Joint Defense Agreement Considerations in NPE Patent Litigation

As another example, the group members, as possible competitors, may be reluctant to share certain types of confidential information, such as product design or financials. To account for such reluctance, the agreement can provide for tiered handling of confidential information by defining a class of information that may be accessed only by outside counsel for each member. Similarly, a provision in the agreement may provide procedures for selective disclosure of confidential information to some, but not all, other members.

Special provisions for exchange of confidential information between certain members may be addressed in the agreement or elsewhere, as appropriate. Companies in a common supply chain often find themselves defending the same accused technology against the same asserted patent. To the extent that a manufacturer wishes to carefully define, or forbid, access by its customers to highly confidential information about the accused technology, it may so provide in the agreement. If the group includes other members outside the supply chain, lengthy terms regarding handling of confidential information just among members in a common supply chain may be irrelevant to the other members and thus inappropriate for a joint defense agreement. In this regard, such terms alternatively could appear in a dedicated side agreement among members in the common supply chain or a protective order for the action.

For confidential information having highest sensitivity, the best measure may be to exercise a right in the agreement not to disclose at all. When the confidential information is not in the hands of other members, risk of further disclosure by them to yet still others, whether proper or not, can be foreclosed. However, to protect its access to information in the absence of voluntary disclosure, a member may draft an express provision that, notwithstanding the right of members not to disclose information to other members under the agreement, the member still may avail itself of separate discovery mechanisms to obtain the information.

Patent Notice

In a typical situation, the group will uncover substantial volumes of prior art, including patents, to formulate invalidity and other defenses. However, collection and exchange of prior art patents within the group may have consequences beyond the pendency of the action for which the group formed. For example, when two members in the group are allies in the group but competitors in the marketplace, each may need to assess risk in receiving prior art patents from one another. The presentation of prior art patents from one member to another member for the immediate goal of group collaboration also could be argued to place the other member on notice of the prior art patents for purposes of liability, willfulness, and damages.

For this reason, a provision that deems sharing of prior art patents among members to not constitute receipt of legal notice deserves consideration. The advisability of such a provision may depend on the litigation strategy of your client. If your client is prone to assert patents, then such a provision may be disadvantageous in eliminating a possible theory to later advance against its competitor in the group. On the other hand, if your client is more likely to be sued in patent litigation, then such a provision may be useful as a shield. In any event, such a provision may encourage more active and productive exchange of information to defeat the more immediate threat by the NPE. A related type of preferred provision is one that states that all communications of the group cannot be used for any purpose (e.g., later disputes between members) other than furthering its common interest.

Cost Management

The group will incur costs throughout the litigation. At the outset, a primary task of the group may be to prepare invalidity contentions and, beforehand, to commission prior art searching. Fact depositions of witnesses, including the inventors, will pose collective expense on the group. As another example, to the extent the members choose to share consultants and testifying experts, the group may incur costs associated with the entire scope of litigation activities, from the formulation of claim construction positions to expert examination at trial.

Early consideration of cost management and allocation in the agreement, despite the conventional absence of such consideration, may help stave off disputes or misunderstandings within the group. For example, the process to approve a proposed group effort and related expense may warrant express treatment in the agreement. In this regard, a provision could define an approval flow for group expenditure and the required form of approval by each member (e.g., formal signature, e-mail). To avoid impeding progress in group efforts, a related provision could specify the time frame within which each member must indicate its approval for the proposed group effort as well as a time schedule under which each member must submit payment toward costs related to an approved effort. In addition, the agreement may address cost allocation among members for group expenditures. The agreement may provide for equal cost division (e.g., pro rata splits) as a default subject to other, more complex calculations (e.g., splits based on damages exposure) as circumstances warrant. The expected desire of each member to exhibit good group citizenship may be some added insurance where the agreement may fall silent on certain cost management controls.

Member Independence

The agreement should be unequivocal in preserving the complete independence of each member. Each member will have its own unique litigation and settlement objectives that should remain immune to any pressures applied by competing preferences of the group. For example, a member should enjoy freedom to pursue settlement on its own terms and schedule rather than submit to the collective on the advisability and timing of the pursuit. The freedom should be reflected by clear terms that protect a settling member, even if the group has been heavily relying on the member in the collective defense. As a related consideration, each member should be free to disclose or not disclose information to the group. While active information sharing among members usually furthers the interest of all members, a member in limited circumstances may wish to proceed on its own path. For example, if a member has special access to a compelling prior art reference, the member may wish to realize for itself, without disclosure to the group, the full advantage of the reference in settlement negotiations. As another example, the member may choose not to disclose a prior art reference to another member that plans to initiate post-issuance proceedings against the asserted patent. That choice may reflect a desire to prevent the other member from injecting the reference into Patent Office proceedings that could deem the reference immaterial, potentially blunting the impact of the reference in litigation. In addition to its practical importance, the independence of each member, as set forth in the agreement, may allow each member to rebut an allegation that the group activity is anticompetitive.

The provision for member independence in the agreement also may protect members from unintended impact of estoppel. If a particular member of the group initiates post-issuance proceedings against the asserted patent, a patentee may attempt to apply the resulting estoppel not only to the member but also to the rest of the group as privies. While case law informs the meaning of privity in this context, provisions in the agreement establishing the independence of each member in the group may help to diffuse arguments contending broad application of estoppel against the group.

Client Relationships

The agreement should make clear that counsel for a member is counsel for no others in the group. While close collaboration among counsel is a hallmark of a successful group, it should not result in ad hoc claims of new attorney-client relationships between one member and counsel for another member. Such claims would obstruct the ability of each counsel to zealously represent the interests of its client alone, and create a web of competing loyalties hampering the ability of counsel to adequately represent even one member. For similar reasons, the agreement should disavow duties of loyalty, agency relationships, or the like between any pairings except counsel and the member it serves as true client.

As a related matter, the agreement should provide that a member will not seek to disqualify counsel for another member in other litigation based on the agreement or performance thereunder, such as receipt of confidential information of the member. Such a provision preserves a clear delineation of true attorney-client relationships in the group. It also encourages counsel to actively elicit information from and collaborate with other members without fear of later-arising conflict issues, thereby realizing the full potential of the group.

Termination

A requirement of any viable joint defense group is common interest. During early stages of patent litigation, members are often united in mounting defenses based on patent invalidity, unenforceability, and even non-infringement in certain circumstances. However, as the litigation proceeds, some members may settle with the patentee. Settlement between a member and the patentee is often achieved in confidence without the initial knowledge of any other members. Indeed, the settlement agreement itself may forbid disclosure about the fact of settlement until filing by the parties of a request to dismiss the case. In this regard, a request for entry of stipulated dismissal by settling parties may significantly lag the fact of settlement. Timely receipt of notice of settlement by other members may be even more difficult when they are named in separate actions.

During the time period between settlement and disclosure of the settlement to the group, it can be argued that the settling member destroys the predicate common interest of the group. When the settling member receives a patent license and other quintessential rights attendant with settlement of a patent litigation, the member no longer shares the common interest of the other members to defend against the patent. If the settling member does not immediately withdraw from the group upon settlement, the vitality of the group becomes fundamentally threatened. Thus, to maintain common interest among all members, a provision requiring automatic termination of the agreement as to the settling member and removal of the member from the group is appropriate.

Drafting Roles

Many provisions of the agreement will impact group members similarly, if not identically. As a result, each member can be somewhat reassured that its interests may be represented by similarly situated fellow members. However, like any other type of agreement, some provisions may be subject to significant scrutiny and prolonged negotiation based on divergent interests.

To proactively address the risk of extensive negotiation with other members, your client's interests may be promoted by your volunteering to prepare the first draft of the agreement. By assuming the drafting role among members, you will be empowered at the outset to seed the agreement with terms favored by your client and accordingly frame the discussion on those terms. Other members that propose contrary positions may be required to assume the more burdensome task of undoing the momentum in your original provisions.

Conclusion

Too often, the execution of a joint defense agreement is viewed as a mechanical process involving form boilerplate. Provision for key issues portends more productive and efficient collaboration among members of the joint defense group. A well-crafted agreement also can ensure that the unique objectives of your client's litigation strategy remain viable within the larger context of group pursuits. A strategically drafted joint defense agreement will minimize group discord and facilitate coordinated focus on the primary litigation objective, defeat of the common adversary.

James W. Soong is a Partner at Sheppard Mullin Richter & Hampton LLP in Palo Alto, CA. We welcome him to our Board of Editors with this issue. The article, which expresses Mr. Soong's current views, should not be considered legal advice and should not be attributed to others.

Accused infringers in patent litigation, especially against non-practicing entities (NPEs), often form joint defense groups to defend against common claims brought in one or more actions. A written agreement of the joint defense group can make plain the respective rights and obligations of each group member and evidence to the court a requisite alignment of common interest underpinning the group. Because a joint defense agreement provides a foundation for the relational dynamic among group members, the opportunity to optimize its provisions for your client and to define a framework for group interaction should be embraced. The following is a selection of relevant considerations to support productive group interaction through appropriate provision in the joint defense agreement.

Confidentiality

While general provision for confidential treatment of shared information hardly needs discussion, details about such treatment are often overlooked in joint defense agreements. For example, the agreement could state that confidential and privileged information of another member must be maintained in confidence, yet may be utilized by other members in support of their common interest. To avoid confusion, the agreement should go further and specify permissible use of the confidential information. For example, the agreement could provide that the confidential information may be incorporated into an opinion of counsel. Alternatively, if confidential information is not to be incorporated into other efforts or otherwise available to a broader audience, the agreement should say so. The agreement also can provide that no member, by words or action, has the power to waive privilege of another member.

As another example, the group members, as possible competitors, may be reluctant to share certain types of confidential information, such as product design or financials. To account for such reluctance, the agreement can provide for tiered handling of confidential information by defining a class of information that may be accessed only by outside counsel for each member. Similarly, a provision in the agreement may provide procedures for selective disclosure of confidential information to some, but not all, other members.

Special provisions for exchange of confidential information between certain members may be addressed in the agreement or elsewhere, as appropriate. Companies in a common supply chain often find themselves defending the same accused technology against the same asserted patent. To the extent that a manufacturer wishes to carefully define, or forbid, access by its customers to highly confidential information about the accused technology, it may so provide in the agreement. If the group includes other members outside the supply chain, lengthy terms regarding handling of confidential information just among members in a common supply chain may be irrelevant to the other members and thus inappropriate for a joint defense agreement. In this regard, such terms alternatively could appear in a dedicated side agreement among members in the common supply chain or a protective order for the action.

For confidential information having highest sensitivity, the best measure may be to exercise a right in the agreement not to disclose at all. When the confidential information is not in the hands of other members, risk of further disclosure by them to yet still others, whether proper or not, can be foreclosed. However, to protect its access to information in the absence of voluntary disclosure, a member may draft an express provision that, notwithstanding the right of members not to disclose information to other members under the agreement, the member still may avail itself of separate discovery mechanisms to obtain the information.

Patent Notice

In a typical situation, the group will uncover substantial volumes of prior art, including patents, to formulate invalidity and other defenses. However, collection and exchange of prior art patents within the group may have consequences beyond the pendency of the action for which the group formed. For example, when two members in the group are allies in the group but competitors in the marketplace, each may need to assess risk in receiving prior art patents from one another. The presentation of prior art patents from one member to another member for the immediate goal of group collaboration also could be argued to place the other member on notice of the prior art patents for purposes of liability, willfulness, and damages.

For this reason, a provision that deems sharing of prior art patents among members to not constitute receipt of legal notice deserves consideration. The advisability of such a provision may depend on the litigation strategy of your client. If your client is prone to assert patents, then such a provision may be disadvantageous in eliminating a possible theory to later advance against its competitor in the group. On the other hand, if your client is more likely to be sued in patent litigation, then such a provision may be useful as a shield. In any event, such a provision may encourage more active and productive exchange of information to defeat the more immediate threat by the NPE. A related type of preferred provision is one that states that all communications of the group cannot be used for any purpose (e.g., later disputes between members) other than furthering its common interest.

Cost Management

The group will incur costs throughout the litigation. At the outset, a primary task of the group may be to prepare invalidity contentions and, beforehand, to commission prior art searching. Fact depositions of witnesses, including the inventors, will pose collective expense on the group. As another example, to the extent the members choose to share consultants and testifying experts, the group may incur costs associated with the entire scope of litigation activities, from the formulation of claim construction positions to expert examination at trial.

Early consideration of cost management and allocation in the agreement, despite the conventional absence of such consideration, may help stave off disputes or misunderstandings within the group. For example, the process to approve a proposed group effort and related expense may warrant express treatment in the agreement. In this regard, a provision could define an approval flow for group expenditure and the required form of approval by each member (e.g., formal signature, e-mail). To avoid impeding progress in group efforts, a related provision could specify the time frame within which each member must indicate its approval for the proposed group effort as well as a time schedule under which each member must submit payment toward costs related to an approved effort. In addition, the agreement may address cost allocation among members for group expenditures. The agreement may provide for equal cost division (e.g., pro rata splits) as a default subject to other, more complex calculations (e.g., splits based on damages exposure) as circumstances warrant. The expected desire of each member to exhibit good group citizenship may be some added insurance where the agreement may fall silent on certain cost management controls.

Member Independence

The agreement should be unequivocal in preserving the complete independence of each member. Each member will have its own unique litigation and settlement objectives that should remain immune to any pressures applied by competing preferences of the group. For example, a member should enjoy freedom to pursue settlement on its own terms and schedule rather than submit to the collective on the advisability and timing of the pursuit. The freedom should be reflected by clear terms that protect a settling member, even if the group has been heavily relying on the member in the collective defense. As a related consideration, each member should be free to disclose or not disclose information to the group. While active information sharing among members usually furthers the interest of all members, a member in limited circumstances may wish to proceed on its own path. For example, if a member has special access to a compelling prior art reference, the member may wish to realize for itself, without disclosure to the group, the full advantage of the reference in settlement negotiations. As another example, the member may choose not to disclose a prior art reference to another member that plans to initiate post-issuance proceedings against the asserted patent. That choice may reflect a desire to prevent the other member from injecting the reference into Patent Office proceedings that could deem the reference immaterial, potentially blunting the impact of the reference in litigation. In addition to its practical importance, the independence of each member, as set forth in the agreement, may allow each member to rebut an allegation that the group activity is anticompetitive.

The provision for member independence in the agreement also may protect members from unintended impact of estoppel. If a particular member of the group initiates post-issuance proceedings against the asserted patent, a patentee may attempt to apply the resulting estoppel not only to the member but also to the rest of the group as privies. While case law informs the meaning of privity in this context, provisions in the agreement establishing the independence of each member in the group may help to diffuse arguments contending broad application of estoppel against the group.

Client Relationships

The agreement should make clear that counsel for a member is counsel for no others in the group. While close collaboration among counsel is a hallmark of a successful group, it should not result in ad hoc claims of new attorney-client relationships between one member and counsel for another member. Such claims would obstruct the ability of each counsel to zealously represent the interests of its client alone, and create a web of competing loyalties hampering the ability of counsel to adequately represent even one member. For similar reasons, the agreement should disavow duties of loyalty, agency relationships, or the like between any pairings except counsel and the member it serves as true client.

As a related matter, the agreement should provide that a member will not seek to disqualify counsel for another member in other litigation based on the agreement or performance thereunder, such as receipt of confidential information of the member. Such a provision preserves a clear delineation of true attorney-client relationships in the group. It also encourages counsel to actively elicit information from and collaborate with other members without fear of later-arising conflict issues, thereby realizing the full potential of the group.

Termination

A requirement of any viable joint defense group is common interest. During early stages of patent litigation, members are often united in mounting defenses based on patent invalidity, unenforceability, and even non-infringement in certain circumstances. However, as the litigation proceeds, some members may settle with the patentee. Settlement between a member and the patentee is often achieved in confidence without the initial knowledge of any other members. Indeed, the settlement agreement itself may forbid disclosure about the fact of settlement until filing by the parties of a request to dismiss the case. In this regard, a request for entry of stipulated dismissal by settling parties may significantly lag the fact of settlement. Timely receipt of notice of settlement by other members may be even more difficult when they are named in separate actions.

During the time period between settlement and disclosure of the settlement to the group, it can be argued that the settling member destroys the predicate common interest of the group. When the settling member receives a patent license and other quintessential rights attendant with settlement of a patent litigation, the member no longer shares the common interest of the other members to defend against the patent. If the settling member does not immediately withdraw from the group upon settlement, the vitality of the group becomes fundamentally threatened. Thus, to maintain common interest among all members, a provision requiring automatic termination of the agreement as to the settling member and removal of the member from the group is appropriate.

Drafting Roles

Many provisions of the agreement will impact group members similarly, if not identically. As a result, each member can be somewhat reassured that its interests may be represented by similarly situated fellow members. However, like any other type of agreement, some provisions may be subject to significant scrutiny and prolonged negotiation based on divergent interests.

To proactively address the risk of extensive negotiation with other members, your client's interests may be promoted by your volunteering to prepare the first draft of the agreement. By assuming the drafting role among members, you will be empowered at the outset to seed the agreement with terms favored by your client and accordingly frame the discussion on those terms. Other members that propose contrary positions may be required to assume the more burdensome task of undoing the momentum in your original provisions.

Conclusion

Too often, the execution of a joint defense agreement is viewed as a mechanical process involving form boilerplate. Provision for key issues portends more productive and efficient collaboration among members of the joint defense group. A well-crafted agreement also can ensure that the unique objectives of your client's litigation strategy remain viable within the larger context of group pursuits. A strategically drafted joint defense agreement will minimize group discord and facilitate coordinated focus on the primary litigation objective, defeat of the common adversary.

James W. Soong is a Partner at Sheppard Mullin Richter & Hampton LLP in Palo Alto, CA. We welcome him to our Board of Editors with this issue. The article, which expresses Mr. Soong's current views, should not be considered legal advice and should not be attributed to others.