When is the right time to settle?
Over the last few weeks a couple of software patent cases have posed an interesting question – when is the optimal time to leverage and licence your IP in the face of ongoing legal action. We’re not talking here about settlement of the ongoing case, but commencing discussions with other potential infringers and proposing a settlement.
The two cases that prompted this consideration are Microsoft v TomTom and Uniloc v Microsoft. In the TomTom case, Microsoft sued TomTom in relation to a number of patents, but for illustrative purposes, the most significant related to the FAT32 file system. In simple terms, for backwards compatibility reasons, Microsoft came up with a method of squeezing longer file names into the older (FAT16) 8 character limit. Again, primarily for compatibility reasons, the FAT32 file system is used by many systems, including linux and removable media. This case was settled between TomTom and Microsoft (you can listen to a more detailed discussion on the IP Think Tank podcast here).
The Uniloc case related to the software authentication method used in Windows XP and Microsoft Office to reduce piracy. Uniloc sued Microsoft and was successful, to the tune of $388 million USD. Microsoft has vowed to appeal.
The interesting issue raised by both cases is that the technology involved is really starting to look a little tired in any event. The “hack” to add long file names to the FAT32 file system has been replaced in most modern operating systems and isn’t really needed by many of the devices which use FAT32 for convenience. The authentication system used by Windows XP and Office hasn’t proved out to be a sustainable defence against piracy either, more an inconvenience to end-users.
With that in mind, how does the value of a software patent change over the course of its life? Are these two high profile examples of a much shorter practical shelf-life for software patents compared to other fields of invention? Is the field of innovation even relevant, or is it more to do with the invention itself?
For example, in most other fields, the patentee has an eye both to the past (for existing infringers), but also to the future (potential licensees). Whereas software patents, it’s far more likely that focus is heavily slanted towards the past – by the time a definitive statement as to the patents validity is handed down, it’s far less likely that the technology will still be desirable (even if it does, at one time, become a standard).
So when then is the optimal time to reach out and propose licensing arrangements to third parties? Does it mean that getting a licence while the technology is still hot but before you’ve got a judgement is preferable to waiting until you’ve got a big stick but nobody to wave it at? What happens if you wait, but you’re never successful – it might be better to have settled for a lesser licence fee during the uncertain times than wait for a larger fee on the basis that the patent survives challenge. Perhaps there isn’t any simple rule at all – every case needs to be considered on its own merits.
What do you think?
(Photo credit: Jayel Aheram)
4 Comments on “When is the right time to settle?”
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Ben:
I am not sure I see the issue as one of when to settle, but of when to sue or whe to be ready to sue. This should be handled by the IP owner as any other market analysis–when is the right time to enter the IP enforcement market?
In some circumstances, it may be appropriate to sit back and let the market, and attendant infringement, develop. Moving too early can result in the putative infringer changing its product to avoid infringement, thus leading to lower potential infringement damages and, as a result, smaller settlements. In the States, an IP owner can sit on the sidelines and let damages acrue for up to 6 years with no downside. Thus, the IP Owner can watch the market develop and damage acrue, thereby making it more financially lucrative to bring suit (and possibly force an earlier settlement).
Other circumstances could point to engaging with the putative infringer(s) early to get them to choose the IP owner’s technology for use. This scenario presents itself when there is an emerging market, and technology pathways are still emerging. Others may wish to acquire access to IP to provide them a proprietary interest where they otherwise may not have one.
Certainly other scenarios exist in addition to the 2 set forth above.
The key to successful decisions on whether/when to sue or engaging in licensing talks with another entity is understanding the market forces and economic factors that exist in the relevant technology space. All too often, IP owners look at their patents as a legal right that needs to be avenged, as opposed to an asset must be fully understood before being suitably exploited. I think that IP owners, whether in the software space or otherwise, would be well-served by stepping back from the IP issues (and leave their lawyers out of the picture–at least initially), to engage in a market-based analysis prior to making any decision on how to extract value from their IP rights.
Ben:
I am not sure I see the issue as one of when to settle, but of when to sue or whe to be ready to sue. This should be handled by the IP owner as any other market analysis–when is the right time to enter the IP enforcement market?
In some circumstances, it may be appropriate to sit back and let the market, and attendant infringement, develop. Moving too early can result in the putative infringer changing its product to avoid infringement, thus leading to lower potential infringement damages and, as a result, smaller settlements. In the States, an IP owner can sit on the sidelines and let damages acrue for up to 6 years with no downside. Thus, the IP Owner can watch the market develop and damage acrue, thereby making it more financially lucrative to bring suit (and possibly force an earlier settlement).
Other circumstances could point to engaging with the putative infringer(s) early to get them to choose the IP owner’s technology for use. This scenario presents itself when there is an emerging market, and technology pathways are still emerging. Others may wish to acquire access to IP to provide them a proprietary interest where they otherwise may not have one.
Certainly other scenarios exist in addition to the 2 set forth above.
The key to successful decisions on whether/when to sue or engaging in licensing talks with another entity is understanding the market forces and economic factors that exist in the relevant technology space. All too often, IP owners look at their patents as a legal right that needs to be avenged, as opposed to an asset must be fully understood before being suitably exploited. I think that IP owners, whether in the software space or otherwise, would be well-served by stepping back from the IP issues (and leave their lawyers out of the picture–at least initially), to engage in a market-based analysis prior to making any decision on how to extract value from their IP rights.
Hi Jackie
All good points. I think we both come to the same conclusion: context (or terrain) is everything.
Hi Jackie
All good points. I think we both come to the same conclusion: context (or terrain) is everything.