Patent Reform at the DNC and Dovetailing Differences to Settle Patent Infringement Litigation
Thanks, first, to Google Reader for offering me feeds to blogs it knows I'd like but don't have (like Peter Zura's 271 Patent Blog) and then making it easy for me to add them to my Reader, which I can now read on my iPhone thanks to Apple. Really. I'm grateful (but could someone now please replace Outlook with a program that doesn't move at a glacial pace?)
On to the real purpose of this post with a hat tip to Peter Zura's 271 Patent Blog for this item out of Denver.
Lofgren, D-Calif., told a crowd in Denver on Tuesday that it is crucial for Congress to pass legislation to update the U.S. patent system next year -- . . .
Lofgren, who represents the Bay Area and is a key member of the House Judiciary Committee, said a new effort should begin with "things we know we can agree on." A proposal that would curb judicial "venue-shopping" for favorable courts is critical as is language to address patent abuses, she said. "How do you legally set a framework that prevents abuses and allows for a vigorous system that protects intellectual property?" Lofgren asked aloud. "It's not easy to come up with solutions."
Is talking about the things we agree upon first always the best negotiation tactic? It's certainly helpful when you're brainstorming solutions to intractable disputes -- here -- "set[ting] up a framework that prevents abuses and . . . . a vigorous system that protects intellectual property."
When the debate is particularly rancorous, as is often the case in patent infringement litigation, dove-tailing the parties' differences -- an issue upon which they invariably agree -- is one of the best ways to locate and maximize value to both parties. Lax and Sebenius in their must-read 3-D Negotiation remind us that "complementary differences -- pairs of high benefit-low cost items" in which one side values the point highly and the other can provide it at relatively low cost is a good place to begin.
Small talk at the commencement of negotiations -- which itself increases the likelihood of a deal -- is one way the parties can locate these high-benefit-low cost items, particularly where they haven't identified them before the negotiation begins. What kinds of items are easily dove-tailed? Lax and Sebenius provide us with the categories as follows:
Dovetailing Differences in Forecasts or Beliefs about the Future.
Because the settlement of patent infringement litigation invariably requires one party (or both!) to license the other, the parties' differing expectations of market success or likely technological changes that could make the IP less valuable or even obsolete, are a good place to look for the high benefit-low cost synergies mentioned by Lax and Sebenius.
If party A firmly believes that sales are going to increase over the next five years and party B is "certain" that they will decrease, their differences in future projections can be dove-tailed by a graduated schedule of fees. Party B -- who believes there will be minimal to no sales in year five -- can offer higher royalties in year 5+ and lesser in the earlier years. The attempt to dove-tail these differences is also a good way to call your bargaining partner's bluff. You'd be amazed how quickly certainty drains from party predictions when they're asked to put their own money on the gamble.
Dovetailing Differences in Attitudes Toward Risk
I recently negotiated the settlement of a patent infringement case in which Party A and B were considering a merger of the two companies as a means of settling their disputes. Both parties held multiple patents, a few of which were being litigated in other proceedings. Both parties' valuation of the risk of loss if the event of adverse judgments was approximately the same, i.e., there were no material differences in the parties' forecasts about the future outcome of the lawsuits.
The parties did, however, have substantially different attitudes toward risk and differing abilities to sustain losses. Party A, by far the richer player, was much less averse to the outside risks of the pending litigations. Party B was concerned that the the value of the merged company -- his only real asset -- could be destroyed in the event all of the lawsuits were successful. The parties had reached impasse on the value of B's shares and of the merged enterprise primarily because of these uncertainties. Because Party A could weather the outside risk, it agreed to assume it (wagering not only on his ability to satisfy potential judgments but his insurance carrier's willingness to settle existing disputes over coverage). When these uncertainties were removed from B's plate, he was willing to assign far more value to the merged company, enabling the detailed negotiations for the merger to commence. /*
For more hypothetical examples, see the following 3-D Negotiation Risk Attitude Dovetailing sub-sections -- Selling a Restaurant; A Joint Venture of Opposites, A Public-Private Real Estate Deal and Assessment Ambiguities.
Dovetailing Differences in Attitudes Toward Time
This category of dovetailing is very like my first hypothetical. Here, however, the differences in expectations (and desires) concern the mere passage of time coupled with party shares in a joint venture. Here, Party A is impatient for immediate returns on his investment, which he needs to fund a new enterprise. Party B, who is older than A and looking forward to retirement, is more interested in creating a stream of income in the future.
In this scenario, Lax and Sebenius suggest a structure in which Party A earns a smaller share of the early profits and Party B earns a larger share of the later profits.
All of these potential solutions to intractable litigation involve high level financial planning and business forecasting that are far beyond the scope of most "pure money" disputes. There are few patent infringement disputes, however, that couldn't be more easily resolved by dovetailing party differences. The law firm's settlement team should be devoting as much time, thought and energy to negotiation planning as its litigation and trial team is devoting to just winning the darn thing.
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*/ Facts greatly simplified to protect the confidentiality of the mediation and to avoid discussion of unnecessarily complex financial transactions.
