JOHN W. SCHLICHER

PATENTS, PATENT LITIGATION, PATENT DISPUTE RESOLUTION AND

SETTLEMENT, LICENSING, ANTITRUST, LAW AND ECONOMICS

 

 

 

John W. Schlicher, Settlement of Patent Litigation and Disputes: Improving Decisions and Agreements to Settle and License, American Bar Association (2011)

 

Some Uses of This Approach to Settlement and Licensing

 

Qualitative Analysis.  One way is simply for patent owners, potential patent infringers, and their lawyers to understand the concepts and think about them when considering settlement, assessing settlement prospects, preparing for negotiations, negotiating settlement, and making a decision whether to settle.  Settlement of patent actions and disputes requires that people take action when confronted with complex legal and commercial facts, expectations and uncertainty.  The general approach helps deal with this complexity in a systematic way.  This should help people identify the important facts more quickly, focus negotiations and settlement proposals on the economic interests of each party, identify any mutual gains from an agreement, and make better settlement decisions.

Quantitative Analysis.  The other way to use this approach is apply it in a quantitative way, that is, by collecting the needed commercial and legal facts, making the needed estimates (since future events are important and always uncertain), and processing those numbers using the model.  A patent owner could use the approach to identify the types of agreements and minimum payment terms under a settlement that would be preferable to litigation, given the owner’s views of the commercial and legal situations.  An accused infringer could apply it to identify the types of agreements and maximum payment terms for a settlement that would be preferable to litigation, given the infringer’s views.  Litigation is often an owner’s or infringer’s best alternative to a negotiated agreement, sometimes called its BATNA.  This approach permits a party to define its BATNA in dollar terms, whether the alternative is litigation or some other option.

Use in Negotiation

Develop Positions.  A party could do the analysis to define its bottom line and select its settlement or licensing position or proposal.

Assess the Other Party’s Interests.  A party could also use this approach to estimate the other party’s reservation price.  This would help that party evaluate the ultimate likelihood of settlement or licensing and select the terms it will propose. 

Assess the Other Party’s Positions.  A party could use the approach to assess the other party’s settlement or license position or proposal.  A party could compare the financial terms the other proposes with facts and estimates that would be consistent with those terms.  If the other party’s proposal is consistent only with erroneous facts or unrealistic estimates, the approach could help demonstrate these unnecessary barriers to an agreement.

Cooperative, Joint Use of the Approach.   A patent owner and an accused infringer could discuss whether both would apply this approach to evaluating settlement.  This would help to focus and obtain the information each party needs to assess settlement.  This would reduce the likelihood of basic disagreements about the factors that should influence settlement and their significance.  This would help avoid the problems arising when one party is basing its settlement proposal on something other than economic results or sensible analysis of the options.

Use in Dispute Resolution Processes

Mediation.   This approach provides an outline of the information needed to evaluate settlement and licensing possibilities.  This should help reduce the cost and time spent gathering information.  More importantly, this approach provides a well-defined way for a neutral person to evaluate the economic interests of each party given each party’s views of the facts and its estimates of the future, including its view of the litigation alternative.   This person could also identify the nature of the factors that appear to make settlement more likely and those tending to make it less likely.  This person could identify the nature and magnitude of the changes in the views of the parties needed for an agreement.

Partial Arbitration.  If agreeable to both parties, each party could provide to an arbitrator its views of the facts relating to the commercial value of some invention with and without licensing, the value and cost of damages and the value and cost of an injunction.  The arbitrator could provide a decision on those issues.  The parties could negotiate about the probability the patent owner would win and accused infringer lose, each party’s attitude toward risk, third party effects, and other factors.  Settlement could be based on a combination of the factors decided by arbitration and the factors negotiated.

Use in Settlement and Licensing Decisions.

           The analysis may be used to provide a basis for a business decision to accept or reject a settlement or license proposal.  There are many legal and practical incentives for business people to understand and sometimes justify their decisions about settling patent actions or avoiding future actions by licensing.  The approach and analysis helps with both.

Use in Managing Litigation

The analysis should help in managing litigation.  The parties to patent disputes must make decisions on what the lawyers and others do during the course of a dispute.  Those activities involve costs.  The approach should help people determine the value provided by additional litigation efforts (and costs).