Reconciliation is in the air! And it’s not just due to lingering good feelings from the holiday season. According to John Amster, chief executive of RPX, Inc.:  “Peace is breaking out.”  RPX acquired 4,000 telecom patents this past December so that its subscribers can obtain patented technology rights. “I think people have started to realize that licensing, not litigation, is the best way to make use of patents,”  Amster told the Wall Street Journal in December.  “[A]nd this deal is a significant acknowledgment of that reality.” RPX reportedly lined up subscribers including Google and Cisco Systems to pay $900 million for important Nortel patents owned by a consortium including Microsoft and Apple called Rockstar Consortium. The RPX subscriber model allows participants to pay a membership fee to the company in order to obtain licenses to these and other patents, enabling them to use the technology and to avoid potential patent litigations.

In 2011, Rockstar acquired a portfolio of 6,000 Nortel patents including the technology involving 4G wireless communications that connect today’s smartphones. Both the size of that transaction and its dollar value were “unprecedented” at that time, according to George Riedel, chief strategy officer and president of business units at Nortel. The significant interest in the portfolio by major  companies around the world was likewise extraordinary. RPX acquired 4,000 of the original 6,000  Nortel patents from Rockstar. Rockstar and RPX are not the only entities that have recently chosen licensing over litigation. Even vociferous patent owners – such as Apple – have recently settled many lawsuits for smartphone technology including a cross-licensing settlement with arch rival Samsung, outside the U.S.

RPX’s acquisition of the Nortel patents provides a convenient – although hypothetical – means to approximate the value of similar types of patents. When you do the math, RPX’s acquisition price of $900 million suggests  a value of about $225,000 per patent (although no attempt is being made to value particular Nortel patents). This hypothetical valuation does illustrate the statement made by RPX’s Amster that litigation may not be the best use of patents. According to the AIPLA’s 2013 Report of the Economic Survey; the average patent litigation (with $10  million to $14 million at risk) costs about $2 million in attorney’s fees. In many instances it may be difficult to recoup the value of a $225,000 patent in traditional district court litigation proceedings through trial (unless a large group of patents are being asserted in a single lawsuit).

Patent owners who consider and plan for an early exit from litigation, for example through court sponsored mediation, may be better positioned to avoid the disappointment of a low damage award for a low value patent (or even patent invalidation) and the expense of high attorney’s fees that come with reaching trial – an expense that may well exceed the value of the patent(s) at issue. They need  to be realistic about the potential damages that could be awarded at the end of a long legal battle, and should engage skilled valuators before litigation, to conduct patent valuations early-on and establish reasonable expectations. Although the company may perceive the patent(s) being asserted as its  “crown jewels,” the court will require both strong evidence of infringement and carefully constructed damage calculations from experts. A patent owner’s reasonable valuation also may encourage an accused infringer to negotiate a licensing deal, instead of challenging the validity of an asserted patent  in an Inter Partes or Post Grant Review at the US Patent and Trademark Office.

Payment for a license is especially important for defendants/accused infringers to consider before taking on a rival. Planning a litigation strategy that meets a budget based on a solid valuation of the asserted patent and using a focused litigation strategy that culminates with alternative dispute resolution (ADR), such as mediation, may help defendants accomplish strategic goals more quickly. For example, agreeing to mediate shortly after filing a strong motion for summary judgment or obtaining a favorable claim construction ruling may help facilitate a compromise at the mediation.

Because it offers parties real advantages, including  informality, flexibility, more control and a less public forum, while avoiding many of the disadvantages of litigation, including expense, risk and delay, mediation is increasingly being used as tool to promote settlement. When a respected mediator candidly instructs parties of the likely litigation outcomes and provides carefully crafted settlement alternatives, mediation can short-circuit many prolonged disputes.

More ADR options – including but not solely limited to court-encouraged mediation – are becoming available for intellectual property disputes, and more neutrals with  subject matter expertise are available to handle complicated technologies. For example, WIPO has specialized patent ADR programs including arbitration, mediation (evaluative or facilitative) and expert determination options that can include neutrals with particular subject matter expertise.

While litigation can be the gateway to present demands and initially frame a dispute; in cases where litigation costs have the potential to overrun the value of the underlying patent(s), parties would be prudent to lay out a patent litigation strategy with potential exit points that might lead to licensing prior to trial.  While it is not necessary to be a “rockstar” to reach licensing success, planning carefully to present opportunities for the parties to reach an early compromise may keep your stars aligned.