Settling Lawsuits Sometimes Makes Sense. Period.
from the just-not-worth-it dept
This is a guest post from intellectual property attorney (and computer scientist) Michael Wokasch from Quarles & Brady LLP as a rebuttal to our post about Red Hat settling with patent trolls. While snarky, we thought it made some interesting points that were worth discussing...Red Hat's CEO recently made waves in the technology world by stating that "at some point, it's better to settle than fight these things out." The horror! The surprise! But it's not really either of those; it's just plain true.
While admitting that it can "certainly understand the basic reasoning," a recent Techdirt article basically said that Red Hat is wrong to settle... ever. In support, the article states that "in the long run, [settling] may be penny-wise and pound-foolish, because as you build up the reputation as a company who will fold... then all you do is encourage more trolling behavior."
In the words of Wikipedia, "citation needed." This is not the experience of many lawyers, companies or individuals in litigation, generally, much less patent litigation. Even anecdotal evidence suggests the opposite is true for patent infringement. There is no shortage of new patent infringement cases filed, and some of those against battle-hardened patent fighters.
Of course, there is some schoolyard movie-magic reasoning to this never-settle mentality. It's the old movie trope that the geeky kid just needs to fight the bully and, when he wins, no bully will ever pick on him again. Better yet, the bully won't pick on anyone else either! I mean, it worked in elementary school. Or at least in elementary school in the movies. Maybe it's because many of us software folks sympathize with trope or long for it to be true that so many think that a company like Red Hat can fight and beat every patent "bully" in a patent litigation rumble behind a dumpster in the Eastern District of Texas.
Even ignoring the issues of the patent troll theory, the reality of the world is much more complicated.
In real life, there is no guarantee that the geeky kid will win a fight, much less that a victory will deter other bullies. There's also no guarantee that a "win" will end bullying for everyone. True, a good bop on the nose might deter one bully, but the nature of bullies is to think that they're somehow different than everyone else. You can see this in patent litigation too.
Each patent owner has a decidedly different view of his own patent compared to previous patent owners. And there's a lot of truth to that view. The facts and circumstances of each case are different. Most cases will differ based on the perceived value of an asserted patent, perceived differences in validity (or invalidity) of the asserted patent, previous success (or lack thereof) enforcing the patent, breadth and scope of the claims of the asserted patent, importance of the technology at issue in the asserted patent or accused product, strength of the patent prosecution for the asserted patent, war chest of the parties, licensing offer, and so on. Thinking that fighting and winning in one case will deter another patent owner is wishful thinking at best.
Fighting a patent owner who has successfully survived a previous fight does not make much sense. Once a patent has survived a validity challenge either in a court or in reexam, a would-be fighter is in a much different place than a patent that has never been challenged.
In real life, litigation is a strategic calculus. Taking a patent owner to the mat is likely to cost a lot of money and there are no guarantees that you will win. There are no guarantees even if you have better defenses and a better position on invalidity. But even if you do win, what does that really mean for your company? That you have spent a lot of money, obtained a good judgment, and have saved your competitors the cost and expense of both litigation and licensing.
While the principle of never wanting to settle may sit well ideologically for some, it's a lot less clear that a company who remains responsible and accountable to its board, shareholders and employees is going to have the same warm and fuzzy feeling. Having to explain why you spent six million dollars on defending a case when you could have settled for a fraction is likely not a conversation a general counsel wants to have.
Patent litigation is not alone in putting companies in a position of having to decide between settlement or litigation. Companies have for a long time addressed similar issues in product liability, discrimination, and personal injury cases. Company managers often start with the "never going to settle" this case to teach everyone a lesson, only to realize that the rational thing to do is to make it go away quietly.
This is not to say it does not make sense to litigate. Indeed, there are many times when litigation does make sense. But the reason is not to send a message. There's much more strategery involved than simply whipping out principle.
Of course, stating the above is not in my best interest. If every company went to battle over every patent infringement claim no matter the strength of case or cost of settlement, it would be full employment for patent attorneys and litigators.
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Just a cost of doing business
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personally
*The word Reputationally is (c) me 2011.... :)
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terrible thinking - like an accountant
The original idea was from Red Hat where it is just better to settle than to fight. Here the lawyer says, look at how much time and money it will cost you and if it is too much, then settle. Now it is an accounting issue.
With the same reasoning, why send people to jail? The crime has already been committed and going to jail will only cost the public money, and not change anything. Cheaper to say the accused was a bad boy.
We have jails to act as a deterrent. You fight lawsuits to make it clear to other patent trolls you will fight in court and not give up when you are served the legal papers.
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red of tooth and claw
I have to wonder if there's some selection involved though: this lawyer has more experience with patent holders who have chosen to sue than with those who haven't, so maybe the impression that they are overconfident bullies is not generally accurate.
It has occurred to me before to wonder whether a company could somehow legally -- and publicly -- commit to never settling such suits, in order to discourage them. Sort of a "burn Moscow" defense. (I'm not saying it's a wise plan, just interesting.) Now I'm wondering about other strategies observed in the natural world...
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Re: personally
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What was will always be.
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Re: terrible thinking - like an accountant
The cost of jails is shared by all of society, but the cost of defending against a spurious lawsuit is borne entirely by the victim. Imagine how society would look if it were up to you to pay for the incarceration of the person who mugged you-- or else just let him go.
(Also remember that there are valid lawsuits, and telling good from bad isn't always as easy as we'd like to think.)
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Re: Re: personally
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On Snarkiness
All due respect, but a touch of "snarky" is one of the things I like about Techdirt. No harm in it from the opposing viewpoint, either.
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Re: terrible thinking - like an accountant
It's actually the exact opposite in nearly all cases: a battle until both sides decide to settle and go on about their lives, with a lot of rules governing how you get to that point.
I couldn't bring myself to read the rest when your first sentence is as wrong as wrong can be.
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Re: Re: terrible thinking - like an accountant
P'shaw! Everyone on Techdirt knows that patent lawsuits are all frivolous shakedowns!
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Settling
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Why Not?
I have to ask, Mr. Wokasch, why is that the case? What in your opinion, could be done, to change things? Speaking hypothetically, what should change (e.g. in law, court precedence, etc.) to make it so that the fellow that has the better position on invalidity wound up winning at least 95% of the time, and didn't have to spend more than the average household income to receive justice? I know I'm asking you to set aside reality for a second and imagine your utopian patent legal system. How should this be fixed?
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Re: red of tooth and claw
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In the words of Wikipedia, "citation needed."
Thought for myself - "oh, here it begins. We will now read citations supporting the opposite points of view!"
Guess what? Right, there is none!
Disappointed, just a tad...
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Re: Re: terrible thinking - like an accountant
"The whole idea of lawsuits is to settle, to compel the other side to settle. And you do that by spending more money than you should, which forces them to spend more money than they should, and whoever comes to their senses first loses."
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Yup, and at some point it is better to just give the mugger your wallet rather than get shot
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This is the country the founders warned us against.
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This is the country the founders warned us against.
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Re: Why Not?
Second, juries and judges (heck human beings) contribute to some of the uncertainty. How hard is it to explain the garbage collection operation of the Linux operating system to someone that knows little about computers -- by the way, this is the Bedrock v. Yahoo/Google case.
Third, especially in patent cases, few things are simple. Claim construction (understanding the words of a patent), the technology itself, the accused products, etc. can all contribute to complexity and difficulty. These lend itself to uncertainty.
Fourth, in patent cases, there's a presumption of patent validity. How a judge or jury treats this presumption is also a cause of uncertainty.
Finally, I'll just note that the causes could go on and on. The preceding four things are not exhaustive and they're not even necessarily the primary causes. They're just the ones that I could think of in a short period of time.
And I don't think that there are any quick fixes. Moving these things around may simply cause other distortions in the system.
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Re:
Even in spite of Red Hat's previously stated position, they nevertheless end up as defendants in an awful lot of cases: http://dockets.justia.com/search?query=Red+Hat&nos=830
And those are just the cases that actually get filed.
Microsoft and Amazon have similarly made no qualms about going to court: http://dockets.justia.com/search?query=Microsoft&nos=830 and http://dockets.justia.com/search?query=Amazon&nos=830
Looking at others cited by folks above who "don't settle," consider Walmart (http://dockets.justia.com/search?query=Walmart&nos=830) and Allstate (http://dockets.justia.com/search?query=Allstate&nos=830)
The system is set up to encourage settlement.
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Re: Re: personally
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Re: personally
Hell, even a regular working stiff can do that, many websites have forms that you fill out when you are suing someone and just plug in the names, facts, etc.
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Re: terrible thinking - like an accountant
Jails/prisons have NEVER been a deterrent and neither has the death penalty, regardless of what "LAW & ORDAH!" nuts like to say about it.
Add to this that a good 80%+ of the things on the lawbooks should NOT be crimes and you have another reason why jail isn't a deterrent.
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Re: Re: Re: terrible thinking - like an accountant
Such as you were not supposed to be able to get a patent on a part of code in Microsoft Office that allows complex calculations to be done, but only on Microsoft Office as a whole.
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Re: Re:
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I found such a case after looking for 5 minutes. Perhaps your time might've been better spent verifying that such a thing had never happened, instead of looking up a relevant internet meme to use.
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Re:
Among other things, Vonage was being sued by parties with huge vested interests in destroying it. It wasn't being sued by NPEs, it was being sued by "competitors." There are lots of things about being sued by competitors that raise more questions than mere dollar value.
Besides being competitors, the patent owners were predictable, repeat players in the SAME market, unlike the typical characterization of a NPE.
Whether settlement in that case was warranted, I don't know. But all of that is beside the point. My rebuttal is to the absolutism that it is NEVER a good idea to settle. A position that is basically indefensible on easily conceived of scenarios.
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Patents Often Don’t Stand Up In Court
As I recall, there was a high chance of a patent being overturned in a court case (something as much as 30%). And even if it was upheld in the first case, it was more likely to be overturned in the second one, or the third one.
So just because a patent has stood up in one case does not mean it will stand up in the next one. Challenging patents may be expensive, time-consuming and stressful, but it can work.
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and In other words what you have stated is good advice for any business and basically means:
* Sometimes it is better to take a hit and live to fight another day.
* Not everything is black and white
* You need to look at the bigger strategic picture of what you want to achieve in the future.
* And more importantly, courts can get it wrong at the best of times, because at the end of the day in civil matters it sometimes sadly it comes down to whether the presiding arbitrator (judge, magistrate, jurist, whatever) and/or legal team had a good nights sleep or not. ie: dumb luck!
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The infamous "IANAL" start to post.
Knowing this, I read the following:
"There is no shortage of new patent infringement cases filed, and some of those against battle-hardened patent fighters."
This is a problem to me. I say this because there is a company out there I despise more than any other: Apple.
Since coming back from near death, piracy allowed this company to manufacture devices to play the mp3 format, as its own format, aac, never took off.
It started off with this device called the "iPod". Perhaps several readers heard of it? The device had patents all over it, and the first question I asked is "How"?
Nothing in the device is innovative. We've been using the wheel on electrical devices for decades (one of my very first VCRs used an identical wheel, for crying out loud). We've been using microchip technology even longer. "iBuds" are nothing more than set of headphones I've been using since my first Sony Walkman of the 80s.
I was rather surprised to learn there's another type of patent, and that's a design patent. So, because the device was tiny, filled with everyday technology, it's allowed a patent because of how it looks?
Again, the bliss comes in and asks "How?".
Now, in 2011, I read Apple holds the record of the number of patents filed, and perhaps it's coincidence Apple is leading many of those lawsuits.
Mr. Wokash, there is something missing in your very detailed (and nice to us blissful types) write-up: People tend to cheer more for the underdog than they do the bully.
Redhat's settling was disturbing for me on one major level: if there's any company strong enough to fight, it was Redhat. It's not the only company, obviously, but the message was loud and clear: "We're not going to fight, so we'll just pass the payouts to these trolls onto our customers."
This is what it boils down to, and as a customer (though not of Redhat), it's pissing me off my product's cost includes this fee.
I'm not alone.
There's also one more point of contention here, which Hollywood does every so often: It tells the story where the "weaklings band together" to fight the threat.
Perhaps one day, we'll see a group form which will represent companies tired of being sued and this will be the litigation team, to which many companies fund, to fight off the trolls. When it gets large enough, then perhaps there's something to be seen if patent lawsuits drop.
Because everyone knows it's damn near impossible to fight a hydra, because the heads just keep growing back.
Why this coalition doesn't exist today is rather surprising, honestly.
Thanks for the write-up. It was a nice reminder there's more to the story.
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Re: Re: terrible thinking - like an accountant
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Re: Re: terrible thinking - like an accountant
Lately it has become a business model. The stock rises and falls based upon the number of those incarcerated, this is not a good idea. I now suspect that anyone yelling about law and order, mandatory sentences, zero tolerance, etc probably has a vested interest.
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Re: Just a cost of doing business
there is a realistic business goal in trying to cut your preventable expenditures, though.
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Re: Re: Just a cost of doing business
I suspect some very successful petroleum companies would disagree with you.
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Re: Re: personally
I know a lot of very smart lawyers, even IP lawyers, that would be lost defending a case of patent infringement, because they do not have litigation experience.
There are some things non-lawyers can do for themselves without screwing themselves too bad. Pro se patent litigation, all the way to trial, is not one of those things.
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Re: Re: Re: Re: terrible thinking - like an accountant
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Re: Re: Re:
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He's right
Now, in a larger sense this may make a point that our patent system needs to be reformed to make it more difficult for patent trolls to function and to ensure that fewer low quality patents are issued. But that is a job for Congress and does not factor into the strategic decision that an executive facing a patent lawsuit must make.
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I'm convinced.
So now that we've established that, a much more important conversation is figuring out how to fix this horrible mess that costs innovative companies and benefits the ones that have nothing useful and cannot compete.
Let's toss the patent system altogether. The mounting evidence shows it does much more harm than good. Patents holds back progress, they don't help innovation and instead hinder it, and they reward bad actors. Let's get rid of them completely - no patents at all.
Since you don't seem to have any problem with stating opinions that are "not in [your] best interest" then you should have no objections, right?
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Settling is better than litigating
While there is a lot of sense in the article referenced, it is YAEOP (yet another example of "pegging"), where one takes an extreme position and says "Eureka" (what the town of Eureka, CA has to do with it ...).
The truth is in the middle. If you are dealing with someone who has the money to make life miserable with legal expenses, and a LARGE ENTITY patent (written to be so obscure that scores of (very expensive) experts and (very expensive) specialty litigators are involve, it may make sense to settle.
If you are dealing with a patent troll - hey, they are running a BUSINESS! If you make that business unprofitable, they WILL go away and not bother you any more (and your competitors, who have not proven what they are made of, will likely NOT benefit).
What I am saying is there aren't any SIMPLE, ONE-SIZE fits all solutions!
Much as it hurts - as stressful as it is - to do this right you will have to (dirty word) THINK!
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Re: Settling is better than litigating
Sounds exactly like what Mr. Wokasch said (without as many asides).
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thank you
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