What the University of California Case Means for Retailers and IP in the Supply Chain

In July 2019, the University of California sued Amazon.com, Walmart, Target and other major retailers for patent infringement related to “filament” LED lightbulbs. Not only is the university seeking damages, but it has also asked the U.S. International Trade Commission (ITC) to investigate the retailers’ conduct.

While the case is currently on hold pending the ITC probe, retailers and their suppliers should begin to consider the consequences of a decision, as it could have lasting implications for the global supply chain.

An Unusual Case

The process of a patent infringement is generally pretty cut and dry: one company sues another, patents are examined, and a jury makes a decision as to whether the accused has actually infringed. However, this case has been unusual from the start.

First of all, it’s not very common to see universities sue companies for patent infringement. Of the on average 4,000–5,000 patent lawsuits filed every year, only 45–50 of them are filed by educational institutions. Part of the reason for this is that, generally speaking, many higher education institutions don’t have the necessary funds to take on big tech companies or corporations, which typically have deep pockets and big legal teams. Another issue is that universities that sue for damages are often criticized for trying to make money off of research that was government-funded in the first place. There’s also a fear of jeopardizing research partnerships with private companies. However, according to a Reuters report, this case isn't about damages and royalties; it’s about making a point concerning the “widespread disregard” of the patent rights of universities.

The other unusual aspect of this case is that the University of California decided to sue the sellers of the product, rather than the manufacturers. In most patent lawsuits, organizations go after those who are physically making the product, so they can ensure that the problem is cut off at the source. However, the fact that the lightbulbs were being made in China could have been a determining factor in the institution’s chosen course of action. If the University of California only has patents in the United States, it can only sue for patent infringement in the United States. This may not include these manufacturers and suppliers for now, but a decision against these retailers may still come at a cost.

Implications for Retailers

A decision in favor of the University of California could result in three major implications for retailers and those in the supply chain.

First, sellers could become the target of more patent infringement lawsuits. Should the case go through, it’s likely to open up an increased possibility that more corporations will sue sellers rather than suing manufacturers of products. According to one article, these five retailers are likely the first in many waves of infringement lawsuits that the University of California will pursue.

Second, there will be pressure for retailers to enter more licensing agreements, especially with universities. Part of what the University of California is looking to get out of this case is to enter into licensing agreements with retailers where it is paid a reasonable royalty on product sales. While this is a reasonable request, it means that retailers will lose profits on goods, and potentially raise prices on products to make up for licensing fees, unless they can get suppliers to cover the costs.

Third, there will be a call for more visibility into retailers’ supply chains. With the U.S. ITC launching an investigation into the unauthorized importation and sale of the patented LED lightbulbs, it’s likely there will be a renewed call for retailers to get better visibility into their supply chain to make sure intellectual property (IP) protections are being enforced. While visibility into the supply chain is top of mind for many retailers, a study showed that 57 percent of organizations don't have a program or initiative to understand how suppliers operate. Furthermore, 25 percent have no policy for understanding where and how products are manufactured or who manufactures them. This has proven to be a problem not only from an ethical perspective, but now a legal perspective as well.

Determining who claims responsibility for IP in the supply chain isn't something that’s cut and dry. Diligence is required throughout the supply chain to ensure that products are handled correctly and patent holders’ rights are respected. While there’s still a lot to be decided in this particular case, retailers and their suppliers should start to consider what needs to be done to prepare for implications and ensure good practices are in place to prevent IP infringement from disrupting their businesses.

Eric Giler is CEO of Ciprun Global, the most trusted, efficient and cost-effective solution for U.S. organizations that want to secure intellectual property (IP) protection in the Chinese market.