By: Nicholas Lipperd
Are more avenues to resolve patent disputes a good thing? Patent litigation is a process that can easily cost millions of dollars and which lasts years; it is not exactly an option available to every patent holder. Even with the availability of arbitration, options to protect patents remain limited. Amazon has determined that a private patent evaluation program is a good thing, at least for its Amazon Marketplace. After beta-testing for three years under the name “Utility Patent Neutral Evaluation (UPNE),” Amazon formally implemented its Amazon Patent Evaluation Express (“APEX”) system in 2022, which allows sellers to flag possibly infringing products for Amazon to analyze without the use of the judicial patent system. This system advertises cheap, fast, and fair outcomes to sellers on Amazon Marketplace asserting their utility patent rights, yet has drawn criticism for disproportionately one-sided outcomes leading to its use as a retaliatory tool. Does the fact that this cheap, quick process reduces barriers to litigation offset these shortcomings? Should Amazon make changes to its process to achieve more balanced results?
A case brought in Federal Court for patent infringement takes two to four years to adjudicate, not including an additional year if an appeal is sought. Intrinsically tied to this lengthy timeline is the hefty price tag. Though the median cost for patent infringement cases with $1 million-$10 million at risk fell 250% from 2015 -2019, a full patent trial will still average $1.5 million. How does a patent holder without such resources assert the patent’s rights? Arbitration or mediation are cheaper options, at $50,000 on average, but often requires the other side to agree to participate. When the patent owner wants the patent rights asserted within Amazon Marketplace, though, the owner generally has a cheaper and faster option.
Amazon’s APEX program allows patent holders to have their patents examined by a neutral third-party patent examiner, rather than the United States Patent and Trademark Office (“USPTO”). APEX begins with the patent holder submitting a complaint through Amazon’s Brand Registry, providing the Amazon Standard Identification Numbers (ASINs) of the allegedly infringing sellers and upon which claim in which patent the holder believes the ASINs infringe. For each alleged infringer, Amazon sends a notice and allows up to three weeks for a response. Should Amazon receive no response, such products will be automatically delisted, similar to a default judgment. Upon receipt of the response, an evaluator independent of Amazon and each party is assigned to the issue, and each side is required to pay a $4000 fee, refundable to the winner. The patent holder gets three weeks to submit arguments. The sellers then have two weeks to respond, with the patent holder given one week to submit an optional reply. The evaluator then decides within two weeks, making only the determination if the sellers’ products likely infringe on the patent holder’s claim. It is noteworthy that the APEX evaluator does not make any determination on the validity of the claims in the patent at issue. If the evaluator decides in favor of the seller, the product stays on the platform; if not, the products are removed. There is no appeal process from the evaluator’s decision. The entire process takes fewer than three months, and at a price tag of $4000 per party, creates a fiscal barrier of a fraction of the cost of formal patent litigation.
This process is not, though, without its drawbacks. The patent holder wins a disproportionate amount in APEX proceedings, creating incentives to initiate the process without valid claims. Because the evaluator does not look at the validity of the asserted patent, the accused sellers can do nothing but play defense. In legal terms, they are without the affirmative defense of invalidity. They can’t win, they can only hope to survive. Further, the evaluation is not subject to formal rules like the Federal Rules of Civil Procedure or the Federal Rules of Evidence. The evaluators are hired for their expertise in the patent field, not for their investigative skills in the information provided. With no process of verification from Amazon, patent holders are submitting fraudulent information to obtain favorable judgments. With loose evidentiary rules, a low fiscal barrier, and no chance for the patent to be ruled invalid, the incentives all line up for patent holders to abuse this process, especially considering there is no chance for appeal. Should a competitor be cutting significantly into profits, $4000 is a very low risk for a possibly high reward of ejecting your competition from the market. Tortious interference claims stemming from the APEX process are already coming to light.
Perhaps the most well-known legal spat involving Amazon’s patent evaluation process is the case of Tineco Intelligence Tech. Co. v. Bissell Inc. (W.D. Wash, 2022). Bissell is a US company that sells vacuums, and Tineco is a Chinese company that does the same. When Bissell initiated a UPNE proceeding, Tineco ignored it, leading to the automatic removal of its products. Tineco moved for a ruling in district court that Bissell’s patent claims were invalid and that their products did not infringe. Luckily, perhaps in part because of the sheer volume of business both entities do, Amazon deviated from its set UPNE/APEX process and reinstated Tineco’s listings before the District Court case finished, though U.S. International Trade Commission (“ITC”) proceedings continued. This case and Amazon’s deviation are seen by some as the exception to the rule. Many entities are still using APEX as a hammer to bludgeon competition into settlements and licensing agreements, despite the tortious interference claims that sometimes follow.
Amazon’s APEX has the potential to be the first of many commercial patent dispute programs due to its budget-friendly, expedited decisions. Yet before it can be considered a system after which other businesses should model their systems, it must rebalance and overcome the issues outlined above. Although a large burden is placed on “neutral evaluators” hired by Amazon, these evaluators currently do not review the patent at issue for invalidity. To establish a more balanced approach and to disincentivize misuse of APEX by predatory sellers, invalidity must be considered. Even if such consideration drives up the required fee slightly, the trade-off would be worthwhile to promote fairness in the process. Amazon has three years of beta-testing under its belt with this system and thus has the data available to see where fraud and misuse are most prevalent. A thorough review of this data should lead to the tightening of its evidentiary standards throughout the process. Despite the name inviting such a pun, APEX must not be allowed to thrive as a predatory tool.
While barriers to justice should not be so high that patent holders may not assert their rights, the process should not be so favorable and easy that it inadvertently incentivizes abuse of the process. Through small tweaks, APEX can continue to serve patent holders’ rights without demanding the time and money that large-scale patent litigation requires.