As general counsel continue to face lawsuits brought by so-called patent trolls, many are looking for solutions that avoid expensive patent infringement litigation and go beyond the settlements their companies have grown accustomed to paying. It’s time to consider banding together and engaging in a form of collective bargaining.
“Patent troll” is a pejorative term used to describe many different types of companies and individuals that enforce patent rights against others. Generally, people apply the term to nonpracticing entities (NPEs) that enforce patents but don’t provide any goods or services.
There are as many types of NPEs as there are groups working to fix the perceived problems they cause. Few can agree on the scope of those problems, but many are trying to change the patent laws or micromanage the courts nonetheless.
The White House, U.S. Supreme Court, Congress, Federal Trade Commission, Department of Justice and several states all are considering ways to reform the patent system. But, despite the recent flood of attention, none seem likely to make any major changes.
The Supreme Court, for example, recently lowered the standard for a prevailing party to recover its attorney fees in Octane Fitness v. Icon Health & Fitness. The Supreme Court is also once again debating whether software is patentable in Alice Corp. v. CLS Bank Int’l. But during oral arguments on March 31, the justices sounded skeptical about making any bold changes to the law on what is patentable.
Congress is working on a dozen patent reform bills with provisions aimed at NPEs, but it isn’t likely to pass a bill before November’s midterm elections. At the same time, several prominent Fortune 50 companies are lobbying against a patent law overhaul. So, even if Congress ultimately passes a bill, it isn’t likely to be broad patent reform.
With no broad reform in sight, general counsel must find other ways to deal with what feels to many like a constant barrage of NPEs’ patent infringement lawsuits. Some companies may consider joining a defensive patent aggregation company, which acquires patents that NPEs potentially could assert against their members and then licenses those patents to its members.
The aggregation companies also may engage in a form of what I’ll call “collective bargaining” on members’ behalf. After a plaintiff sues multiple members of the group, the aggregation company may approach the plaintiff and negotiate a group settlement and license agreement.
Such services, however, are not available to nonmembers, and membership is expensive. It may be time to extend this type of group action beyond the members-only clubs.
Companies who are not members of a patent aggregation company often engage in self-help by cooperating through joint defense groups to share the costs of defending lawsuits. Many also collaborate in using the U.S. Patent and Trademark Office’s processes to try to invalidate a patent.
However, this cooperation does not extend to settlement negotiations, where plaintiffs cull each defendant company from the herd and treat it individually. This separation puts a company at a significant disadvantage because, when standing alone, a company often has limited information and, as a result, limited bargaining power.
If companies continue settling patent cases primarily because it’s cheaper to do so than go to trial, then using a collective bargaining approach may help reduce the amount companies otherwise would pay. If a sizeable group of defendants did so, they would wield more bargaining power to obtain more information outside of discovery and negotiate a reduced license price for everyone.
Some NPEs may own many patents but only sue on two or three at a time. With more bargaining power, the defendant group also could negotiate a license to the NPE’s entire patent portfolio, thus avoiding serial litigation against the same plaintiff.
Perhaps the group also could help establish a uniform licensing model: a rational formula tied to the patent and accused products. This approach has another potential benefit, as well. It significantly could disrupt the NPE’s level of control.
Currently, an NPE can bring waves of lawsuits against multiple defendants and then enjoy a steady stream of licensing revenue if it so chooses, drop troublesome defendants and revise its settlement demands at any time with any defendant without repercussion because other defendants typically aren’t privy to another’s negotiations.
But if companies presented a unified front and acted collectively to negotiate a grand bargain, the NPE likely would lose its level of control and its steady stream of licensing revenue. Instead of enjoying total freedom to operate, the NPE would have to negotiate a reasonable settlement for all defendants.
Obviously, there would be ancillary issues to address in each case, such as creating the right economic model to make such collective bargaining affordable and effective, plus apportioning license fees among the various companies. In addition, a collective approach could create the risk of claims of an antitrust violation.
Of course, the government could help clear the way for companies to use this collective bargaining approach, whether through an act of Congress or favorable opinions from the FTC and DOJ. It might be a stretch, but perhaps the Supreme Court could create another antitrust exemption like it did for baseball.
Justin S. Cohen is an intellectual property associate with Thompson & Knight in Dallas who represents companies in patent, trademark and copyright disputes, including defending companies from claims asserted by nonpracticing entities.