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Business Law Today

July 2024

Informal Resolution of Patent Disputes through Amazon’s APEX Program: Do You Want the Good News First, or the Bad News?

Robert Payne

Summary

  • Amazon’s APEX program offers a new, inexpensive weapon for patent owners. The owner asserts one patent claim against another Amazon seller, who must agree to neutral “arbitration” or file a declaratory judgment action.
  • However, this procedure can backfire on the patent owner. Contrary to normal procedure, the seller can file the declaratory judgment suit in its “home court,” under the recent SnapRays v. Lighting Defense Group decision.
  • If the seller sits in a district that robustly acts on motions to dismiss weak patent cases—e.g., the Northern District of California—the patent owner’s resort to APEX could lead to early defeat.
Informal Resolution of Patent Disputes through Amazon’s APEX Program: Do You Want the Good News First, or the Bad News?
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As business transaction or litigation counsel, you will be the initial line of contact in a patent dispute. You will have the first conversations with the client, and probably opposing counsel. When the dispute involves accused products sold through Amazon, you will want to keep the APEX program, and its potential drawbacks, in mind as an early, less expensive alternative to drawn-out patent litigation.

Under Amazon’s Patent Evaluation Express (APEX) program, a patent owner initiates its claim against a seller on Amazon’s platform by submitting an APEX agreement form identifying the seller and a claim of one patent, which may be asserted against as many as twenty Amazon-listed products. Amazon sends the agreement to the accused seller, who has three alternatives: (1) agree to continue in the APEX proceeding and have a neutral evaluator make a decision; (2) informally resolve the claim directly with the patent owner; or—significantly here—(3) file a lawsuit for declaratory judgment of patent invalidity and noninfringement against the patent owner. Failure to respond is not an option. If a seller does not act within twenty-one days, Amazon will simply remove the seller’s product listing, thus ending its sales through Amazon.

The APEX program, formally launched in 2022, is a new weapon for patent owners. It provides a low-cost, expedited option for patent owners to prevent infringing sales on Amazon’s platform. For clients who think they can’t afford patent litigation, that’s the good news.

However, here’s the bad news: Sometimes, patent owners wind up in the decisively “wrong” court anyway because they invoked APEX, which the owners could have avoided.

So, what’s the rub? It’s the third, “declaratory relief” option.

What usually happens in declaratory judgment actions?

Outside the APEX system, the rules for patent infringement cases in federal court are well established. Suppose the seller is located in my home district, Northern California, and the patent owner is a Delaware corporation, doing business there. The patent owner must sue the accused infringer in the latter’s state of California. If the accused infringer chooses to initiate suit instead, in order to request declaratory relief that it is not infringing, it must generally sue the declaratory defendant patent owner in Delaware, the owner’s state of incorporation. The rationale is that the patent owner must purposefully have availed itself of the benefits of the seller’s jurisdiction, which is not satisfied by its sending a mere cease-and-desist letter. In other words, under the established pattern, the initiating party does not get to sue in its own home district, in either case.

The SnapRays decision.

The APEX procedure likely changes that result. In the May 2024 decision of SnapRays v. Lighting Defense Group, No. 2023-1184 (Fed. Cir. May 2, 2024), a Delaware-based patent owner initiated an APEX enforcement proceeding against a Utah-based alleged infringer. The seller opted for “door number three”: It filed a declaratory relief action of noninfringement. Contrary to usual practice, however, the seller did not file suit in the patent owner’s home state of Delaware. Instead, the accused infringer filed in its own home state of Utah. After appeal, the Federal Circuit Court of Appeals upheld this forum choice.

The court reasoned that, by initiating an APEX proceeding, the patent owner had purposefully directed its enforcement activities at the accused infringer in Utah by affecting its sales and marketing in Utah through the Amazon platform. Foreseeably, Amazon would notify the accused infringer and inform it of its options, and the accused infringer’s Amazon listings could be removed, injuring its marketing, sales, and other activities within Utah.

So, under APEX, the patent owner loses its right to be sued only in its home state in a declaratory relief action. As in other distant litigation matters, some inconvenience is incurred. The patent owner will have to hire remote counsel to defend its patent in the distant district court. It must bring its witnesses to that forum. It must accept any “home court” advantage the suing party may have with a sympathetic judge or jury.

If the standards for proceeding ahead with a patent infringement case were the same in each federal district, that would be no big deal. But what if the standards differ? What if it’s easier to knock out a patent infringement case in one’s home district than that of the patent owner?

The APEX program changes the declaratory judgment landscape after SnapRays.

APEX poses a potentially more significant disadvantage for the patent owner. In our example, the Northern District Court of California would be the forum chosen by the accused infringer, rather than submitting to Delaware. The Northern District of California is significantly more likely to grant motions to dismiss patent infringement cases than one would face in most other active districts. Defendants, in other words, can sometimes wield a unique “knockout” weapon there.

In the old days of required “Form 18” pleading, motions to dismiss patent infringement cases were virtually nonexistent. In 2015, that gave way to current fact pleading requirements. Under the Twombly/Iqbal standards, a plaintiff must plead facts that plausibly could entitle it to relief, rather than mere recitation of the elements of infringement. In patent cases, motions to dismiss arise based on arguments that either there is no subject matter eligibility (an Alice challenge) or a critical element of the asserted patent claim is not alleged and cannot be. Different district courts apply the standards differently, at least statistically.

In a 2020 study, for example, the difference was stark. A motion to dismiss on eligible subject matter succeeded 86 percent of the time in the Northern District of California, but only 48 percent of the time in the District of Delaware and zero percent in the Eastern District of Texas. This no doubt is due not simply to a given judge’s predilections but also to emerging case law developing in each district for such pleading standards.

Similarly, rulings have diverged on how much must be pleaded to satisfy the Twombly/Iqbal standard. A Northern District of California patent complaint may be dismissed based on intense scrutiny of the allegations of a key element. This evolved from the district’s dismissal practice, requiring “factual allegations that the accused product practices every element of at least one exemplary claim.” In the Eastern District of Texas, it may be sufficient simply to identify the accused product and to give merely “fair notice” of the nature of the factual issue. Likewise, in the District of Delaware, recent cases have not been overly demanding of the allegations. The dilemma for patent owners is, sometimes the greater specificity required in pleading is more than a “do-over” nuisance. Instead, the more specific pleadings invite greater scrutiny into whether a particular patent claim element really exists in the accused product, thus leading to increased dismissals at the earliest stages of patent litigation.

So, the takeaway for both patent owners and accused infringers is clear: While patent owners and accused infringers should consider resolving their dispute through the APEX program, a pitfall looms for the former and an opportunity may appear for the latter. If the accused seller sits in a district that robustly dismisses poorly pleaded infringement claims, plaintiff’s counsel must tread carefully, and defense counsel should think boldly. This is especially so if the patent infringement case is weak: Then the choice of district may make a considerable difference, in both case viability and settlement value.

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