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JOHN W. SCHLICHER |
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PATENTS, PATENT LITIGATION, PATENT DISPUTE RESOLUTION AND SETTLEMENT, LICENSING, ANTITRUST, LAW AND ECONOMICS |
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John W. Schlicher, Settlement of Patent Litigation and Disputes: Improving Decisions and Agreements to Settle and License, American Bar Association (2011) Summary Table of Contents I. INTRODUCTION........................................................................................................................... 1 II. THE DECISION TO SETTLE LITIGATION BASED ON THE EFFECTS OF A JUDGMENT ON THE PATENT OWNER AND THE ACCUSED INFRINGER......................................................... 11 A.......... Basic Model of Settlement Decisions................................................................................... 11 B.......... Expected Value and Cost of Litigation................................................................................. 12 C.......... Impact of Litigation Costs................................................................................................... 13 D.......... Impact of Transaction Costs................................................................................................ 14 E.......... Simple Example................................................................................................................. 14 F.......... Important Aspects of the Basic Model of Settlement in Patent Actions................................... 19 G.......... Impact of Attitudes Toward Risk......................................................................................... 31 H.......... Impact of Increased Damages.............................................................................................. 50 I........... Impact of Attorneys’ Fees Awards....................................................................................... 54 J........... Impact of Counterclaims..................................................................................................... 58 K.......... Other Aspects of the Basic Model of Settlement in Patent Actions......................................... 60 L.......... Timing of Settlement.......................................................................................................... 64 M. Decision under Alternative Forms of Settlement................................................................... 66 III. THE DECISION TO LICENSE BASED ON THE EFFECTS OF A LICENSE ON THE PATENT OWNER AND POTENTIAL LICENSEE........................................................................................ 75 A.......... Commercial Condition for Licensing................................................................................... 76 B.......... Litigation Condition for Licensing....................................................................................... 90 C.......... Where Only One Condition Controls Settlement................................................................... 94 D.......... Where the Commercial or Litigation Condition Controls Settlement...................................... 94 E.......... Decision to Settle and License Where Litigation and Licensing Are Not Alternatives............. 97 F.......... Existing Licenses May Constrain a Patent Owner’s Decisions on Litigating or Licensing—Licenses to Competitors of the Licensee............................................................................. 107 G. Agreements to License May Constrain a Patent Owner’s Decisions on Litigating or Licensing........................................................................................................................................ 108 IV. THE DECISION TO SETTLE OR LICENSE BASED ON THE ADDED EFFECTS OF A JUDGMENT ON THE PARTIES’ RELATIONS WITH NONPARTIES......................................... 109 A.......... The Patent Owner’s Perception of the Effects of a Judgment on Future Actions and Existing and Future Licenses................................................................................................................ 109 B.......... Infringer Perceives a Judgment to Be Valuable or Costly for Future Litigation and Licensing 114 C. Settlement with Third Party Effects of a Judgment.............................................................. 115 V. THE DECISION TO SETTLE OR LICENSE BASED ON THE ADDED EFFECTS OF AN AGREEMENT ON THE PARTIES’ RELATIONS WITH NONPARTIES...................................... 117 A.......... Patent Owner Perceives Settlement or Licensing to Be Valuable or Costly for Future Actions or Licenses........................................................................................................................... 117 B.......... Infringer or Potential Licensee Perceives Settlement or Licensing to Be Valuable or Costly for Future Actions or Licenses................................................................................................ 121 VI. APPLYING THE THEORY OF SETTLEMENT TO A PATENT ACTION A.......... Pertinent Time Periods B.......... Commercial Condition for Licensing C.......... Litigation Condition for Settlement D.......... Settlement with a License E.......... Settlement without a License F.......... Damages Measures G.......... Value and Cost of an Injunction VII. EXAMPLES OF APPLYING THE THEORY A.......... Important Patent Controlling a Large and Highly Profitable Market B.......... Important Patent Controlling a Smaller Market C.......... Important Patent Controlling a Smaller Market with Potential for Increased Damages and Attorneys’ Fees Award D.......... Licensing an Important Patent Controlling a Smaller Market with No Past Infringement—Licensing E.......... Important Patent Controlling a Large Market with a Patent Owner Unable to Produce or Sell—The Nonproducing Patent Owner F.......... Less-Important Patent Controlling a Large Market G.......... Important Patent Controlling an Average Market with No Gains from Licensing VIII. THE NUMBER, TIME, AND MANNER OF RESOLUTION OF PATENT ACTIONS A.......... Overview of Empirical Data on Patent Litigation and Settlement B.......... Increase in Patent Litigation C.......... Use of Trial to Decide Patent Actions D.......... Frequency of Patent Actions Resolved by Pretrial Motion E.......... Frequency of Patent Actions Resolved by Settlement in the District Courts F.......... Uniformity in Method of Disposition Over Time G.......... Settlement after Judgment and Prior to Appeal H.......... Settlement during Appeal I........... Time from Filing to Disposition by Trial, Pretrial Motion, and Settlement J........... Procedural Stage and Time of Settlement of Infringement Actions IX. THE OUTCOME OF PATENT ACTIONS A.......... Patent Owner Win Rates in the District Courts B.......... Patent Owner Win Rates in the Circuit C.......... Observations on Patent Owner Rates D.......... Patent Owner Win Rates on Issues E.......... Patent Injunctions F.......... Patent Damages G.......... Increased Damages H.......... Attorneys’ Fees Awards X. SETTLEMENT AND THE LAW A.......... Substantive Patent Law B.......... Settlement of Patent Disputes before Litigation C.......... Settlement of Patent Disputes during Litigation D.......... Declaratory Judgment Actions and Jurisdiction E.......... Antitrust Law and Settlement F.......... Patent Misuse and Settlement G.......... Agreements to License on FRAND and RAND Terms H.......... Legislation to Change the Laws That Interfere with and Settlement |