October 2019 Newsletter

Vol 12, Issue 3

Navigating Patent Infringement Complaints in Online Marketplaces

By Ryann H. Beck and Melissa L. Kleine

Amazon and other online marketplace providers are facing increasing pressure from both patent rights holders and third-party sellers that use the marketplace to provide mechanisms for policing patent infringement that are both effective and fair. Patent rights holders are concerned that marketplace providers are insufficiently responsive to reports of infringing listings. Meanwhile, sellers complain that their lawful sales are blocked by baseless infringement assertions by their competitors and assertion of invalid patent claims.

Historically, the IP policies and takedown procedures implemented by marketplace providers have been primarily tailored to copyright and trademark enforcement. This may be due, at least in part, to the legal and technical knowledge that is often required to assess patent infringement claims. Until recently, marketplace providers have tended to handle patent infringement assertions by connecting the patent owner with the seller under the assumption that the parties will resolve the issue on their own, or summarily removing listings upon receiving a takedown request asserting infringement of an issued patent claim. This gives significant deference and power to patent owners, and complaints have mounted from sellers of abuse by patent owners.

However, some marketplace providers are working toward developing fair and appropriate procedures for handling patent infringement claims against sellers. Naturally, given its dominant position, Amazon is leading the pack in developing mechanisms for handling patent infringement claims. In 2018, Amazon accounted for nearly 50% of all U.S. online retail sales, and as Amazon sales have grown, so too have sales through Amazon Marketplace, Amazon’s platform for third-party sellers. In a letter to shareholders this past April, Jeff Bezos noted that the percentage of Amazon sales by third-party sellers had risen from a mere 3% in 1999 to 58% in 2018.

Fortunately, Amazon has taken note of the intellectual property risks and potential abuses inherent to third-party marketplaces, and has begun standardizing a dispute resolution process for patent owners seeking to enforce their patents. Starting in fall of 2018, Amazon quietly implemented the Utility Patent Neutral Evaluation Process as a pilot program aimed at fairly addressing patent infringement complaints arising out of third-party sales. Under the Neutral Patent Evaluation process, a patent owner has the option to pursue takedown of up to 50 listings of potentially infringing products in a single action, although the patent owner is limited to the assertion of a single patent claim per action. The merits of the infringement complaint are examined by a neutral evaluator trained in patent law that is appointed by Amazon. Further details of the program are provided in the section below.

Other marketplace providers are developing their own procedures for handling assertions of patent infringement. Alibaba dominates the e-commerce landscape in China, and continues to grow internationally, including its sites directed to consumers outside of China: Alibaba.com and AliExpress. Alibaba.com is a wholesale business to business (B2B) marketplace for manufacturers and resellers who trade in large order quantities, while AliExpress operates under a business to consumer (B2C) model.

Although the formal policies for Alibaba.com do not explicitly include patent infringement in its explanation of enforcement processes for IP violations, the corresponding policies for AliExpress describe that alleged design, utility model, and invention patent right infringements may be submitted through Alibaba’s IP Protection (IPP) Platform. Upon submitting proof of identity and patent ownership, as well as hyperlinks of allegedly infringing listings, Alibaba evaluates the claims submitted through the IPP Platform and takes appropriate action, including the removal of listings, posting restrictions, and account suspension. To deter repeat infringement, AliExpress implements a point system where sellers whose listings are taken down as a result of a patent infringement complaint accrue penalty points, and the seller’s membership is terminated upon accrual of a threshold number of penalty points.

In addition, certain rights holders registered on the IPP Platform may take advantage of the Good-faith Takedown Mechanism implemented by Alibaba in 2018. Upon demonstration of a favorable history of successful takedowns for a large number of complaints, the Good-faith Takedown Mechanism processes complaints on a priority basis to increase enforcement efficiency. Accounts admitted to the Mechanism also enjoy simplified procedures for proving infringement.

Etsy also provides mechanisms for patent enforcement against sellers on its platform. With a focus on handmade items including jewelry, furniture, and household goods sold by 2.1 million crafters and artisans, Etsy’s consumer to consumer(C2C) marketplace may be particularly susceptible to infringement complaints by design patent holders. Etsy’s Intellectual Property Policy states that it will remove material cited for alleged infringement when provided with a proper notice, including identification of the patent owner and utility or design patent number, as well as hyperlinks of the allegedly infringing listings. All infringement matters are handled on case-by-case basis, and selling privileges are terminated at Etsy’s discretion, although Etsy also reserves the right to take action against parties it believes to be abusing the reporting policy.

eBay lags its competitors in processes for responding to patent infringement claims despite being the second largest U.S. online retailer after Amazon, making up 7% of all U.S. online sales. eBay’s Verified Rights Owner (VeRO) program permits IP owners to report listings that allegedly infringe many types of IP, including trademark, copyright, and a celebrity’s right of publicity. However, eBay’s enforcement mechanisms for owners of design and utility patents are highly limited. They generally require that holders of patents, including U.S. utility and design patents, must provide a court order demonstrating a finding of infringement (though narrowly tailored takedown procedures are provided for holders of a registered design right in Europe, Asia, Australia, or New Zealand). Thus, patent rights holders must pursue other (costly) remedies before initiating takedown procedures with eBay. Whether eBay will update these policies to reduce the burden on patent holders and bring their procedures more closely in line with those of other online marketplaces remains to be seen.

Overview of Amazon’s Utility Patent Neutral Evaluation Process

As mentioned above, Amazon has stayed quiet about the Neutral Patent Evaluation process during the pilot period, and it remains to be seen whether it will be officially launched. The procedure below is therefore subject to change, although the current procedure is instructive in its attempts to balance the rights of both the patent holder and the seller.

The process is of limited scope, duration, and cost compared with other enforcement mechanisms, namely patent infringement litigation. There is no discovery, hearing, or trial, and the only remedy available to the patent owner is the removal of listings found to be likely infringing the patent. The process begins when the patent owner submits an evaluation agreement to Amazon which establishes the patent owner’s identity and the patent to be evaluated. Only U.S. utility patents are eligible, and patent owners must identify only one claim for evaluation per submitted evaluation agreement.

Amazon then forwards the agreement to the seller of each accused listing. The seller has the option of removing the listing or supplying contact information and returning the agreement. If the accused seller decides not to voluntarily remove the listing, Amazon selects a neutral evaluator from a list of experienced patent attorneys, and both the patent owner and the seller pay a deposit of $4,000 directly to the evaluator. The losing party relinquishes their $4,000 payment, which covers the evaluator’s fee. The winning party’s payment is refunded, and no other attorney’s fees or costs are awarded.

Once the evaluator has received payment from each involved party, the patent owner has 21 days to submit initial arguments, the seller has 14 days to respond, and the patent owner has 7 days for a final reply. No other submissions to the evaluator are permitted. The patent owner is allotted 20 pages between its two submissions, and the seller is permitted 15 pages. Claim charts and exhibits are not counted against page limits, although submissions of physical exhibits are not permitted. Each submission must be emailed to both the evaluator and the opposing party, and failure to timely make a submission results in a finding against the party and forfeiture of the $4,000 payment.

Seller defenses are limited. In order to retain a listing, the seller must establish one of the following: 1) the seller’s accused product fails to meet one or more limitations of the claim under evaluation; 2) the patent claim is unenforceable or invalid as established by court order, the USPTO, or the U.S. International Trade Commission (ITC); or 3) the accused product was on sale a year or more before the asserted patent’s earliest effective filing date. Arguments presenting invalidating prior art cannot be submitted.

The evaluator announces a decision within 14 days of the patent owner’s reply. If the evaluator finds that the patent owner is likely to prove that the accused listing infringes the patent, Amazon will remove the listing within 10 business days of receipt of the evaluator’s decision. If the evaluator finds that the patent owner is not likely to prove that the accused listing infringes the patent, no action is taken as a result of the evaluation. After the evaluator announces a decision, the participants are not permitted to contact or question the evaluator regarding the reasoning of the decision.

Although there is no appeal process after the evaluator’s decision, if any participant subsequently obtains a judgment or order that contradicts the evaluator’s decision, the participant may submit the judgment or order to Amazon. Upon receipt, Amazon will either remove or re-post the listing as appropriate.

Amazon’s effort to tackle patent infringement with a third party evaluation procedure is interesting and appears to be unique in the online retail space. It remains to be seen whether Amazon will formally implement this Neutral Patent Evaluation Process and, if so, whether any adjustments will be made to the procedures used in the pilot program. Either way, other online marketplace providers and Amazon’s participants, alike, are watching closely to see whether use of a third-party arbitrator is an effective way to address patent infringement in an online marketplace arena.

Melissa L. Kleine Joins Andrus

In September, Melissa L. Kleine joined Andrus Intellectual Property Law's Milwaukee office as an associate.

Melissa focuses her practice on domestic and international patent prosecution. She counsels clients regarding patentability and infringement issues across a wide variety of mechanical and electromechanical technologies. Before joining Andrus, Melissa gained experience as a patent law clerk and patent associate at a large international law firm.

Melissa earned her law degree from Marquette University Law School (J.D., cum laude). While at Marquette, Melissa was a member of the Marquette Law Review and the Pro Bono Honor Society.

Prior to attending law school, Melissa graduated from the University of Wisconsin-Madison (B.S.) with majors in engineering mechanics with astronautics and political science. She subsequently worked for several years as a mechanical design engineer for an avionics manufacturer.

Melissa is admitted to practice in Wisconsin.

Andrus Sponsors MBA Golf Outing Benefiting the Milwaukee Justice Center

In August, Andrus Intellectual Property Law sponsored the Milwaukee Bar Association’s golf outing benefiting The Milwaukee Justice Center (MJC).