When it comes to products that infringe on patents, retailers that sell them are just as vulnerable to legal action as the manufacturers that make them.
That became evident to five retailing giants when they were sued by the regents of the University of California this summer for selling a type of light bulb for which UC claims to hold the patents.
The product at issue is a light bulb employing filament LED technology to resemble the traditional incandescent light bulb, but lasting much longer and using 90% less energy. It was developed at the Solid State Lighting and Energy Electronics Center at UC Santa Barbara, by a team led by Professor Shuji Nakamura, winner of the 2014 Nobel Prize for Physics.
While the usual target of a patent-infringement suit is the unauthorized manufacturer of the product in question, that entity can be hard to reach through U.S. courts when it’s located outside the country. So UC has named in its lawsuit five major American retailers that it alleges are selling its patented light bulb without permission: Amazon.com, Bed Bath & Beyond, Ikea, Target Corp. and Walmart.
At the same time, at the behest of UC, the U.S. International Trade Commission has announced that it will undertake an investigation into the allegedly unauthorized importation and sales of the university’s patented LED technology.
UC calls its legal action a “first-of-its-kind” patent-enforcement campaign. It is intended to “promote respect” for the university’s patent rights, the regents said.
The action is unusual in that a university system is seeking relief from ITC, a course rarely pursued by academic patent owners. It also signals a newfound aggressiveness on the part of academic institutions to defend patents for products and technology developed under their auspices.
For global supply chains, the suit delivers the message that no party involved in the unauthorized manufacture, movement and sale of product is immune from legal action.
It’s common for universities to hold patents for products that are subsequently commercialized, notes Seth Levy, partner in the law firm of Nixon Peabody LLP, which is representing the UC regents. Technology transfer has been a function at most universities for decades, he says.
More recently, university technology-transfer offices have been doing a better job of vetting patents for products that are viable in the marketplace, Levy says. That trend tracks with the UC system’s decision to become more aggressive about enforcing its patents in the outside world.
Universities are especially vulnerable to patent infringements because academics tend to publicize their achievements in publications and lectures. Private companies, by contrast, are more apt to keep key elements of their research and development efforts under wraps.
Moreover, the private sector tends to be more aggressive in pursuing patent infringements because they threaten profits. “Universities exist in a very different environment,” says Levy. “Their main business isn’t enforcing IT. It’s education and research that benefits the community.”
Nevertheless, academic institutions are waking up to the value of their patents, and becoming more intent on protecting the fruits of their efforts. “It’s a very important trend going forward,” Levy says.
Up to now, there has only been a handful of significant cases involving charges by universities of patent infringement. While many lawsuits have involved patented technology, they have mostly been filed by private companies that licensed the universities’ intellectual property (IP). “Only in very rare cases does a university do it on its own,” says Levy.
That’s changing as universities become more aware of the value of technology transfer. It has only been a “cottage industry” since the early 1980s, Levy says, and universities have spent the last 40 yours building up their patent estates and gradually understanding the commercial implications of their inventions.
The creation of incubators, accelerators and captive funds to support IP development has prompted universities to take a fresh look at the value of their technology.
For any patent holder, it can be tough reaching violators, especially if they are located beyond U.S. borders or several tiers up the supply chain. But patents give holders the right to prevent others from make use of their inventions wherever that might occur. And that means retailers can be pulled in as defendants. “If you want to see where infringement exists,” says Levy, “you just need to go into stores and shop.”
Private technology companies are less likely to sue retailers because the latter are their direct customers, Levy notes. Universities aren’t customarily bound by that relationship.
Plaintiffs in the UC light bulb cases aren’t specifying damages. What they want, Levy says, is “license agreements with retailers where they’re paid a reasonable royalty on product sales.” The potential for retroactive damages is relatively small because the technology is so new, he adds.
Levy says UC is hoping for “very quick negotiations” that will head off an expensive and protracted lawsuit against defendants with deep pockets. But even if this case settles soon, it should serve as a long-term reminder of the tight bonds and interdependencies within global supply chains. When one partner gets hit, everyone feels the pain.
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