Patent-infringement suits hold steady during recession

It’s just like people with a lot of real property that’s sitting around,” said George Lewis, an attorney in the Denver office of Merchant & Gould PC, an intellectual property law firm. “In a downturn they might look at those different pieces of property and say, ‘Hey, how can I make money off this thing? Can I sell it, can I lease it, can I do something with it?’ It’s exactly the same in patent law. People pull out all these patents that they paid a ton of money for ... and ask ‘how are we going to make these assets perform for us?’”

Patent-infringement cases can drive an already weakened competitor out of the market, helping a company strengthen or maintain its hold while waiting for the economy to improve.

“This is a very good time for that sort of strategic exercise of your intellectual property rights, to consolidate your hold in a specific product segment or a specific area,” Lewis said. “If you’ve got somebody you’re thinking about acquiring, and you use your intellectual property essentially to say, ‘Look, either let me buy you or we will make it so you won’t make money,’ it ends up being a pretty easy decision.”

But there is a downside: cost. A patent-infringement lawsuit can easily cost hundreds of thousands or even millions of dollars before it’s over, which is why the vast majority of them are settled before trial.

And you don’t always win. For instance, Broomfield-based Level 3 Communications Inc. recently lost a patent-infringement suit it brought against Limelight Networks Inc. According to Level 3, Limelight was unfairly using technology on which Level 3 owned patents, thanks to the Broomfield company’s acquisition of Savvis Inc.’s content delivery networking business in 2007. But in January, a jury said Limelight wasn’t infringing on the patents.

Moreover, a 2007 Federal Circuit ruling has made it easier for companies that receive an offer to buy a license for technology they’re already using — often the preliminary, “friendly” first step in the road toward a lawsuit — to countersue for a declaratory judgment on whether they’re infringing. That means that a patent-holder risks becoming entangled in a lawsuit merely by warning off competitors.

“There is nothing more fabulously expensive, except perhaps the economic stimulus package, than [IP] litigation,” said Charles Luce, an attorney and chair of the intellectual property group at Moye White LLP in Denver. “So you would think that in tight economic times, unless you’ve got a case that is operating on a contingency basis, that litigation would go down and not up.”

But he said he hadn’t noticed much difference in the amount of litigation being filed, despite the year-old U.S. recession and the stock market crash in 2008.

“I haven’t seen much of an uptick, but I also haven’t noticed much of a drop,” Luce said.

Last year, 35 patent-litigation cases were filed in U.S. District Court for the District of Colorado, one more than in 2007, according to Stanford Law School’s IP Litigation Clearinghouse, which tracks new filings. Nationwide, patent litigation cases fell 3.6 percent in 2007, to 2,776.

“I haven’t perceived an increase in filing,” said Lee Osman, head of the patent department for Dorsey & Whitney LLP in Denver. But it’s true that in the past, economic downturns have been seen as a good time to push back against infringement, he said.

“If the competitor is having a difficult time economically, they’re probably not going to fight as hard in defending against an infringement claim,” Osman said. “But the fact of the matter is that our clients, along with everyone else in this economic time, are suffering a bit and have to make difficult decisions on how to spend their reduced resources.”

Nevertheless, in the past few months, Dorsey & Whitney has expanded its Denver office patent group by 30 percent, from 13 to 19 attorneys and patent agents, to handle an increased workload, Osman said. The growth of the Rocky Mountain region as a hub for “clean” technology, aerospace, biotechnology, computer technology and telecommunications has led to more work for Dorsey’s Denver office, he said.