Academic journal article Texas Law Review

The Internalization of Corporate Patent Infringement: Challenging the Federal Circuit's Approach to Corporate-Participant Liability*

Academic journal article Texas Law Review

The Internalization of Corporate Patent Infringement: Challenging the Federal Circuit's Approach to Corporate-Participant Liability*

Article excerpt

A U.S. utility patent confers on its holder the limited right to exclude others from practicing the patent's claimed subject matter. This right is guaranteed by granting patentees a broad right to pursue a federal civil action to recoup the lost economic benefit of an infringed invention. However, while patentees can, and often do, bring infringement actions against corporate defendants, their ability to join the corporate participants-the owners and agents of the corporation-has been seriously limited by the U.S. Court of Appeals for the Federal Circuit. Such a narrow view of corporate-participant liability has little basis in traditional principles of agency and corporate law. This Note illustrates the Federal Circuit's deviations from the more conventional approach and highlights some of the resultant economic inefficiencies and public policy concerns. In the end, the Note concludes that there is much that patent law can learn from common law liability theory and offers some general principles that may guide reform.

I. Introduction

In 2007, the Eastern District of Virginia entered final judgment on a jury verdict finding that Vonage Holdings Corporation had infringed several patents owned by Verizon Services Corporation.1 Although a series of appeals and intermediate stays on payment ensued,2 Vonage eventually agreed to pay damages and future royalties of up to $120 million.3 Even with the Verizon litigation settled, however, Vonage' s infringement woes were far from over. In the meantime, it was forced to settle other patent disputes with Sprint Nextel Corporation (for $80 million)4 and AT&T (for $39 million),5 which, together, caused Vonage' s share price to fall 81% and brought the corporation to the brink of collapse.6 Today, with the future continuing to look look uncertain7 for this once promising firm,8 one can not help but wonder: in the event of bankruptcy, who will pay for the corporation's irresponsible failure to avoid infringing the intellectual property rights of others? Surely not Vonage itself; it is fairly clear that under a restructuring or liquidation plan, Vonage would pay cents on the dollar owed to Verizon, Sprint, and AT&T.9 Perhaps, then, we should consider the agents and owners who steered the corporation into its infringing activities. May the uncompensated patentees seek the deficiency from Vonage's CEO, who, just last year, was paid nearly $2 million in total compensation despite the firm's sinking share price?10 May they turn to the corporate shareholders, who ultimately stood to profit the most from the corporation's reckless behavior?11

If the underlying tort in the Vonage example were anything other than patent infringement, these questions would call upon the conventional agency and corporate law doctrines that have traditionally governed the liability of corporate participants.12 These principles, developed over hundreds of years by the common law,13 are carefully designed to strike a difficult balance between competing social policies: promoting efficient look uncertain7 for this once promising firm,8 one can not help but wonder: in the event of bankruptcy, who will pay for the corporation's irresponsible failure to avoid infringing the intellectual property rights of others? Surely not Vonage itself; it is fairly clear that under a restructuring or liquidation plan, Vonage would pay cents on the dollar owed to Verizon, Sprint, and AT&T.9 Perhaps, then, we should consider the agents and owners who steered the corporation into its infringing activities. May the uncompensated patentees seek the deficiency from Vonage's CEO, who, just last year, was paid nearly $2 million in total compensation despite the firm's sinking share price?10 May they turn to the corporate shareholders, who ultimately stood to profit the most from the corporation's reckless behavior?11

If the underlying tort in the Vonage example were anything other than patent infringement, these questions would call upon the conventional agency and corporate law doctrines that have traditionally governed the liability of corporate participants. …

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