Tag Archives: litigation

Enforcing Your Patent Without Litigation

By William H. Honaker
1 Comment

Patent litigation can be costly; the median cost can be more than $3 million. Even as the owner of a patent, you should explore all options before deciding to file an infringement suit. Litigation should be your last resort, even if your lawyer is convinced you can win. Winning a patent lawsuit is not likely your true goal. Remind your confident lawyer that the stronger your case, the greater your options.

Patent litigation is expensive and distracting for everyone. The expense is astronomical. A recent survey by the American Intellectual Property Law Association, “2017 Report of the Economic Survey,” stated that the median cost to litigate a patent case is $3,000,000. In addition to the out-of-pocket costs, there are the distractions that keep you from running your business. Patent litigation means years of endless meetings, depositions, document productions, and days in court.

William H. Honaker, member and attorney at Dickson Wright

Patent litigation is also uncertain. Like my 92-year-old father who recently was cut off on the highway. He chased down the young guy at a red light, jumped out and pounded on the guy’s window, and said. “ONE of us is getting his ASS kicked.” Patent litigation is the same; someone is getting their ass kicked. Many surprises can develop in a patent case leaving the outcome a question.

As cannabis-related businesses grow and enter the business main stream, patent litigation will increase. More businesses will get patents. Patents are valuable to businesses: they protect margins, protect market share and increase the asset value of the business. They do this by preventing competition.

The winds of change are blowing, as I read the article by Walters, G. “What a Looming Patent War Could Mean for the Future of the Marijuana Industry.” The article referenced United States Patent No. 9,095,554, stating:

“On August 4, 2015, US officials quietly made history by approving the first-ever patent for a plant containing significant amounts of THC, the main psychoactive ingredient in marijuana, according to the patent’s holders, their lawyers, and outside experts in intellectual property law.”

At first, this made me acutely aware that we are on the threshold of a brave new world, where legalized cannabis is driving great changes in the way we look at a now-legitimate industry.

Then, I had a little chuckle when I read the words of a longtime cannabis activist:

“It’s going to be a mess,” said Tim Blade, a longtime grower and activist who founded California’s annual Emerald Cup cannabis competition. “Marijuana growers developing new varieties are going to have to spend a lot of money on attorneys.”

It’s clear Mr. Blake was starting to see through the haze of an unregulated industry that’s been under the radar until now. And what he saw was going to be a real buzz-kill. So how can you avoid litigation?

Both sides of the lawsuit will suffer. Typically, litigation should be avoided if at all possible. The good news is there are alternatives. You can take advantage of your patents without suing for infringement.

By knowing what you want, you can then know the options you have.The Myth About Patent Litigation

Before we explore alternatives, you may find some comfort in the fact that about 90% of patent suits are settled; (see Pridham, D. “The Patent Litigation Lie”, found in Forbes. Of those not settled, only 1% to 5% are litigated, (see LaBelle, M. “Against Settlement of (Some) Patent Cases” found in Catholic University of America, Columbus School of Law, 2014.) The cases not settled and not litigated are concluded through summary judgment or other motions prior to trial. But, even though only 1% to 5% make it to trial, getting to settlement or other non-trial resolutions is still uncertain, expensive and distracting.

Avoiding Patent Trials

Options open up when you understand what you want, and what you are willing to accept. First, you must know what you want to achieve, what you will sacrifice and how that will affect the accused infringer. Maybe you want to put the accused infringer out of business. You might be satisfied if they changed their product. You may want then to pay for their infringement, or only sell in certain geographic areas. By knowing what you want, you can then know the options you have.

Simple Agreement

Talk to the accused infringer and discuss your position and listen to theirs. You may be able to come to terms. I represented a client who was faced with asserting their patents against a competitor. The product was a huge success, and the patent was very strong. The competitor was clearly cornered, and like any cornered animal, it had no alternative but to fight. But there was an alternative. The client realized this and offered the competitor a different design. Not as good, but acceptable. The two agreed to the re-design, saving both millions in litigation costs and giving both certainty in the outcome.To avoid the loss of the patent, the owner decided to license, rather than sue, infringers.

License Agreement

Work out a license. As the patent owner, you have the ability to grant others the right to use your invention, for a fee or other terms. You define the terms and allow the accused infringer to continue their activities, or a variation of them. You can limit sales to certain industries, geographic areas, customer size, charge a royalty, allow for a specific time period to continue selling, etc. You can even cross-license technology with the accused infringer.

A client had a very successful product, but it was protected by a weak patent. Weak because others could challenge the patent and likely win. To avoid the loss of the patent, the owner decided to license, rather than sue, infringers. That allowed the owner to remain in control of the patent and receive a stream of income from the licensees. The licensed parties were limited to geographic areas, and not permitted to expand beyond them.

Mediation

Agree to have an independent third-party mediator consider your case. Mediation is an opportunity to have one or more independent mediators review the evidence and provide a decision. Every aspect of the process is agreed-upon by the participants. The parties can agree to the type of evidence that can be presented, the length of time of the mediation, the number of witnesses if any, the effect of any decision, whether evidence can be used later in a trial, whether the proceeding is confidential, whether the decision is advisory, etc.Getting the full value from a patent doesn’t always require litigation

At a minimum, mediation gives everyone an independent view of the case. This independent view can lead to more informed negotiations. It can show both parties what an independent evaluator considers the strengths and weaknesses of each side’s case.

Mock Trial

A variation of mediation is a mock trial. Again, the parties can set the rules. The difference is the Mock Trial would use actual jurors to hear each side’s case, normally a very short summary. This summary can take the form of a closing argument, brief testimony from key witnesses, or the reading of their statements. Mock trials are usually used to give the parties an idea of what a typical jury thinks, and help the parties better understand their respective positions.

Getting the full value from a patent doesn’t always require litigation. Historically, only a tiny fraction of patents are litigated. To avoid litigation as a patent owner, keep the lines of communication open with the accused infringer. Think about your actual goal. It’s rarely winning a lawsuit (that’s the goal of a lawyer, not a business person). Your goal is more likely a beneficial result that business people will both understand; a result that works for both of you.

Marijuana Matters

Time to Litigate: The Defense That Helps the Client but Hurts the Industry

By David C. Kotler, Esq.
No Comments

From time to time, lawyers that service the cannabis industry find themselves representing a client with a litigation matter. By anecdotal evidence, it appears that there is an up-tick in cannabis related litigation over the past year and a half, mostly in circumstances where respective promises made have not been lived up to or those who have invested money are seeking its return. Perhaps a partnership formed within the last few years is simply becoming unraveled.

In the world of litigation, we see defenses, or what are known as affirmative defenses, may be filed in response to a particular lawsuit or claim. One such affirmative defense often utilized in litigation is that a particular contract or agreement may be void based on illegality or void as against public policy.

In fact, this particular grounds for dismissal was at issue in a case in Maricopa County, Arizona wherein a judge in April of 2011 dismissed a lawsuit seeking enforcement of a loan agreement where two Arizona business people loaned $250,000.00 each to a Colorado-based medical marijuana dispensary. The agreement in that case specifically stated that the loan was for “a retail medical marijuana sales and growth center.” Colorado had the foresight in 2013 to legislate against this type of defense when their general assembly passed a law indicating “a contract is not void or voidable as against public policy if it pertains to lawful activities authorized by” Colorado’s constitutional and statutory cannabis law.

The issue becomes germane in emerging states wherein the legislatures and courts have not been dealing with cannabis related matters for any length of time. This is particularly true and ripe for problems in states such as Illinois and Massachusetts that have recently moved forward with cannabis programs and experienced an influx of out of state consultants and companies looking to partner with and work with local residents for licensure purposes. In Florida alone, there have been at least three lawsuits in the past year dealing with cannabis related civil disputes.

To my knowledge, none of those disputes were defended upon, nor did the court address, the legality of the underlying subject matter. However, the question arises whether the lawyer’s obligation to their client necessitates raising this as a defense, for instance, to an action for non-payment of a promissory note for a loan to fund cannabis related business. If the lawyer practices and seeks clients in the industry and hopes to move the industry forward in a positive manner, is it incumbent upon the lawyer to assist the client by making the best legal argument or protect the industry and greater good? As an aside, the answer is to zealously represent the client. Potentially, an adverse ruling in a particular jurisdiction could ultimately affect enforceability of cannabis related agreements in that jurisdiction. It is possible that having a court ruling, even if it is a trial level court within the jurisdiction, at least provides some precedent and a basis for the industry moving forward in that particular jurisdiction. If the ruling is unfavorable like the Arizona precedent mentioned earlier, perhaps planning for jurisdiction and venue to be in more favorable environs is key to document drafting on the front end. For investors, knowing the enforceability of their agreements in a particular jurisdiction could mean the difference between investing in a venture in a particular state or not.

Ultimately, I believe that as advocates, we must do whatever is in our power to protect the client even if it means testing the legal bounds by making an argument that at first blush may hurt the industry. However, having courts develop precedent by which the industry can govern itself in business dealings is important and takes away uncertainty, which in turn allows for good decision-making on the front end. Hopefully, in the near future this will be moot as the federal government moves forward to take actions that provide more certainty and uniformity in dealings within the cannabis space.