Reigning in Intellectual Property Litigation Costs

Post-Grant Review, Inter Partes Review (IPR) and Ex Parte Re-Examination (EPR) alternatives to Litigation

Litigation of Intellectual Property is costly. What alternatives do parties have to costly and protracted litigation? This article discusses various options to litigation.

It takes a lot of time, not to mention expense, to develop a patent, but it also takes a lot of resources to protect it.  This fundamental “rule of thumb” applies to developing and protecting other intellectual property (IP) such as trademarks, trade dress, and copyrights.

Typically, by the end of discovery, nearly 60 percent of all litigation costs have been incurred.[1]  Obviously, this type of litigation is not for the faint of heart or for those who do not have very deep pockets.  Although the number of IP lawsuits dropped 13 percent in 2014, litigation costs remain high.  For patent cases valued at less than $25 million, the costs of defense can go up to nearly three million dollars.  In 2012, some cases were awarded damages in excess of one billion dollars, and in 2013 the median award was $4.3 million.[2]

For lower dollar value cases or for smaller companies, litigation costs represent a substantial investment.  Companies that find themselves in this predicament, or for those valuation analysts and experts who are involved with those cases, it may be prudent to consider something other than litigation.

Additional Challenges

Winning at trial does not mean litigation is over.  It is easy to see that the path to a final conclusion can be a long and unpredictable odyssey.  Appeals are common—over 75 percent of all patent cases are appealed.  Cases may settle along the way, but many go back to the trial court for some further action, generating more delay and expense.

In addition to the twisting litigation road, there is the recent increase in claims made by “non-innovating” or “non-practicing” patent entities (NPEs).  These entities are “trolling” to find companies that want to avoid resource-consuming litigation.  NPEs threaten litigation to “shake the bushes” to see what falls out.  Often their claims are unfounded and discovery costs for them are low, since they have virtually no business records.  The patent holder could be buried in discovery demands, and even when it prevails, the out-of-pocket costs associated with the defense are huge.[3]

IP cases tend to be complex and involve a significant amount of technical or scientific issues.  Typically, judges are not trained in these areas, and jury members are often less experienced with the issues.  Even with evidence provided by dueling experts, judges and juries may not grasp the significance of the information presented.[4]

Options

The U.S. Patent and Trademark Office, the agency charged with examining patents, provides a few relatively new options which may prevent having to litigate and could save time: Post-Grant Review (PGR), Inter Partes Review (IPR) and Ex Parte Re-Examination (EPR).[5]  These alternatives went into effect in 2013, and the often-cited advantages to using these options include that they are: speedier, require less discovery, and provide direct appeal to the Federal Circuit.  Another advantage is that the three-judge panels understand the law and the subject matter.

According to James Gilliland of Kilpatrick Townsend & Stockton, filing a request for review by the Patent Office may be a motivator for settlement.  If accepted there could be “doubt and ambiguity” while waiting for the decision,[6] which in turn may cause the parties to more readily consider mediation.  Another benefit of filing is that while everyone is waiting for the Patent Office decision, the litigation is stayed, providing a window to negotiate a settlement.  Disadvantages to consider include: less discovery, and that it could still be very expensive since filing fees alone are over $25,000.

There are nearly two-dozen different Alternative Dispute Resolution (ADR) processes: arbitration, early neutral evaluation, summary jury trial, etc.  Courts offer some of these options, while private dispute resolution providers offer others.  Contracts often require the disputing parties use some form of ADR, or a court may suggest or strongly encourage the parties to resolve their dispute prior to setting a trial date.

Of all the ADR options, mediation is the one where there is not only the benefit of a neutral process manager, the mediator, but also where the parties maintain control over the final outcome.  Courts and the Patent Office have remedy limitations: do something or don’t do it any more; or pay something or you don’t have to pay.

Mediation Overview

Simply put, mediation is a facilitated negotiation.  The process is not a forum for determining right and wrong.  The focus of mediation is to find a solution to a particular problem.  Often when parties attempt to negotiate directly with one another, they enter the discussion with an “I win, you lose” perspective.[7]

Mediators, who are formally trained in the process, and who check their egos at the door, are more likely to be skilled at helping the parties change the dynamics from an adversarial one to more of a collaborative approach.  In addition, they must remain impartial, may not become an advocate for either side, and are to refrain from giving legal or financial advice.  Mediators with process experience and subject matter understanding can help the parties see that new business relationships can be forged or existing relationships can be preserved, for the mutual benefit of all participants.  Historically, arbitration has been the ADR process of choice; however, for IP cases, mediation has demonstrated that, in the case with arbitration, finding a “winner” and “loser” does not promote future business.

There are of course many other benefits of mediation: it conserves financial resources, saves time, keeps employees working and not stuck in depositions, and most importantly, is private.  When preserving corporate public image and keeping stockholders happy are concerns, mediation is an appropriate ADR process.

Cost Considerations

Discovery abuse increases the cost of litigation.  Although there are efforts to rein in e-discovery costs by limiting the number of requests for metadata, litigating IP cases remains expensive.[8]  According to the Federal Judiciary Center, using e-discovery for IP cases increases discovery costs over 60 percent.  So what can be done to control costs?

According to Silicon Valley patent attorney Kenneth Allen, prevention is key—sound patents and good documentation.  He and other intellectual property attorneys also believe that when litigation is initiated there are several steps that can be taken to rein in litigation costs: determine the scope of inquiry, identify all decision-makers, and select the appropriate forum for resolution.  Mediation is often cited as a process that can help conserve resources and provide outcomes not achievable through traditional litigation channels, such as licensing or even cross licensing.

The starting point for all litigation is assessment; in addition to the scope of the inquiry, the overall cost associated with the litigation must be calculated.  This can be influenced by where the case is filed.  For instance, higher claims are typically awarded in the Texas Southern District and the lowest are in the Florida Middle District.  It takes much less time in the Virginia Eastern District (under a year) to almost four years in the Illinois Northern District.  NEP cases are more successful in the Pennsylvania Western District (67 percent of the time) and least successful in the District of Columbia where NEPs are batting zero.[9]  Another basic assessment factor is timing: what is known, what else is needed, and if the timing is appropriate for an alternative dispute resolution process.  For example, critical times for settlement would be just before a public offering or annual report deadline for a company that is the target of litigation, since litigation proceedings must be disclosed to shareholders.

Effective Mediation

Preparation for the mediation is the most important part of the process and, as pointed out earlier, having all decision makers present for the mediation helps insure a successful outcome.  In addition to having everyone there, including those who otherwise could prevent a settlement from being carried out, it is critical for counsel and their clients to look objectively at the case.  Conducting a 360-degree analysis is often improved when an outside expert participates.  Realistically reviewing the strengths and weaknesses, and conducting a comprehensive risk analysis of the probability of prevailing, are fundamental components of preparation.

Of course, mediation success requires a willingness to exchange information.  If litigators, going into mediation are expecting to negotiate a settlement, but are unwilling to exchange information, then they will encounter an impasse.  Without the exchange of information, there is nothing to negotiate.[10]  One simple step: identify all issues to be resolved—up front—do not attempt to “hide the ball”.  Waiting until the end of the session to say, “Oh, by the way, there is one more thing”, is the surest way to bring negotiations to a halt.

Once all the issues are identified, attorney and client need to develop a list of possible options.  Not just one self-serving option—”It’s my way or the highway.”  The more options one has before the mediation starts, the higher the probability of a settlement and the better the outcome.  Going into the mediation with multiple options allows the skilled negotiator to blend and link solutions, enhancing less palatable solutions with ones the other side might more readily accept.

When litigants want to retain control over the outcome, negotiating during mediation provides that control.  When using mediation, the parties typically select the mediator, and therefore can be sure that the individual has both subject matter expertise and actual mediation experience handling similar cases.  This saves time and expense bringing the mediator “up to speed”.  If a mediator with those credentials is not available, participants can elect to have the process co-mediated: one is the subject matter expert and the other the skilled process manager.

Conclusion

Litigation is a very resource-consuming process, and IP cases are some of the most expensive to defend.  There are alternatives for reducing the length of time to find a solution and to reduce the expense of litigation; consider new Patent Office options and various private and court-connected ADR procedures.

Mediation is the one process with a proven track record for conserving resources and providing the participants control over the outcome, thus enabling them to design creative solutions, such as licensing.  Many times a prudent businessperson sees a better outcome being able to design a solution that makes economic sense, rather than spending years and untold resources attempting to “win” at trial.

[1] The American Intellectual Property Law Association, Report of the Economic Survey, July, 2013.

[2] Patent Litigation Study, PwC, 2014.

[3] David Long and Martin Rizzolo, Proposed Cost-Shifting in Patent Infringement Cases, Daily Wire Newsletter, October 17, 2013.

[4] Craig Metcalf, How Mediation of Patent Disputes Differs from Litigation, Daily Wire Newsletter, August 20, 2014.

[5] Leahy-Smith American Invents Act of 2011.

[6] James Gilliland, Kilpatrick Townsend & Stockton, LLP, has been an intellectual property litigator for over 30 years.

[7] Yeend, N. N., Mediation 101: Understanding the Magic, The Value Examiner, May/June 2005.

[8] In a 2010 speech, former Federal Circuit Chief Justice Randal Rader stated that less than 0.0074 percent of the e-documents produced ever “made their way onto the trial exhibit list—less than one document in ten thousand.”

[9] Patent Litigation Study, PwC, 2015.

[10] Yeend, N. N., Mediation 150: Negotiation Skills, The Value Examiner, September/October 2005.

 

Nancy Neal Yeend is a dispute management specialist, mediator of business disputes and educator. She is the co-founder of Pacific Coast Strategies in Portland, OR.
Ms. Yeend can be reached at: (503) 803-6591 or e-mail to: nancy@controllingworkplacecosts.com.