"Counsel has to routinely decide whether to be a pussy cat that never enforces or a tiger that jumps on everything that comes along," says Tilman Breitenstein, director of IP at global science-based firm DSM. "We can't afford to be either all the time; we have to be somewhere in the middle."
This the common challenge for companies assessing litigation strategies for their patents. The trick for in-house counsel is to build a flexible enforcement strategy to help analyse each case and decide whether to attack or not. This strategy will consider industry-specific external and internal factors that will determine what the firm can get out of an action.
"An enforcement plan is ultimately driven by economic considerations, such as the cost benefit and relative return on investment," Bruce Elder, senior legal director at Integrated Device Technology (IDT), tells Managing IP.
"There are four main factors that should influence every enforcement decision: the strength of the patent portfolio, the potential return, the soft cost of acting or not acting, and uncertainty."
Key considerations and opportunities
The first question in-house counsel must ask is whether the firm has the firepower in its patent portfolio to deliver a decisive blow.
"Having an important patent isn't as important when it comes to enforcement as having a strong portfolio," a senior patent attorney at a telecommunications company tells Managing IP. "All the stuff we buy in switches and routers, for example, is based on standardised stuff which is covered by several hundred if not thousands of patents.
"One patent is not going to be a game changer in my industry. But if you've got a portfolio of at least half a dozen important patents, it will put you in a much stronger position."
The strength of a company's portfolio, however, depends on its industry, which in turn dictates return on investment.
"My company makes semiconductors in everything from mobile phones to cloud servers," says Elder. "Studies have suggested there may be as many as 250,000 patents on an average smartphone. If I have a patent on a $2-part of that phone, how much am I going to get back?"
He adds that these sort of economics drive defensive strategy for his business in many cases. But the economic equation could be radically different in pharmaceuticals or biotech, for example, where firms might have a single patent family and key patents in markets that define a $10 billion drug.
"In those circumstances, you are going to enforce your patents rigorously and cut off any avenue to design around it," says Elder. "The strategy is going to be radically different in those circumstances."
At Managing IP's International Patent Forum in London in March, Huw Edwards, senior IPR litigation counsel at Nokia, underlined the point that you need a lot of patents to win a case.
He noted that if each patent has only a 30% chance of winning, you need at least three to get a win. If the product lifecycle is shorter than the court process, you have to guess which features will be in the next product. "Assume you have a 50% chance of guessing right, you need six patents to get a win on something relevant," Edwards said. However, if 50% of features can be designed around, you need 12 patents to get a win on a relevant feature that cannot be designed around. Then, if you want to persuade someone to take a licence globally, you need three or four countries – "So that's 48 patents!" said Edwards.
Some in Europe are also keeping tabs on whether non-practising entity (NPE) litigation will increase. Edwards referenced a recent Darts IP report that estimated the rate of NPE activity in Europe has gone up by an average of 19% between 2007 and 2017. "If you read the Darts IP report, patent monetisers are looking at handset vendors a lot more," said Edwards. "The UPC will provide another thing in our toolkit to fight that."
However, Edwards also noted that NPEs will see the Unified Patent Court – if it ever happens – as an opportunity as well. "I strongly think the first people at the UPC door will be either patent monetisers or generics that have found something they can knock out at a wider level," he said.
Others have much simpler concerns when assessing patent litigation. Also speaking at the Managing IP event, Elise Cardin, patents director at Saint-Gobain, said in her market of "old school manufacturing, I have much more basic needs."
She continued: "Do we feel an appetite for these new tools and the UPC and Unitary Patent when in most cases we deal with one country? To be honest, I feel I will be very happy with the local system. So I will sit back and see how Huw does and how it works." She added, however, that she does see some opportunities with the UPC such as the potential for forum shopping.
Deciding whether to enforce
Businesses that cannot generally pursue aggressive action could consider putting patents into a pool, for example, which helps some businesses market assets as part of a one-stop-shop and generates revenue without costly litigation.
Enforcement returns are also influenced by the jurisdictions in which in-house counsel typically enforce. In some countries, it may make commercial sense to negotiate licences rather than litigate because the former strategy will ultimately generate better return on investment.
"In many European jurisdictions, such as Germany, you typically end up with the amount that a reasonable royalty licence would have delivered, which I think is a very favourable system for infringers," says Breitenstein at DSM. "And if you only obtain licence fees for damages, it would have been better just to get a licence."
The head of legal at a healthcare-focused technology firm tells Managing IP that he agrees, and adds that the speed of the courts in some countries adds to this equation. "Legal proceedings are incredibly slow in countries such as France and Brazil. We have learned to respect and love certain legal systems and stay away from others."
Regulation or legislation might also make it difficult, if not impossible, for some industries to pursue action in certain countries. Arthur Lallament, IP manager at drug discovery and development firm hVIVO, says that, while enforcement is not high on his firm's agenda because it has not developed its portfolio, the so-called Bolar exemption could make action difficult in the future because it exempts clinical trials for generics and biosimilars from infringement in the EU.
Beyond immediate return on investment (ROI), an in-house enforcement strategy also considers the often more important, long-term effects of enforcement on the business. Taking action might generate a lot of revenue but ultimately pale in comparison to that lost by damage to the supplier ecosystem, for example.
"The nature of our industry makes it very difficult to sue anyone because all our kit is standardised," says the telecommunications senior patent attorney. "It is difficult for me to think off the top of my head of a patent we would enforce rigorously because we would end up suing our own suppliers and it probably wouldn't help."
Taking action might also open the business up to counterclaims. Breitenstein at DSM says firms need to be particularly aware of that possibility in certain countries. "You don't want to give anyone the opportunity to counterclaim for invalidity, so you need to look carefully at your procedures. If you send a cease and desist letter to infringers in some countries, for example, that action will trigger the right to counterclaim."
But long-term damage can also be caused by not taking action. Though enforcement might not generate significant ROI in some cases, it could be worth doing to mitigate risk to the business's reputation. Industries where inferior products could cause damage to health, such as electronics or drug manufacturers, should consider public backlash in each case of infringement.
Breitenstein adds that if an infringing product is inferior to the genuine article it may also erode trust in the brand and the value of the product over time.
"What is clear is that if there is price erosion at some point in time, you will not be able to reverse it easily."
Enforcement can also help firms establish a strong market position and discourage infringement. Counsel may want to enforce a patent to protect a key innovation on a valuable product that is early in its lifecycle, for example, and stop competitors thinking they can take advantage of it.
"Sometimes you want to put a bit of fear, uncertainty and doubt into the industry so people think twice about stepping over your core innovation," Elder at IDT tells Managing IP. "You might want to bring an enforcement action or at least start a licensing dialogue just to take a positon and make rivals think twice."
The technology manufacturer's head of legal adds to that point: "We feel that we are King Kong and want to crush mosquitos. We do not do alternative dispute resolution unless it is in a battle with an equally respectable company."
The problem with that strategy, Elder adds, is when counsel comes up against a particularly forceful or aggressive infringer.
"There are several companies out there that are notorious for taking the view: "We don't care. We just want to be in the market regardless of infringement issues." And if the company makes the decision that it is more efficient to do that than worry about you and your patents, it puts a stop to the idea of targeting a couple of soft targets to establish a position."
Industries change quickly and threats to IP evolve just as quickly. An effective in-house enforcement strategy keeps up with these changes and adapts. One way to accomplish that goal is by monitoring the strategy to ensure it is still working.
"The point of enforcement is to generate income," says the telecommunications senior patent attorney. "If you have forecast for 10X but you only get X, that is the first indicator that you need to take a new approach."
Another way is to stay on top of industry trends and changes to the company.
"You are constantly having to look at what is going on in industry trends but you do not have to look everywhere at once," says Elder at IDT. "There are a couple of markets that will define your enforcement strategy. You need to look at certain jurisdictions and countries and see who is patenting what."
"You also have to look at your own business constantly, which is probably a harder thing to do. In my industry, we have product lifecycles that last two to five years on average and it takes three to five to develop a patent position. What you are patenting today might have no relevance by the time you get the patents."