Exit Strategies for Cybersecurity Patent Lawsuits

An exit for a cybersecurity startup is usually a good thing—a lucrative event.  Exits in cybersecurity patent litigation are also good, but for the opposite reason—saving cost.

Patent suits are costly to defend.  Beyond just legal fees, the burden on employees, the strains on customer relationships, and the reputational risks are all potentially significant.  Litigation in the United States is expensive because the legal system here is designed to resolve cases through jury trials after months or even years of discovery.  Accordingly, for a cybersecurity company finding itself dragged into U.S. court, terminating the case before significant costs arise is always desirable.  While there is no one-size-fits-all solution for every case, certain tactics optimize the chances of ending a patent case in its early stages.

Get to the Merits Early: Noninfringement and Invalidity

Every word in a patent’s claims matters.  They form a legal definition of the patent’s scope.  If a technology falls outside the claims’ precise scope, the technology does not infringe the patent.  Investigating noninfringement positions early in a case can sometimes lead to an early resolution because patent owners filing suit often must make educated guesses about how a the technology works.  After all, features are frequently hidden from public view (e.g., software operations).  Consequently, sometimes the patent owner’s educated guess as to infringement is wrong.  Alerting the patent owner to such a defect early in the case can be important in two respects: it may lead to an early and favorable settlement or dismissal, or it may demonstrate the unreasonableness of the case which can lead to a possible recovery of attorneys’ fees.

An accused infringer may likewise find prior art—e.g., prior patents, articles, or other public materials—showing that the patent claims something that has been done before.  If so, the patent is invalid.  Identifying strong prior art early in a case can also lead to an early settlement, dismissal, or avenue to a potential recovery of attorneys’ fees.

Make a Section 101 Challenge

If a patent is deemed to be “abstract” and non-technical it can be found invalid.  Generally speaking, claims focus on the result of an invention (the “what”) rather than the technological means of achieving it (the “how”) face a risk of invalidation.  Sometimes, cybersecurity patents are drafted in an overly generic manner, which can result in invalidity attacks.  Accused infringers should consider this issue in the early stages of litigation, since it can sometimes be amenable to an early motion to dismiss during a case’s infancy.

Consider Counter-Attack Options

If an accused infringer has patents of its own, it may consider counter-asserting them.  As long as the accused infringer can map out a strong theory of infringement, counter-asserting patents can be a very effective way to “turn the tables” and force an early settlement.  Of course, this is only possible if the plaintiff is a practicing company (i.e., not a “patent troll” who makes no products).  Further, this option is only possible if the accused infringer has strong, litigation-ready patents to assert.  Not every patent is assertable.  For example, many patents are prepared inexpensively and suffer from drafting flaws or undue narrowness.  But if the defendant has strategically developed its patent portfolio, it may have patents that can quickly neutralize a suit.

Don’t Be Afraid to Talk Settlement

Too often, chutzpah from both sides in a patent suit delays settlement talks from occurring.  Fear of appearing weak often paralyzes the parties and neither makes a settlement overture until the case is well on its way to trial.  This makes no business sense.  Participating in, or even initiating, settlement talks should not always be viewed as a sign of weakness.  If both sides are operating rationally from a cost-benefit standpoint—which is not always the case, particularly in competitor v. competitor suits—settlement talks are a rational course of action.  The earlier the better.  Parties can remain committed to vigorously litigating a case while still discussing settlement.  Indeed, vigorous litigation efforts can be an important consideration in settlement talks.