantage of these claims is the simple tautology that they’re not antitrust claims. Thus, the defendant does not have to prove the relevant market, the existence or likelihood of a monopoly, or an antitrust injury. The Supreme Court first approved the bringing of state unfair-competition claims based on patent misuse more than 80 years ago in American Well Works v. Layne & Bowler Co. (1916). Yet for decades, the Federal Circuit took a dim view of such claims. In the last five years, however, the court has come around. It has added only one caveat-that unfair-competition claims based on bad-faith infringement suits must have an additional element not found in patent or antitrust law. Once a defendant has decided to file an unfair-competition counterclaim, it must still decide what state’s law to use. Options may include the state where the sham suit was filed, the defendant’s or the plaintiff’s home state, and any state where the plaintiff used the sham suit to threaten the defendant’s customers. What constitutes unfair competition varies significantly from state to state. Under California’s statute, virtually any business practice slightly worse than bad manners can be the basis for an unfair-competition claim. On the other hand, Missouri’s common law has only explicitly recognized the act of “palming off” goods as unfair competition. Even in states with more generous laws, it has been hard to prevail on an unfair-competition claim because of the difficulty in proving that the plaintiff knew that its suit was baseless. (Although the Federal Circuit has sidestepped the issue several times, it has implied that the standard for sham litigation in state unfair-competition claims is the same as the standard for sham litigation in federal antitrust claims.) And here’s where Festo lends a helping hand. Prior to Festo, a plaintiff could argue that, even if it were objectively unreasonable to believe that the defendant infringed the patent under the doctrine of equivalents, the plaintiff still subjectively believed it. Because the doctrine of equivalents blurs the line between infringing and noninfringing activity, proving that the plaintiff knew that the defendant did not infringe is difficult. Festo has helped level that playing field. Under Festo, the doctrine of equivalents is not available for claim elements that were narrowed during prosecution for reasons related to patentability. The doctrine is thus less available for proving infringement and less useful to plaintiffs trying to hide their own knowledge that an infringement suit is baseless. In short, Festo should make it more difficult for plaintiffs who litigate in bad faith to hide — and easier for defendants to protect themselves. The opinions set forth here are solely those of the author and do not necessarily represent those of the author’s firm, which represents the defendant in Festo, or its clients.

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