Whether to file a patent infringement lawsuit is ultimately a business decision of company management. When performing the required cost-benefit analysis, management often will rely heavily upon strategic input from in-house counsel.

Recent media reports about enormous jury verdicts often make patent infringement litigation sound like a Wild West free-for-all. But unlike the gunslingers of old, in-house counsel’s approach to these cases must be the very antithesis of shooting first and asking questions later. Fair or unfair, management will expect in-house counsel to accurately handicap the company’s chances of winning, and to forecast the expenses likely to be incurred along the way.

In-house counsel can excel in this role only by recognizing that much of the work in a patent case needs to be performed up front, long before a lawsuit ever is filed.

Answers are required at the very outset to a series of fundamental questions that loom large in predicting the potential outcomes and burdens of patent infringement litigation. Before encouraging their companies to become patent plaintiffs, experienced in-house counsel will oversee a thorough vetting of their cases.

This article briefly describes some of the more important issues that in-house counsel should address on a pre-litigation basis. With large patent cases filed in the Northeast now carrying a median price tag of over $4 million through trial, the prospect of postponing the investigation of these issues until discovery has become far too risky.

How Strong Is Your Infringement Case?

The fact that someone in the marketing department swears that a competitor’s product works just like yours is hardly a sufficient basis for filing a lawsuit. Patent infringement rests not upon similarities between products, but rather upon a comparison between potentially infringing products and the claims language of the patent. There can be no infringement unless every element of an issued patent claim is shown to be present in the accused product.

Usually with the assistance of outside counsel, a pre-litigation infringement analysis involves the preparation of a detailed claim construction chart. First, the meaning of the patent claim must be construed, principally in light of the claim language, the written description of the invention (i.e., the patent specification), the prosecution history, and relevant dictionary definitions.

Second, the accused product, if obtainable, should be inspected, reverse-engineered and/or tested. At the end of counsel’s investigation, a chart should be created comparing the patent claim as construed with the accused product to verify that each and every claim element is present.

Not all types of infringement are created equal. The patent plaintiff will typically have a much stronger case where literal infringement can be established – where each claim element can be literally found in the accused product.

Absent literal infringement, a more murky and uncertain approach is to try to prove infringement under the doctrine of equivalents. That doctrine requires that only “insubstantial differences” exist between the patent claim and the accused product, which often requires proof that the accused product “performs substantially the same function in substantially the same way to obtain the same result” as the patented invention.

Nor are all patent claims created equal. In-house counsel should be especially wary of bringing a plaintiff’s case based only upon older style patent claims using so-called “means-plus-function” language. The courts will interpret such language narrowly so as to limit the patent’s scope to just the embodiments shown in the patent specification.

Finally, not to be underestimated is the potential impact of the patent’s prosecution history – the written record of the application process conducted before the Patent and Trademark Office (the “PTO”). Patent holders may be stuck with the claim construction arguments they made to the PTO as applicants, and be estopped from asserting infringement against subject matter they earlier had disclaimed when trying to get the patent issued.

How Strong Is Your Patent?

To assess potential challenges to a patent’s validity, outside counsel should be directed at the outset to undertake an independent “prior art search.” The goal is to locate any prior art not previously cited to the PTO which arguably might anticipate, or render obvious, the patented invention. Such invalidating prior art could include, for example, other foreign or domestic patents or printed publications, as well as domestic public uses or commercial sales, that predate the application date for the patent-in-suit.

Even a valid patent can be held legally unenforceable if the patent applicant engaged in inequitable conduct in its dealings with the PTO. Consequently, prior to bringing suit, the prosecution history must be scoured for any potential misrepresentations made by the applicant, and counsel should verify that the applicant never knowingly withheld material prior art references from the PTO.

What Are Your Damages?

In cases where your company is pursuing a monetary recovery rather than injunctive relief, an early assessment of potential damages is critical. At least two traps for the unwary can eliminate all past infringement damages. First, under federal statutory law, no pre-suit damages are recoverable unless and until your company began marking its own patented products with the number of the patent-in-suit.

Second, the laches doctrine bars recovery of all pre-suit damages where a patent holder has slept too long on its rights. Where a patent holder has failed to sue, a statutory presumption of laches arises six years after it knew, or reasonably should have known, that a competitor was infringing its patent.

All other things being equal, larger damages awards are usually recoverable in cases where the patent holder is selling products in competition with the accused infringer such that “lost profits” damages can be established. A patent holder active in the marketplace is entitled to the lost profits it theoretically would have made on its market share percentage of the accused infringer’s actual sales.

Where infringing sales exist for which no lost profits can be proven, the patent holder is entitled merely to “reasonable royalty” damages. Based on the conservative estimate that reasonable royalties on a patented feature might fall in the 1 percent to 5 percent range, a case involving only reasonable royalty damages might require infringing sales of hundreds of millions of dollars before it becomes economically justified to pursue.

Do The Intangibles Favor Your Case?

Moving beyond the technicalities of patent law, experience also teaches that certain important intangible factors should be assessed on a pre-litigation basis. As a practical consideration, are the personnel that you will need to rely upon as witnesses – the inventor and other key employees from the engineering, marketing, sales, and production departments – still with the company and friendly to your cause? Will they make sympathetic and articulate trial witnesses?

More generally, what kind of jury appeal is your case likely to have? Research has shown that jurors frequently are swayed by legally irrelevant considerations rooted in their emotions and preconceived notions about right and wrong.

At least on paper, a jury’s ideal patent plaintiff would be a small company (or individual inventor) that has invested a great deal of time and effort in developing its own groundbreaking invention which has become both scientifically important and commercially successful. A jury’s least favorite defendant would be a large multinational corporation – especially one lacking its own patents and history of independent development efforts – that was unsuccessful in the marketplace until the day it first copied the plaintiff’s invention. The farther your case departs from this ideal fact pattern, the harder it may sometimes be to prevail.

What Are Your Costs Of Suit?

Any decision to file suit should be preceded by working out a detailed budget with outside counsel addressing the overall costs of litigation. As previously noted, large patent cases in the Northeast now have a median price tag of over $4 million through trial. How your case will compare with this median figure often depends upon the anticipated extent of discovery, the types of consulting and testifying experts that will be required, and the question of whether your targeted defendant has a patent portfolio of its own to throw back at your company by way of counterclaims.

As a cost savings strategy, patent plaintiffs are increasingly turning to contingency fee arrangements where the high risks and potentially huge payoffs of infringement cases are shared with their attorneys. The possible permutations of these arrangements – including hybrid combinations of hourly rate fees and contingency fees – are as limitless as the parties’ imaginations. But even where the patent plaintiff is getting a free ride on its attorneys’ fees, the substantial human costs of litigation will still remain, since the need for cooperation and extensive involvement from company employees and executives is unavoidable.

Marc Henscke and David Marder are attorneys in the Boston office of Robins, Kaplan, Miller & Ciresi LLP with 25 years experience litigating IP and other complex business cases. In addition to their standard hourly rate work, Messrs. Henschke and Marder frequently handle high-stakes damages cases on a contingency or alternative fee basis.