Firms Seek Successful Patent (Non) Litigation

For emerging technology companies, a product that produces revenues is the lifeblood and should be protected at all costs. But when it comes to patent litigation, all but the largest technology companies should avoid the mind-set that they are suing to a conclusion, as either plaintiff or defendant. The objective is to make a reasonable intellectual property deal, sooner rather than later, and focus on competition in the marketplace ' not the courtroom.

Patent litigation is a bloody battle and carries a high incidence of corporate morbidity. Litigants are frequently surprised, if not shocked, by the cost and extent of patent litigation. In Connecticut, litigation of a single patent is likely to cost in excess of $2 million and typically lasts more than 2 years. Beyond the cost and extent, patent litigation is risky.

The metes and bounds of patent rights lie in the claims. In 1996, the U.S. Supreme Court ruled that patent claim construction was a matter of law in Markman v. Westview Instruments, Inc. Implicitly, the Markman decision was an invitation for district courts to hold hearings (“Markman hearings”) to construe the meaning of claims in suit. Determinations made in Markman hearings in federal district courts throughout the United States are reviewed by a single patent appeals court, the Court of Appeals for the Federal Circuit (CAFC).

According to a 2002 article in The Federal Circuit Bar Journal, 33% of district court claim constructions were modified by the CAFC out of 323 patent suits involving 496 issues of claim construction heard by the CAFC since the Markman ruling in 1996 through the end of 2000. Of that 33%, 81% resulted in either a reversal or remand to the district court. Recent statistics suggest the CAFC reversal rate is getting worse. The high rate of reversal is partially attributable to a nondeferential de novo standard of review.

Many patent disputes, ie, 95%, are settled in advance of trial. The take-home lesson for counsel is that given a better than 33% reversal rate and 95% settlement frequency, bluster is an option. For clients, the lesson is prudence. Since 95% of the cases settle, it is overwhelmingly likely that your suit will settle as well. The choice is to settle on the near side or the far side of $1 million in legal fees (and endless agitation).

Posturing

Posturing is a litigation necessity. Opponents require some showing of determination, which must be credible. A bank account and outside lawyers are threshold elements of credibility. After strutting your stuff, move on to settlement. Litigation and settlement are distinct paths that may or may not converge. There will be periods in litigation when the tidal flow is against broaching settlement, but these periods must be brief. When counsel suggests that a propitious date for settlement discussion is more than a few weeks off, question it and seek action. Settlement requires affirmative action.

Negotiations begin with a point person from the company contacting the other side. To avoid the typical scenario of two lawyers duking it out, the apparent point person cannot be a lawyer. Resolution is always a business decision, so put business people on it.

Lawyers are, however, essential to the process. The point person must consult with the lawyers in advance. The point person needs to knowledgeably state the vulnerabilities in the opponent's patent position and the strengths in one's own position. A checklist of settlement terms or counterterms should be readied for offering. For plaintiffs, it is important to support financial demands with sound legal reasoning addressing actual damages in the form of 1) lost profits and/or 2) a reasonable royalty (and, perhaps a dollar component reflecting willful infringement). Unsupportable demands erode credibility and squander settlement opportunities. The point person must provide the adversary with facts sufficient to justifying the settlement offer.

Observable Settlement Junctures

Litigation passes through specific stages. The stages generally present extremes of certainty or uncertainty that give rise to settlement points or junctures.

Many of these stages are created when the parties prepare a proposed schedule for the judge. The parties should cooperate in preparing the schedule, which the judge will enter as a “Scheduling Order.” Parties can usually agree upon the stages of events in a schedule. In this regard, parties often pay insufficient attention to separating specific events in the Scheduling Order. This is a mistake. A casual approach to the preparation of the Scheduling Order squanders readily available settlement junctures. It is in both parties' interest to have as many separate events as possible in the Scheduling Order.

The Markman and summary judgment exercises present extremes of uncertainty and certainty. Seeing an opponent's Markman brief or asserted claim construction is a point of uncertainty. So too is a Markman hearing, if one is held. Not uncommonly, Markman briefs boil down to one side or the other pinning its hopes on a certain meaning of a single word (eg, “including,” “removable,” “occlusive”).

Posturing aside, judicial determinations of a single word are, in many cases, a coin toss. In contrast, receiving the court's Markman rulings is a point of relative certainty. A “losing” party then may be amenable to settlement. However, either party may be amenable to settlement at points of uncertainty. With forethought, a Scheduling Order can offer many such points. For example, at pre-Markman decision, the parties have seen/heard respective positions but neither party is certain how the judge will rule on claim construction. This presents an opportune time to consider potential business resolutions. Similarly, pre-summary judgment decision, there is uncertainty that can be taken advantage of by pursuing business resolutions.

A range of actions can be taken at these settlement junctures. One successful tactic is using settlement junctures to initiate voluntary, nonbinding evaluative mediation. A strong mediator maximizes the potential for resolution short of trial.

Most patent litigation settles. Having a non-lawyer who is fully engaged in direct settlement efforts, with assistance of counsel, is key to effecting timely settlement. Scheduling in litigation should be focused on presenting junctures to facilitate settlement. Preparing for the 95% probability of settlement in patent litigation is prudent, cost effective and substantially less bloody.

This article originally appeared in The Connecticut Law Tribune, an American Lawyer Media publication.

For emerging technology companies, a product that produces revenues is the lifeblood and should be protected at all costs. But when it comes to patent litigation, all but the largest technology companies should avoid the mind-set that they are suing to a conclusion, as either plaintiff or defendant. The objective is to make a reasonable intellectual property deal, sooner rather than later, and focus on competition in the marketplace ' not the courtroom.

Patent litigation is a bloody battle and carries a high incidence of corporate morbidity. Litigants are frequently surprised, if not shocked, by the cost and extent of patent litigation. In Connecticut, litigation of a single patent is likely to cost in excess of $2 million and typically lasts more than 2 years. Beyond the cost and extent, patent litigation is risky.

The metes and bounds of patent rights lie in the claims. In 1996, the U.S. Supreme Court ruled that patent claim construction was a matter of law in Markman v. Westview Instruments, Inc. Implicitly, the Markman decision was an invitation for district courts to hold hearings (“Markman hearings”) to construe the meaning of claims in suit. Determinations made in Markman hearings in federal district courts throughout the United States are reviewed by a single patent appeals court, the Court of Appeals for the Federal Circuit (CAFC).

According to a 2002 article in The Federal Circuit Bar Journal, 33% of district court claim constructions were modified by the CAFC out of 323 patent suits involving 496 issues of claim construction heard by the CAFC since the Markman ruling in 1996 through the end of 2000. Of that 33%, 81% resulted in either a reversal or remand to the district court. Recent statistics suggest the CAFC reversal rate is getting worse. The high rate of reversal is partially attributable to a nondeferential de novo standard of review.

Many patent disputes, ie, 95%, are settled in advance of trial. The take-home lesson for counsel is that given a better than 33% reversal rate and 95% settlement frequency, bluster is an option. For clients, the lesson is prudence. Since 95% of the cases settle, it is overwhelmingly likely that your suit will settle as well. The choice is to settle on the near side or the far side of $1 million in legal fees (and endless agitation).

Posturing

Posturing is a litigation necessity. Opponents require some showing of determination, which must be credible. A bank account and outside lawyers are threshold elements of credibility. After strutting your stuff, move on to settlement. Litigation and settlement are distinct paths that may or may not converge. There will be periods in litigation when the tidal flow is against broaching settlement, but these periods must be brief. When counsel suggests that a propitious date for settlement discussion is more than a few weeks off, question it and seek action. Settlement requires affirmative action.

Negotiations begin with a point person from the company contacting the other side. To avoid the typical scenario of two lawyers duking it out, the apparent point person cannot be a lawyer. Resolution is always a business decision, so put business people on it.

Lawyers are, however, essential to the process. The point person must consult with the lawyers in advance. The point person needs to knowledgeably state the vulnerabilities in the opponent's patent position and the strengths in one's own position. A checklist of settlement terms or counterterms should be readied for offering. For plaintiffs, it is important to support financial demands with sound legal reasoning addressing actual damages in the form of 1) lost profits and/or 2) a reasonable royalty (and, perhaps a dollar component reflecting willful infringement). Unsupportable demands erode credibility and squander settlement opportunities. The point person must provide the adversary with facts sufficient to justifying the settlement offer.

Observable Settlement Junctures

Litigation passes through specific stages. The stages generally present extremes of certainty or uncertainty that give rise to settlement points or junctures.

Many of these stages are created when the parties prepare a proposed schedule for the judge. The parties should cooperate in preparing the schedule, which the judge will enter as a “Scheduling Order.” Parties can usually agree upon the stages of events in a schedule. In this regard, parties often pay insufficient attention to separating specific events in the Scheduling Order. This is a mistake. A casual approach to the preparation of the Scheduling Order squanders readily available settlement junctures. It is in both parties' interest to have as many separate events as possible in the Scheduling Order.

The Markman and summary judgment exercises present extremes of uncertainty and certainty. Seeing an opponent's Markman brief or asserted claim construction is a point of uncertainty. So too is a Markman hearing, if one is held. Not uncommonly, Markman briefs boil down to one side or the other pinning its hopes on a certain meaning of a single word (eg, “including,” “removable,” “occlusive”).

Posturing aside, judicial determinations of a single word are, in many cases, a coin toss. In contrast, receiving the court's Markman rulings is a point of relative certainty. A “losing” party then may be amenable to settlement. However, either party may be amenable to settlement at points of uncertainty. With forethought, a Scheduling Order can offer many such points. For example, at pre-Markman decision, the parties have seen/heard respective positions but neither party is certain how the judge will rule on claim construction. This presents an opportune time to consider potential business resolutions. Similarly, pre-summary judgment decision, there is uncertainty that can be taken advantage of by pursuing business resolutions.

A range of actions can be taken at these settlement junctures. One successful tactic is using settlement junctures to initiate voluntary, nonbinding evaluative mediation. A strong mediator maximizes the potential for resolution short of trial.

Most patent litigation settles. Having a non-lawyer who is fully engaged in direct settlement efforts, with assistance of counsel, is key to effecting timely settlement. Scheduling in litigation should be focused on presenting junctures to facilitate settlement. Preparing for the 95% probability of settlement in patent litigation is prudent, cost effective and substantially less bloody.

This article originally appeared in The Connecticut Law Tribune, an American Lawyer Media publication.