Authored by E. Robert Yoches
The first installment introduced the concept of settling lawsuits, explored the mechanisms for settlement, and discussed some timing issues. This installment addresses the specific issues of conducting settlement negotiations, such as the proper behavior and offers.
Most courts require settlement discussions and set a deadline for such discussions to begin. If a court does not order settlement discussions, one party will need to start the process.
There are many reasons to begin settlement discussions in the absence of any court action. The amount at risk in the lawsuit may not justify the cost of the lawsuit. Market changes may have made the products or processes unimportant. Alternatively, acquisitions or mergers may render the lawsuit a nuisance, or management changes may reduce the lawsuit’s importance.
Whatever the reason, when a party wants to begin settlement discussions, it should do so appropriately. As the first installment explained, proposing settlement is not a sign of weakness. A perception of weakness may result, however, from the form of a proposal. Appearing too eager or desperate to settle is a bad sign. So too is proposing settlement negotiations without informing litigation counsel, as this signals a lack of confidence in that counsel.
Ideally, a party should suggest settlement before receiving a major court decision. The greater the risk, the greater the likelihood the parties will want to settle. In addition, your counsel should approach the other side’s counsel to start the process, which shows you and your attorneys agree on this issue.
Settlement negotiations fail if the attendees do not have substantial authority to settle. There are many ways to interpret “substantial authority to settle.” For most companies, only the board of directors has authority to settle at any amount. On the other hand, anyone can have “substantial authority to settle” at a predetermined amount.
In settlement negotiations, a person with substantial authority to settle should be able to settle within a range of authority and have some discretion to exceed the range if necessary. Such a person is often an officer of the company, or at least someone with enough control over the affected budget to exercise discretion. Sometimes this person is the general counsel; other times it is an operating vice president.
The company representative should also be experienced at negotiation. Such experience requires more than just being stubborn; simple stubbornness usually leads to a stalemate. An experienced negotiator should be able to spot attractive offers, make offers that are financially sound and beneficial, and assess what the other party is thinking. If the company does not have such a person, then experienced outside counsel should lead the negotiation.
Finally, as much as possible, the same people should attend all the negotiation sessions. Failure to do so may require the parties to retrace earlier sessions or try to reconstruct what happened in those sessions. In addition, it is important to build a sense of trust between the negotiation teams this can only happen if the same people are meeting.
The atmosphere for negotiations should always be respectful. Settlement negotiations are business transactions. Egos should remain outside the room. Anger will only delay final resolution. Even if the parties do not like each other personally, everyone should act in their best financial and business interests.
If there is a mediator, he or she should control the discussions. If there is no mediator, someone must step forward and control matters but this must be done carefully and without appearing brash or arrogant. Someone can volunteer to do so to make sure to move matters along, to ensure there is an agenda for the meetings, and to keep the discussions on track and on schedule.
Not every session will appear successful. If the parties reach an agreement, however, all sessions should be considered successful because they led to a good result. Acknowledge any progress at the end of each session to keep open the door open to further discussions.
The most important, and most difficult, question for each negotiator is determining the proper settlement amount. The answer is always the same. It depends. For patent owners, the proper settlement amount depends on such issues as the costs of litigation, strength of the case, the business interests (e.g., whether the patent owner is a licensing entity or a competitor), the likelihood of an injunction, and the need and desire to continue licensing. For accused infringers, the factors include the costs of litigation, strength of the case, the business interests (e.g., whether the patent owner is a licensing entity rather than a competitor), the likelihood of an injunction, and the costs of either designing around the patents or leaving the market.
Other issues include the number and economics of previous licenses, whether the patent owner has a “most-favored-licensee” provision preventing settlement at terms better than other licensees received, and insurance or indemnification interests. In short, there is no formula.
The correct amount is one that makes business sense given the risks. When both parties have similar views of the risks and benefits of litigation, their settlement figures are usually close. Indeed, one purpose of settlement negotiations is to share enough information to bring the assessments of the case closer.
The most common mistake negotiators make is passing up good business deals to pursue the best business deals. There is no best deal in settling patent lawsuits. Parties who fear “leaving money on the table” run the risk of passing up good deals that may disappear if, for example, a judge later issues a decision harmful to your case. Agree to a deal that is consistent with your business interests when that deal is available.
Every settlement is different. The best a party can do is to be prepared, act appropriately, and understand the business and legal facts. Negotiators that do so serve their clients’ interests the best.
Copyright © Finnegan, Henderson, Farabow, Garrett & Dunner, LLP. This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm’s clients.
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