This article was republished in The Licensing Journal in the November/December issue.

Taft recently outlined what to do when you are hit with a patent infringement lawsuit, but what about when you are the one on the offense? Do you have a strong handle on the steps you should take when your sales team has just returned from the annual sales show and informs you that XYZ Corp, an up-and-coming competitor, was displaying a product that infringes your patent? XYZ Corp has already been a thorn in your side because it has been driving down prices in the market. Now, what do you do? Here’s the road map.

1) Which patent(s)?

The sales team thinks that XYZ Corp is infringing, but is it? Salespeople are often the first ones to sound the infringement alarm, but it is not their role to evaluate infringement. Infringement must be carefully evaluated by an experienced attorney.

Before you can assess which patents may be involved, you will need to identify the infringing product. If possible, get a sample product that XYZ Corp is selling. If that is not possible, use its website to determine product parameters, or perhaps your sales team was on top of it and brought home pictures. You cannot always tell if a product is infringing by photos and representations on a website — and if it is a method patent, that is a whole different ball game. The bottom line is that you need to compare XYZ Corp’s product to the claims of your patent to determine if it is practicing your invention.

2) Are your patents healthy?

Next, you will need to perform a health check on your patent(s).

Once you have identified the patent or patents that best cover the infringer’s product, make sure you have claims that will stand up in court. If you sue, your patent will be put under a microscope. It is best that you do that examination first before your opponent does. Are there any statutory bars, such as an on-sale bar? Do you have validity issues with prior art that is very close to your patent? Was it difficult to get the United States Patent and Trademark Office (USPTO) to issue the patent over the prior art? Is there enough life left in the patent so that litigation makes financial sense?

A patent provides a zone of exclusivity and lays out the “metes and bounds” of your invention, much like how the property line surrounding your home divides you from your neighbor. If a competitor is “on” your property, it infringes. If not, then it does not infringe. If it is on the border, then you may have a case of equivalents to prove. The patent lays out the metes and bounds mentioned above in the numbered paragraphs at the end of the patent, otherwise referred to as the “claims” of the patent. The goal is to determine how well your patent’s claims read on the infringing product. This is your first real look at the strength — or lack thereof — of your infringement case.

A good place to start is with the attorney who drafted your patent application. It is also a great idea to have a patent trial lawyer look at the claims from a litigation perspective. Sometimes infringement exists, but proving it is so convoluted that it can be challenging to win in court. And, speaking of getting a trial lawyer involved, an even better practice is to have a trial lawyer review your patent claims before they are even submitted to the USPTO, to determine if they are “litigation worthy.” If the claims are not on point, are difficult to prove, or only cover a narrow swath of the invention, you are likely going to have problems down the road in court. After all, you are getting a patent not to hang on your wall, but as a means to keep competitors out of your territory. It only makes sense to pursue patent claims that are designed to protect your market. Often, companies make the mistake of patenting only the narrow invention they are commercializing, and this practice generally is not helpful when you are trying to stop a competitor.

3) Who is the target?

What kind of opponent is the litigation target? Are they a larger or smaller company than yours? How many times have they sued or been sued for patent infringement? This will tell you how savvy or not they are likely to be about patent litigation, as well as whether they are familiar with successfully and strategically maneuvering through the court system. Does the litigation target have its own patents that it might be able to assert against one of your products? Remember, if your market share is significantly larger than the litigation target’s and it countersues and succeeds in sticking you with a patent infringement claim, at the end of the day, you could owe it more money than it owes you. This is not a place you want to find yourself.

Also, importantly, how much funding is it likely to have? Patent litigation is expensive for all parties involved. In this article about patent litigation defense, Taft discussed costs as part of the “assess the impact” step.

4) How strong is your case?

Before you fire off that complaint, you will want to get a good sense of what your damages will be so you can compare them against the costs of the suit and determine your likely return on investment. How many units of infringing product has the infringer sold? Is this a case of lost profits or reasonable royalties? If it is a royalty case, will damages be applied against the entire product or only a portion of it? What is your best case damages scenario? Your worst case scenario? Is the case worth the time and cost to pursue if your worst case damages scenario plays out?

5) Consider “blowback.”

As war strategists have reminded through the centuries, no battle plan survives first contact with the enemy. One thing that you can count on is that if you sue, your opponent will counterattack. It is not a matter of if they will counterattack; the only question is how they will counterattack. Common strategies include: 1) a counterclaim that your company infringes one of its patents; 2) a counterclaim alleging that your company has “misbehaved” in the marketplace and has done something that gives rise to a business tort; and/or 3) bringing a proceeding at the Patent Trial and Appeal Board (PTAB) for an inter partes review (IPR) to determine if the claims of your patent are valid. IPRs and related procedures in the USPTO have been around for a decade, and an unprepared patent holder can be seriously thrown off their game by these proceedings. Not only can they add more than $500,000 in expense to the total equation, but there is little upside to the patent holder in an IPR. Courts commonly will stay patent cases pending the determination in the IPR. An IPR proceeding takes about 18 months. The IPR determination can be appealed, adding even more time and expense. All the while, you, as the patent holder, are sitting back and waiting for your day in court to prove your case and recover damages from the infringer.

6) Develop pre-suit analysis for business leadership review.

Taking on patent litigation is serious business, but there are ways to position yourself for success. You should demand transparent and clear communication from outside counsel about the probable litigation risks and rewards, and you should also expect that they keep decision-makers at your company well-informed throughout the litigation process. No one likes unpleasant surprises. Get a budget that is as accurate as possible. To help outside counsel determine a reliable budget, not only do you want them to take into account the merits of the case — as will have been determined based on an analysis similar to that outlined in this article — but you also will want them to factor in your business objectives. Do you want to see your competitor remove the infringing product from the market? This is a tough and expensive road. Are you content to have the competitor stay in the market and pay you a royalty for the use of your invention? This is by far the most common resolution of all for patent infringement lawsuits. Alternatively, do you want to force your competitor into designing around your patent and paying you for their past infringement? All of these resolution scenarios are valid, and all will play out with a different associated price tag.

In conclusion, a systematic, thoughtful approach to patent litigation, as briefly outlined in this article, will put your company in the best possible position to prevail in the litigation and drive the business resolution you seek — all at a cost that provides a positive return on investment for your shareholders.