by Nicole D. Galli
One of the things I like best about being an intellectual property (IP) lawyer is that it is never static. Our clients include innovators and creators, who are creating disruption in their fields. But, as the latest developments in generative AI have shown, even our more established clients need to pay close attention to what’s coming next, especially in technology, as there are sometimes innovations that affect all areas of our economy and society.
All of our clients thus need us to know not only what is happening now but to be aware of what might be coming next that can impact their IP and their businesses (Exhibit A, QIS – quantum information science, which our team wrote about recently). Along with that, we need to be constantly innovating in how we help clients protect their inventions, creations and businesses not only now, but in the future. As legal development necessarily lags behind innovation, we are thus always busy studying and learning, and collaborating with legal industry colleagues to brainstorm how current statutes and laws should apply to the situations presented by these new innovations and to identify areas where current law falls short and new legal solutions may be required.
One of the areas in which innovation is occurring is in the tools that IP owners can use to protect their assets. Some of these come from the government, such as the new Copyright Claims Board, which, from early reports, is working out well for copyright owners with “small claims” of copyright infringement (more on that in a future blog post). Another relatively new tool is the Amazon Patent Evaluation Express (APEX) program, which is available to Amazon sellers who are enrolled in the Amazon Brand Registry. According to Amazon, “[APEX] brings in neutral third-party evaluators who are attorneys skilled in patent analysis, to decide whether an asserted utility patent is infringed.” Piloted in 2018, the program relaunched about a year ago for all Amazon sellers who are members of Amazon’s Brand Registry (which requires a seller to own a registered trademark that they have listed with Amazon).
The APEX program is fairly easy to initiate (with submission of a relatively simple form) and has the benefit of being able to target any Amazon seller on-line, even unknown foreign entities. Once initiated, Amazon advises the accused infringing seller of the complaint and the process. The accused infringer has a period of time in which to agree to participate. If the accused infringer does not agree to participate in the program and/or simply doesn’t respond, it is considered a default and the accused product is removed from sale.
If both parties agree to the process, however, each submits a deposit of $4,000 and a patent lawyer (neutral evaluator) is assigned to the case. Over the next 60 days, the parties each have an opportunity to provide written submissions to the neutral, who then renders a decision as to infringement based on the submission received (no independent investigation is conducted). If the accused product is found to infringe, it is removed from sale on Amazon. The winner has their fee refunded. There are no appeals within the APEX program.
There are many pros and cons to the APEX program. For patent owners, the pros appear simple – it is a quick, inexpensive and potentially effective tool for combating infringement that, if successful, can lead to a take-down of the accused product for a filing fee of $4,000 (plus legal fees of course). There are cons – some will be discussed below – but one notable one is that this only applies to utility and not design patents. In addition, while a favorable outcome will be useful in future proceedings on Amazon, it has no preclusive effect in a court proceeding (which is also a pro – if the patent owner loses), although could have evidentiary impact as discussed below.
For accused infringers, it is a bit harder to see the benefit, as many of the normal defenses – most especially invalidity – are not generally available and there is no ability to appeal within the program itself. There have been reports that some sellers are abusing this process and submitting fraudulent information leading to successful outcomes. In such situations, some sellers have headed to court, alleging tortious interference, such as in Mercasia USA Ltd. v. 3BTech, Inc., Case No. 3:17-CV-718-JD-MGG, 2020 WL 3529821 (N.D. Ind. June 30, 2020).
How is APEX working so far?
We conducted research on-line and among our colleagues to see how this program has been working in real life and what some of the outcomes are, at least from the perspective of patent owners. Here is a summary of those findings:
In an ideal scenario (for the patent owner), the accused infringing seller participates and the patent owner wins. Then, once faced with an adverse APEX ruling and having their product taken down from sale on Amazon, the accused infringing seller may decide it is not worth the hassle to continue to try to sell the accused products there (or anywhere) and move on. This is the home-run of outcomes for the patent owner and happens, on occasion.
If you are the accused infringer in that scenario, and disagree with the outcome, you cannot appeal within the APEX program, but you can go to court and seek a declaration of non-infringement and/or a declaration that the patent is invalid. (Of course, if you are the patent owner and lose in the APEX program you can also seek a “do-over” in court.)
In fact, some well-capitalized defendants may fight back in court immediately – filing either tortious interference claims, as noted above, or filing suit for a declaration of invalidity if they feel that is their best defense to the infringement claim. There have been several well publicized examples of this.
In many cases, the accused infringing seller does not respond, and the products are thus taken down. This could be a short-lived victory, however, as the products could pop-up elsewhere with a “new” seller, leading to a game of “wack-a-mole”. How much of a concern this is depends on how difficult it would be for the same (or a new) seller to pop up elsewhere (getting a lot of reviews for example are essential to success on Amazon, discouraging a seller from just starting over). Also, this is a situation where having a prior favorable ruling from the APEX program could be helpful when new sellers pop-up.
In some cases, the accused seller may reach out and seek to settle, perhaps by paying a licensing fee. For some patent owners, particularly if their patent is not that strong or they are not selling a lot of product on Amazon, this may be an acceptable solution and a nice source of passive income.
As noted above, even if successful in the APEX program, that of course does not ban the accused infringer from selling outside of Amazon. If the sales off the Amazon platform are significant, then, it may be a much better choice to immediately file suit in federal court or, perhaps, the International Trade Commission and obtain a global resolution. One can then, of course, take that judgment and enforce it on Amazon.
At the end of the day, whether or not the APEX program makes sense for the patent owner depends a lot on where they are in their business life-cycle. For start-up businesses, the Amazon platform is often a key source of sales and revenue. Blocking knock-offs on Amazon can thus be a critical element of their future success. Typically start-ups do not have the financial resources to fund a full patent infringement suit, and lack the staffing resources to support the burden such a suit places on a business. They also may not want to expose their patents directly to an invalidity challenge so early in their life-cycle. In such situations, the APEX program can be an ideal tool to squelch infringing competition without breaking the bank or draining serious attention away from growing the business.
Possible risks of pursuing infringers through APEX
But pursuing an infringer through the APEX program is not without risk. The potential for adverse – and unintended – consequences is real. Patent owners should think through all their options carefully before proceeding, obtaining advice from a patent litigator and prosecutor before proceeding. One of the areas where a patent litigator can assist is by investigating the seller and evaluating how likely they might be to file a counter-suit in federal court. The patent team can also weigh in on the strength of the patent, its susceptibility to validity challenges, and the viability of the infringement claim itself. All other options – including those as simple as issuing a cease and desist letter and the viability of securing litigation funding for a traditional patent infringement case – should also be considered as in any patent infringement case.
And, of course, even if the decision is made to proceed in the APEX program, it is still critical that the patent owner have assistance from its patent team in crafting all of its submissions. Even though an APEX decision is not binding later in federal court, it is likely that any statements made during the process will be discoverable and could be considered binding admissions in future litigation – whether against this particular accused infringer or others.
Thus, although simple to start and seemingly “easy” and inexpensive to pursue on its face, the APEX program, like all IP enforcement tools, needs to be fully and carefully evaluated before use and should be executed with proper legal counsel involved.
ND Galli Law thanks co-op student Brandon Robilotti for his research contributions to this blog post.