In This Issue Return to LES Home Power Networking: A Strong Success With Key Lessons Learned Spring Meeting + LES International President's Message: Teamwork Makes CLP Initiative A Success Sector Spotlight: Chemicals, Energy & Materials Sector Mini-Plenary Covers Diverse CEMC Interests Health Care Sector Private Equity Comes To Biotech Received A Charge Of Patent Infringement? What To Do Next Local Chapters Celebrate The Holidays Boston Chicago Maryland & Washington D.C. New Jersey LES International Americas Connect With New Collaboration Markets For Technology: Challenges and Opportunities Foundation Focus Licensing Survey Provides Snapshot Of Industry Where Are They Now? Save the Date! Plan For Orlando In 2008 LES Calendar of Events		Received A Charge Of Patent Infringement? What To Do Next By Bradley J. Hulbert, High Tech Sector Chair Corporate management often asks counsel to "respond appropriately" to an allegation of patent infringement—while still "keeping an eye on the budget." A few recommendations follow. 1. Take it seriously. Many allegations are frivolous. One should typically disregard silly assertions without devoting any further time or money to the matter. However, too frequently, management simply ignores a charge of infringement, and the patent owner feels compelled to file suit in order to "be taken seriously." 2. Evaluate the risk. One may assess the risk posed by a non-frivolous charge of infringement, in part, by considering: The nature of the accused product. A charge leveled at a high-volume, high-margin core product, essential to the continued life of the company, is, of course, more significant than a charge involving a low-volume, peripheral product. The nature of the entity making the charge of infringement. A letter from a patent owner experienced in patent litigation, with a detailed explanation of the facts behind the charge of infringement, should be given a higher priority. To the extent that the asserted patent is close to expiration or if the maintenance fees have not been paid (a not-unheardof occurrence), the threat to the infringement is reduced or eliminated. 3. Notify Any Indemnitors. Where the accused product (or a key component within the accused product) is purchased from a third-party supplier, the supplier may be obliged to indemnify the accused infringer against charges of infringement. Sales agreements often provide for such indemnification. However, such contracts also commonly provide for no indemnification unless the indemnitor receives prompt notification of any charge of infringement. You need to pull out the agreements and check the notice requirements. The Uniform Commercial Code generally provides that a seller of most products warrants "good title" (unless, of course, the warranty is disclaimed). Occasionally, even when there is no indemnification obligation, a supplier with a sizeable patent portfolio may nonetheless "step forward" as a "big brother," to asset its own patents or otherwise defend a valued customer against a charge of infringement. 4. Check for Licenses. It is not unheard of for an accused infringer to respond to a charge of infringement by asserting that it already has a license under patent. It is generally worth the time to check. The patent owner may have previously granted a license either to the supplier (or the company itself). 5. Assess the claim scope and validity. The claims of a patent define the "metes and bounds" of the protection afforded to the invention. Patent counsel can help determine whether the claims are so narrow that they are not Received A Charge Of Patent Infringement? What To Do Next infringed or are so broad that the describe the prior art and are invalid. The initial investigation may also explore whether the patent owner holds any other patents and published patent applications. Even if the asserted patent is not infringed, there may be related applications still pending before the Patent Office that still pose a risk. Of course, throughout the process of evaluating the patent, counsel should keep in mind the possibility of litigation and the discovery process. Without proper instruction, corporate employees sometimes jump to faulty conclusions and prepare erroneous memos or e-mails, saying, e.g., "We have a real problem here." 6. Consider the Patent Owner's Downside Risk. Some patent owners may forgo a suit against an accused infringer if she or he thinks that an enforcement action will take too long or require too much money before it receives return on its investment. After being accused of infringement, the accused infringer should look to its own patent portfolio to assess whether the patent owner sending the charge of infringement might itself be liable for infringement of the accused infringer's patents. The downside risk to the patent owner need not be limited to patent counterclaims, but often includes, for example, contract or anti-trust claims. 7. Consider the Negotiation Options. One option, of course, is purposely to do nothing. Where the patent owner is already engaged in intensive litigation, or appears to have made a mass mailing of charges of infringement, some accused infringers practice "keeping your head down." They wait for another alleged infringer to prove the patent valueless. Alternatively, an accused infringer may respond to the charge of infringement. One response is to simply let the patent owner know that the allegations are being addressed (and perhaps reduce the risk of an unwanted lawsuit). Another response is to "go on the offensive," confronting the patent owner with evidence of noninfringement or invalidity or filing a lawsuit seeking a declaratory judgment that the patent is invalid or not infringed or not enforceable. A third option is to affirmatively seek a license, assuming that others in the industry who take a license later will have to pay more. Where the patent owner follows through with its threats against an industry, the "early signers" may (or may not) end up with a lower royalty payment that their competitors. Conclusion During patent license negotiations, licensees must stay keenly aware of the "multiple toll" problem. A substantial number of patents read on many high tech devices. A producer that pays a patent royalty of, for example, 25% of its profit to each of four different patent owners will not stay in the business long. Most patent cases settle through negotiation. Only a fraction of charges of infringement result in litigation, and less than 5% of patent lawsuits filed actually result in trials. There are typically large windows for negotiation both before and during litigation.
Copyright © 2008 Licensing Executives Society (U.S.A. and Canada), Inc.