SETTLEMENT OF PATENT LITIGATION AND DISPUTES

Improving Decisions and Agreements to Settle and License

 

Uses of This Approach and These Tools

These are some ways to use this approach to settlement.

Qualitative Analysis.  One way is simply for patent owners, potential patent infringers, and their lawyers to understand the concepts and think about them when considering settlement, assessing settlement prospects, preparing for negotiations, negotiating settlement, and making a decision whether to settle.  Settlement of patent actions and disputes requires that people take action when confronted with complex legal and commercial facts, expectations and uncertainty.  The general approach helps deal with this complexity in a systematic way.  This should help people identify the important facts more quickly, focus negotiations and settlement proposals on the economic interests of each party, identify any mutual gains from an agreement, and make better settlement decisions.

Quantitative Analysis.  The other way to use this approach is apply it in a quantitative way, that is, by collecting the needed commercial and legal facts, making the needed estimates (since future events are important and always uncertain), and processing those numbers using the model.  A patent owner could use the approach to identify the types of agreements and minimum payment terms under a settlement that would be preferable to litigation, given the owner’s views of the commercial and legal situations.  An accused infringer could apply it to identify the types of agreements and maximum payment terms for a settlement that would be preferable to litigation, given the infringer’s views.  Litigation is often an owner’s or infringer’s best alternative to a negotiated agreement, sometimes called its BATNA.  This approach permits a party to define its BATNA in dollar terms, whether the alternative is litigation or some other option.

Use in Negotiation

The approach could be used to help plan and conduct settlement negotiations.

Develop Settlement Positions.  A party could do the analysis to define its bottom line and select its settlement position or proposal.

Assess the Other Party’s Interests.  A party could also use this approach to estimate the other party’s reservation price.  This would help that party evaluate the ultimate likelihood of settlement and select the terms it will propose for settlement.  Of course, a patent owner will never know with confidence an infringer’s maximum terms and payment and an infringer will never know a patent owner’s true minimum.  However, it is an inherent feature of a negotiated settlement that each party acts based on its own views of the value or cost of litigation and other factors and its assessment of the truly-held views of the other party on the same factors.  In making its ultimate decision to settle, each party will decide whether the settlement makes it better off than the alternatives given to its own views of the alternatives.  Each party is also likely to give thought to whether settlement makes the other party much better off given the other party’s true views of the alternatives.  In other words, each party is likely to assess whether the often huge gains from settlement have been divided roughly equally.

Assess the Other Party’s Positions.  A party could use the approach to assess the other party’s settlement position or proposal.  A party could compare the financial terms the other proposes with facts and estimates that would be consistent with those terms.  If the other party’s proposal is consistent only with erroneous facts or unrealistic estimates, the approach could help demonstrate these unnecessary barriers to an agreement.

Cooperative, Joint Use of the Approach.   A patent owner and an accused infringer could discuss whether both would apply this approach to evaluating settlement.  This would help to focus and obtain the information each party needs to assess settlement.  This would reduce the likelihood of basic disagreements about the factors that should influence settlement and their significance.  This would help avoid the problems arising when one party is basing its settlement proposal on something other than economic results or sensible analysis of the options.  This would help avoid the difficulties arising when a negotiation is conducted by each side staking out a proposed settlement with little or no explanation of the basis for it and proceeding in a protracted series of steps in which each party moves or refuses to move from those positions until a point is reached with some agreement or no agreement.  In most situations, this approach will identify mutually advantageous agreements and a sensible distribution of the gains more quickly, cheaply and accurately than a negotiation based purely on an iterative series of proposals.

 

 

JOHN W. SCHLICHER

PATENTS, PATENT LITIGATION, PATENT DISPUTE RESOLUTION AND

SETTLEMENT, LICENSING, ANTITRUST, LAW AND ECONOMICS