Message: Time & Sales - Wednesday 5/26/2010 Vol 332,450 Closed at .092
There are many variables involved. They include the region in which you initiate action and the size of damages at risk, According to AIPLA, the average patent infringement litigation for a case with less than $1m in damages cost $350k to get through discovery and a total of $600k to get to a jury decision. With more than $25m at risk, those figures jump to $3m through discovery and $5m for a jury decision. There is a good deal of financial information in this resource, the Report of the Economic Survey, 2007, published by AIPLA and can be procured through the linked site.
Settlement numbers are harder to come by because most settlements are kept confidential. Settlement before discovery begins will also, likely, differ from settlement at the end of discovery, but on the eve of trial. Reliable numbers for 'percentage of patent litigations in which a defendant actually has to pay settlement to the patent owner' do not exist, to my knowledge.
Some factors to consider when estimating a settlement number would include: 1) reasonable royalty costs if a the infringing product were made under license; 2) damages to the patent owner through sales lost to the infringer (1 and 2 are considered 'actual damages'); 3) likelihood of proving infringement; 4) likelihood of proving willful or intentional infringement (which can be used to double or triple actual damages); 5) legal fees paid to date; and 6) likelihood the other party(ies) will stick it out through trial.
While it doesn't get this easy, if a defendant thinks it has a 50% chance of having to pay $1m in damages (calculated through 1-4 above), that possibility has a value of $500k. If it is going to cost you $600k to find out if you are liable for that damage award, it might be a good idea to settle for anything up to $1.1m (cost of litigation plus the cost of a decision times the odds of seeing it). At the same time, if a plaintiff thinks it has an 50% chance of prevailing for $1m, then a decision has a value of $500k and the cost of finding out is $600k, putting the plaintiff in a likely net loss situation where they'd be better off walking away. Unfortunately, the Plaintiff sees the Defendant should settle for $1m and the Defendant sees the Plaintiff should walk away and litigation proceeds. More often than not, though, the price to fight makes any award of less than $1m unworthy of litigation.
Same scenario, same odds, $25m purse and $5m to get a decision. Now, the Defendant should be willing to settle for up to 50% of $25m ($12.5m) plus the cost of litigation ($17.5m total) and the Plaintiff should settle for $7.5m ($12.5m - cost of litigation). Again, there is a lot of room for negotiating and anything inside of this $10m window should be a win-win. In this case the Plaintiff is far less likely to walk away from the dispute (assuming both sides can afford litigation), which may be more likely to bring both sides to the table and negotiate earlier on in the process.
What makes this whole process more complicated is calculating likelihood of victory, damages, likelihood of showing willfulness, etc. is difficult and subjective. Both parties may operate with more optimistic forecasts that shrink that negotiating window and causes misunderstandings in trying to understand their opponents' positions.
Probably more of a tangent than you were looking for, but hopefully it offers a glimmer of why we say 'it depends' and a shade of on what it depends.
Settlement numbers are harder to come by because most settlements are kept confidential. Settlement before discovery begins will also, likely, differ from settlement at the end of discovery, but on the eve of trial. Reliable numbers for 'percentage of patent litigations in which a defendant actually has to pay settlement to the patent owner' do not exist, to my knowledge.
Some factors to consider when estimating a settlement number would include: 1) reasonable royalty costs if a the infringing product were made under license; 2) damages to the patent owner through sales lost to the infringer (1 and 2 are considered 'actual damages'); 3) likelihood of proving infringement; 4) likelihood of proving willful or intentional infringement (which can be used to double or triple actual damages); 5) legal fees paid to date; and 6) likelihood the other party(ies) will stick it out through trial.
While it doesn't get this easy, if a defendant thinks it has a 50% chance of having to pay $1m in damages (calculated through 1-4 above), that possibility has a value of $500k. If it is going to cost you $600k to find out if you are liable for that damage award, it might be a good idea to settle for anything up to $1.1m (cost of litigation plus the cost of a decision times the odds of seeing it). At the same time, if a plaintiff thinks it has an 50% chance of prevailing for $1m, then a decision has a value of $500k and the cost of finding out is $600k, putting the plaintiff in a likely net loss situation where they'd be better off walking away. Unfortunately, the Plaintiff sees the Defendant should settle for $1m and the Defendant sees the Plaintiff should walk away and litigation proceeds. More often than not, though, the price to fight makes any award of less than $1m unworthy of litigation.
Same scenario, same odds, $25m purse and $5m to get a decision. Now, the Defendant should be willing to settle for up to 50% of $25m ($12.5m) plus the cost of litigation ($17.5m total) and the Plaintiff should settle for $7.5m ($12.5m - cost of litigation). Again, there is a lot of room for negotiating and anything inside of this $10m window should be a win-win. In this case the Plaintiff is far less likely to walk away from the dispute (assuming both sides can afford litigation), which may be more likely to bring both sides to the table and negotiate earlier on in the process.
What makes this whole process more complicated is calculating likelihood of victory, damages, likelihood of showing willfulness, etc. is difficult and subjective. Both parties may operate with more optimistic forecasts that shrink that negotiating window and causes misunderstandings in trying to understand their opponents' positions.
Probably more of a tangent than you were looking for, but hopefully it offers a glimmer of why we say 'it depends' and a shade of on what it depends.
from law weblog
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