Competitive activities, increased market presence and growth can lead to third party IP threats, particularly from non-practicing entities (NPEs). Simply being involved in the application, prosecution and enforcement of IP can also result in third party IP threats. Even enforcing IP rights can also result in counter threats or countersuits by others. These are all risks that should be considered in a company’s overall IP strategy.  

Understandably, many executives and directors react to third party IP threats either with disbelief, or see them as a personal attack on the business. It is therefore critical to provide executives and directors with a clear and accurate assessment of the nature and scope of an IP threat. More specifically, any third party threat should be carefully assessed from a legal, operational and economic perspective. Only then can a company determine the appropriate resources to properly address a threat.

An IP threat assessment should include a review not only of the specific threat, but also all publicly available documents, determinable effects on operations and economic impact on the company. A patent infringement analysis should also include a deconstruction of the asserted patent claims, including a preliminary analysis of infringement. This also needs to include a thoughtful determination of the litigation risks and costs. While prior art searches are sometimes costly, preliminary searches can be done in a cost-effective matter and provide a better assessment of the scope and limitations of an asserted patent. Cost effective sources for prior art searches can include cited art within the company’s own related patents, patent file histories and any later continuations, divisional or foreign filings. Where possible, the use of preliminary infringement charts and claims contentions will further aid with a true risk assessment of the third party IP threat. Preliminary infringement charts and claim contentions are also valuable in expediting defense preparations in the event that full litigation results.

Litigation is usually the main IP threat on the mind of companies as they assess IP portfolio management. Perhaps the biggest decision in IP litigation is whether to accept or challenge the choice of jurisdiction, as this has both practical and strategic implications. NPEs usually choose jurisdictions based on past experiences in those courts. Factors to be considered are whether the company has significant operations that would form a “center of gravity” for the jurisdiction, or possibly provide economic or logistical support for the litigation. A company with substantial operations in a particular jurisdiction may prefer to litigate there, either for economic considerations, or based upon specific experience in those courts. Otherwise, the company should assess the ability to transfer the action to a more appropriate jurisdiction. Transfers can have both tactical and strategic advantages in defending against a third party IP threat, including providing additional time for threat assessment or substantive litigation defense.

Claims construction and invalidity are two inherent risks in IP litigation that cannot be fully assessed until formal positions have been received from an adversarial party. A proper claims construction can make a case, while an improper claims construction can potentially eliminate claims coverage. As a result, this should be central to any assessment and later defense.

Companies should also carefully consider the risk of third party declaratory judgment actions, counterclaims or retaliatory countersuits, and the potential for multiparty or multidistrict litigation. Additionally, a company should consider competitive disclosures made during the course of litigation. A company should also carefully consider possible effects on vendor or customer relationships, or heightened competition resulting from IP threats.

In addition to litigation, there are business risks that can arise from IP threats. Market participants at various levels may react negatively or even aggressively to the assertion of IP. Vendors may perceive a threat to their customers, which may impair their revenue or income potential. Customers may perceive increased costs, or a narrower selection of available providers. Competitors may respond more aggressively in competing for accounts or customers. Responses may range from simple statements of displeasure, written objections to the company’s assertions, or aggressive refusals to deal. An IP threat from a competitor or market participant should be assessed with such risks in mind.

Licensing activities also create risks, even though they are usually an attempt to avoid litigation and the resulting costs and complexities. Unfortunately, licensing activities may heighten the risks of a party filing a declaratory judgment action to preserve a particular court jurisdiction. Therefore, initial IP threats positioned as licensing opportunities should be assessed with litigation in mind.

For public companies, IP threats may result in disclosure obligations. In today’s current regulatory environment, shareholder liability may arise from an improper company disclosure. A public company should be mindful of its obligation to provide fair and balanced information and consider the potential impact of IP threats in light of shareholder expectations.

Any well managed IP portfolio and strategy should include an assessment of IP threats, including litigation and business risks. Only by identifying these risks proactively can companies truly protect and leverage their valuable IP assets.