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These lawsuits are rarely filed in the defendants’ backyards. On the contrary, one of the busiest jurisdictions in the country for patent cases is the Eastern District of Texas. Suffice to say, most direct marketers aren't based in Marshall, Tyler or Texarkana, Texas. In nationwide cases that go to trial, plaintiffs win about three–quarters of the time. Although perhaps skewed by a number of very large verdicts, the median verdict following a patent trial was over $6 million. Finally, patent litigation is notoriously expensive. The average patent case costs over $2.5 million to litigate through trial.
Complaints in most patent cases provide only the most bare-bones details — little more than, “We own a patent, you operate a website, send money.” In short, direct marketers sued for patent infringement based on a vague and unspecified “method” of operating their websites face the prospect of spending millions to litigate, and lose, in a faraway jurisdiction. It's scarcely surprising, therefore, that nearly 90 percent of all patent cases settle before trial.
Direct marketers and internet retailers pinned their hopes on Bilski, hoping that the Supreme Court would either invalidate business method patents altogether or announce an easily applied test to screen out unpatentable business methods. If a company could short–circuit these cases early, it could get back to the business of selling chinos, books or whatever, without spending countless dollars defending unintelligible patent claims. The Supreme Court’s failure to announce a clear test means that direct marketers will be forced to defend, and likely settle, these claims for the foreseeable future.
If the Supreme Court offers no solution, what should an internet retailer do?
Short of shutting down their websites and abandoning e–commerce altogether, direct marketers can take proactive steps to prevent or deflect such suits. Negotiating vendor agreements to include robust indemnification provisions for patent infringement (and other intellectual property disputes) is a good start. Evaluating the “advertising injury” provisions in insurance policies, or even considering patent infringement insurance coverage (often prohibitively expensive), isn't a bad idea.
If contacted by a patent holder with a “licensing” offer, which is often akin to being asked to buy insurance so that your store windows don’t get broken, such letters should not be ignored. If and when the patentee decides to file suit, the first defendants selected are often the companies that ignored the original licensing offer. It's far better to engage the patent holder, discover the basis (if any) of the infringement claim, and determine what the patent holder is really seeking.
Whether it's to convince people that they're getting a good deal or whether the initial offers are just to find out who's willing to pay retail, there's often an enormous difference between the initial demand and the actual settlement amount. As such, anyone who receives such a demand should speak with an attorney who's familiar with these types of claims or the patent holder — as well as his or her counterparts in the industry. Information is power in these circumstances.
If a direct marketer is sued for patent infringement, all is not lost. Whether it's working with co–defendants (increasingly, companies are sued for e–commerce patent infringement in cases involving up to 100 defendants), collaborating loosely in a joint defense group or crafting a unique approach that makes the case against that company a “one–off” proposition that will cost the plaintiff money, the goal should be to defend these cases as efficiently as possible. Just because Bilski wasn't a summer blockbuster doesn’t mean direct marketers can’t turn an independent release from unwanted litigation into any season’s sleeper hit.
Peter J. Brann is a partner at Brann & Isaacson, a Lewiston, Maine-based law firm that represents direct marketers in intellectual property lawsuits throughout the country. He filed a “friend of the court” brief to the Supreme Court in the Bilski case on behalf of major internet retailers. Peter can be reached at pbrann@brannlaw.com.
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