Settling Lawsuits Sometimes Makes Sense. Period.
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.
Re: Hacking does not require a copyright factor
It's true that it's not relevant to any of the charges in the indictment, but that's not the point.
One would have thought they would have also tried to obtain an indictment under 17 USC 506 for criminal copyright infringement given the nature of the things allegedly stolen.
There are plenty of reasons they might not have done so. Indeed, in this case, there seem to be facts that really mitigate against that charge. My original tweet was merely a comment on the difference between this case and another.
Re:
Not exactly true.
You can still have a copyright infringement when the licensee exceeds the scope of the license. See, e.g., Jacobsen v. Katzer. The real question is whether the limitations on the right to access the material were a condition of the license or a mere contractual covenant. See, e.g., MDY Industries, LLC v. Blizzard Entertainment, Inc.
As I understand it, the ToS expressly provided that a user cannot download all of the works in a publication, rate-limited the number of downloads, etc.
Whether one or more of those meets the Jacobsen/MDY obligation or condition test is certainly a question.
Re:
I'm not sure that the article or the facts in that article support the idea that you should never settle.
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.
Re:
Well, Mike M. is the one advancing an argument that was contrary to everyone else's idea, namely that if you somehow never settle a patent case, you'll get a reputation and thereby avoid patent infringement "trolls". This just isn't the case.
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.
Re: Why Not?
First off, if litigation was ever certain, then we could simply dispense with litigation altogether and have disputes handled by a checkout clerk at your local big box store. But that's not the case.
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.
I'm not judging the merits of this case, but I think you're wrong on at least the legal points.
"I could see how Disney might have a complaint against Starz for the way it licensed content to Dish"
They may, for example: breach of contract and indirect copyright infringement. But that doesn't preclude the plaintiff from enforcing against another entity.
"Dish should be free to offer whatever channels it wants in whatever tiers it wants, so long as it has the appropriate agreement with those channels."
As we discussed, you can't "avoid" infringement under the theory that someone upstream extended to many rights downstream. The original party never had those rights to "grant" in the first place.
What Dish probably has is a claim for indemnification/breach against Starz if Starz warranted it had the rights to grant Dish Network the license. There's probably an indemnification clause that says Starz would defend them if they didn't.
Consider a simpler scenario: an upstream entity with NO LICENSE to a copyright licenses someone downstream. The downstream party DOES NOT have a defense to copyright infringement by pointing at the upstream entity.
This also assumes Dish was in the right, see my final point.
"If anything, saying that downstream providers can't set their own pricing seems like Disney is opening itself up to a price fixing claim."
Perhaps. But even the terms of the Starz license quoted doesn't restrict what is "charged" by anyone. It just says it must be paid for separately by the consumer from the basic tiers, e.g., "a material, time based... fee."
As a final point, we have no idea, yet, what the terms of the Dish-Starz deal are. We are making assumptions about that. Paragraph 3, however, states that Starz did not consent to the promotional deal. I have no idea whether that's relevant or required under the Dish-Starz contract, but another possibility is that there is also a breach under that agreement.