On Guard!

The Lawsuit Route

A more serious recourse is to sue the infringer in federal court. If you win the lawsuit, you're awarded damages and a possible injunction, which will prevent the infringer from using your idea for the remaining life of the patent.

However, lawsuits have a big downside: Patent infringement lawsuits are lengthy and very expensive. Intellectual property attorney Bob Chiaviello of Baker & Botts in Dallas estimates the average cost of a patent infringement lawsuit for a simple case is around $300,000 for each side, even if the case settles before going to trial. If the suit goes to trial, costs average $600,000 per side. However, he warns, costs can run into the millions if your patent deals with complicated technology. Obviously, if the damages you'd collect are less than the legal fees, it would be foolish to pursue this option. Also, you need to make sure your infringer could pay such a judgment for damages. Otherwise, collection will be impossible.

Deciding whom to sue in a patent infringement lawsuit is not obvious. Most think they can sue only the manufacturer. The truth is you can also sue the retailer or ultimate purchaser of the infringing product. There are advantages to doing this. If retailers get sued, they will be less likely to buy knockoff products in the future because of the time and expense of lawsuits. Also, the Uniform Commercial Code requires the manufacturer of the infringing product to step in and defend or reimburse a retailer or ultimate purchaser if they are sued. Since your court costs will be less if you can sue in the state where you do business, suing an interstate retailer creates a big disadvantage for the manufacturer (if out of state), who then has to defend the retailer from a distance. This strategy also puts a damper on any future relationship the manufacturer might have with the retailer.

If you decide you can't avoid a lawsuit, be sure to request a jury trial. It's been shown that juries love patent holders because they're perceived as the little guys. Huge awards have been granted, especially to individual patent holders going up against big corporations. But courts are not awarding tripled damage amounts or attorney's fees to the patent holder as frequently as they used to. Only in cases where extreme and flagrant abuse can be proved will there be any chance for these awards.

More and more, patent infringement cases are being settled by arbitration, which is cheaper and faster than a traditional lawsuit. An arbitrator, who is usually a patent attorney or former judge, is an impartial person who will listen to each party in the dispute and help settle the matter. The arbitrator's fee can run from $2,000 to $20,000, and each side pays equal amounts. Although this is costly, it's less expensive--and less time consuming--than a lawsuit. Get a referral for an arbitration firm from your lawyer or insurance company.

Patent infringement is an awful experience any way you look at it. You'll feel betrayed and robbed. Unfortunately, until our laws are changed to better protect those with patents, this problem will not go away. Until something does change, your best defense is to be first in the market, with all your ducks lined up beforehand so you can hit the market hard and fast.

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This article was originally published in the August 1997 print edition of Entrepreneur with the headline: On Guard!.

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