Defensive Ammunition Against Infringement Suits

Note: this is a continuing series of posts looking at specific patent strategies in various business scenarios.

Patents may serve as defensive ammunition in the event of an infringement suit. Many large companies, especially in technology fields, use their patent portfolios in this manner. In this strategy, a company may amass a quantity of patents that may be used in the event of being sued by a competitor. In essence, the patents become bargaining chips that are played after a competitor sues for infringement or anything else for that matter.

This strategy plays out overtly and in a much quieter way. In both ways, this strategy is very effective.

In an example, a first company may get sued for infringing a second company’s patent. As a negotiation tactic, the first company may search through its patent portfolio to find one or more patents that the second company may be infringing. The first company may counter-sue for infringement of its own patents and force the second company into settling quickly.

In some cases, the negotiations between two competitors may be performed before actually filing suit against each other. Without being too cynical, the first company measures the height of their stack of patents against the stack of the second company and whoever has the smallest stack pays the other. These types of cross license agreements are formally done between many large and small technology companies.

A patent portfolio also serves as a very stealthy deterrent to patent suits. Before a suit is brought, a potential enforcer must weigh the possibility of a countersuit. The silent but powerful threat of a countersuit may prevent many lawsuits from even coming to fruition, thus protecting the patent owner without his/her knowledge. This is also known as a ‘silent cross license agreement.’

One other use for a patent portfolio is to license a portion of the portfolio as a response or settlement of any other type of negotiation or lawsuit. A valid patent in a business area which the patent owner does not wish to pursue has no business value to the owner, but may have tremendous value to someone else. By licensing these unused patents, something of value may be given or negotiated away without affecting cash flow in any negative way.

These strategies are employed by companies willing to invest a good bit of money to develop the patent portfolio, but can be very effective for small companies who may have 3 to 5 patents. For a small company, one or more of the patents in the portfolio may be directed toward a technology that a company is not interested in pursuing, but may have value to a third party. The small company may attempt to get some patents that may be readily infringed by a larger or more aggressive competitor.

In developing a patent portfolio for even a small company, it is a good idea to look for patentable ideas that are specifically directed at things likely to be infringed by specific competitors, or ideas that have value but would not be harmful to the company if they were bartered away in exchange for settling a lawsuit or in exchange for something else.