Part Two: Controlling the Costs of Patent Litigation.
This is Part Two of a four-part series about controlling patent litigation costs. In Part One I discussed how the choice of counsel can impact costs. In this part I discuss how certain strategic considerations can potentially reduce litigation costs.
As described in Part One, U.S. patent litigation is expensive, with an average total legal cost per party of $5.5 million for high-stakes cases. The cost per party just to get through discovery typically reaching seven figures:
|Amount in Controversy||End of Discovery||Through Trial|
|$1M – $10M||$1.0M||$2.0M|
|$10M – $25M||$2.0M||$3.3M|
2013 median patent litigation costs per party (source: AIPLA)
However, strategic decisions can be made, particularly early in litigation, which can have a big impact on costs by increasing the likelihood of an early settlement of the case.
What Induces Settlement?
To settle a dispute that has already resulted in litigation, something must change to produce an attitude shift in at least one of the parties. Certain types of change, such as changes in the finances of the parties or changes in the law, are out of your control. Aside from factors of that type, what matters to the parties is their perceived likelihood of success in the litigation. What can be done to increase the speed with which this perceived likelihood of success changes?
Get Claim Construction before Significant Discovery
A noninfringement defense almost always depends on a particular claim construction, which the patent owner is likely to dispute. Therefore, the position of at least one of the parties often changes dramatically after the claims have been construed by the Court, providing an opportunity for settlement.
There are a couple of ways a party can attempt to get an early claim construction, before extensive (and expensive) fact discovery. For plaintiffs, one strategy that may be possible is to file the action in a jurisdiction with patent local rules requiring claim construction to be completed relatively early in the litigation. Of the 94 U.S. District Courts, approximately 30 have patent local rules of this type, including popular venues such as the Northern and Southern Districts of California, the Northern District of Illinois, the Northern District of Ohio and the Eastern District of Texas, as well as less crowded venues such as the District of Idaho, the District of Utah, and the Eastern and Western Districts of Washington. Of course, bringing an action in one of these courts must be balanced with other factors, such as personal jurisdiction over the defendant, convenience for the plaintiff, average time to hear a patent case, and the likelihood of a favorable outcome. See Part Three of this series for a discussion of some of these factors.
Even in venues without patent local rules, the Court will almost always happily issue a scheduling order based on an agreement between the parties. Therefore, if both parties want to start reaching the merits quickly, they may be able to agree to a rapid schedule for patent-related discovery that culminates with an early claim construction ruling. A good model for the schedule can be generated by looking at the patent local rules of any jurisdiction having them. However, in districts without patent local rules, if either party disagrees with this approach, the Court is unlikely to impose a rapid claim construction schedule favored only by the other party.
Pursue a Preliminary Injunction
Nothing brings a defendant to the table like the threat of an injunction. Therefore, pursuing a preliminary injunction may be a way to speed up settlement, even in cases where the plaintiff may ultimately be willing to offer a license. Of course, the benefit of this approach must be weighed against the cost of the injunction effort. However, most of the work done to demonstrate irreparable harm and a likelihood of success on the merits (which are the elements a plaintiff must prove to get an injunction) will be used again later in the litigation, and this should also be considered.
Analyze Potential Damages Robustly and Early
Calculating patent damages is often complicated, and when patent infringement liability is found, the parties will inevitably fight about the amount of damages that should be awarded, often using competing damages experts. However, even without experts, patent counsel can perform a fairly robust analysis of potential damages. Before extensive fact discovery, some of this analysis will probably be based on information known only to one party, and might increase the chances of settlement if revealed to the other party.
As a trivial example, a defendant may know that it generated only a very small amount of revenue through sales of the accused product. If the plaintiff realizes that very little money is forthcoming regardless of the merits of the case, it may be possible to settle the case without ever reaching the merits. On the other hand, a plaintiff may know that it is likely to be able to demonstrate lost profits, or that it can produce relevant licenses demonstrating an unusually high royalty rate. Providing a well-considered damages position that includes information of this type, which would otherwise remain unknown to the other party until later in the litigation, can produce an attitude shift and make an early settlement more likely.
Depose a Decision Maker Early in Discovery
The parties in patent litigation rarely communicate with each other, but instead rely on the attorneys to communicate on their behalf. Therefore, the strength of each party’s position is necessarily filtered by the other party’s counsel. Hearing an unfiltered version can often produce an attitude shift in a decision maker. To accomplish this, consider an early deposition of an opposing decision maker, such as a company owner or high-level executive.
A company decision maker almost certainly has information relevant to the case, and is therefore a legitimate target for a fact deposition. While the ostensible purpose of the deposition is to elicit facts from the deponent, the deposition also provides an opportunity for the deposing attorney to make sure the decision maker hears some unfiltered analysis of the case. For instance, a defense attorney might ask questions about a prior art patent, ensuring the plaintiff’s decision maker knows the patent establishes a strong invalidity position. Counsel for a patent owner might ask the defendant’s decision maker whether various claims or claim elements cover the accused product, in a manner demonstrating the strength of the infringement position.
Strategic decisions early in patent litigation can change the opposing party’s perceptions about the merits of the case, resulting in a greater likelihood of an early settlement.
Kolisch Hartwell has successfully represented clients in hundreds of federal district court cases around the country, including at least 35 appearances before the U.S. Circuit Courts of Appeal and three appearances before the U.S. Supreme Court. We also represent companies of all sizes in patent and trademark prosecution matters, general intellectual property counseling, and all other IP-related matters. Learn more about our services or contact us to make a specific inquiry.