Data makes the difference (Part 2)
Knowing the actual historical costs associated with settling vs. litigating, negotiating with a particular NPE or valuing a particular kind of patent allows risk managers to make informed, data-based decisions.
December 19, 2013 at 07:00 AM
7 minute read
Last month, I wrote about the central dynamic of non-practicing entity (NPE) patent suits and how this type of litigation isn't really designed to determine right or wrong or to remedy legal misconduct. The goal of NPE litigations is simply to generate a transfer of value from the alleged user of an asset to the purported owner of that asset.
In other words, NPE litigations can be viewed as more akin to financial transactions than true disputes over distinct legal issues. And the most effective way to reduce the $11 billion annual cost of those transactions is to get them out of the courtroom and transition them into the business marketplace.
We take this approach at RPX and it demonstrably reduces the risks of NPE assertion. Companies in our network have already avoided or been dismissed from more than 1,500 litigations and avoided more than $1 billion dollars of legal costs. To succeed on a steadily larger scale, this kind of approach will require more participants and, especially, more transparency.
More than 100 companies participated in a survey sponsored by the Coalition for Patent Fairness and administered by RPX. The findings (anonymized and aggregated) have provided invaluable intelligence to help companies targeted by NPEs make smarter, more cost-effective decisions about negotiating posture, settlement or license amounts, whether to acquire patents, and whether to enter (or avoid) litigation.
To understand the pertinence this kind of market data can have for in-house IP teams and risk managers, consider just two quantitative findings from the cost study:
Patent litigation makes up two-thirds of direct NPE costs. Litigation costs (including both the legal expenses and settlements) are the largest portion of the NPE burden, but the data shows that roughly a third of the total costs are not directly related to a court case. Twenty-nine percent of operating company costs are attributable to pre-litigation spending, primarily fees to outside counsel to respond to assertion letters. And an additional 5 percent is due to costs such as patent acquisition, re-exams and prior art searches. Given the proven effectiveness of such efforts, one takeaway from the data is that companies might want to spend more on acquisitions, re-exams, and prior art searches where possible and less on directly defending the litigation.
Except in cases where the total resolution exceeded $10 million, legal defense expenses were generally half or more of the costs. For “nuisance” cases costing less than $100,000 all in, the legal defense costs far outstripped the actual payment to settle the case. Since fully 95 percent of NPE suits ultimately settle, from a purely economic perspective, looking at no other factors, the data would imply that there are efficiencies—especially in less expensive cases—to reaching a settlement quickly or in advance of litigation, and limiting or avoiding legal fees.
Knowing the actual historical costs associated with settling vs. litigating, negotiating with a particular NPE or valuing a particular kind of patent allows risk managers to make informed, data-based decisions. The ability to look at patent risk as a business or market valuation rather than a legal dispute can be worth millions of dollars in avoided costs. Currently, the full findings are available only to participating companies, but top line extracts from the study can be reviewed in “RPX 2012 Cost Study – High-level Findings.”
RPX has begun publishing an NPE Activity Report that details the specific assertion behavior of known NPEs. I'll discuss this report—and how it can bring further transparency and efficiency to the patent market—in future columns.
Last month, I wrote about the central dynamic of non-practicing entity (NPE) patent suits and how this type of litigation isn't really designed to determine right or wrong or to remedy legal misconduct. The goal of NPE litigations is simply to generate a transfer of value from the alleged user of an asset to the purported owner of that asset.
In other words, NPE litigations can be viewed as more akin to financial transactions than true disputes over distinct legal issues. And the most effective way to reduce the $11 billion annual cost of those transactions is to get them out of the courtroom and transition them into the business marketplace.
We take this approach at RPX and it demonstrably reduces the risks of NPE assertion. Companies in our network have already avoided or been dismissed from more than 1,500 litigations and avoided more than $1 billion dollars of legal costs. To succeed on a steadily larger scale, this kind of approach will require more participants and, especially, more transparency.
More than 100 companies participated in a survey sponsored by the Coalition for Patent Fairness and administered by RPX. The findings (anonymized and aggregated) have provided invaluable intelligence to help companies targeted by NPEs make smarter, more cost-effective decisions about negotiating posture, settlement or license amounts, whether to acquire patents, and whether to enter (or avoid) litigation.
To understand the pertinence this kind of market data can have for in-house IP teams and risk managers, consider just two quantitative findings from the cost study:
Patent litigation makes up two-thirds of direct NPE costs. Litigation costs (including both the legal expenses and settlements) are the largest portion of the NPE burden, but the data shows that roughly a third of the total costs are not directly related to a court case. Twenty-nine percent of operating company costs are attributable to pre-litigation spending, primarily fees to outside counsel to respond to assertion letters. And an additional 5 percent is due to costs such as patent acquisition, re-exams and prior art searches. Given the proven effectiveness of such efforts, one takeaway from the data is that companies might want to spend more on acquisitions, re-exams, and prior art searches where possible and less on directly defending the litigation.
Except in cases where the total resolution exceeded $10 million, legal defense expenses were generally half or more of the costs. For “nuisance” cases costing less than $100,000 all in, the legal defense costs far outstripped the actual payment to settle the case. Since fully 95 percent of NPE suits ultimately settle, from a purely economic perspective, looking at no other factors, the data would imply that there are efficiencies—especially in less expensive cases—to reaching a settlement quickly or in advance of litigation, and limiting or avoiding legal fees.
Knowing the actual historical costs associated with settling vs. litigating, negotiating with a particular NPE or valuing a particular kind of patent allows risk managers to make informed, data-based decisions. The ability to look at patent risk as a business or market valuation rather than a legal dispute can be worth millions of dollars in avoided costs. Currently, the full findings are available only to participating companies, but top line extracts from the study can be reviewed in “RPX 2012 Cost Study – High-level Findings.”
RPX has begun publishing an NPE Activity Report that details the specific assertion behavior of known NPEs. I'll discuss this report—and how it can bring further transparency and efficiency to the patent market—in future columns.
This content has been archived. It is available through our partners, LexisNexis® and Bloomberg Law.
To view this content, please continue to their sites.
Not a Lexis Subscriber?
Subscribe Now
Not a Bloomberg Law Subscriber?
Subscribe Now
NOT FOR REPRINT
© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
You Might Like
View All'Serious Disruptions'?: Federal Courts Brace for Government Shutdown Threat
3 minute readLegal Departments Gripe About Outside Counsel but Rarely Talk to Them
4 minute readGC With Deep GM Experience Takes Legal Reins of Power Management Giant
2 minute readPreparing for 2025: Anticipated Policy Changes Affecting U.S. Businesses Under the Trump Administration
Trending Stories
Who Got The Work
Michael G. Bongiorno, Andrew Scott Dulberg and Elizabeth E. Driscoll from Wilmer Cutler Pickering Hale and Dorr have stepped in to represent Symbotic Inc., an A.I.-enabled technology platform that focuses on increasing supply chain efficiency, and other defendants in a pending shareholder derivative lawsuit. The case, filed Oct. 2 in Massachusetts District Court by the Brown Law Firm on behalf of Stephen Austen, accuses certain officers and directors of misleading investors in regard to Symbotic's potential for margin growth by failing to disclose that the company was not equipped to timely deploy its systems or manage expenses through project delays. The case, assigned to U.S. District Judge Nathaniel M. Gorton, is 1:24-cv-12522, Austen v. Cohen et al.
Who Got The Work
Edmund Polubinski and Marie Killmond of Davis Polk & Wardwell have entered appearances for data platform software development company MongoDB and other defendants in a pending shareholder derivative lawsuit. The action, filed Oct. 7 in New York Southern District Court by the Brown Law Firm, accuses the company's directors and/or officers of falsely expressing confidence in the company’s restructuring of its sales incentive plan and downplaying the severity of decreases in its upfront commitments. The case is 1:24-cv-07594, Roy v. Ittycheria et al.
Who Got The Work
Amy O. Bruchs and Kurt F. Ellison of Michael Best & Friedrich have entered appearances for Epic Systems Corp. in a pending employment discrimination lawsuit. The suit was filed Sept. 7 in Wisconsin Western District Court by Levine Eisberner LLC and Siri & Glimstad on behalf of a project manager who claims that he was wrongfully terminated after applying for a religious exemption to the defendant's COVID-19 vaccine mandate. The case, assigned to U.S. Magistrate Judge Anita Marie Boor, is 3:24-cv-00630, Secker, Nathan v. Epic Systems Corporation.
Who Got The Work
David X. Sullivan, Thomas J. Finn and Gregory A. Hall from McCarter & English have entered appearances for Sunrun Installation Services in a pending civil rights lawsuit. The complaint was filed Sept. 4 in Connecticut District Court by attorney Robert M. Berke on behalf of former employee George Edward Steins, who was arrested and charged with employing an unregistered home improvement salesperson. The complaint alleges that had Sunrun informed the Connecticut Department of Consumer Protection that the plaintiff's employment had ended in 2017 and that he no longer held Sunrun's home improvement contractor license, he would not have been hit with charges, which were dismissed in May 2024. The case, assigned to U.S. District Judge Jeffrey A. Meyer, is 3:24-cv-01423, Steins v. Sunrun, Inc. et al.
Who Got The Work
Greenberg Traurig shareholder Joshua L. Raskin has entered an appearance for boohoo.com UK Ltd. in a pending patent infringement lawsuit. The suit, filed Sept. 3 in Texas Eastern District Court by Rozier Hardt McDonough on behalf of Alto Dynamics, asserts five patents related to an online shopping platform. The case, assigned to U.S. District Judge Rodney Gilstrap, is 2:24-cv-00719, Alto Dynamics, LLC v. boohoo.com UK Limited.
Featured Firms
Law Offices of Gary Martin Hays & Associates, P.C.
(470) 294-1674
Law Offices of Mark E. Salomone
(857) 444-6468
Smith & Hassler
(713) 739-1250