Avoiding infringement Featured

8:00pm EDT July 26, 2008

Perhaps one of the more daunting risks businesses face in today’s competitive environment is the threat of intellectual property (IP) litigation. IP litigation involves patent, trademark, copyright and/or trade secret rights. There are numerous issues that may be the subject of IP litigation, including ownership, infringement, breaches of contracts, enforcement of licenses and the like. Some of the risks posed by IP litigation include being unprepared to enter litigation and the potential for court-ordered damage awards or injunctions.

Smart Business learned from Michael J. Powell, a shareholder with Baker, Donelson, Bearman, Caldwell & Berkowitz, PC, what businesses should know to minimize the risks of intellectual property litigation.

Why must companies be proactive about intellectual property protection?

The best defense is often a good offense. Every business has IP rights and should invest reasonably in protecting them. Inventions should be patented; trademarks, service marks and copyrights should be registered; and trade secrets should be guarded.

Competitors take note of others’ IP portfolios, given the public information available through the United States Patent & Trademark Office and the Library of Congress. Often, the very existence of a patent or a trademark registration is enough to dissuade a would-be litigant from filing suit for fear of potential counterclaims. If suit is filed, the IP rights you have protected may form the basis for counterclaims against the plaintiff, which can help level the playing field in IP litigation and provide strategic advantages that enable you to control at least some of the litigation.

Proactive actions, such as conducting clearance or patentability searches prior to rolling out a new product or mark, may reveal activities of competitors — the knowledge of which may provide an advantage in IP litigation or in the marketplace.

How can business owners be prepared in case litigation arises?

Business owners can prepare for litigation by managing evidence under their control. An increasingly important source of evidence in federal and state litigation is electronically stored information (ESI). The process of handling and collecting ESI during litigation is referred to as electronic discovery. Businesses should manage their ESI well ahead of litigation by implementing document retention plans. Also, in-house litigation response teams, including IT professionals and legal professionals, can be prepared to respond quickly in the event of litigation. If businesses plan appropriately, litigation costs and the risks of adverse consequences for lost or destroyed ESI, such as spoliation charges or sanctions, should be minimized.

What are some specific risks businesses should know about?

Willful infringement: Defendants in intellectual property litigation are often at risk that a court might award a plaintiff enhanced or increased damages due to infringement caused by willful or reckless conduct.

Clearance searching is recommended to show one’s diligence in trying to avoid any infringement prior to a product or trademark being introduced into a marketplace. Where there is a potential for infringement or an intellectual property owner is known to be particularly litigious, it is advisable for a company to obtain a noninfringement opinion from intellectual property counsel before engaging in the potentially infringing activity.

Note that some companies assume incorrectly that because they are seeking or have obtained patent protection for an invention, a product subsequently marketed or sold is clear of infringement. This is an incorrect assumption and can be quite costly to companies. What is patentable, if made or sold, may infringe another’s patent.

Trolls (and leprechauns): We are increasingly seeing IP litigation initiated not by competitors but by purchasers of IP rights. These are not traditional businesses that provide products or services to customers. Instead, such businesses are based on leveraging the IP they have purchased for royalties or other payments from defendants who they believe will not be able to withstand the costs of complex IP litigation or are more likely to settle. We refer affectionately to these types of plaintiffs as ‘trolls’ or ‘leprechauns.’

Commonly, IP trolls are not litigating to redress any legitimate damage they have suffered, but their rights in IP can be legitimate. Factors to consider in setting litigation strategy against trolls include an assessment of the IP rights allegedly owned by the troll, strengths and weaknesses of the case (both substantive and procedural), the likelihood of a successful outcome in litigation, the costs of litigation versus settlement and the likelihood of any precedent being set by any settlement (which can set a company up as a target for subsequent trolls).

Why should businesses make minimizing the risk of this type of litigation a priority?

Due to the significant amount of work involved in prosecuting or defending IP litigation, costs of IP litigation are among the highest litigation costs in the U.S. Being proactive in protecting your IP, planning ahead for electronic discovery issues, responding appropriately to trolls (and leprechauns), and setting a solid litigation strategy will help control costs and minimize the potential for exorbitant damages being awarded.

MICHAEL J. POWELL is a registered patent attorney and an intellectual property litigator. He has handled intellectual property litigation in many federal jurisdictions in the United States and in several foreign jurisdictions. Reach him at (678) 406-8707 or mpowell@bakerdonelson.com.