Over the past couple of decades, a technological revolution unlike any we have ever experienced has fueled American enterprise. At the center of this revolution is intellectual property, which has taken on increasing importance in the global competitive business landscape.
IP is a fundamental and defining business asset for many companies. Patents, in particular, have become the subject of increasing litigation, much of which is the bet-the-company variety. The BlackBerry case illustrates the extent to which companies are willing to go for the right to practice patents and stay in business. RIM settled the case for $612.5 million so it could continue selling its products and services.
While there are various methods of protecting IP, litigation seems to be the most-favored strategy. Some have referred to patent litigation as “the sport among kings” because of its expense and complexity. In addition, there are risks associated with pursuing patent litigation, including the possible invalidation of a patent at trial. Moreover, there is the risk of calling into question the scope of a patent pursuant to a Markman hearing.
Still, patent litigation has become a viable strategy to protect IP. Chemical and pharmaceutical companies are engaged in more litigation surrounding patents than any other industry, in large part because they have embraced patent litigation as a means of vigorously protecting their products. Similarly, companies in the semi-conductor industry embrace patent litigation as a way to preserve their competitive positions. In the biotech arena, companies spend as much on legal fees as they do on R&D.
Although expensive, patent litigation also creates value. Companies use a variety of strategies to capitalize on their patents, such as pre-emptive actions against competitors, predatory suits by dominant companies against smaller competitors and opportunistic litigation to earn nuisance settlements. Whichever strategy a company employs, litigation is expensive and can be financially prohibitive for smaller companies. Most patent litigators agree that analyzing potential litigation costs early on is critical to determining its economic feasibility.
The complex nature of patent litigation is due, in part, to the fact that it is often related to complicated technology issues. This complexity is often overcome through the presentations of experts who may spend an inordinate amount of time in assisting counsel, witnesses and even members of the tribunal in understanding the technology in question.
There is also risk related to pursuing patent litigation. The most significant risk in an infringement action is the invariable challenge of validity and enforceability of the plaintiff’s patents through counterclaims. But the benefits of the potential for a successful outcome often outweigh the risk of such exposure.
As business advisers and members of the senior leadership team, general counsel should not only consider the factors of expense, complexity and risk in determining whether to pursue patent litigation, but also consider the following: In 2005, the typical litigation costs for patent infringement suits with less than $1 million at risk was $650,000; with $1 million to $25 million at risk was $2 million; and with $25 million or more at risk was $4.5 million. Counsel also should consider the fact that patent holders in infringement suits have about a 50 percent win rate. Moreover, juries are more likely than judges to uphold patent validity, while patent owners are more likely to win a lawsuit tried before a jury than a suit tried before a judge. Of significant note, plaintiffs generally win about 50 percent of patent suits tried before judges.
The importance of IP and patent rights in the business world is ever increasing. Notwithstanding the expense of litigation, its complexities and the inherent risks of subjecting patents to scrutiny surrounding validity and enforceability, protecting this valuable asset is ever-more important in the current competitive business environment.
Vincent J. Napoleon is senior vice president, general counsel and secretary of Digene Corp.