Fire first, ask questions later: The New Normal of No-Notice Patent Suits

Litigation should be a last resort, reserved for important and unresolvable issues. Abraham Lincoln, himself a trial lawyer, urged us to “[d]iscourage litigation,” and “[p]ersuade your neighbors to compromise whenever you can,” for “[a]s a peacemaker the lawyer has a superior opportunity of being a good man. There will still be business enough.”[i]

The modern patent litigation industry has turned that advice on its head; where litigation IS the business, it behooves litigants to shoot first; they ask questions later, sometimes much, much later after litigation costs have begun to pile up.  This is by design—the sue-first strategy increases a patent owner’s leverage and plays defendants off of their own counsel.

To be sure, no major jurisdiction in the world generally requires express advance notice for a patent suit, although there may be some cases where it is required.  But the patent litigation machine has normalized “fire first, ask questions later” strategy, where plaintiffs file suit without any pre-suit notice, settlement offer, or discussion oftentimes. Indeed, in the first half of 2024, nearly 1,800 patent cases were filed, with more than a third of them alleging knowledge only as of the filing or service of the complaint.[ii]

These tactics clog the court system, add pressure defendants by forcing them to rapidly defend against a complex suit, increase transaction costs, and undermine the goals of patent law to reward innovators.

The no-notice suit allows a patentee to forum shop while avoiding the risk of someone proving that their patent is invalid.[iii] No-notice suits start ratcheting up cost of defense immediately, asymmetrically—patentees have years to develop an infringement suit, find contingency counsel or litigation funding, and pounce; targeted defendants have, at most, months to respond and prepare expensive discovery.[iv]

Unfortunately, reports from practitioners confirm that Unified Patent Court has become a vehicle for these sue-first tactics. Three characteristics of the UPC make it prone to these kinds of suits. First, not only is notice not required, but patentees can be rewarded with ex parte provisional injunctions for keeping their plans secret.[v] Second, the front-loaded briefing and discovery structure of the proceedings increases a plaintiff’s leverage by putting pressure on defendants to settle quickly before fees get too high too fast.[vi] Finally, in certain circumstances, the UPC can restrict activities outside of its jurisdiction with its provisional and protective measures.[vii]  As Ambrose Bierce once famously quipped, litigation is “a machine which you go into as a pig and come out of as a sausage.”[viii] But threatening those doing business in Europe with no-notice suits was not the reason the UPC was founded.  Laws should encourage fair resolution between parties with good-faith disputes and discourage unnecessary litigation. Instead, the current framework turns those doing business in Europe into grist for the mill.

Across the pond, the United States is no better, specifically in cases involving non-practicing entities (NPEs). One perverse incentive to being an NPE in the United States is that no notice is required to obtain pre-suit damages, while companies who sell accused products and must mark products or provide actual notice to obtain damages.[ix] Up to eighty-nine percent of patent infringement cases in the United States plead inadvertent infringement, where the defendants had no notice or idea they might be infringing. [x] For example, Linfo IP, LLC has sued over 70 companies since the beginning of 2022, and in more than 80% of its complaints, Linfo itself indicates that no explicit pre-suit notice was given by the plaintiff while still claiming pre-suit damages. [xi] Similar language is included in at least half of the 346 other cases filed by one of Linfo’s attorney this year. Another frequent filer, Patent Armory, has alleged defendants’ knowledge “since being served” in about 140 complaints since the beginning of 2023.[xii] Similar language is included in over half of the nearly 500 cases filed by one of Patent Armory’s attorney this year.  There is little doubt this systematic lack of pre-filing settlement discussion was by design.

It isn’t hard to see why plaintiffs take advantage of the lack of notice laws in these jurisdictions: waiting to sue until after the defendant has developed the market for a product increases the damages purse for a prowling patentee. Portfolio collectors can wait and see what technology areas would be most susceptible and profitable in litigation, and then sue, seeking inflated damages or an injunction rather than a reasonable royalty. The current legal framework makes suing first the rational course of action for patentees.

The proliferation of no-notice suits includes cases involving standard essential patents (SEPs). A 2023 review by IAM found that in the United States, nearly a fifth of patent cases involving alleged SEPs included no mention of pre-suit communications, particularly where the asserted was unencumbered by obligations to license on Fair, Reasonable, and Non-Discriminatory (FRAND) terms.[xiii] When unencumbered NPEs file first with standard essential patents (SEPs), they threaten to disrupt the balance that the standard-setting community has long sought to maintain level negotiations between licensors and implementors. Indeed, according to one study, which used the United States as an example, over 84% of SEP continuations (and more than half of all SEPs) are filed after a standard is published, and there is a “substantial increase in continuation filings immediately after standard publication.”[xiv]

Fortunately, some decisionmakers have found this kind of conduct per se unreasonable in the context of SEP patents. Courts and licensors alike recognize that injunctions have a “‘staggering impact on the market,’” and, therefore, are a powerful bargaining chip to extract super-FRAND rates.[xv]  Standard Setting Organizations (SSOs) require companies participating in standard development to agree to offer licenses under FRAND terms. For these reasons, most jurisdictions will find abuse or a breach of contract if a SEP holder files a lawsuit seeking injunctive relief, particularly without engaging in good-faith pre-suit negotiations, may violate a company’s FRAND commitments.[xvi]

But Europe’s laws have not stopped SEP aggressors, and specifically NPEs, from pulling the trigger without notice.[xvii] NPEs who assert patents unknown to SSOs at the time of a standard’s development never agreed to license their patents on FRAND terms; therefore, while blanket declarations may not be binding without proof, they are legion. These kinds of companies can wait until companies have locked into a standard by substantially developing compliant products, only to then spring a lawsuit on implementors, claiming FRAND without actually complying.

Makers and users—the productive economy—are often caught off guard by an infringement accusation, and there is simply no way for any individual, company, or organization to know that a product is clear of risk from some of nearly 200,000 patent applications filed in Europe every year, along with the over-300,000 patents being issued every year in the United States.[xviii]

Accused infringers are usually independent innovators innocent of any wrongdoing—patent accidents are the rule, not the exception.[xix] In most jurisdictions, patent infringement requires no evidence of a guilty mind and no proof of any harm to the patentee.  And because a a patent’s value to the defendant’s labor and risk-taking, no matter how little was invested to obtain the patent, there is simply no reason for patentees not to leverage high-cost lawsuits to obtain inflated settlements. The current framework of no-notice suits is undermining patent law’s goal to encourage innovation by punishing companies for not knowing the unknowable while simultaneously rewarding patent owners for hiding as much about their technology as possible before filing suit.

Endnotes and Citations

[i] Abraham Lincoln’s Notes for a Law Lecture, available at https://www.abrahamlincolnonline.org/lincoln/speeches/lawlect.htm

[ii] To ascertain this, I used a document filtering tool that identified complaints using common language for asserting knowledge of the patent as of the time of the complaint (e.g., “as early as the filing”) and removed any documents that used the word “amended” to quickly avoid double counting. The real number may be much higher. For example, some complaints use the word “amended” by mistake while others use unique phrasing of the same language, and these would not have come up in the search. And allegations of knowledge are absent altogether from many complaints. Additional research is necessary to ascertain the frequency of no-notice suits in other jurisdictions.

[iii] And some jurisdictions like the United States, forum shopping is rewarded: even if the patentee knows a case is likely to be transferred to a different jurisdiction, defendants bear the majority of transfer costs.

[iv] See, e.g., Virtuoso Legal, IP Insight: Patent Litigation, Statute of Limitations for Damages, (Jan. 24, 2022), available at https://www.virtuosolegal.com/insight/ip-insight-patent-litigation-statute-of-limitations-for-damages/ (comparing statutes of limitations for European countries, which range from 3–6 years); China National Intellectual Property Administration, Patent Law of the People’s Republic of China (Translation for Reference Only), (Oct. 13, 2022), available at https://english.cnipa.gov.cn/col/col3068/index.html (Article 74, statute of limitations is three years); Justia, Time Limits in Patent Infringement Lawsuits (Oct. 2023) available at https://www.justia.com/intellectual-property/patents/infringement/time-limits-in-patent-infringement-cases/ (35 U.S.C. § 286 sets six-year statute of limitations on damages in the United States).

[v] Unified Patent Court, Frequently Asked Questions: Provisional and protective measures, available at https://www.unified-patent-court.org/en/faq/provisional-and-protective-measures.

[vi] Matthew Howell, Proceedings at the UPC: How to prepare and what to expect, Haseltine Lake Kempner LLP (May 15, 2024), available at https://www.hlk-ip.com/upc-unpacked-how-to-prepare-and-what-to-expect/.

[vii] Unified Patent Court, Frequently Asked Questions: Provisional and protective measures, available at https://www.unified-patent-court.org/en/faq/provisional-and-protective-measures.

[viii] Abrose Bierce, The Devil’s Dictionary (1906).

[ix] Arctic Cat Inc. v. Bombardier Recreational Prods. Inc., 950 F.3d 860, 863–64 (Fed. Cir. 2020).

[x] Patrick R. Goold, Patent Accidents: Questioning Strict Liability in Patent Law, 95 Indiana L. J., no. 4, 1075 (2020) (“Recent empirical evidence hints that perhaps as much as eighty-nine percent of litigated patent infringements are unintentional and inadvertent.”).

[xi] See, e.g., Linfo IP, LLC v. Brompton Bicycle, Inc., No. 1:24-cv-05787, Doc. 1, ¶ 15 (E.D.N.Y. August 19, 2024) (“Plaintiff is a non-practicing entity, with no products to mark. Plaintiff has pled all statutory requirements to obtain pre-suit damages.”); ¶ 12 (indicating that the defendant has known of the asserted patent “from at least the filing date of the lawsuit” and included a footnote preserving the right to amend the Complaint to assert the patent if “discovery reveals and earlier date of knowledge.”).

[xii] See, e.g., Patent Armory Inc. v. HealthMarkets, Inc., No. 2:24-cv-00028, Doc. 1, ¶¶ 32, 34 (E.D. Tex. Jan. 19, 2024).

[xiii] Aaron R. Fahrenkrog et al., Data Shows most SEP holders send pre-suit demand letters – for good reason, IAM Media (Nov. 28, 2023), accessed via https://www.robinskaplan.com/-/media/pdfs/publications/data-shows-most-sep-holders-send-pre-suit-demand-letters-for-good-reason.pdf?la=en.

[xiv] Cesare Righi and Timothy Simcoe, Patenting Inventions or Inventing Patents? Strategic Use of Continuations at the USPTO, National Bureau of Economic Research (Jan. 2021), available at https://www.nber.org/system/files/working_papers/w27686/w27686.pdf  (accessed Aug. 27, 2024).

[xv] Huawei Technologies, Co., Ltd. v. Samsung Electronics Co., Ltd., 2018 WL 1784065, *10–11 (N.D. Cal. Apr. 13, 2018) (quoting then Vice President of Huawei, Jianxin Ding).

[xvi] See Huawei v ZTE Corp., Case C-170/13 at ¶ 51 (“[T]he patent at issue obtained SEP status only in return for the proprietor’s irrevocable undertaking, given to the standardisation body in question, that it is prepared to grant licenses on FRAND terms.”); Microsoft v. Motorola, 795 F.3d at 1049 (observing that in exchange to its “promises to the ITU to license its standard-essential patents worldwide to all comers,” Motorola “received the benefit of having its patents implicated in the standards.”); Realtek v. LSI, 946 F.Supp.2d. at 1006 (“[T]he act of seeking injunctive relief . . . is inherently inconsistent and a breach of defendants’ promise to license the patents on RAND terms.”); Microsoft Corp. v. Motorola, Inc., 795 F.3d 1024, 1049 (9^th Cir. 2015) (upholding jury finding of contractual violation of FRAND commitments based on German suit for injunction offered only as a prelude to the injunctive relief licensor actually wanted); but see Sisvel International S.A. v. Haier Deutschland GmbH, Case No. KZR 36/17 (FCJ, 2020) (no abuse in seeking lawsuit if licensee does not unequivocally state that it is willing to license the patent on FRAND terms, even if original offer is not FRAND).

[xvii] Jessica Marks, European Patent Litigation and Non-Practicing Entities: A Large and Looming Threat, JUVE Patent (June 13, 2024), available at https://www.juve-patent.com/sponsored/unified-patents-llc/european-patent-litigation-and-non-practicing-entities-a-large-and-looming-threat/.

[xviii] United States Patent and Trademark Office, U.S. Patent Statistics Chart Calendar Years 1963 – 2020, available at https://www.uspto.gov/web/offices/ac/ido/oeip/taf/us_stat.htm; see also Veera Korhonen, Number of Patents issued in the United States from FY 2000 to FY 2023, Statista (Jul. 5, 2024), available at https://www.statista.com/statistics/256571/number-of-patent-grants-in-the-us/.

[xix] Patrick R. Goold, Patent Accidents: Questioning Strict Liability in Patent Law, 95 Indiana L. J., no. 4, 1075 (2020) (“Recent empirical evidence hints that perhaps as much as eighty-nine percent of litigated patent infringements are unintentional and inadvertent.”).