January 5, 2015
By Chris P. Perque, Texas Lawyer
Patent cases are generally more expensive than any other complex litigation. Many jurisdictions have local patent rules that require extensive disclosures between the parties and briefing on the scope of any asserted patents early in the case, all of which increase attorney fees and costs. Hence, an effective strategy to minimize the total spend in patent cases is to take the offense early to encourage the patent holder to dismiss the suit or settle as early as possible on defense-favorable terms.
This approach is particularly effective when defending against a patent infringement suit brought by a nonpracticing entity, commonly referred to as a “patent troll.” In the past few years, NPEs have filed the vast majority of patent cases. Their goal is to settle for as much as possible as early as possible. While defendants commonly want to settle early as well, their goals are to settle for as little as possible and discourage future NPE suits. NPEs resist settling early on defense-favorable terms, as it provides minimal return and such a settlement may be used by other defendants. Hence, a defendant must take the offense early to create the leverage needed to compel an NPE to voluntarily dismiss its claim or accept a defense-favorable settlement.
Before discussing specific strategies, a defendant’s high-level strategy should also include closely managing its attorney fees and costs, in part, by doing only what is necessary when necessary to keep monthly bills to a minimum. Experienced outside counsel can present various options for taking the offense at the outset of a case, without expending significant attorney fees. In-house counsel should assess which of those options will have the most impact early in the case, and then focus on those high-impact defenses. Other tasks should be performed only as necessary to meet case deadlines or preserve defenses. Outside counsel should be able to estimate the fees to complete these limited tasks, and in-house counsel can keep outside counsel in check with regular conferences and action item lists. A defendant that limits its monthly spend can fight much longer to achieve the desired results.
An effective strategy should manage the plaintiff’s expected settlement value while maximizing its risks. A defendant should consider explaining to plaintiff at the outset of the case why the asserted patent does not cover its products, and even if it does, the recoverable damages are minimal. In addition to managing expectations, this allows the plaintiff to save face with other defendants that have yet to settle, as it can argue that an early settlement for a low amount was due to minimal recoverable damages, as opposed to a weakness in the asserted patent or infringement claim.
The second half of the strategy, maximizing the plaintiff’s risks, is more complicated. A defendant’s options are procedural and substantive. The early procedural challenges are typically to venue or the sufficiency of the pleadings. In many instances, patent cases have been transferred to a defendant’s preferred venue for convenience under 28 U.S.C. §1404(a), especially when a plaintiff filed suit in a district where it does not have a substantial presence or likely witnesses. While this challenge is not dispositive, it increases plaintiff’s risk by moving the case to a district that may be more receptive to substantive challenges. Procedural challenges to the sufficiency of the complaint, such as, vague infringement contentions or inadequate knowledge or intent allegations for induced or willful infringement, may also be asserted at the outset of a case and can be used to whittle away at plaintiff’s recoverable damages.
Certain substantive challenges to the validity of an asserted patent or plaintiff’s standing may also be made at the outset of the case. A challenge to the patentability of an asserted patent pursuant to 35 U.S.C. §101 may be made in a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) in lieu of answering the complaint. A challenge to plaintiff’s standing may be asserted at any time. This defense typically arises out of a defect in plaintiff’s title to an asserted patent. Patent assignments are typically recorded with the U.S. Patent and Trademark Office. They can be quickly obtained and reviewed to determine the viability of such a challenge. A challenge to the definiteness of an asserted patent is also made early in patent cases and typically decided when the district court determines the scope of any asserted patent claims. Each of these challenges increases plaintiff’s risk and makes settlement on defense-favorable terms more likely.
Finally, a defendant may challenge the validity of an asserted patent through the USPTO. Defendants commonly do so by petitioning the USPTO for an Inter Partes Review of a patent asserted in an infringement suit. While the fees to file and prosecute an IPR petition are significant, the threat of filing a well-drafted IPR petition may provide the necessary leverage to obtain a favorable settlement. If an IPR petition is filed and granted, the defendant may move to stay the related patent infringement suit in district court until the IPR proceeding is resolved. Such stays are commonly granted, placing the plaintiff in the unenviable position of defending the validity of its patent in a proceeding where it has no opportunity to recover damages and petitioners, i.e., defendants, enjoy a high rate of success. In short, an early focus on high-impact defenses in a patent case is a “win-win-win” strategy as it increases a defendant’s likelihood of obtaining an early favorable settlement, minimizes its total spend, and discourages future NPE suits.