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So You’ve Been Accused of Patent Infringement…

Date: July 07, 2012

Uh-oh. You just got a nasty letter from a nasty attorney claiming that your product infringes his client’s patent. They want you to stop selling the product and give up information about your supplier, past sales and present inventory. What should you do? This is an increasingly common problem for businesses these days. This article is intended to set forth a framework for a small or medium-sized business to use in responding to a “nasty-gram” asserting patent infringement.

Pass it On to Someone Else
First, try to pass the buck. Contact your supplier and ask for indemnification. That is, ask the supplier for written assurance that it will hire attorneys to defend you if there is a lawsuit, and that it will pay any judgment that may arise from a patent infringement action. If the supplier thinks that you and its other customers will be scared off by potential litigation, it may be motivated to come in and indemnify you. If the supplier agrees, then your problems are solved, and you can continue to sell the product. If the supplier doesn’t agree to indemnify you, or if you are the supplier, then you’ve still got an issue.

Evaluate the Threat
If you can’t pass the buck, the next step is to evaluate the credibility of the threat. Does the patent holder really have the resources and the will to bring a lawsuit? Most threats should be taken seriously, but some allegations of infringement carry less weight (I have seen handwritten letters from inventors who weren’t represented by counsel -- not much threat there). If you don’t think there is a chance of litigation, you shouldn’t respond. There is no point in expending resources to counter a minimal threat.

Is It Worth It?
If you think there is a credible threat, the next question to ask is whether the accused product is profitable. If it is not a moneymaker, it may be best to discontinue sales and avoid the expense and distraction of responding to accusations of patent infringement. Why fight over a loser?

If the accused item is profitable and you don’t want to stop selling it, you should consult with a patent attorney. You should not consult a general litigation attorney. Patent law is too complex for an attorney who doesn’t practice in the field. You should first ask your attorney for a verbal opinion as to whether or not you infringe the patent. This is a bit more complex than it sounds as it requires close examination of both the patent and the record of the patent application kept by the Patent and Trademark Office. The cost of obtaining such an opinion will vary with the complexity of the patent, but is typically in the range of $5,000-$10,000. If the patent attorney indicates that you don’t infringe the patent, have the attorney put the opinion in writing and continue to sell the product. The cost of the written opinion will be an additional $5,000-$10,000.

Is the Patent Valid?
If it looks like you do infringe the patent, it is problematic, but not necessarily fatal. The patent may not be valid. Have your patent attorney search the prior art for patents or other references that existed before the patent was filed and render a verbal opinion as to the validity of the patent. (There are reasons other than the prior art why a patent may be invalid, but a proper discussion would require a book, not an article.) Evaluating the validity of a patent is a complex task and will cost in the range of $10,000-$15,000. If the patent attorney concludes that the patent is invalid, obtain a written opinion and keep selling the product. Having the attorney draft the invalidity opinion will cost an additional $5,000-$10,000.

If You’re Wrong, Admit It
If it looks like the patent is both valid and infringed, you should stop selling the product unless the patent holder is willing to license its patent to you. The patent holder has no obligation to license its patent but may be willing to do so to generate revenue. Royalty rates vary widely, but a license fee of ten percent of the value of the selling price of the product would be typical.

Stand Up for Yourself
If you are convinced that the asserted patent is not infringed or is invalid, but the patent holder persists in alleging infringement, you may be forced to litigate. Patent litigation has the following disadvantages: it is expensive, it is expensive and it is expensive. A patent infringement suit that goes all the way to trial will cost each party legal fees in the range of $500,000-$2 million. But if the product is a profitable one, and your legal position is strong, you should stand tall and fight. If your position is sound, and you indicate a willingness to defend vigorously against any allegations of infringement, the patent holder may lose confidence and drop his claims against you.

Allegations of patent infringement have become common in the business world. When an allegation is leveled against you, decide if it is worth fighting and if you are likely to come out on top. If it is, and you are, then fight like a tiger.

This article should not be taken as legal advice. Before acting, always consult your own attorney.


Michael G. McManus is a patent attorney with the law firm of Adduci, Mastriani & Schaumberg, LLP in Washington, D.C.  He may be contacted at mcmanus@adduci.com.

 

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