At Priori's recent roundtable, I sat down with a select group of in-house counsel to discuss patent defense strategies. In part one of this two-part recap, I'll cover demand and opinion letters and how to handle patent trolls. In a couple of weeks, I’ll get into pretrial considerations.
Responding (or Not) to a Demand Letter
Demand letters – letters that claim patent infringement and demands from the recipient for compensation – throw unexpected wrenches into the flow of everyday business, but it’s not always wise to respond to a demand letter. The factors to consider are plenty and include careful research of the plaintiff, your product, and the patent. Getting a litigator involved early will help you decide whether it is better to respond or ignore it. A few things your litigator will assess include:
- Did a claim chart accompany the demand letter? A claim chart analyzes the elements of the patent claims against the accused product(s) and insinuates the plaintiff’s seriousness about filing a Complaint. The presence of a claim chart, therefore, is one indication that the potential plaintiff is not merely sending form letters to multiple parties in order to see which ones will respond and therefore may be more likely to settle rather than defend themselves.
- Has the plaintiff sued before, and if so, whom? A lot of demand letters will offer the purchase of a license by exciting you with the prospect of being the first to buy one or scaring you with the possibility of being the last. If the plaintiff is suing a lot of people, it is an indication of their willingness to file a Complaint which, in turn, can be an indication of the seriousness of the matter. Generally speaking, if the potential plaintiff has a history of filing suit on the asserted patents, the matter should be taken seriously and thoroughly investigated, the same is true of non-practicing entities (“NPE”s) as well as entities that actually practice the invention claimed in the patent(s).
Obtaining an Opinion Letter
If, in the course of determining how serious the potential plaintiff is and how litigious they are, you identify no infringement exposure or prior art that renders the asserted patents invalid, it is advisable to obtain an opinion letter from outside counsel. Opinion letters are extremely useful tools and are the best insurance available against claims of willful infringement.
Think about these factors before securing an opinion letter:
- Timing. It’s generally advisable to wait until the potential plaintiff sends a demand letter with a claim chart before securing an opinion letter. Also, very few suits brought by NPEs ever go to trial, thereby lessening the usefulness of an opinion, so the type of potential plaintiff is one of the factors to consider when deciding on whether to invest in a patent opinion.
- Noninfringement vs. Invalidity. For litigation defense purposes, patent opinions are largely divided into two categories: (1) noninfringement, whereby the opinion writer opines on why the claims of the asserted patent(s) do not read on the accused products and (2) invalidity, whereby the opinion writer sets forth reasons why the asserted patent(s) are invalid in light of existing prior art.
- Note: There is some dispute as to the value of invalidity opinions, but if invalidity is your only option, take it. Provided you have the requisite technical knowledge (and most often this threshold can be rather low depending on the complexity of the patent), it’s highly beneficial to review the patent yourself so that you can provide informed guidance to outside counsel on how you want to structure your defense. Oftentimes, you’re going to have a better understanding than your litigation counsel of your non-infringement position, and of the prior art for invalidity purposes, because you know your products, their history, and your competitors better than your litigation counsel. This is particularly important when dealing with NPEs. Remember that often with regard to NPEs, the potential plaintiff hasn’t even looked with detail at your products. They may know of them, but they may not know when you first started selling them. Evidence of your product as prior art could be sitting right in your office, of which the potential plaintiff has no knowledge. Ultimately, you’ll want to explore both types of opinion letters unless one is completely knocked out.
- Opinion Author. Having your litigator write your opinion letter is highly inadvisable. Doing so exposes your litigator as a potential witness in the lawsuit, an obvious threat to privileged information regarding other aspects of your defense strategy. You should avoid allowing your litigator to interact with the author of the opinion letter – except to request clarifications – outside of collecting the letter when final. This is very important.
Encountering Patent Trolls
Thanks to recent cases where judges have begun to award damages to defendants in NPE cases, and the current state of flux with regard to the validity of many software patents, the threat from NPEs has begun to wane. Therefore, in today’s NPE litigation climate, the chances may be lessened that you will be sued if you receive a demand letter from a suspected patent troll regarding a software patent. NPEs are in the business of getting free money. They send out a lot of letters and often will avoid someone who is going to push back. Although it’s not encouraged, if you do push back on an NPE, it’s highly advisable to have a very strong response to the demand letter. Beware, however, that NPEs are throwing darts at the wall, so even a strong response has the potential to bring more NPEs to your doorstep. Their goal is to get to alternative dispute resolution as quickly as possible and to offer you a settlement that is just lower than what they believe the cost of going to trial would likely be.
How and whether to respond to demand letters are two of the many considerations you should make at the outset of a patent dispute. In a couple of weeks, I’ll dive into practical alternatives to as well as preliminary actions available prior to a trial that may reduce the overall cost resulting from a patent infringement claim.