BAB III: When to use litigation as a business strategy?

31 May

BAB III: When to use litigation as a business strategy?

 

 

Understanding and making money

Out of your Intellectual Property

 

by YOHANES DJINGGA

Faculty of Law UGM

Faculty of Law Queen Mary University of London

4. When to use litigation as a business strategy?

There are several strategic influences for businesses to use litigation as part of an IP commercialization strategy. The litigation strategies are typically employed as a last resort when other commercial options has been exhausted by a party.

 

(a) Litigation as a counterclaim against a competition

More often than not, most smart phone companies are involved in litigation with one another. Take Apple and Samsung as an example, where the former filed for claims against an infringement on their IPRs, and the later filed a counterclaim for infringement on other IPRs used by the former.[1]

 

This strategy is generally beneficial when a business wants an opponent to exit the market and the capacity to do so. For small enterprises, the ability to file a counter claim may bring about a much larger benefit. Since the damages brought by a plaintiff is based on the loss of sales caused, being a small business hence lower sales, by the infringement, when filing a counterclaim, a small business may be able to win more than it can lose. Especially in situations where the small defendants has a credible counterclaim against a larger plaintiff.[2]

 

(b) As a business model

Companies with the business model of threatening to sue is otherwise known as a patent assertion entity. These businesses purchase patents to make money by licensing the patents to  third parties, often after suing or threatening to sue, the third parties for infringement of the patents.[3]

 

Evident in the case between Apple and VirnetX, where the later, a patent assertion entity, was able to win claims against the former for infringing their patents. To the point that the damages awarded by the court amounted nearly to $440 Million.

 

Despite not necessarily being a patent troll, Apple has also been on the asserting side. In a case against HTC, Apple was able to win a litigation on the grounds of infringement for one of the patents they own. Following such decision, the two ended up in a global patent licence and settlement agreement in exchange for the termination of all investigation and end all litigation between the parties.[4]

 

(c) To establish a reputation

It is important to understand that litigation in courts creates precedents, where these precedence will be used to adjudicate similarly on similar claims. Hence, having the upper hand of winning a claim for infringement or validity will bring about a strong reputation for the said IP. As the court has adjudicated as such. Which will lead to potential infringers rethinking their action beforehand. At the same time, this will also help the businesses avoid patent trolls from trying to file against an infringement of their patents.

 

Cases concerning as such can be seen in trademark cases, an example would be the case of Louis Vuitton, where a restaurant in South Korea used the name Louis Vuitton Dak and was deemed too similar to Louis Vuitton. In addition to the name infringement, the restaurant’s logo and packaging closely mirrored the designer’s iconic imagery.[5]

 

Similarly, 3M brought cases against Changzhou Huawei Advanced Material Co Ltd for the use of “3N”, it was ruled that, despite some dissimilarities in products and pricing, the notoriety of the 3M mark and the fact that 3N had managed to acquire clients and market share by use of the similar mark constituted infringement.[6]

 

These are brand reputations that are strong to begin with, and might essentially win every infringement of their IP (trademark).

 

(d) Other Factors

Aside from the above stipulated factors, there are others that may play a role in deciding the choice of litigation.

1.National Rights

Parties are more inclined to sue in their national courts if they trusts those court to deliver remedies, such as interim remedies, interim injunctions, special types of remedies, search and seizure, or freezing orders, freeze assets of the defendant. These are all established features of the English courts.

2. Specialist courts and judges

They persuade parties to litigate their disputes here. The special courts provides for experience on dealing with these various cases, and ensures fairness, robustness and quality of the judges and of the appellate court from commercial court judgements.

3. Favouring a quick judgment

The German bifurcated patent infringement or validity process helps in expediting patent infringement cases, where different court adjudicates different claims by the plaintiff, which assists in delivering a quick and time efficient judgement.

4. When the parties have negotiated

Where there are no agreement that for arbitration or mediation is favoured, it may be assumed that they parties have opted for using the litigation method.

5. Choice of law and forum

This is important as different forums may favour differently for different claims. This is generally important to determine which forum you want the dispute litigated to be heard and adjudicated.

 

The litigation process is very much evident in the case of Biota v. GSK. Where in the process of commercialization by Biota through licensing to GSK, GSK decreased promotional spending which led to the drop of sales which in turn decreases the royalties that Biota was supposed to obtain. Following such actions, GSK decided to cancel registrations and launches in several countries.

 

To ensure a successful commercialization of Biota’s IPR, they decided to file a claim against GSK on the basis of its failure to use the best endeavours in developing and commercializing the product. Regardless of the outcome of the litigation, this is an important depiction of how an IPR holder should be willing to go the distance in order to ensure that their IPRs are commercialized successfully to realize the financial success of the IP commercialization.

 

However, it is also important to note the dangers when relying too much on litigation as a form of commercialization, as it may be too costly, too long of a process and the need for disclosures and unwanted publicities all plays a significant role in determining whether or not to consider litigation as a commercialization strategy.

 

[1] Johnson, op.cit. p.165.

[2] Ibid p.163.

[3] Ibid. p.313.

[4] Apple v. HTC, case no. 337-TA-710.

[5] Louis Vuitton v. Louis Vuitton Dak.

[6] 3M v. 3N, supreme people’s court of P.R. China.

 

 

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