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It’s Monday morning. Your company, along with a dozen others, was sued for patent infringement on Friday afternoon in the Eastern District of Texas by an infamous patent troll. Having already received no fewer than 10 pitch packages from various law firms throughout the country, you’re in the process of deciding which firm to retain and whether to join a joint defense group. Based on our experience in representing 13 of the 18 named defendants in Charles E. Hill & Associates v. Amazon.com, et al., and in coordinating joint defense groups in other patent infringement matters, we suggest a number of things to consider right from the start. 1. Should you even join? When several companies are facing essentially the same infringement accusations from the same plaintiff, one of the first decisions is whether to form a joint defense group. Oftentimes, these companies have been cooperating on certain levels even before litigation begins because they all received a similar “notice of infringement” letter from the patentee. (Sometimes it takes years for the patentee to actually file a case.) But a joint defense group is definitely a step up in terms of cooperation. One factor to consider is the potential expense of the pending litigation. Sharing those expenses with other companies may dramatically reduce the overall fees and costs that a company ultimately pays. Another consideration is your settlement strategy. If you intend to settle quickly, participating in a formal joint defense group may be a waste of effort. If you can resolve the dispute one-on-one with the plaintiff in the near term, there’s no reason to spend hours negotiating with your fellow defendants on the parameters of that relationship. A third consideration is the level of your experience with patent litigation. If this is the company’s first foray into this complicated area of the law, joining a defense group may be an excellent way to bring yourself up to speed by drawing on the knowledge of some of the more experienced defendants. If you decide to join a group, some thought should be given to the size of the group and the possible formation of subcommittees to handle certain issues. For example, does the group want a steering committee responsible for making all final strategy decisions in the event a disagreement arises? Do you want one committee to focus on noninfringement arguments and a separate committee to focus on invalidity defenses? Or perhaps you need a budget committee to review the monthly bills and communicate with counsel in the event there are concerns. Or do you just want one chosen leader? Obviously, the number of participants in the joint defense group dictates how complicated a committee structure can or should be. Regardless of the ultimate decision on organization, weekly conference calls are a must to ensure that all participants have access to the most current case status information and strategy decisions. 2. What should a formal written agreement cover? To ensure that they are covered by privilege, all communications within the joint defense group must relate to those areas in which the defendants truly share a “common interest.” For example, invalidity defenses that focus on the patent’s weakness are common to the group in that each defendant’s arguments are aligned with the others. But noninfringement defenses may not be common to the group. Where the accused products or systems differ in such a way that claim construction and noninfringement arguments may diverge, such communications could ultimately be discoverable. Although a formal written agreement cannot override all claims of lack of privilege, it can strengthen privilege arguments. A written agreement should clearly spell out the terms of the relationship. Some provisions that are important are statements that (1) the parties recognize that they share a “common interest” in researching, developing, and pursuing defenses, including affirmative defenses and counterclaims, with respect to the plaintiff’s claims; (2) any communications in furtherance of the common interest are privileged; and (3) any communications that may have occurred prior to the execution of the formal agreement are also subject to the common-interest privilege. The agreement should also state that (4) each party to the agreement retains complete independence of action and discretion with respect to any decision to resolve the pending litigation without the need to seek the consent of any other signatory to the agreement and (5) there are specific steps for withdrawing from the agreement. Written agreements do not usually require participants to disclose the fact or circumstances of settlement discussions to each other; it is generally left to the discretion of the members of the group as to what and when they want to share. One risk of a signed written agreement is that in several states (California and Texas, for example), the agreement is discoverable over any claim of privilege. If the signatories have included the proper provisions (especially the freedom-to-settle provision, which avoids potential antitrust claims), production of the agreement is not necessarily a problem. It may, however, give the plaintiff some insights into the alignment of certain defendants and the communications network. And the plaintiff will surely attempt to delve into the group’s communications in the hope that some may not be protected as “common interest.” 3. How sophisticated are your fellow defendants? A number of the named defendants in the Charles E. Hill & Associates case were well-versed in patent-infringement litigation (IBM, eBay, and Amazon come to mind). For some of the others, however, the case was their first journey down the road of patent litigation. Differing levels of sophistication can present challenges when it comes to discussing and deciding upon strategy. How much extra explanation is necessary to ensure that everyone understands the import of filing a motion for summary judgment as to the patent’s priority date? Why do we need to retain a damages expert at this juncture? Of course, those that have been defendants before can offer inside perspective that those who are new to the game lack. They can draw upon past experiences in other cases and venues (both wins and losses) to assist with strategy decisions. With experience, however, also comes the potential for domination. It is incumbent on counsel for the joint defense group, as well as on all the participants, to take care that each company is being consulted and that everyone is given a voice. 4. How will you pay fees and costs? The payment of fees and costs can be one of the most hotly debated components of the communal relationship. Some joint defense groups structure these payments proportionally, based on the amount of revenue that each company generates. Other groups operate on a divide-equally-by-the-number-of-parties methodology, while still others devise creative metrics for the tracking and payment of fees. Before agreeing to a certain methodology, you should carefully consider with whom you will be incurring these fees and costs. Some companies — perhaps those with more experience in patent litigation, perhaps those with more exposure — may ask the lawyers to do research and draft motions that you may not necessarily wish to pay for. Such motions can alternatively be filed on behalf of those companies who wish to pay for them. Be prepared to discuss this calmly. Other companies may have millions of pages that will need to be produced, whereas your company may have a much smaller volume of documents to review and process. That’s why it may make good sense for each company to agree to pay for the collection and production of its own documents. And particularly in light of the recent changes to Rule 26 of the Federal Rules of Civil Procedure (dealing with electronic discovery), managing the costs of document production has become even more critical. 5. What happens when some parties settle? A very important aspect of any joint defense arrangement is how to deal with settlement. Most joint defense agreements outline the notice provisions for withdrawal from the group: for example, that any party may withdraw from the group three business days after it provides written notice in the event that it determines that it no longer has mutuality of interest or if it resolves its dispute with the plaintiff. But often, these provisions fail to specifically outline the final payment of fees and costs when one defendant withdraws from the agreement or otherwise settles with the plaintiff. Does the defendant need to pay its portion of the monthly bill, regardless of when notice was given? Or does the incursion of fees and costs cease upon notice of withdrawal from the group? Or should the key date be actual dismissal from the litigation? 6. How do you coordinate with defendants outside the joint defense group? In certain circumstances, not all the named defendants will wish to participate in a formal joint defense group. Less formal coordination with these defendants is still important, not only to present consistent positions — for example, in terms of discovery limits and claim construction — but also to share costs and leverage information on such tasks as searching for prior art and retaining experts to testify regarding invalidity defenses. Sometimes defendants inside and outside a joint defense group may reach an informal oral agreement to protect communications and to share costs for such tasks (usually dividing by the number of defendants). But, as in any coordinated effort, a negotiation of terms prior to the commencement of specific tasks is a must. In the event that one of these “outside” defendants settles, the joint defense group will want the reassurance that information has been preserved so that the group still has access to documents and witnesses (in particular, third-party witnesses) that may be important for the presentation of defenses at trial. But remember that where some of the defendants are not operating under the protection of a common-interest arrangement, communications with those defendants will not be shielded from discovery. In such circumstances, e-mails and written notes should be kept to a minimum. 7. Should you hire a shadow counsel? Due to potential conflicts of interest, you might want to have two counsel for the case — one to participate in the joint defense group and one to handle any negotiations with the plaintiff. In some situations, the in-house lawyer may fulfill the latter role by conducting those negotiations personally. In other circumstances, the company may want to retain a separate lawyer or firm to “shadow” the litigation and be ready to handle any settlement talks. Although this obviously increases legal fees, the additional attention paid to your particular interests may be well worth the cost. In the Charles E. Hill & Associates case, for example, one company had a unique defense that the other defendants did not share. This defendant retained a separate law firm to file a motion for summary judgment on its behalf, as well as to conduct settlement negotiations. In short, you should give serious consideration to participating in a joint defense group. The benefits can certainly compensate for the additional costs, but only if the company’s interests are carefully protected all the way down the line.
M. Elizabeth Day and Edward H. Sikorski are partners in the East Palo Alto, Calif., and San Diego offices, respectively, of DLA Piper. Day focuses on intellectual property and complex commercial litigation. Sikorski handles intellectual-property litigation and licensing.

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