Regardless of the number of patent reform bills, IP industry conferences, and risk management business models, the number of patent infringement lawsuits remains exceptionally high. Resolving disputes through the inefficiencies of litigation represents an enormous waste of resources and lost opportunities. And this issue runs beyond the usual suspects—a GAO August 2013 report found that 80 percent of patent litigation is brought by manufacturing companies. Thus, IP games are being played on all sides, resulting in demon dialogues, negative patterns and quick escalations to legal actions. In order to foster productive discussions, both sides need to stop playing games and start being transparent and candid about their intent at each stage of an IP licensing discussion. This is a foundation for building trust, developing cooperative behaviors, and allowing business creativity that is critically needed in our knowledge based economy.
The dialogue begins with a demand letter from a patent rights holder, which can take the form of a soft invitation to enter into mutually beneficial licensing discussions or detailed allegations of patent infringement. Often times, the intent behind this letter is to seek a payment to compensate the patent rights holder for the commercial exploitation of its patented technologies by the receiving side of the letter, not to stop the exploitation. There is nothing condemnable in this intent– trading IP rights offers a way to support the broad dissemination of technological advancements, which in turn create rewards for investments in innovation and job creation. These IP trades are so common that seasoned IP executive speak regularly about “IP monetization” or “IP value creation” in trade associations (e.g., the Licensing Executives Society) and conferences (e.g., the IP Business Congress).
Unfortunately, the dialogue turns into an IP game and wasted resources begin to accumulate. On the receiving side of demand letters, companies have developed sophisticated legal tactics to gain advantages in the courtroom, in the anticipation of the risk of a legal escalation initiated by other side. These tactics are based on pre-emptive legal actions (e.g., filing multiple re-examination requests, post grant challenges such as inter partes review, or declaratory judgment actions in favorable courts). It has proved to be effective to deter meritless patent lawsuits and to respond to abuses of litigious patent holders. The adoption of these practices is taught in seminars, summits and conferences with titles such as “patent litigation defense strategies” or “defending against NPEs” (Non-Practicing Entities, companies whose business is focused on IP licensing and enforcement).
And the game goes on, with sophisticated tactics and subterfuges. Some patent holders obfuscate their patent ownerships behind shell companies, including some large technology companies who find it useful to play the part of the NPE to harass competitors. Others use negotiations as fishing expeditions with the intent to prepare stronger cases in the court room – making escalations go even faster. Complaints are prepared before a first contact is made. Even those who would prefer to negotiate rather than sue are forced to sue to capture the attention of the accused infringer, many of whom simply refuse to discuss licensing or settlement unless they are sued. The IP game becomes a race to the courtroom. There are no obvious winners (except for the attorneys representing the parties) as legal fees keep escalating. Litigation could be avoided in many circumstances, but the IP game fosters a power struggle in which each party assumes the worst from the other and defends itself, at high legal expenses, against imaginary threats. Both sides, the users and owners of patented technologies, are antagonized.
These nasty games are counterproductive and stifle the channels needed to build trust between two parties who need to transact. Moreover, by relying on the judiciary system to address business needs, there is no more place for business creativity. Patents are a malleable asset class allowing for all kinds of deal structures. Parties need to trust each other to fully cooperate and maximize value.
The key method to circumvent and stop the IP game is to break negative patterns, and to develop trust. Assuming that the patent owner has a legitimate grievance and is not simply looking to exploit judicial inefficiencies to force a below market value settlement, a first step to break a dysfunctional pattern, which can be initiated by the patent rights holder, is to clarify its intent by offering a safe legal environment to hold a dialogue. For instance, in this scenario both parties could agree upon the principle of exploring a possible IP trade, and further agree that neither party would seek an advantage in the courtroom resulting from the dialogue that took place during negotiations. In practice, this can be done with an enhanced Non-Disclosure Agreement (NDA) that includes specific IP clauses. This enhanced NDA could be summarized as “What Happens in Vegas stays in Vegas,” or using legal jargon – FRE 408-type discussions.
Once a safe legal environment is created, an open and candid dialogue can take place. Then, trust can be nurtured from shared core values to guide and solidify the relationship. A set of core values, such as the following list that has been adopted by my company, will assist in driving change not only with words but impactful actions:
- Invest in, protect and support the broad dissemination of technological advancements, which in turn create rewards for investments in innovation and job creation.
- Preserve our integrity by consistently being honest, truthful, and transparent in our actions.
- Show leadership and commitment as credible advocates of IP rights standing up as trustworthy experts in our industry.
- Build strong relationships through strong communications.
Core values encourage collaborative behaviors that will allow the IP industry to better support the broad dissemination of technological advancements, which in turn create rewards for investments in innovation and job creation.
While these suggestions will not likely resolve the abusive practices of patent owners who make dubious claims of infringement, it could facilitate other disputes, which would weed out clogged courtrooms and allow a spotlight to be shined on what reforms are truly necessary in order to address the problems that remain.
About the Author
Ivan Chaperot is Vice President, IP Licensing for Finjan Holdings where he leads the Company’s IP Licensing Program and its Licensing Best Practices. Chaperot has a wealth of experience from working with some of the industry’s leading technology and IP asset management companies that include Intel Corporation, Intellectual Ventures and Alcatel-Lucent. Throughout his career, he has managed and licensed a variety of patent investment portfolios that include over $100 million relating to software technologies. He has also developed successful outbound patent sales and licensing programs in the U.S. and throughout Europe.
Chaperot is a member of the Licensing Executive Society (LES) and LES International. He has authored and lectured on financial valuation and licensing, and is a European Patent Attorney and a French Patent Attorney.