Defending Patent Licensing Demands (Part II of III)

II. Search for Solutions

In Part I of this series, we discussed how to evaluate and respond to a licensing demand, acknowledging the demand but requesting further information. Often that will be the end of the matter. This post will discuss what to do when the demanding party persists.

Try to pass the buck, if possible. If use of the patents arises from compliance with a customer’s requirements or specifications, talk with your business unit about requesting the customer to license the patents directly or reimburse your company for the cost of licensing.

If the patents relate to parts your company purchased, send each supplier a demand to either license the patents or defend and indemnify. Even if you have no signed agreements with the suppliers containing indemnification provisions, it still may be worth a try. Many jurisdictions recognize an implied warranty of non-infringement in connection with sales of goods, such as those found at UCC, Section 2-312(3) and UNCISG, Article 42. Ask your business unit to help exert pressure on the suppliers. And, consider switching to licensed suppliers if possible.

If the demanding party continues to contact you, continue to respond politely, evading commitment, requesting further information and explaining, as appropriate, why your company doesn’t appear to be using the patents. They don’t want to litigate either; nor do they want to focus on difficult cases when others targets may be easier.

If your company is clearly using the patents, speak with your business unit about possibly designing around the patents, phasing out the product, or ceasing production and sales of the product in the relevant region – all drastic measures, but in some cases they might make sense.

Try to estimate the cost of licensing to determine a rational course of action. If sales volume is trivial, the cost of licensing may be far less than legal battles. Liability typically commences as of the date of the first proper notice.  Inquire with similarly situated companies about their experiences concerning the patents. While they may refuse to disclose the exact terms of any agreement they reached, you may gain some helpful information.

Finally, if it appears inevitable you will have to license or litigate, be sure to keep management fully informed and speak with the business unit about setting aside a reserve. While it’s always painful to pay royalties and legal costs, it tends to be easier if one planned ahead.

It’s not easy convincing a supplier or customer to take responsibility for a licensing demand against your company. Any further tips in that respect? What works for you?

If you have any questions, please contact our Taiwan patent attorneys.

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