A jury in Delaware found that Groupon had infringed four patents belonging to IBM and awarded damages of $83 million.

IBM

IBM is one of the most prolific filers of patents in the US, spending billions of dollars on R&D each year and earning licensing revenues of approximately $1.2 billion per year (2017 figure). IBM had sought $167 million from Groupon for patents that it said were key to the Internet and e-commerce. Two of the patents map onto IBM’s Prodigy(an early generation dial-up service predating the Internet).

IBM gave evidence that it had previously negotiated with the likes of Google, LinkedIn and Twitter resulting in licences that involved payments for the patents in suit of between $20 million and $50 million. Conversely, starting in 2011, IBM had repeatedly approached Groupon seeking to negotiate a licence over several years, but Groupon had refused to agree license terms.

Groupon

Groupon is the leading e-coupon business worldwide. Groupon advanced arguments that IBM’s patents were obvious or outdated; and that IBM was attempting to make dubious claims over the core components of the Internet itself, which it could not claim to have invented.

Such arguments are reminiscent of those made against patent trolls* – particularly those asserting weak business method patents. A prominent example was Soverain Software’s claim against Newegg Inc. – concerning a patent covering the idea of a digital shopping cart, which was ultimately invalidated on appeal. It appears that such arguments did not gain much traction against IBM.

Wilful infringement

The US patent statutes provide the court with the option of increasing the damages available for patent infringement (up to treble damages), when that infringement is found to be wilful. IBM successfully argued that the fact that Groupon had continued to infringe despite IBM’s attempts to negotiate with Groupon for a licence made Groupon a wilful infringer.

The UK does not have the same concept of treble damages for wilful infringement. Article 13 of the EU Enforcement Directive (2004/48/EC) provides for damages to be awarded against an infringer who knowingly infringes or had reasonable grounds to know it was infringing, but expresses this in terms of “negative economic consequences” and “unfair profits”, but also “moral prejudice”.

The CJEU has ruled that this directive sets out a floorfor the remedies that EU member states must provide for, rather than a ceilingon those remedies (OTK v Stowarzyszenie Filmowcow PolskichC-367/15). This means that it is open to individual EU member states to implement additional damages for wilful infringement. In the UK, this has not been done for patents, however, there is provision for additional damages for flagrant infringement of copyright under section 97(2) of the Copyright, Designs and Patents Act 1988. There is however, very limited case law on the application of damages for flagrancy.

Looked at overall, this means that continuing to infringe while litigating a patent is a riskier proposition in the US than in the UK (although to the extent that this leads to additional lost sales to the patentee it will increase the measure of damages proportionately).

*A patent troll is a pejorative term for a non-practising entity (which doesn’t manufacture or sell the products protected by its patents), which aggressively assert patents with a view to monetising them. Typical indicators are that they acquire patents from third parties rather than inventing them; they make use of forum shopping in litigation; they prefer to settle claims rather than litigate them; and they assert patents against multiple defendants relying on the majority of them settling.

For more information or advice on patent infringement, please contact Nic Ruesink-Brown nic-ruesink-brown@steerandco.com.