Understanding and Utilizing Litigation Leverage

If you are leveraging litigation as a tool to monetize a patent asset, understand the nature of litigation and use it to your advantage.

Litigation is a back and forth exchange in which the patent holder and potential licensee expand and retract their leverage, respectively.  When you have leverage during the litigation proceedings, initiate settlement discussions and exploit your leverage.  When the potential licensee has leverage, do not show any signs of weakness (e.g., decreasing  your settlement offer).

There are a handful of milestones that directly impact your asset’s monetization potential (i.e., your leverage).  Below are notable milestones and various points in litigation in which you can extract leverage:

1. Complaint–be sure to implicate a broad set of products and services.  While most jurisdictions (i.e., courts) require, at a minimum, for you to implicate one product as infringing one claim (e.g., name a particular smartphone as infringing one claim), do not stop there–name the entire class of products or services (e.g., all smartphones, all tablets).  This broadens your damages base and enables you to take discovery on a broader range of products (see below regarding discovery).

2. Case management conference/Discovery–as soon as the court holds the case management conference, discovery opens–when discovery opens, immediately send requests for admissions (interrogatories or ROGs) and requests for production of documents (RFPs).  The potential licensee will have an obligation to provide answers to the interrogatories and produce the relevant documents, and will have an obligation to continually update its production.  This ongoing obligation will ensure the potential licensee will feel the weight of the litigation you initiated.

3. Discovery–A patent holder and potential licensee each have their own respective obligations to provide discovery and respond to discovery requests.  But a patent holder’s discovery obligations are typically significantly less than to the potential licensee’s.  If the patent holder does not produce any products or services based on the patented invention, its discovery obligations typically consist of providing documentation relating to the conception and reduction to practice of the patented invention itself.  On the other hand, the potential licensee, which will be a typically be an operating company that provides goods or services on a scale sufficient enough to earn substantial revenue, will be required to undergo exhaustive internal searches for manufacturing and design specifications, distribution and marketing materials, sales information, employee and management internal communications, contracts, and any other materials relating to various aspects of the accused products .  The search and production of such an extensive set of discovery-related documents is a huge burden on potential licensees–exploit this tool early and often in the litigation.

4. Infringement contentions–Relatively early on in the litigation, the patent holder will be required to chart each accused product or service against every claim that potentially infringes.  Be sure to chart all possible products or services, and chart all independent and dependent claims that infringe.  The more claims you have in play against a larger set of products and services, the higher likelihood you’ll have an infringement read that sticks.

5. Invalidity contentions–When the potential licensee submits its prior art references and invalidity charts, analyze all of the references carefully to determine if any single reference can invalidate all of your claims (which would make it 102-anticipatory reference).  If so, the potential licensee will have significant leverage to file and win a summary judgment motion for invalidity  (see below).  But if you can make an argument that no single reference anticipates at least one assertable claim (preferably, at least one independent claim), but instead at best a combination of references is required to invalidate the claims, then the potential licensee will need to rely on a 103 obviousness argument to invalidate your claims.  103 obviousness arguments are fact-based inquiries–if you force the potential licensee to rely on such an argument for invalidity, then the potential licensee will likely not win on a summary judgment motion for invalidity, and will need to defend its case at trial, in front of a jury (see below why having your case heard in front of a jury can increase your leverage).

6. Markman hearing–this is arguably the most critical juncture not only the litigation, but in the entire monetization campaign.  At a Markman hearing, a judge will determine the meaning and scope of your claims–most cases are won and lost here.  The patent holder must argue for and win on constructions that enable the claims to (1) remain valid over  the prior art and (2) read on the potential licensee’s products and services.  You must have a solid understanding of how you need to construe the claims to maintain validity, yet still maintain an infringement read.  Before submitting your proposed constructions for the court to consider during the Markman hearing, be certain you’ve found the balance between maintaining validity and your infringement read.

7. Dispositive motions–any motion that could dispose of a major issue in the case is a dispositive one.  Examples include summary judgment motions for invalidity, noninfringement, and unenforceability.  If the potential licensee files these types of motions, then it is signaling that it will not cave and is willing to fight.  If and when a potential licensee files any of these motions, avoid dropping your settlement price–this signals weakness.  Instead, stand your ground and fight the motion.

8. Trial–if you survive the potential licensee’s dispositive motions, then you will be going to trial and a jury will hear your case.  A jury’s decision-making process is extremely unpredictable–anything can happen at trial.  This uncertainty creates significant exposure for the potential licensee–leverage this uncertainty by initiating settlement discussions prior to trial.

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