Enforcing Your Patents through Licensing and Litigation

By Craig Rogers

In the last article in this series (November issue), we affirmed that the real value in obtaining patents lies in leveraging them. We began with the steps you must take as soon as your patent is issued – “marking” your invention with the patent number, and notifying your competition and the industry that you hold a patent on your particular technology. Once those necessary steps are behind you, you’re ready to enforce your patent rights against others who encroach upon your exclusive rights.

To license or not to license

First, make a conscious decision about whether it is most valuable to your company if you allow others to use your technology – and collect licensing fees – or, if you preserve the invention for your company’s exclusive use. If you have the ability (in terms of both production capacity and market presence) to fully exploit the market for your patented invention, then it may be in your best interest to capture the market for yourself and exclude others from intruding on your exclusive domain. If, however, you are not making commercial use of the invention yourself, or if you perceive other benefits in permitting others to compete with you in the realm of your patented technology (while, of course, paying you for the use of that technology), then it makes sense to offer licenses to those competitors. Assuming you decide to license the technology, following are several different ways these opportunities may arise.

Responding to license requests

Ideally, once you have notified the industry of your patented technology, other companies will proactively contact you about licensing opportunities. While obviously the most congenial footing on which to begin licensing negotiations, this is generally the exception rather than the rule. In most cases, you will likely need to exert some pressure on potential licensees to bring them to the negotiating table.

Tracking down potential licensees

In the most likely scenario, you – as the patent holder – will need to persistently monitor the marketplace and identify those companies that are likely to be infringing on your patented technology. As we discussed in the last article, it is important to be sure that the other company really is infringing on your technology before asserting infringement. Your patent counsel should be involved in this process.

Once you have identified your potential licensees, you will want to select the appropriate approach for contacting each target, as discussed in the November issue. If none of the softer approaches is effective, it may become necessary to send a “cease and desist” letter, demanding that they immediately stop making and/or selling the product. Again, make sure you discuss this with your patent counsel before sending such a letter, as it may give rise to a declaratory judgment action, also as discussed in the previous article. The letter should clearly communicate a deadline by which they must respond or face legal consequences, so you should make sure to follow through to maintain credibility and to avoid giving your opponent any ground for legal defenses that would capitalize on your lack of follow-through. 

To litigate or not to litigate

If a targeted infringer does not respond to your “cease and desist” letter within your stated deadline, or if they respond in a less than satisfactory manner, you may need to proceed with litigation. Keep in mind that litigation is a significant time and money commitment, so it should generally be used only as a last resort. In addition, before going to court, discuss with your counsel other dispute resolution procedures that may achieve your business objectives at a fraction of the cost. 

According to the 2005 Report of the Economic Survey by the American Intellectual Property Law Association, it can typically cost $1.25 million just to complete the pre-court discovery phase of a patent infringement litigation process when the dollar amount at risk is between $1 and $25 million. Therefore, given that litigation is an expensive proposition – in terms of both your time and bottom line – there are important strategic decisions you should make on the timing and targets of your enforcement actions, depending on your company philosophy, bandwidth and funding.

For instance, when you reach an impasse with one infringer, you may want to consider focusing your enforcement efforts on other companies with whom you are more likely to enter into productive licensing negotiations and agreements. This can help bring in a revenue stream to later help fund litigation that may be deemed necessary or strategic. As an additional benefit to this approach, the presence of licensing agreements will likely play to your favor during later litigation by demonstrating that others value and respect your intellectual property. Evidence of licensing agreements may, for instance, help prove to the court the validity and value of your patents.

In some cases, it may be necessary to bring an infringement action against at least one potential infringer before anyone will seriously consider your licensing proposals. In such instances, carefully discuss with your patent counsel the appropriate target, timing, and location for such an action.

Also, if you are a small software company, you should be pretty clear in your own mind about whether your objective is to remain independent or if you are willing to be bought out. In some cases, if you invented a technology that a large company wants or needs, it may be more attractive to them to acquire you than to litigate with you or pay licensing fees to you.

Negotiating license agreements

Once a competitor has agreed to meet you at the licensing negotiation table – whether under amicable or less agreeable circumstances – the objective of your discussions will be to arrive at a licensing agreement acceptable to both parties.

One of the most critical elements will be determining the value of the technology you are offering. This will require some “valuation” of your patent, meaning that you or someone else must determine the value of your technology to others. This requires a painstaking evaluation of numerous factors, including:

• What unique role does your technology play in the marketplace?
• What are the existing and potential alternatives to your technology?
• How easy would it be for someone to design a non-infringing alternative to your technology?
• What role does your technology play in a greater whole (a system, a process, an industry, etc.)?
• What are the licensing fees for other similar technologies?
• Does your technology have a wide or narrow appeal?
• What is the likely life span of your technology; e.g., how long is it likely to be before a better solution surfaces?

In the rapidly changing software industry in particular, the life span of a product plays a huge role at every stage of the patent process – from evaluating the importance of patenting a given technology, to determining licensing viability and fees, to the benefits of litigating, and finally to your potential attractiveness as a takeover target.

If you are like many companies that essentially keep their patents sitting on trophy shelves, consider more proactively turning them into a revenue stream by leveraging them. Your licensing and litigation opportunities and options could be many, and by pursuing them you could very well help foster healthy collaboration and competition in your industry and marketplace.

About the author

Craig Rogers is an attorney with Marger Johnson & McCollom, an intellectual property law firm headquartered in Portland. He specializes in helping technology companies effectively leverage their patents. He can be reached at 503-222-3613 or craigrogers@techlaw.com.