In quantitative terms, the number of patent applications filed in the United States over the past 15 years has increased at a compound annual growth rate of about 3.5 percent, according to a recent Pricewaterhouse Coopers study, while the number of patent infringement lawsuits filed in the U.S. has increased at a compound annual growth rate of about 4.8 percent (i.e. such that it is more than 100% greater now). The annual median damages award in these cases has remained the same over this period at an inflation-adjusted $5.2 million, according to the same study. The ten largest awards in the period, before appeal or other adjustment, ranged from $250 million to $1.85 billion.

More than 95% of patent infringement cases settle before trial, and the range of settlement payments varies widely based on the exposure in each case. The cost of defense of patent cases is a prominent feature in companies’ analysis of whether and when to settle. Every other year, the American Intellectual Property Law Association – one of the largest bar associations of its kind – conducts a survey of its members regarding litigation costs (among other things). The 2009 survey reports that the median cost to fight a patent infringement case involving a single patent, where between $1 million and $25 million was at stake, was $1.5 million up until trial and $2.5 million through trial. The costs were significantly higher on the coasts and in plaintiff-friendly Texas. These costs, obviously, create a strong incentive to settle even a weak case, and some companies have made a business of exploiting this economic reality.

Agencies now routinely produce digital work product that includes software to perform functions to hold viewers’ attention or to enable advertising to be presented. Recent patent infringement cases provide some examples of the types of marketing functions that have been involved in patent disputes. A company called GeoTag Inc. filed several patent infringement cases last year against a total of nearly 400 companies. GeoTag appears to claim that a patent it owns is necessary to enable geo-location of mobile devices (and feeding information and advertising to those devices). The defendants include dozens of household names, from Boeing to Nike to Taco Bell. A company called Denizen LLC filed a patent case last year against WPP Group, J. Walter Thompson, NBC, and others alleging that they infringe a patent directed to “program-integrated commercials,” a form of product-placement advertising. And a company called PixFusion LLC has filed several suits over the past few years alleging that companies like American Express, Mattel, and Toyota infringe its patents relating to online digital manipulation of uploaded photographs; PixFusion first made news in 2007 suing OfficeMax and its agency Toy to stop their “Elf Yourself” campaign. Agencies design some of these types of software themselves, and in other cases, they may license software and tools from third parties in order to embed them in agency work-product.

...patent plaintiffs are likely to sue the companies that make (unauthorized) commercial use of their inventions, and those companies are likely to be the clients of agencies rather than the agencies themselves. The 4As Patent Survey conducted in March 2010 reported that, while only 19% of 4As members participating in the survey had been party to a patent litigation, some 60% of participants had received a notice from a client indicating that the client was sued for patent infringement relating to the work performed by the participant. This, of course, can be highly disruptive or damaging to agencies’ relationships with their clients.

From Brooks