As noted in our related blog, only a small percentage of issued patents are ever asserted to be infringed with the filing of a lawsuit, even when infringed. Why? Because patent litigation is notoriously expensive and it’s risky for patent owners, as patent challengers more-often-than-not win and can invalidate the patent claims. Despite the costs and the risks, patent litigation is not ― as many may think ― akin to boarding a runaway train. Rather, patent litigation often serves as a mechanism for parties to spar and evaluate the patent rights, as well as each other, prior to making the business agreements that settle such disputes.

So what do litigants need to know about the interface between litigation and its settlement? Understanding the stages of patent litigation, as discussed in our related blog, is essential. As discussed here, such understanding can empower litigants to proceed strategically and leverage events at the key stages of the litigation to resolve the dispute with a private settlement agreement.

The primary stages of patent litigation are shown in the diagram below in their typical sequential order. This process can take anywhere from 18 months to several years, depending on the court and the case. However, very few cases ― typically less than 5% of them ― proceed all the way to trial. Many cases are dismissed on procedural grounds and a few are decided by the Judge “on the papers.” Most of the rest are resolved by private settlement agreements between the parties.

Opportunities for such settlement, according to the stages of patent litigation, are indicated in the diagram above with stars. One star indicates some potential for resolution while three stars indicates the highest potential for resolution. Opportunities will, of course, vary among cases. But the indicated stages are often check-points for litigants to decide whether and how to proceed.

The rationales for the indicated settlement opportunities can be described generally and in pertinent aspect as follows (taking them in the order shown in the diagram):

• Prior to the commencement of litigation, opportunities for settlement may exist but success rates are relatively low. They depend primarily on the situation and the willingness of the parties to resolve the dispute without the threat of court action. Most defendants will wait until a complaint is filed to talk settlement.
• Once a complaint is filed, there is an opportunity to settle disputes for which the merits and value can be reasonably assessed by the parties. This avoids the expense of litigation. But for high-value disputes, disputes having uncertain outcomes, and disputes involving parties opposed to settlement regardless of the merits, early settlement is unlikely.
• Fact discovery can drive a settlement, especially when there has been misconduct or other bad facts that impugn the merits of one side’s claims or defenses. For example, evidence that an asserted patented or accused technology was improperly obtained may increase chances of settlement.
• For courts that have “patent local rules,” there is a process to resolve disputed interpretations of the patent claims relatively early in the case and at least before the close of fact discovery. When such determinations strongly favor one side or the other ― e.g. eliminating a party’s only argument for non-infringement or supporting an argument for invalidity ― they can provide an impetus for settlement.
• Similarly, a court’s “summary judgment” decisions on issues for which there are no factual disputes can facilitate settlement, especially if they substantially resolve key issues in the case. But since these decisions are usually made just prior to trial, parties may delay settlement discussions until the pre-trial or trial stage to obtain some additional information about the likely outcomes.
• For a case that has progressed beyond fact and expert discovery, the best opportunity for settlement is often just before trial. At this time, the issues in dispute are sharply focused, the evidence to be presented to the jury is known, and the parties may sense how the case will be decided or the uncertainty of the outcome. By settling the dispute, the parties can avoid the cost and risk of presenting the case to a jury for decision.
• For the very few cases that proceed to trial, there may continue to be opportunities to discuss settlement at the trial, when a verdict has yet to be issued, and sometimes post-trial, when trial issues and outcomes are being re-evaluated. Because jury verdicts can be unexpected and overturned, a private settlement may be desirable even at these late stages, as it achieves a final resolution.

Every case is different, but the stages highlighted here present common opportunities for settlement. Many courts have programs for Alternative Dispute Resolution (“ADR”) that can assist parties in resolving their disputes, whether in the early, middle, or late stages. In addition, many parties agree to participate in private mediation ― a process by which independent third parties, often retired judges, work with the parties to negotiate a resolution. We discuss ADR further in Part III of this blog series.

Read Part I Here