"SANCTIONS, GET YOUR SANCTIONS HERE"
.jpg)
. . AND THEN SETTLE YOUR COPYRIGHT CASE.
(right, IP ADR attorney, mediator and blogger Michael D. Young of Weston Benshoof and Judicate West; case link courtesy of Thelen Reid)
$27 million will buy you a whole lot of cake. And you can eat it too. That’s one of the lessons from the Tennessee Court’s unprecedented sanctions award against an apparent copyright infringer who just refused to stop copying.
In MGE UPS Systems v. Titan Specialized Services (OPINION HERE), the copyright owner not only obtained a sanctions order worth $27 million against one of its primary competitors (and apparent copyright infringer), but was still entitled to pursue its claim for copyright damages.
How is that for protecting your intellectual property while also setting the stage for a pretty advantageous settlement negotiation?
Using the lingo of ADR/negotiations, MGE UPS Systems showed how a copyright owner could effectively utilize the litigation process to change the parties’ respective leverage, and then set itself up for the perfect negotiated outcome.
Here’s the short set-up: MGE UPS Systems, Inc. sells, and then services, “Uninterruptible Power Supply” equipment, equiqment systems customers (such as hospitals) install to ensure a constant supply of power in the event of an outage.
Because this equipment must be regularly serviced and maintained, not surprisingly, there are a number of competitors who provide such services to UPS users -- and who compete head to head with MGE for that business.
Things were pretty competitive…until MGE built a better mousetrap. It developed new software that was so good it allowed UPS to service its equipment 2-4 times faster than its competitors, and with greater accuracy and efficiency. The software was, of course, proprietary and copyrighted. The competitors were starting to feel the pinch.
Beware the Mobile Employee
One competitor apparently pinched back. If you’ve worked in any technology-based business, you know how prevalent employee mobility is – and how easy it is to download secrets onto a simple pen drive that fits in your pocket. According to complaint's allegations, defendant JTP solicited one of MGE’s former employees who just happened to have a pirated copy of the MGE proprietary software. JTP obtained the software, distributed it to its service personnel, and began competing against MGE with MGE’s own copyrighted product.
Why JTP thought it could get away with this thievery is never explained. Why it believed it could then go out in the market place and start miraculously servicing UPS equipment in 1/6th the time without raising suspicion is also never explained.
What needs no explanation is what happened next. As soon as MGE learned of the theft and infringing use of its software, it filed suit.
The Leverage of Time
With the suit filed, is it time to call in fellow blogger Vickie Pynchon to mediate the dispute? JTP probably would have loved this. Settlement takes time, and every day that passed setting up and conducting the mediation would have been another day JTP could have been in the field utilizing MGE’s own copyrighted software to steal business from MGE. JTP would have been incentivized to drag the process out for as long as it could.
But for MGE, this would have been a mistake. The leverage of time was working against it. With MGE bleeding every day, what it needed was litigation triage. So MGE sought to staunch the blood flow by applying for – and obtaining – an emergency restraining order against JTP prohibiting it from using the MGE software at all for any purpose whatsoever.
Now who was in a hurry to settle? Not MGE, certainly. The leverage had flipped. Back in sole control of its proprietary software, it could now regain control of the Service market as well. It was JTP who should have been in a hurry to settle before it became locked out of the market altogether. Maybe it could cut a licensing deal?
Time to Call the Mediator
This is the time JTP should have called Vickie to seek out a mediated solution. But it didn’t. Instead, it took a seriously wrong turn. According to the opinion, rather than comply with the Court order, JTP ignored the thing altogether and continued utilizing the copyrighted software in competition with MGE.
The Leverage of Sanctions
When MGE learned about JTP's contumacious conduct, it returned to court and sought sanctions. And what sanctions they were. After a two day evidentiary hearing, the court, noting that a third of JTP’s income was based on its service of MGE equipment, awarded MGE “a monetary sanction of thirty (30%) of JTP's gross revenues from July 21, 2004 to date.”
Thirty percent! $27 million!
(The court also ordered an inspection of JTP’s computers – at JTP’s expense of course – and awarded MGE its attorney’s fees.)
And this doesn’t include MGE’s infringement damages!
An entire blog could be dedicated to litigation sanctions. (I looked, but couldn’t find one -- readers should feel free to start one.)
Unless JTP had a rabbit up its sleeve, this would have been a good time to call Vickie to get this one settled or at least to read the chapter on negotiating from a position of weakness in Malhotra's and Bazerman's Negotiation Genuis.
$27 million and damages?
That’s what I call having one’s cake and eating it too.
(Though I’m a pie guy myself.)
