Amazon Institutes New Patent Dispute Program

Tarter Krinsky & Drogin LLP

Often, an Amazon seller accused of patent infringement finds itself in a frustrating predicament. The seller receives an email from Amazon notifying it that the seller’s product is being removed from the site and stating that if the seller believes that the infringement allegation is incorrect, the seller should directly contact the patent owner.

Not surprisingly, the seller’s or its attorney’s good faith explanation as to why there is no infringement often falls on deaf ears. And, the seller’s appeals to Amazon for assistance in rectifying the situation are usually fruitless. At that point, the seller has two options - either accept that its product is banned from Amazon or commence a federal court action requesting a declaration the product does not infringe the asserted patent. Not only is the litigation option expensive, there is a high likelihood that the patent owner will file a counterclaim for infringement and damages based on the sales of the accused product. Making matters worse, unscrupulous patent owners, aware of the seller’s predicament, have used it to their advantage by making meritless patent infringement assertions against competitors’ products sold on Amazon, resulting in the competitor’s product being taken down and no desirable recourse.

Earlier this year, Amazon introduced a pilot program that may remedy this situation in a way that benefits both patent owners and Amazon sellers. Under Amazon’s Neutral Patent Evaluation program, patent owners and Amazon sellers can have their disputes determined by a neutral evaluator selected by Amazon in a streamlined and low-cost proceeding. The program is limited to claims of infringement of utility patents and is currently by invitation only.

The procedure is initiated when the patent owner submits an Amazon Utility Patent Neutral Evaluation Agreement, in which the patent owner provides information regarding the accused Amazon Standard Identification Number (ASIN) and the asserted patent. Making the proceeding more efficient for patent owners is that one evaluation proceeding can include multiple sellers of the same product. Amazon then sends the Neutral Evaluation Agreement to each seller offering the accused products on Amazon and gives each the option of: (i) executing and returning the Evaluation Agreement within three weeks, with all requested information or (ii) having their listings of the accused products removed from Amazon. If a seller does not agree to participate in the evaluation or does not comply with the agreement, Amazon removes the seller’s listings for the accused products.

All parties to the evaluation are required to pay the evaluator $4,000. This weeds out bad faith claims made by patent owners as well as sellers that have weak non-infringement claims. If the patent owner fails to pay the $4,000 to the evaluator within the required time, the evaluation does not proceed. Notably, the Neutral Evaluation rules do not provide for what happens to the listings for the accused products in the event that the patent owner fails to pay the evaluation fee. Presumably, the listings remain up. If a seller does not submit its $4,000 within the required time, Amazon will take down the seller’s listings for the accused products. Further encouraging only strong claims and defenses, the prevailing party’s $4,000 is refunded at the conclusion of the evaluation.

Once the parties submit their fees, the evaluator sets a briefing schedule. Under the Neutral Evaluation rules, the patent owner is given twenty-one days to submit its initial arguments; the seller has fourteen days to respond; and the patent owner has seven days to submit an optional reply. There is no discovery, trial or hearing. Further streamlining the proceeding is that the patent owner is permitted to assert only one claim from the asserted patent against the accused product; and the seller’s defenses are limited to (i) non-infringement, (ii) invalidity or unenforceability based on an order or judgment of a United States court, the United States Patent and Trademark Office or the International Trade Commission and (iii) invalidity based on independently verifiable evidence that the seller’s product or a physically identical product was on sale one year or more before the asserted patent’s earliest effective filing date.

After the parties’ papers are submitted, the evaluator has fourteen days to announce its decision. The evaluator can either find that the patent owner is likely to prove that the accused product infringes the asserted patent claim or that the patent owner is not likely to prove that the accused product infringes the asserted claim. Under the Neutral Evaluation rules, the evaluator provides the basis for his or her finding only if the evaluator finds in favor of the seller. If the evaluator finds in favor of the patent owner, Amazon will take down the accused product. If the evaluator finds in favor of the seller, its product will remain listed on Amazon.

Amazon’s rules do not provide for an appeal or reconsideration of the evaluator’s decision. Moreover, the evaluation rules, unlike typical arbitration agreements, do not preclude patent owners and sellers disappointed with the results of the evaluation from getting a second bite of the apple by commencing a federal court action for patent infringement or a declaratory judgment.

All in all, the Neutral Evaluation proceeding appears to be a quick and cost-effective way to resolve patent disputes arising from third-party listings, which benefits both patent owners and Amazon sellers.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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Tarter Krinsky & Drogin LLP

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