Sued For Patent Infringement - Now What


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You\'ve been sued for patent infringement. Now what? This is a primer on patent litigation for those unfamiliar with the process

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Sued For Patent Infringement - Now What

  1. 1. You’ve Been Sued for Patent Infringement, Now What? On your desk you find a lawsuit claiming patent infringement. It may have come from your registered agent, or with a cover letter from the plaintiff’s attorney. Either way, the clock is ticking. What do you do now? Below is some basic information to help you get started answering that question. 800-818-5070 Executive Summary Once the complaint has been served, you have only 20 days to file responsive pleadings or motions. As a result, you should start the process of obtaining counsel immediately. After engaging counsel, and with their input, you should assess the situation and your risks. First, what is the process? Litigation is time-consuming and expensive. You should have a clear understanding of the process before deciding on a plan. Second, who is your adversary? e plaintiff may be an equal sized competitor, a large corporation, or a patent holding company. e nature of your adversary and its goals will likely impact your strategy and plan. ird, what are your risks? Determining your exposure includes an assessment of the risk that your products will be found to infringe the asserted patents, the potential damages that could be awarded, and the real costs of litigation. Assessing the infringement risk requires an analysis of the patent claims (including the patent’s written description, prosecution history and prior art) as compared to the products accused of infringing. Such an assessment should only be done by an experienced patent litigator. Assessing potential damages includes determining the remaining term of the patent, the role of the patented technology in the products accused, the revenue associated with those products, and their product lifecycle. You should also consider the likelihood that the other side will obtain an injunction preventing sales of the accused products, and what impact that would have on your overall business. Finally, you need to consider the costs of litigation and the associated disruption caused by litigation. Litigation will require the time of your executives and staff, may challenge your document retention practices, and will involve a substantial invasion into your organization’s operation. Fourth and finally, you need to determine your goals in defending the litigation, and design a budget with your counsel to accomplish them. Your goals in the litigation should take into account a realistic assessment of what can be accomplished in the litigation, what will be involved in accomplishing it, and your chances of success. Your budget should take into account the hourly rates of experienced patent litigation counsel, which can be significant, as well as the many alternative billing arrangements available, including fixed fee budgets, caps, blended rates, success fees and various hybrids of those. If you build a strategy and budget based on a realistic assessment of your exposure and goals, you stand the best chance of defending your company and successfully avoiding unnecessary expense.
  2. 2. Litigation 101 A patent lawsuit begins with the filing of a summons and complaint in federal court. e complaint describes generally the allegations and identifies the asserted patents. If the complaint has been formally served as required by law, you have only 20 days to file responsive pleadings. Sometimes a filed complaint can come informally with a cover letter from the plaintiff’s counsel, usually seeking further discussions before the complaint is formally served and the litigation begins. Either way, time is critical and you should immediately seek counsel from a lawyer experienced in handling patent litigation matters. Once an answer is filed, the case will proceed through various phases, the timing of which depends on local rules specific to the court in which the case is pending. In general, these phases include discovery (collecting documents, information, and deposition testimony), claim construction (where the court determines the scope of the patent’s claim language), expert discovery (reports and depositions), case dispositive motions, and trial. ese phases are typically scheduled over the course of 10-36 months, depending on the court. As the case proceeds through these phases, key events will occur having significant impact on the case going forward. ese key events may include the inventor’s deposition, the court’s claim construction ruling, expert discovery, and dispositive motions. After each of these events, the parties will often have a clearer understanding of their positions and chances of prevailing in the litigation. Often, fruitful settlement discussions occur shortly after one or more of these events. If the case is not decided or settled in one of the above phases, the court will hold a trial. Patent cases are typically tried to a jury of 6 to 8 people. e jury will decide whether the accused product infringes the patent, whether the patent is valid over the prior art, and the amount of damages to be awarded, if any. Patent trials typically last from 1-3 weeks, depending on the court, the number of patents and accused products involved, and the number of witnesses. Assess Your Adversary Whatever your goals, one of the first things you should do is assess your adversary. e type of the company suing you can have a large impact on the nature of the litigation and how it may resolve. Is the plaintiff a similar-sized competitor? Is it a much larger corporation? Is it a patent holding company? e answers to these questions will have a significant impact on the dynamics of the litigation and any settlement discussions. If your adversary is a similar-sized competitor, it may be using the litigation to gain some advantage in the marketplace. Motivations for such a competitor suit might include protecting market share (such as by hampering your launch of a new product or product line), raising customer concerns about your product, setting up a merger, satisfying concerned investors, and gaining publicity. Whatever the motivation, your adversary has in mind various goals to be accomplished through the litigation. ese goals likely range from aspirational to realistic to worst-case scenario. Understanding your adversary’s goals will help you plan an appropriate litigation strategy to accomplish your own goals.
  3. 3. If your adversary is a large corporation, its goals may include all of the above, but the playing field is not as level. e large-company adversary may want to license technology to you, run your company out of business, acquire you, or protect its market share. A large company may have seemingly unlimited resources to litigate, and a sizeable patent portfolio. It may have the ability to cause you to incur substantial litigation costs—costs it can absorb more easily than can your company. Your adversary may also be a patent holding company, or so-called “non-practicing entity” (“NPE”). An NPE is a company that acquires patents for the purpose of licensing them to others, often through litigation. NPEs typically do not have a product or service of their own in the marketplace. Generally, the goal of an NPE is to settle the litigation quickly, often for less than the cost of defending it. Unlike other adversaries, NPEs have less chance of obtaining an injunction that would stop you from selling your product, but damages can still be quite large. NPEs often hire lawyers on a contingent-fee basis, so both the plaintiff and its attorney are motivated to resolve the case quickly, while still doing so on terms that will be favorable for future license targets. Experienced patent litigation counsel can help evaluate and understand your adversary, and frame a strategy that takes into account your adversaries motivations. Know Your Exposure To determine your exposure, you must realistically assess the risk that your products will be found to infringe the asserted patents, you must calculate the potential damages that could be awarded, and you must understand the real costs of litigation. Assessing your infringement risk requires an analysis of the patent claims (including the patent’s written description, prosecution history and prior art) as compared to your products accused of infringing. Patent infringement is determined by comparing, on an element-by-element basis, the asserted claims of the patent with the accused products. e claims of the patent define the scope of the invention, and are interpreted in light of the patent’s written description and prosecution history, from the perspective of a person having an understanding of the technology to which the claimed invention pertains, otherwise known as a “person of ordinary skill in the art.” e process of interpreting the patent’s claim language is called “claim construction.” In litigation, claim construction is a matter of law for the judge to determine. Typically, claim construction involves the parties identifying terms to be construed, proposing definitions or constructions for those terms, briefing the most important disputed terms, and holding a hearing before the court. e court then issues a claim construction order defining the terms. An early assessment of the likely claim construction issues and their potential outcomes is critical to understanding the risk of an infringement finding. In addition, your counsel will undertake a detailed comparison of each element of the asserted patent claims (as likely construed) with the accused products. e resulting analysis, typically in the form of a detailed claim chart, will help you understand your risks and frame your strategies going forward. As a result, this substantive analysis should be done as soon as possible by experienced patent litigation counsel.
  4. 4. You should next evaluate your potential damages exposure. is evaluation should include not only the range of a potential damages, but also an assessment of the financial impact of the litigation and any adverse result. Damages can depend not only on the sales of accused products, but also on the extent to which the claimed invention drives demand for the product. You should also consider the importance of the accused product in your company’s mix of offerings, its product lifecycle, and the remaining term of the asserted patent. e impact of an injunction should also be considered and evaluated as you formulate your goals and strategies. Finally, do not overlook the disruption to your company that litigation will cause. Document production, depositions, and trial will take significant time, attention, and energy from your key personnel, and may create fear, uncertainty, and doubt in the marketplace. You should get from your litigation counsel a realistic understanding of these various disruptions as you evaluate your exposure and plan your strategy. Plan Your Strategy and Set a Budget With a clear understanding of the patent litigation process, your adversary, and your exposure, you should next plan an appropriate strategy to accomplish your goals in the litigation. Experienced litigation counsel can help you work through these issues and come up with a plan for getting you where you want to go. Although you likely did not want to be on the receiving end of a patent lawsuit, now that you are in one you should give careful consideration to the “end game” and how to resolve the case in the most favorable way possible. Getting the case into a posture to be resolved favorably may require significant time and expense, but failure to plan with a clear view of the process, motivations, and risks involved will almost certainly end with a worse result. With your goals set, you need a budget. Patent litigation is expensive. Hourly rates for experienced patent litigation counsel are among the highest of any area of legal practice. A single case involving a single patent can easily cost $2 to $4 million or more through trial. Costs of electronic discovery, depositions, and experts can easily exceed $1 million by themselves. In this environment, you may want to discuss with your counsel alternative billing arrangements that meet your needs, whether you are seeking fixed fees, even payments, phased or periodic installments, or any other arrangement. Make sure your counsel has deep and broad experience in patent litigation. You need a firm that has handled a large number of patent cases through trial and knows what it takes to win. Only with real and significant experience can realistic budget estimates be set. Conclusion Patent litigation can be expensive and time consuming. For bet-the-company litigation, you should hire experienced patent litigation counsel. To help better manage the litigation, you should understand the process, your adversary, and your risks, then work with your counsel to tailor a strategy and budget that will help you meet your goals and resolve the case as favorably as possible. Dan Kent Jim McDonough 404-724-2828 404-724-2784