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Publications | July 19, 2016
4 minute read

New IP Strategies for Automotive Suppliers: Leveraging the America Invents Act

Since the American Invents Act (AIA) was signed into law in 2011, many successful IP strategies have been developed in view of new administrative review procedures and their benefits. However, conventional strategies ignore greater opportunities in the automotive industry and its supply chain.

AIA Trial Benefits

Inter partes review (IPR) has been utilized ubiquitously by alleged infringers as an adjunct to patent litigation. Generally, if an alleged infringer is sued in district court, the alleged infringer will request IPR of the patent owner’s asserted patent (assuming there is a basis in prior-art printed publications for invalidity). There are myriad benefits for alleged infringers to be in an AIA trial as opposed to district court, even relative to the same defenses and positions of invalidity.

Specifically, district courts generally construe patent claims to maintain validity. In addition, patent claims enjoy a presumption of validity in district court, and invalidity must be established by clear and convincing evidence. None of this is the case in AIA trials. Instead, the Patent Trial and Appeal Board (PTAB), which handles IPR at the U.S. Patent & Trademark Office, gives patent claims their broadest reasonable claim construction. When claims are construed broadly, there is increased likelihood of invalidating prior art (due to expanded claim scope).

Further, there is no presumption of validity of patent claims in AIA trials, and invalidity need only be established by a preponderance of the evidence. Not only are there procedural advantages to AIA trials, but AIA trials also have an expedited timeline as compared to litigation (typically 18 months to final disposition).

However, AIA trials have significance for automotive parts suppliers beyond infringement trials, even if not accused of any alleged infringement.

Cooperating With Other Businesses to Block “Troubling” Patents

Suppliers and OEMs have at times cooperated in invalidating troubling automotive patents for collective benefit. For example, in 2011, Beacon Navigation GmbH (Beacon) asserted infringement of one of its patents relating to vehicle navigation systems by a number of OEMs and suppliers. Denso Corporation and Clarion Co. Ltd., automotive suppliers not sued by Beacon, requested IPR (IPR2013-00026) of the asserted patent. The asserted patent was found anticipated and unpatentable by the PTAB, thus providing a collective, desirable result for much of the industry as whole.

Beacon is a non-practicing entity (NPE), which means that Beacon does not actually make and sell products in the United States, including the navigation systems of interest to Beacon’s asserted patent. It is likely that Beacon’s status as an NPE influenced the cooperation associated with invalidation of Beacon’s asserted patent, as there is no business or supply relationship associated with an NPE impacted by such a strategy. There are a number of additional examples of cooperation and collective action via an AIA trial to invalidate patents held and asserted by NPEs in the automotive industry.

Reducing Platform Costs and Opening Supplier Options

The strategy used in Beacon’s example may potentially be employed against patent owners who are conventional suppliers and practicing entities, or non-NPEs. Given that there is at times an adversarial relationship between OEMs and their suppliers, OEMs may individually or collectively seek to invalidate suppliers’ patents as a means for reducing platform costs and use of alternative suppliers (who may otherwise be unable to supply certain components based on competitors’ patents).

In fact, AIA trials could also be relied upon in or to disrupt supply chain disputes or negotiations, as prices, licenses, royalties, and other aspects of such disputes or negotiations are often driven by the existence of intellectual property, including patents. A supplier may be able to obtain patented components from a different source for a lesser cost if the patent associated with the patented components were obviated (or perhaps even after a mere threat of invalidation with sufficient basis) via an AIA trial.

It is also expected that the rate of AIA trials in the automotive industry will increase significantly with the patenting and ultimate commercialization of autonomous vehicles, particularly with Silicon Valley’s ostensible role in such development.

As such, AIA trials should not merely be regarded as a defense when facing threats or allegations of infringement. Instead, strategy associated with AIA trials should be at least considered when negotiating supply or purchase agreements with suppliers or OEMs. As always, landscaping the state of the art and understanding your competitors’ IP strategies provides significant benefit, including when contemplating whether an AIA trial should be considered