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Posted on Techdirt - 12 May 2011 @ 3:57pm

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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