Wednesday, March 03, 2004 8:04:58 AM
The Economics of Patent Litigation, Part 1
By Samson Vermont
Seventy-six percent of patent suits settle,
but not before each side incurs more than $1
million in direct legal fees and indirect expenses.
And usually what we could have settled for at the
outset is no better or worse than the deal we accept down the road.
So the question arises: if most of us are going to settle anyway, why not do so before incurring the costs?
This appears to be easier to say than to do because in the last five years 11,000 patent suits were filed in the US and more than half remained unresolved after the first 12 months.
Most patent litigants—93.1 percent do not litigate through trial.
The legal fees for the average litigant, who usually settles after discovery, are about $1 million.
Theory and evidence suggest that parties tend to litigate when at least one side is overly optimistic about its case; they tend to settle when their information and expectation converge, i.e., when they both become realistic. When approached conventionally, this convergence comes slowly since each side must first gradually develop a feel for, or a judge’s ruling must indicate, which way the case might go at trial.
Again, one reason for this delay is sheer optimism and bias.For example, IP damage experts say that patent owners often dramatically overestimate the recoverable damages and defendants typically underestimate them.
And litigants are not always disabused of these false
hopes early in the process. Although 85 percent of patent attorneys claim to start valuation of the case before filing, damage experts are hired before filing only about 19 percent of the time.
http://www.hunton.com/pdfs/article/Risk_Reward.pdf.
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