Mr. Joseph Drake

Board of Directors

Xxxx plc

Minneapolis, MN

 

Subject: Patent Portfolio Enforceability as a Critical Board Oversight Priority

Dear Mr. Drake,

As a member of the board of directors at Xxxx, a global leader in medical devices whose competitive advantage depends on a robust patent portfolio, your fiduciary duties under the Caremark standard carry significant legal and strategic weight. This letter underscores the importance of ensuring that Xxxx’s patent portfolio is enforceable—not as an operational task for management alone, but as a fundamental element of your oversight responsibilities as a director.

Your role is not to manage the daily operations of Xxxx, but to provide oversight to safeguard the company’s long-term viability and compliance with its obligations. The Delaware Supreme Court’s In re Caremark International Inc. Derivative Litigation (1996) decision established that directors have a duty to ensure the company has adequate systems in place to monitor and address critical risks. Failure to fulfill this duty of oversight can expose directors to personal liability if unmitigated risks harm the company or its shareholders. For a medical device leader like Xxxx, the enforceability of its patent portfolio is a linchpin of its ability to protect its innovations, maintain market exclusivity, and defend against competitors—making it a risk area squarely within your purview.

Patent enforceability is not a mere technicality; it determines whether Xxxx can effectively defend its intellectual property (IP) in court or through settlements, deterring infringement and securing the revenue streams tied to its medical device innovations. An unenforceable patent risks being invalidated or circumvented, exposing Xxxx to competition, loss of market share, and diminished returns on its R&D investments. Specific issues that can undermine enforceability include defects in ownership—where the company’s claim to a patent it allegedly owns is questionable due to unclear assignments or inventor disputes; critical patents inadvertently expired due to non-payment of maintenance fees; or patents mistakenly recorded under the ownership of third parties and subject to encumbrances, such as third-party rights or liens, that could impede Xxxx’s ability to enforce them when needed. As a director, you are not tasked with managing patent filings or litigation, but under Caremark, you are responsible for ensuring that management has systems in place to assess and maintain the enforceability of the portfolio. This includes verifying that ownership is clear, maintenance fees are diligently paid, and encumbrances are identified and addressed—processes that must be robust enough to escalate significant issues to the board’s attention.

The stakes are high in the medical device sector, where patent challenges—such as inter partes reviews under the America Invents Act or litigation from competitors—are commonplace. A portfolio with unenforceable patents could falter under such scrutiny, jeopardizing Xxxx’s leadership in areas like cardiac devices, neuromodulation, or surgical technologies. Recent judicial trends, including stricter standards for patent eligibility under Section 101 and heightened requirements for claim specificity, further amplify this risk. Ensuring enforceability is within your oversight responsibility because it directly impacts the company’s ability to protect its core assets, a failure of which could signal a “red flag” under Caremark. Courts have held directors liable when they lack systems to detect such flags or fail to act when they emerge, and an unenforceable patent portfolio—whether due to ownership disputes, lapsed maintenance, or third-party encumbrances—could lead to material losses in revenue, market confidence, and shareholder value.

Your fiduciary duty under Caremark demands proactive oversight to protect Xxxx from foreseeable harm. This includes advocating for systems that provide the board with visibility into the enforceability of the patent portfolio—through mechanisms like periodic audits of patent ownership and status, updates on legal vulnerabilities from outside counsel, or reviews of third-party rights affecting key patents. These are not operational details, but strategic insights tailored to your role, enabling you to ask management the right questions: Are our patents unequivocally owned by Xxxx? Are maintenance fees current? Are encumbrances limiting our enforcement options? By ensuring such systems exist, you discharge your duty with the diligence that shareholders and the law expect.

Consider whether the board currently receives adequate, director-focused information about the enforceability of Xxxx’s patent portfolio. If not, engaging with your fellow directors and management to establish or strengthen these oversight mechanisms may be a critical step. Your leadership in this area could reinforce Xxxx’s position as an industry leader while fulfilling your legal and ethical responsibilities.

I would be delighted to discuss this matter further or provide additional insights to support Xxxx’s strategic goals. Please feel free to reach out at your convenience.

Sincerely,

Uzi Aloush
CEO
PatentTrack