Monday, July 31, 2006

Boston Scientific Settles With St. Jude -- or why Medical Device Litigation is Like the Battle of Verdun

The Battle of Verdun was the longest battle of WWI -- 10 months long -- and the second bloodiest -- 250,000 killed and 500,000 wounded. The German general, Erich von Falkenhayn, believed that he could defeat the French if they suffered enough casualties. He planned to attack a position from which the French could not retreat and fight a battle of attrition. After massive artillery fire and the use of poison gas, the battle ended with the German army being forced back to its starting position, with both the French general and the German commander long having since been sacked.

I was reminded of this battle when I saw, in the Minneapolis Star Tribune, that medical device giants Boston Scientific and St. Jude have finally decided to stop the biggest waste of corporate resources - one case going back to 1996 - and the greatest goldmine for patent litigators since Lemelson invented the submarine patent. Famous for spending more time and money suing each other than inventing pacemakers, and, with their interlocking series of cross-country battles, basically fighting each other to a standstill, someone clearly finally got some sense.

Now, this blog is dedicated to the economic utilization of patents. And I'm never one to shy away from a good fight. But this particular sumo match did nothing for competition or innovation, as far as I can tell, and benefited no one but the lawyers.

Friday, July 28, 2006

Launching a Successful Patent Licensing Campaign After eBay v. MercExchange

The clever combatant imposes his will on the enemy, but does not allow the enemy's will to be imposed on him.

Sun Tzu – The Art of War

The epic battle between Research in Motion, makers of the Blackberry, and NTP, owners of a patent which covered that product, ended when the trial judge, wielding the threat of an injunction which could have shut down the Blackberry email system, forced RIM to settle. The pressure which the judge was able to impose –an injunction -- would virtually have put the company out of business -- forced RIM into a settlement of over $600 million, even though it had already persuaded the US Patent Office to reject two of the patents NTP had asserted in the litigation.

A sea change in the relative bargaining positions of patent owner and target occurred when the United States Supreme Court decided eBay v. MercExchange. In that case, the court reversed long-standing precedent holding that a patentholder was automatically entitled to a permanent injunction after winning at trial and gave trial judges the discretion to decide whether a patent owner has suffered “irreparable harm” sufficient to warrant an injunction. Indeed, the first district court to consider this issue – the normally plaintiff-friendly Eastern District of Texas – denied a plaintiff an injunction to prevent Microsoft from using infringing “product activiation” software.

This may prove a difficult burden to meet where a patent owner’s primary current asset is its patent portfolio or where the patent owner has not begun selling products in substantial quantities. Indeed, it may prove difficult for a patentholder to obtain an injunction where the patent owner and the infringer do not compete.

The question, for companies seeking to license their inventions, is how to effectively persuade infringers to take a license to their patents when the threat of an injunction has been dramatically lessened. The answer is for patentees to intelligently select targets who pose the greatest competitive threat – 1) those who are, or will be, in the same market niche as the patentholder or 2) those who can, in some manner, interfere with the patent owner’s ability to compete.

With a significantly lessened injunction threat, a patentholder must be even smarter in order to snag potential licensees. A patent owner must not only be vigilant in identifying potential infringers, it should be careful to avoid sending “invitations to license” to every company in an industry without investigating whether the potential target actually uses the patented technology. These letters are usually ignored – costing the patentholder time, effort and energy. After all, a months-long delay in licensing a patent will not impress the next target and in-house attorneys do talk to each other.

The better strategy, now that the threat of an injunction is less credible, is to do a comprehensive analysis, before sending out any letters, of which targets are the most likely to be economically threatened by your patent portfolio and which pose the greatest competitive threat to you. After the targets have been approached, the initial inquiries should be followed up aggressively – the potential infringer should know that you are serious and that you will take action if your initial inquiries are ignored or rejected. Infringers of your patents should know that for them, despite the eBay decision, there are still consequences – including the real threat of an injunction – of failing to take a license to your patents.

Monday, July 24, 2006

Massachusetts Pair Teams With Intellectual Ventures

A former TV producer and a former sculptor have teamed up with Nathan Myhrvold's Intellectual Ventures -- widely rumored as a developing patent troll -- to "churn out" inventions for IV's portfolio. According to the Berkshire Eagle, so far, the Pittsfield, MA pair have developed

New ways for parents to control video game play.

A way to address the lack of drinkable water in many parts of Africa.

A device that stores and analyzes data and predicts outcomes for Major League Baseball teams. (Fein is a huge Red Sox fan. "I was never good enough to help them on the field, but this idea is a way I can help them win games.")

A new technology for more efficient harnessing of wind power.

Mhyrvold appears to be holding fast to his vision of developing a patent portfolio through working with inventors over the long term, rather than the
typical troll pattern of of simply acquiring patents for the sake of lawsuits.

Friday, July 21, 2006

Boston Communications Settles Case With Freedom Wireless

After being hit with a $128 million verdict by a Boston jury last year, prepaid wireless company Boston Communications settled its patent infringement action today against Phoenix-based Freedom Wireless, a tiny company founded by inventors Douglas Fougnies and Dan Harned, allows customers making prepaid calls to avoid dialing identification codes or calling toll-free numbers. The large verdict exceeded Boston Communications revenues and had threatened to
send the company into bankruptcy.

One unusual facet of the case, reported last year in The Recorder
was that Freedom Wireless was represented on a continency basis by Los Angeles litigation powerhouse Quinn Emmanuel.

The case had already proven extremely expensive for the 400-employee Boston Communication, which had already expended over $15 million in legal fees by October 2004.