Think It’s Safe to Ignore Patents? Think Again.

By Kathryn Paisner

In business, the general consensus on patents is that they are best left to the lawyers. Like urban legends whispered in the schoolyard, this self-defeating myth traverses the business community, creating expensive problems for companies large and small.

Lawyers are certainly vital to many aspects of the patenting process, such as patent prosecution, claims analysis, and litigation. Any wise business executive or R&D manager, however, must conduct his or her own patent due diligence to truly understand any risks to the company, rather than delegate all decision-making around patents to the legal department. Fundamentally important to product development, patents defend innovation in much the same way that a lease agreement defends the right to inhabit a building. Just as it would be imprudent to build a business plan around a particular office space, without first investigating the terms of the current occupant’s lease, it is similarly short-sighted to develop a new product, without first investigating the preexisting patents in its space.

Nevertheless, this kind of thing happens rather frequently. For one reason or another, companies will blithely ignore patents until the first infringement suit is filed against them, at which point a deluge of time, money, and productivity will be poured–often unsuccessfully–into their attempts to defend products that perhaps never should have made it past the drawing board. The perniciousness of the “patents are only for the lawyers” myth is revealed, and the damages can be staggering.

Most–if not all–of these cases of unintentional infringement could be avoided, if companies proactively endeavored to identify patents relevant to their intended products. Even in the worst-case scenario, when a competitor (or non-practicing entity) owns a patent that closely describes an element that is fundamental to an intended product, it is often far more cost-effective to design an alternative solution, than it is to bankroll the extensive legal fees (and potential damages) that would result from an infringement suit. This is especially true if the relevant patent(s) are identified during the early stages of the product development cycle.

For example, consider the Immersion vs. Sony infringement suit, first filed in 2002. Immersion, a developer and licensor of touch feedback technology, claimed that the “rumble” capability in Sony’s PS2 DualShock controller infringed on Immersion’s haptic technology patents. Two years and millions of dollars in legal fees later, a judge ruled in favor of Immersion, assessing $80.7 million in damages, plus $8.7 million in interest and fees. Sony appealed this decision, lost, and was assessed an additional $9.7 million in accrued interest, plus $53.1 million in compulsory licensing fees — and a permanent injunction that banned the sale of all products incorporating Immersion’s “rumble” technology. This injunction was later reversed, after Sony and Immersion entered into a licensing agreement, in 2007.

As a means of comparison, Microsoft was also sued by Immersion in 2002, for infringing on the same patents, and opted to settle for $26 million, in lieu of litigation. This settlement eventually resulted in a net profit of $20.75 million for Microsoft, as the terms of the settlement stipulated that Immersion would pay Microsoft a certain percentage of any damages and/or licensing fees that Immersion gained from its lawsuit against Sony.

If Sony had initiated patent due diligence at the beginning of its PS2 DualShock R&D efforts, Sony could potentially have designed around Immersion’s “rumble” technology, thereby avoiding costly litigation altogether. Or, once litigation began, a thorough patent search and analysis could have alerted Sony to the strength of Immersion’s patent portfolio and steered Sony towards a more favorable settlement (akin to the one orchestrated by Microsoft), in lieu of a $130 million legal penalty.

[This post previously appeared on CleanTech PatentEdge]