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i News An Information Resource for Today's IP Attorneys 800.442.5191 |
April 2007
In this issue:
'An Economic Battle Plan For Patent Litigation '
Guest Contributer, Richard F. Cauley is a senior trial lawyer specializing in patent and licensing litigation. A former partner at the law firm of McDermott Will & Emery, LLP, based in Silicon Valley, Mr. Cauley has over 20 years of trial experience in complex patent infringement and other trademark and copyright litigation. He has successfully represented clients in the semiconductor, computer and disk drive industries. Mr. Cauley has prevailed in numerous important cases for major industrial clients throughout the U.S. His email address is: rcauley@WHGLawFirm.com and the website address for his firm is: WHGLawFirm.com. His bio may be viewed by clicking HERE.
(This article first appeared in IP LAW 360, an online publication of PortfolioMedia.com and is reprinted with permission of author & publisher www.Portfoliomedia.com and www.law360.com )
An Economic Battle Plan For Patent Litigation
Monday, March 19, 2007 --- $1.5 Billion. A phrase that should sharply
concentrate the mind of any in-house IP counsel.
That’s the verdict against Microsoft brought in by a San Diego jury in a patent
infringement lawsuit this February. According to Bloomberg News, verdicts in
the 10 largest patent cases in 2006 totaled another $1 billion.
Patent litigation can be deadly for your company – not just from legal fees or
the possibility of an injunction, but from increasingly common massive
damages awards and the heavy impact of these cases on a company’s
ability to compete.
Focusing on the science of patent cases instead of the economics may
represent a lost opportunity for a plaintiff and nothing short of a fatal injury for
a defendant.
This article is not going to wax romantic about the wonders of invention, the
genius of Thomas Jefferson or the struggles of the mythical garage inventor.
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**Reprinted with Permission of both Publisher & Author
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We are not concerned here about maintaining the purity of the patent system
or in patent “reform” which is proposed in every Congress and never
happens. And, although they are simply economic parasites, this article will
not tell you how to destroy patent trolls – just how to lessen the damage they
cause.
This article discusses the use of patent litigation by corporations to achieve
the greatest possible economic advantage over their competitors – how
plaintiffs can maximize the competitive benefit and how defendants can
minimize such advantage for plaintiffs and perhaps, even damage their
opponent’s competitive position.
For too long, patent litigation has been overwhelmingly focused on the
“science” of the case. Technically-trained litigators pore over file histories and
spend hours in creative claim construction – all to get a “perfect” result where
all of the technical pieces fit together for infringement or anticipation.
While this scientific inquiry is going on, however, the economic side of the
case is often just a second thought. Damages analyses are performed by
accountants rather than economists and without any real economic analysis.
The competitive relationship between the litigants – critical to any
sophisticated damages analysis – is sometimes virtually ignored.
What can a litigant do to get the focus where it ought to be – on the bottomline?
1. For Plaintiffs – Choose your targets wisely
If you are not a patent troll – meaning a plaintiff who either has no “real”
operations or does not practice the patent being sued on – your selection of
targets for potential lawsuits should closely track the company’s competitive
objectives. Although throwing a wide net to all possible infringers might seem
like a good idea (and probably is a good idea for a licensing program), when
it comes to actually filing a lawsuit and getting into a two-year-long
multimillion-dollar war, you should focus on the companies whose
infringement is actually costing you sales. Indeed, under any theory of patent
damages recovery, the more direct a competitor a defendant is, the higher
the potential recovery – and, of course, the more effective the injunction.
When prioritizing potential targets, look closely at not only your current
competitors but, even more particularly, at the companies who are in the
space you want to enter. Clearing out that space before you introduce that
new product line can make that next move much easier.
2. For Defendants – Determining why you were sued can govern your
counterattack
For a defendant, often it is obvious why a plaintiff has chosen to come after
you, but just as often it is simply baffling. Where the plaintiff is obviously
trying to drive you out of the market or knock you down a peg, it may be time
to bring out some of your own patents (or even acquire some patents) to fire
back with. If your opponent has any sense, it will not give you a license to
practice those very patents that give it a competitive advantage (except at an
outrageous price), although you should certainly license those patents if you
can afford to do so.
Another tack a defendant can use against a direct competitor is to put its
energies into designing around the patent as early as possible. Not only will
this make any possible injunction difficult, if not impossible to obtain, but it
will cut off damages for continuing infringement, reduce the plaintiff’s ability
to recovery for past damages and enable you to continue to compete against
your litigious competitor. Designing a “non-infringing substitute” should not be
left to the last minute.
When you are sued by a troll or by a company against whom you do not
compete, the economic stakes are different. It is less likely that you will be
able to countersue with your own patents, but the potential damages award
should be lower that it would be if the plaintiff were a direct competitor – lost
profits damages are not available at all and damages in the form of a
reasonable royalty should be substantially lower. Indeed, where a plaintiff is
not a competitor and the cost of designing around the patent is modest, the
potential damages can practically be eliminated altogether.
3. Hire an economist early
As previously noted, it is not uncommon for accountants to be hired as
damages experts. This, in my opinion, is wrong. Not only should your
damages expert be an economist – to perform the very sophisticated
analysis required by the Federal Circuit, but plaintiffs should consider
bringing in an economist even before they file – to assist in the selection of
targets whose infringement is causing the company the most competitive
injury and whose exclusion from the market will do the company the most
good.
Establishing the market in which the patented goods and the infringing goods
compete is critical to any sophisticated damages analysis – this task can only
be reliably performed by an economist.
4. Make your damages analysis a priority
This suggestion is critical as a sheer matter of strategic litigation analysis. As
we all know, patent litigation is a long haul, expensive in both legal fees and
in corporate resources. Before a plaintiff decides to go down this road, or a
defendant decides it is not willing to settle early and wants to fight it out, each
party should do at least a preliminary damages analysis, assisted by an
economist. Without knowing the real risk and reward of proceeding deep into
the litigation, the parties cannot make an intelligent analysis of whether to try
to settle early and how hard to fight.
Although the above might seem to be an obvious piece of advice, it is
surprising how infrequently it is followed. More often than not, litigation is
launched, and continued, based solely on an analysis by the engineers of the
likelihood of an infringement verdict or of a finding of invalidity, with damages
analysis left to the last minute. Although this might have made a modicum of
sense when an injunction was a certainty after a finding of infringement, in
the wake of the eBay decision, proceeding with a case without a hard look at
the possible damages award, makes little sense.
5. Make any settlement serve a competitive purpose
Giving a rival the very tools it needs to effectively compete against you would
appear to make little business sense. Yet, Jeff Weedman, VP of Proctor &
Gamble, says that his company pursues just this strategy: “We will license to
our competitors . . .. The fact that we´re going to license technology means
that we´re no longer simply competing with the innovations of our
competition, but we´re also competing with ourselves. This forces us to run
faster and innovate faster to stay ahead.”
Although this practice may work for P&G, deliberately allowing your
competitors the right to use your core inventions is an economic trade-off that
most companies would regret in very short order. Allowing a competitor to
use this technology in a settlement of a hard-fought lawsuit is an equally
serious mistake, unless the royalty were high enough to take away any
possible competitive advantage.
On the defendant’s side, make sure that any settlement gives you the right to
continue competing with the plaintiff, this time without fear of a lawsuit. The
lawsuit will have given you a good idea of what competitive areas the plaintiff
really cares about. A settlement with a license (especially one that includes
patents not yet issues, if you can get such a concession) will give you the
freedom to move into the plaintiff’s competitive space until you can come up
with an effective workaround that you can pursue without either paying
royalties or fearing a lawsuit.
In the final analysis, putting economics at the forefront of any patent litigation
will bring the litigant the most effective relief.
--By Richard Cauley
Click Here for Mr. Cauley's Bio.
*All Content Copyright 2007, Portfolio Media, Inc.
| 648 Broadway, Suite 200 | New York, NY 10012 | www.law360.com
Phone: +1 212 537 6331 | Fax: +1 212 537 6371 | customerservice@portfoliomedia.com**Reprinted with Permission of both Publisher & Author