Powerful Lesson on Settling a Patent Litigation Case & Avoiding Greed.

[Originally published by Robert Z. Cashman, Patent Litigation Attorney on Oct 1, 2009.]

There is a short and simple lesson in today’s article from law.com, “Federal Judge Tosses Out $388 Million Patent Verdict Against Microsoft” written today by Alison Frankel from the American Lawyer.

Last April, Paul Hayes of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo representing Uniloc in a patent infringement lawsuit won a $388 million dollar patent infringement verdict against Microsoft. Today, Judge William Smith from the Rhode Island federal district court vacated the $388 million jury verdict and ruled as a matter of law that Microsoft did not infringe Uniloc’s patent, stating that the jury did not understand the issues when they gave their ruling in Uniloc’s favor.

The lesson here is that while every patent litigator has his or her day in court, so to speak, “going all the way” [to trial] in a patent litigation suit is not always the most responsible course of action. In trial, many twists and turns can occur where within the dance between the patent litigation attorneys, results may surface with a motion, a hearing, or a ruling which can destroy an otherwise valid case of patent infringement. On top of that, the Federal Rules of Civil Procedure (FRCP) are set up to reward the party that offers to settle and penalize the party who pushes their case to trial after a settlement where their case is found not to have merit. For example, if a defendant in a patent lawsuit offers to settle and the plaintiff refuses the offer, even if the case ends up in the favor of the plaintiff, if the judgment is for an amount that is equal or less than the amount that was offered in the offer to settle, the defendant can ask for sanctions and attorney fees for the time and money spent fighting the case after they offered to settle. (This was actually the source for a defense tactic that I suggested to my peers when interning at Scully, Scott, Murphy and Presser PC, a subject to be discussed in another article.) Returning to the content of this article, the point is that going to trial has its benefits and its risks.

An alternative strategy to consider is settling the claims out of court. Too often in patent litigation (both with regard to plaintiffs who are suing because a company stole their patented idea and the companies being sued for patent infringement), ego takes a more prominent role than a sincere analysis of damages which hinders discussions of settling the claims before they go to trial. Too often a company accused of infringing a patent refuses to discuss licensing the technology from the often-seen-as “little” inventor and delegates any legal matters to their patent litigation attorneys who are instructed to fight this little guy with everything they can both regarding the merits, and via procedural tactics to boost the cost of litigation to a point in which the inventor simply cannot afford to move forward with the litigation and s/he just “goes away.” If the companies ethically sit down with the inventor and review the patents involved and try to resolve the case and to determine damages without involving a billable-by-the-hour patent litigation attorney, they can save often hundreds of thousands of dollars and often millions of dollars in attorney fees and costs.

Case in point, Paul Hayes, a skilled patent litigation attorney went through the whole trial process and won a $388 million dollar patent infringement verdict against Microsoft. As of today he lost the whole case and both his firm and his client still need to account for all the likely thousands of hours of costs and fees spent litigating Uniloc’s case. In some cases, the law firm can “eat” the loss of the billable hours, but depending on the jurisdiction, in some places the client is still on the hook for out-of-pocket expenses which can be expensive when the case goes all the way to trial. Had the two sides agreed to a reasonable settlement which compensated Uniloc for Microsoft’s use of their patented technology, everybody would have been happy. However, I can’t help but to think that somewhere along the line, greed, ego, or both stepped in and forced their case into trial.

If both sides came to an agreeable settlement early on, imagine how much money could have been saved in attorney fees on both sides. …and Uniloc would have some money in the bank whereas now they have nothing except for a gaping hole in their pockets.

— Robert Z. Cashman, owner of Patent Prophet is a contingency fee patent litigation attorney in Houston, TX. He works for a law firm that specializes in contingency fee patent litigation, and in the past, he worked in house for a patent company as both a patent attorney and a patent acquisition specialist, where he interacted daily with inventors looking to sell their patents.