LAW360
By Jeffrey Ahdoot and Wendy Verlander (May 21, 2024)
Patent litigation can be expensive. Very expensive. With the average cost to defend a patent lawsuit ranging from $1 million to $4 million, defending a patent case can create a serious strain on resources, particularly for midsize or smaller companies. And, even after incurring that expense, there is still the very real possibility that you lose and owe significant damages.
Earlier this month, IPA Technologies Inc. won a $242 million verdict against Microsoft Inc.[1] Whether or not that verdict is overturned on appeal — and these days only about one-third of patent damage awards are overturned[2] — it is a certainty that Microsoft will end up spending more money and time on this case.
It is important that defendants put themselves in the best position for success at the outset. When reducing costs is paramount, attempting to dispose of the case early is usually the most sensible plan. Sometimes that involves strategies that may seem counterintuitive at first, but can end up saving significant costs down the road. Below are some of these early considerations.
Use notice letters to your advantage.
Defendants can take steps to resolve a dispute before a lawsuit is ever filed. Typically, a patentee will send a letter notifying a company of potential infringement before filing suit. These notice letters allow defendants to evaluate the strength of the infringement claim and explore possible solutions. Also, while notice letters serve several purposes for a patentee, such as starting the clock on damages, they also provide insight into how serious a patentee is about litigation.
The notice letter, if done right, will identify the patents-at-issue, at least one infringed patent claim and at least one potentially infringing product. That is enough information to start a preliminary investigation into the merits of the claims. Defendants can quickly determine the likelihood their product(s) infringe, and an estimate of potential damages.
If infringement is likely, you should conduct a prior art search to identify any helpful prior publications or products that could demonstrate the invalidity of the patents-at-issue, including an investigation into whether your own products invalidate the patents.
Whether a company responds to a notice letter involves a number of considerations, including the strength of the infringement and/or invalidity claim, amount of potential damages, history between the parties, overall strategy, level of aggressiveness, and personal choice.
But again, if avoiding the high cost of litigation is a priority, a formal response may convince a patentee not to file in the first place. This is particularly true if the preliminary investigation reveals serious flaws with the patentee’s allegations, or if the damages are so low that litigation doesn’t make sense.
In these instances, highlighting the likelihood of noninfringement or invalidity, or providing an indication of minimal damages, could avoid litigation entirely. The response can also put a patentee on notice of the serious consequences of filing a baseless lawsuit. No one wants to spend time and money on litigation that will likely go nowhere, or worse, becomes a liability for the patentee.
Know your opponent.
In addition to conducting the preliminary investigation detailed above, performing a statistics-based analysis of the patentee’s litigation history will help determine whether there is a realistic chance of early resolution.
Tools like PACER, Lex Machina and Docket Navigator can help defendants collect information regarding the number of cases filed by the patentee, related cases, preferred venues, litigation counsel and the number of attorneys, and possibly whether funders are involved. These tools can also provide key information about the average time to resolution for a particular patentee, such as whether it litigates past the complaint stage, tends to wait until post-Markman, or frequently goes the distance to summary judgment and trial.
For patentees that are litigious, this information is essential to determine your case strategy. When the statistics reveal a willingness by the patentee to resolve the case early, defendants can engage a smaller, less expensive team to effectively anticipate the patentee’s strategy before any significant case expense. Similarly, if a patentee has filed against many defendants at once, a smaller litigation team may be sufficient since resources can be pooled between defendants, providing further cost savings.
For those cases where the historical data reveals a more aggressive patentee, further mining of the litigation statistics can help predict your opponent’s strategy. For example, analyzing the patentee’s response to attempts at early disposition, such as motions to dismiss or Patent Trial and Appeal Board review, can aid in determining whether such tactics may help or hurt early resolution. This type of predictive analysis is useful throughout the entire case, as many patentees are likely to follow litigation strategies similar to those they used before.
Cut costs in early stages of litigation.
If hopes of early resolution dim as the litigation starts moving, all is not lost. There are still strategies to consider in the early stages of litigation that could significantly reduce costs.
While your first instinct may be to file a motion to dismiss or an inter partes review petition, weigh and reweigh those options carefully before spending time and money on tactics that may have a low chance of success.
For example, there is now a considerable body of patent eligibility case law following
the U.S. Supreme Court’s 2014 decision in Alice Corp. v. CLS Bank International;
this provides a much better understanding of whether certain categories of technology will be found patent eligible and, even if not, whether the court will decide eligibility on a motion to dismiss.
And, while filing an IPR may still be the most cost-effective way to invalidate the patent(s), carefully evaluate the strength of the case you will be making at the PTAB. The worst result would be to lose at the PTAB and then have to proceed to court with limited invalidity defenses.
In addition to evaluating the effectiveness of early defensive measures, negotiate a litigation schedule that factors in time and information needed for early resolution. Courts want nothing more than for parties to resolve cases quickly and will endorse schedules aimed at accomplishing that goal.
For example, although you may be reluctant to hand over sales and revenue information early in the case, often that makes sense so you can begin settlement discussions, particularly if the value of the case is low. Not only could this kick-start early settlement discussions, but it can also provide a basis to push out other litigation deadlines, such as claim construction and full discovery, when defendants start to incur significant costs.
Even if early resolution is unlikely, other cost-cutting measures are possible. For example, you can propose reasonable limits on discovery, such as limited document requests, requests for admission, interrogatories, depositions and, if warranted, an agreement excluding email discovery.
Similarly, build space in the schedule for possible resolution after large case milestones, such as claim construction, institution of an IPR, summary judgment and Daubert decisions, and before the costliest aspects of the case, such as expert discovery and pretrial. Too often, there is simply no time to negotiate a settlement while the litigation is going full speed ahead, resulting in significant, unnecessary costs.
Conclusion
There are many strategies you can employ to prevent your litigation costs from spiraling out of control. Beginning them at the first indication of litigation and continuing them as the case progresses will put you in the best position for success.
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Jeffrey Ahdoot is a partner and Wendy Verlander is a managing partner at Verlander LLP.
Law360 is owned by LexisNexis Legal & Professional, a RELX company, which owns Lex Machina.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of their employer, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
[1] IPA Technologies Inc. v. Microsoft Inc., C.A.1:18-cv-00001 (May 10, 2024, D. Del.).
[2] James Donohue and Marie Sanyal, Patent Damages Jury Verdicts Aren’t Always End Of The Story, Law360 (May 7, 2024), https://www.law360.com/ip/articles/1833507/patent- damages-jury-verdicts-aren-t-always-end-of-the-story.