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Guarding against patent enforcement

This is part two of a two part article. Click here to read part one.

You or your company may have no patents and, generally, little perceived need to be concerned with patent matters. However, there is a growing group of entities that consider enforcing patents to be a main or significant source of revenue. As a consequence, more and more businesses have to be concerned with patent matters.

One enforcement technique is to send licensing letters or to file lawsuits against end users and resellers of an allegedly covered product or service. Sometimes the first parties to receive such letters or complaints are companies that either cannot or do not wish to defend a patent lawsuit. Furthermore, those companies may not wish to risk having any kind of injunction issued against them. Thus, they will generally settle any claim or take a license as quickly as possible.

After a first round of settlements, patent enforcers may continue against other companies. Supported by the monies collected during earlier rounds, patent enforcers may take more aggressive actions such as filing lawsuits without sending warning letters. In any event, successive rounds of licensing arrangements are completed until the patent enforcer is satisfied or until one or more defendants successfully prove that the asserted patent is invalid or not infringed (although a non-infringement verdict for one defendant does not guarantee that other entities don’t infringe).

In many cases, a patent enforcer will start with a letter explaining its position and offering a license, sometimes on terms that are lower than the cost of litigating an infringement case and, in many cases, considerably lower. For example, a patent lawsuit from beginning to a verdict by a jury might cost several million dollars. Licenses may sometimes be purchased for tens of thousand of dollars, and even purchasing a license for hundreds of thousands of dollars may be a very good result in some circumstances. But taking a license to avoid litigation expenses is not the only option.
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An alleged patent infringer should check whether anyone in the company was involved in the design or manufacture of the product or process at issue. If so, the company may face a situation that resembles the classic patent infringement scenario. If the infringer has no such involvement (and even in some cases where involvement exists), a review of relevant contracts for warranties or indemnities regarding intellectual property should be conducted. Many manufacturers disclaim any warranties of non-infringement and do not provide an indemnification against patent or other intellectual property claims.

Act timely when a claim is made
If a claim is made against you and you have a contractual warranty or indemnity, act timely to ensure that you comply with any preconditions of the warranty or indemnity obligations of the seller.

In addition to the above, you will want to review with a patent attorney the need to obtain an opinion regarding whether your activities actually infringe the asserted patent and whether the patent is valid. Obtaining such an opinion will not stop the other side from pursing its claims, but the opinion will likely be critical in protecting a company against enhanced damages that can be extracted from an entity found to willfully infringe a patent. Obtaining a competent opinion can be rather costly, particularly when multiple patents are being asserted, and this is another cost that patent enforcers may factor into the settlement equation. However, if you are certain that there is no infringement, sometimes a well-written explanation of your position will result in the patent enforcer dropping the matter or settling on more favorable terms.

You should also review your own insurance policies to see what, if any, coverage you have against infringement claims. In some cases, new or additional insurance may be a viable option.

Proactive measures to thwart legal action
A practice that may help prevent an entity from being on the receiving end of a patent lawsuit is to increase or begin a patent procurement program. Generally, if an entity procures a patent on a specific technology, no one else can obtain a patent on the same technology. For many end users and retailers, procuring patents may not work, but it will be an option for some.

Along the same lines, maintaining a cache or record of old products and a library of literature that relates to your business may be extremely helpful in attempting to invalidate a patent. It is not effective in all instances, but a letter explaining why a patent is invalid because it covers products, services, or technologies that were known before the patent was filed can have the same impact as a letter explaining a non-infringement position. In fact, the two issues (non-infringement and validity) are often addressed in a single letter.

For many companies, there is no simple answer as to how to respond. In some cases, and where it is believed that a strong defense position is available, it may be appropriate to fight a claim, even though the cost of defending exceeds the cost of settlement. The reason for spending the extra money: to avoid obtaining a reputation as a company that always settles the complaints made against it. Regardless of the ultimate decision on how to respond, the increased level of patent enforcement will require many entities not accustomed to handling patent issues to deal with them.

Derek Stettner is a partner at the law firm Michael Best & Friedrich, LLP, focusing his practice on intellectual property matters, with an emphasis on securing patent, copyright, and other intellectual property protection for electrical, software and mechanical inventions. He can be reached at dcstettner@michaelbest.com.

The opinions expressed herein or statements made in the above column are solely those of the author, & do not necessarily reflect the views of Wisconsin Technology Network, LLC. (WTN). WTN, LLC accepts no legal liability or responsibility for any claims made or opinions expressed herein.

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