Sued for Patent Infringement? What To Do Now

Being served with a patent infringement complaint can make a business problem feel urgent very quickly. There is a deadline to respond. Relevant documents may need to be preserved. The plaintiff may be seeking damages, an injunction, or both. Insurance, supplier contracts, venue, the assigned judge, and the company's own financial reporting obligations may all affect what happens next.

A complaint is an allegation, and the strength of the plaintiff's case may not be apparent from the pleading itself. Before committing substantial resources to the litigation, the company needs enough information to make informed decisions about the case and its cost. For in-house counsel and management, that usually means working through several issues in short order.

Confirming Deadlines, Preserving Evidence, and Controlling Communications

The first practical question is when the company must respond. A defendant in federal court ordinarily has 21 days after service to answer or otherwise respond to a complaint, although the actual deadline can vary depending on the circumstances. Counsel should confirm when and how service occurred, determine whether an extension makes sense, and decide whether the first response should be an answer, a motion, or something else.

At the same time, the company should address preservation. Emails, text messages, technical drawings, source code, product development records, sales information, communications with suppliers, and other materials may become relevant. Automatic deletion or routine destruction may need to be suspended for appropriate custodians and systems.

That does not require collecting every potentially relevant document immediately. Preservation can often be handled without turning the first week of the case into a large and expensive discovery exercise.

Internal communications also deserve attention. Once a lawsuit arrives, engineers, executives, salespeople, and other employees may start emailing each other about whether the product infringes, whether the patent is valid, what the case is worth, or what the company should do.

Casual speculation can create unnecessary problems later. In-house counsel should consider centralizing the substantive investigation through counsel and giving relevant employees clear instructions about preservation and communications. The company should likewise resist the urge to call opposing counsel and explain why the lawsuit is wrong before anyone has had a chance to understand the patent or the accusations.

Management should also decide which counsel will lead the defense and ask for an initial budget through the first meaningful decision point. Patent litigation experience matters, but so does familiarity with the court and assigned judge, the ability to work efficiently with technical personnel, and a willingness to tie litigation spending to the amount actually at stake.

Checking Insurance and Indemnification

Patent defendants sometimes assume that insurance will not help.

Coverage may be limited or unavailable, but the policies should still be checked promptly.

The company should identify potentially relevant policies and consider whether notice should be provided. Specialized intellectual property coverage may apply in some cases. Other policies may become relevant depending on the allegations, particularly where the complaint includes claims in addition to patent infringement.

The policy language matters. So do notice requirements, exclusions, defense provisions, consent provisions, and rules concerning selection of counsel.

Insurance is only one possible source of defense costs. If the accused technology came from a supplier, manufacturer, software vendor, licensor, or other third party, the relevant agreements should also be reviewed early. A supplier may have agreed to indemnify the company against infringement claims. A software agreement may include an intellectual property defense obligation. A customer agreement may allocate responsibility depending on who specified the accused feature.

Those provisions often have notice requirements of their own. Waiting too long to investigate them can create an avoidable second dispute over who should have been paying for the first one.

There can also be a strategic benefit. A supplier that has sold the same accused component to multiple customers may already know the patent, the plaintiff, the prior art, or the technology. Before the company assumes the full cost of the defense, it should determine whether someone else agreed to share that burden.

Evaluating Venue, Local Rules, and the Assigned Judge

Where the case was filed matters. Patent infringement actions are subject to a specific federal venue statute, and venue should be examined early. Depending on the defendant's place of incorporation, physical locations, and activities in the district, there may be an argument that the case was filed in the wrong court or should be transferred elsewhere.

Those issues need prompt attention because venue defenses can be waived.

Once the court is identified, the assigned judge matters too. Federal judges often have standing orders, model scheduling orders, practice guidelines, and patent-specific procedures that supplement the Federal Rules and district-wide local rules.

Those procedures can materially change the tempo and economics of the case.

One judge may require infringement contentions, invalidity contentions, technical document production, or claim construction work relatively early. Another may structure the case in a way that leaves more room for a threshold motion, targeted discovery, settlement discussions, or mediation before the heaviest expenses arrive.

That can mean paying for infringement contentions, invalidity work, technical discovery, and claim construction before the company has had much opportunity to test an early resolution.

Two patent cases involving similar claims can require very different levels of spending during the first six months simply because they are pending before different courts or judges. The complaint tells the company what the plaintiff alleges. The local rules and the judge's standing orders often tell the company how quickly it will have to spend money responding.

Defining What Is Actually at Issue

Patent complaints can be broad. The company's analysis should be much more specific.

Early in the case, counsel should identify the accused products or services, the versions at issue, the particular features the plaintiff says infringe, when those features were introduced, who designed or supplied them, and how much revenue is associated with them.

A case involving one supplied component in a secondary product line is a very different business problem from a case aimed at the company’s core product. A feature supplied entirely by a third party may present different strategic options from technology developed internally.

It is also useful to understand the plaintiff. Has it sued others on the same patent? Has the patent previously been challenged? Is the plaintiff an operating competitor, a licensing entity, or something else? Is it seeking primarily money, an injunction, or a business resolution?

Those facts help management understand what kind of dispute it is dealing with and what may be driving it.

Analyzing Infringement, Validity, and Design-Around Options

Patent infringement depends on the patent claims. A patent may describe technology that sounds similar to the defendant's product while still failing to cover what the product actually does.

The asserted claims should be compared carefully to the accused product or process. If a required claim element is missing, that may provide a substantial noninfringement defense. In other cases, the dispute may turn on the meaning of a particular claim term, making claim construction central to the case.

Sometimes the early analysis indicates that infringement will be difficult to contest. In that situation, validity, damages, design-around options, and settlement may deserve more attention.

Validity should be analyzed separately. An issued patent is presumed valid, but it can still be challenged. Prior patents, publications, products, sales, public uses, and deficiencies in the patent itself may create invalidity defenses. The prosecution history may also matter.

Depending on the case, counsel may need to review prior art, speak with engineers familiar with earlier technology, examine competitor products, or consider whether a Patent Office proceeding makes strategic and economic sense.

The company should also ask whether the product can be changed. If engineers can design around the asserted claims without materially harming the product, the company may be able to reduce future exposure, lessen the practical threat of an injunction, improve settlement leverage, and protect future sales. For a smaller company, an engineering solution can sometimes be more valuable than a litigation victory several years later.

Quantifying Exposure and Setting Reserves

Patent litigation can become expensive quickly, and defense costs should be considered alongside the actual business exposure.

Management should develop an early understanding of the sales associated with the accused products, the importance of the accused feature, the potential damages period, possible royalty theories, available noninfringing alternatives, injunction risk, and whether enhanced damages are realistically in play.

No one needs a final expert damages report during the first month. Management does, however, need enough information to know whether it is dealing with a relatively contained dispute or a threat to an important product line.

The litigation schedule matters here too. A judge who requires substantial patent disclosures, technical production, or claim construction work early may front-load defense costs. That should be reflected in the litigation budget and cash planning.

The lawsuit may also require attention from the company's finance team.

Management may need to determine whether the claim calls for a litigation reserve or other treatment in the company's financial statements. The issue should be addressed early enough for management, outside counsel, accountants, and auditors to handle it in an orderly way rather than discovering it unexpectedly at quarter-end or year-end.

Litigation budgets and litigation reserves address different questions. The budget concerns the expected cost of defending the case. The reserve analysis concerns potential liability and the applicable accounting requirements. Insurance coverage, contractual indemnification, settlement discussions, and changes in the merits of the case may affect both over time.

Counsel should provide management with realistic assessments as the facts develop while being thoughtful about how litigation evaluations are created and communicated.

For a smaller business, the financial consequences may extend beyond accounting. A significant contingent liability or reserve can affect financing, lender discussions, transaction planning, internal budgets, and management's willingness to pursue or reject a settlement.

Management should know what the next meaningful litigation milestone will cost and what it expects to learn by spending that money.

Identifying Likely Exit Ramps

Once the company understands the court, the accused technology, the merits, and the economics, it can begin evaluating how the case might end. Depending on the facts, realistic exit ramps may include an early dismissal, transfer to another venue, a strong noninfringement position, an invalidity challenge, a Patent Office proceeding, a design-around, supplier indemnification, a license, mediation, settlement, or trial.

Some options can be pursued together. Others require choices about where the company wants to spend its money.

Timing matters.

If the assigned judge's schedule requires substantial discovery, patent disclosures, expert work, or claim construction early, the company may have a relatively short window in which to pursue a less expensive resolution before litigation costs increase significantly. That is one reason to identify potential exit ramps at the beginning, before the parties have already spent heavily.

Some cases justify an aggressive defense through trial. Others present opportunities for an earlier business resolution. Before authorizing the next round of spending, management should understand what that work is expected to accomplish and whether it improves the company’s position.

Conclusion: Keep Your Focus on the Business

When a company has just been sued, the immediate questions are practical. When is the response due? What needs to be preserved? Is there insurance or indemnification? Is venue proper? What will the assigned judge require, and how quickly will the case become expensive? What exactly is accused? What is the likely exposure? And what are the realistic ways out? Answering those questions early gives management control over the case before the case begins controlling the budget.