In a previous post (“Before you sue …” of 29 April 2014), I considered the business and other relationships that might rationally inhibit your client from suing for patent infringement, or even making any approach to the infringer. Now suppose that the client is in fact not so inhibited (and assume also, as in the previous post, that he is not a PAE = patent assertion entity = NPE = non-practising entity = patent troll). Should legal costs deter your client from suing? In (for instance) big pharma disputes, both the significance of the infringement and the financial resources of the patent owners are usually such that legal costs are ultimately not a deterrent to litigation. But if the scale of infringement is moderate – with the client expecting if he wins to gain lowish millions in damages and future royalties – legal costs need careful consideration before litigation is begun.
Let us consider three hypothetical cases –
(a) in each of which the client wishes to exploit his invention solely by licensing, and if successful in court expects to receive £10M in respect of past and future activities of the alleged infringer,
(b) in each of which the a priori probability of success at full trial is 50%, but
(c) in which, respectively, action can be brought only in the USA, England, or France.
Your client can usefully analyse such cases from the perspective of a professional gambler. Even without taking into account the management disruption caused by discovery/disclosure of the client’s documents (normal in the USA and in England, improbable in France), we will see below that the prospects for the client qua gambler –
in the US case are simply bad,
in the English case are not entirely rosy, and
in the French case are rather attractive.
If the matter goes to full trial, your client might incur legal costs of £5M. The winner is not usually awarded his costs. Therefore, if the client wins, he finishes with £10M–£5M = £5M more money than he began with; while if he loses, he finishes with £5M less than he began with. In gambling terms, he is being offered odds of 1:1 with a £5M stake. If, as we have supposed ((b) above), the a priori probability of success vs failure is also 1:1, then a professional gambler would not bet. Likewise, the client would do better putting £5M on deposit with a bank, with the certainty of making a small amount of interest.
If the matter goes to full trial, your client – and also the defendant – might incur legal costs of £1M. The winner is usually awarded costs (for easy calculation, assume all of his costs). Therefore, if the client wins, he finishes with £10M more money than he began with; while if he loses, he finishes with £2M less than he began with (his own costs plus the defendant’s). In gambling terms, he is being offered odds of 5:1 with a £2M stake. These are attractive odds when the a priori probablity of success vs failure is 1:1, except for anyone who cannot afford to risk losing £2M in any circumstances. An uninsured SME may not be able to afford such a risk, nor an SME-sized unit within a large company, for which such a loss might well mean complete loss of the unit management’s annual bonus.
If the matter goes to full trial, your client – and also the defendant – might incur legal costs of £0.25 M. The winner is usually awarded his costs (for easy calculation, again assume all of his costs). Therefore, if the client wins, he finishes with £10M more money than he began with; while if he loses, he finishes with £0.5M less than he began with (his own costs plus the defendant’s). In gambling terms, he is being offered odds of 20:1 with a £0.5M stake. Given the a priori probability of success vs failure of 1:1, anyone with £0.5M to risk – and many clients have this – will recognise an attractive “flutter”.
Mike Jewess 6 January 2015
Dr Michael Jewess was latterly Chief Counsel, Intellectual Property at BAE Systems and now is an attorney at K2, the network of patent and trade mark attorneys developed by Keltie LLP.
For a comprehensive consideration of the avoidance and handling of intellectual property disputes, see Chapter 10 of Michael Jewess, Inside intellectual property – best practice in intellectual property law, management, and strategy (Chartered Institute of Patent Attorneys, London, 2013, 516 plus xxviii pages, £35 for CIPA members, £40 for non-members, with free delivery within the UK, details and ordering at www.researchinip.com/iip.htm). PAEs are dealt with in Chapter 12. Company policies on IP litigation are discussed in Chapter 19.