You’ve Just Received a Patent Licensing or Infringement Demand – What Now?

Co-author, Phillip Morton

As private companies grow and become more successful, they may become targets of patent licensing or infringement demands. These demands may arise from patent assertion entities (PAEs) that are principally seeking monetary compensation through licenses, or from competitors seeking monetary relief or broader relief, such as changes to the company’s products or business.

This post provides an overview of the types of patent assertions a private company may encounter, considerations when responding and actions that companies can take to prepare for such assertions. While this article focuses on US patent law and practice, some of these considerations may apply to other jurisdictions.

Types of patent assertions

There are two basic types of patent assertions – those from PAEs and those from competitors. Let’s examine each of these in turn.

Patent assertion entities

A PAE, also referred to by some as a nonpracticing entity (NPE), and by others more pejoratively as a patent “troll,” is a company that does not develop its own technology or have products or services of its own, but instead acquires patents that it seeks to monetize through licensing.

A PAE often begins by sending a letter or email inviting a company to discuss a license to patents owned by the PAE. The target company may be one of dozens or hundreds of companies receiving the outreach. The correspondence may come from the PAE directly or from an outside counsel or licensing agent. Communications from the PAE may become more specific over time, identifying particular patents and products that the PAE alleges infringe, and may include documentation mapping the target company’s products or services to specific patent claims. The correspondence may implicitly or explicitly threaten litigation. If the outreach does not result in a licensing agreement, the PAE may ultimately file a complaint alleging patent infringement.

Competitors

While less frequent than PAE demands, successful companies may also receive licensing or other infringement-related demands from competitors. While PAE demands are typically more centered around monetary compensation, competitors may also seek changes to the target company’s business, such as changes to an allegedly infringing product or service, or even taking a product or service off the market entirely. Competitor assertions generally advance to litigation more quickly than PAE assertions and may be filed without any prior notice if the competitor is seeking more immediate relief, like a preliminary injunction.

Responding to a licensing or infringement demand

If a company receives correspondence offering a patent license or alleging patent infringement, the company should seek guidance from counsel before engaging with the patent owner and before conducting an investigation or assessment of the allegations. Depending on the content of the correspondence, the company may be deemed to have received notice of patents such that the company may become liable for pre-suit damages and knowledge for the purposes of determining indirect or willful infringement. It is important that counsel be involved to help the company understand the context of the assertion, assess the relative strengths or weaknesses of the patents, such as infringement and validity, provide guidance on potential options to address the demand to minimize cost and disruption to the business, and protect attorney-client privilege.

Counsel can help the company develop an appropriate response to the patent owner tailored to the specific characteristics of the patent assertion, including:

• How and when to respond to the assertion, whether to respond with a substantive rebuttal, and whether to respond in writing or orally.
• Whether and when to engage in licensing discussions, including whether to enter into a nondisclosure agreement before the parties exchange information about the assertion.
• Whether to bring an offensive challenge, such as filing invalidity challenges with the patent office (such as an inter partes review petition or an ex parte reexamination request), whether to bring a declaratory judgment suit against the patent owner, or in the case of a competitor, filing an offensive patent infringement suit asserting the company’s own patents.

If a patent infringement lawsuit naming the company is filed, it is critical that litigation counsel be promptly engaged to address the lawsuit. Deadlines to respond could run from the date of filing, so experienced counsel should be engaged to ensure the company does not waive any rights or defenses.

Preparing for licensing or infringement demands

Responding to a patent assertion can be expensive and distracting. Here are a few things that companies can consider to reduce the likelihood and impact of these demands.

Be thoughtful about technical information the company posts publicly

To assert a claim for patent infringement, a patent owner must identify actual or anticipated evidentiary support for their claim. PAEs and competitors considering patent infringement lawsuits use technical or business information that companies have made public as support for their claims. Companies should be thoughtful about what technical information they make publicly available, and ensure the accuracy of any such information, because that information may be used as evidence in a lawsuit.

Impact of company locations on future lawsuits

The location of a company’s business operations and facilities plays a role in determining the courts where the company may be sued. This can be particularly important in patent cases, as some courts are more experienced with these cases and have established patent local rules and/or standing orders.

Consider freedom-to-operate analysis conducted by counsel

In some circumstances, it may be advisable to engage patent counsel to analyze patents that may implicate the company’s products and services. This is known as a “freedom-to-operate” analysis. The company can take that analysis into account when developing or modifying its products and services.

Securing protection for the company’s IP

It is important for companies to consider protection for the intellectual property underlying their products or services. IP protection comes in several forms, including patents, copyrights and trade secrets. Different aspects of a product or service may be better suited for a particular form of protection. Protection of a company’s IP can show that a company values intellectual property rights and, in the case of competitor patent assertions, can provide a counterweight in negotiations or litigation if the competitor infringes the company’s IP.

Conclusion

As companies grow and become more successful, companies face potential risks of patent assertions from PAEs and competitors. When confronted with patent infringement allegations, companies should address them promptly and with the guidance of counsel. Planning ahead can help the company minimize risks and potential disruption of its business from patent litigation.