Patent Defense: Some Things Even a Rat Won't Do

Zusha Elinson

The Recorder

August 10, 2009

In a series of conference calls, three sets of lawyers for six defendants planned for trial against patent infringement claims by Honeywell International. They divided up the witnesses, voir dire and demonstratives.

But after each call, Theodore Herhold -- a Palo Alto, Calif., lawyer presenting Novatek Microelectronics Corp., one of the companies accused of infringement -- made other plans with his colleagues at Townsend and Townsend and Crew. They had to have another option if their co-defendants buckled, settled and left Novatek holding the bag, going to trial alone.

"At the end of each telephone conference we'd say here's Plan B," said Herhold, who heads Townsend's litigation practice. "We had divided the duties up, but you always remain wary -- they're not your best friends, they're your loose acquaintances."

With patent holders suing dozens of companies at a time for patent infringement, defense lawyers must more and more work together. They strike joint defense agreements that allow them to share information and create a strong unified front against a common enemy. It can also save time and money for clients. But often the collaboration itself is a high-stakes poker game. And one of the biggest risks is what a couple of local IP lawyers colorfully refer to as the "Texas rat fuck." That's when a bunch of defendants settle, leaving one hanging in the wind, usually in a Texas courtroom because that's where many patent trials take place these days.

For Herhold and Novatek -- which had been sued in Texas in 2006 along with eight other LCD-panel makers for infringing Honeywell's patent on a method for reducing flicker -- Plan B quickly became a necessity as trial approached earlier this summer. One by one, the remaining defendants -- BenQ, AU Optronics Corp. and its subsidiaries (represented by Wilson Sonsini Goodrich & Rosati) and Chunghwa Picture Tubes Ltd. (represented by Fulbright & Jaworski) -- cut confidential deals with Honeywell. Townsend and Novatek were left alone. But having prepared, they were able to beat Honeywell singlehandedly, winning the case on a summary judgment motion of non-infringement.

"It definitely increases the pressure on the remaining defendant if you're left holding the bag," Herhold said. "We took a risk in the Novatek case, but we knew we had a good case."

But not everyone fares so well.

RAT-TRAPPED

Here's the worst-case scenario: One company's lawyers take the lead in a joint defense group -- and then settle out. That leaves parties that had been less active underprepared if they have to go to trial. This is what happened when Ipernica wrung $28 million out of Nortel Networks in an Eastern District of Texas courtroom, according to some lawyers involved in the case.

Ipernica sued Cisco Systems, Juniper Networks, Nortel, Alcatel and Lucent for patent infringement in 2005. The companies entered into a joint defense agreement and, as often happens, the biggest player (Cisco) and its law firm (Goodwin Procter) took the lead, lawyers familiar with the case say. At the important Markman hearing, where the patent claims are defined for trial, Cisco's lawyer J. Anthony Downs did most of the talking. Although Juniper and its lawyer, Alan Fisch of Kaye Scholer, also spoke, Alcatel, Lucent and Nortel all ceded their time to Cisco.

Then as the case headed to trial, everyone except Nortel cut deals with Ipernica. Juniper settled for a mere $250,000, while Alcatel-Lucent's and Cisco's combined payments added up to $15 million, according to a report in Barron's at the time.

That left Nortel and its lawyers at Mintz, Levin, Cohn, Ferris, Glovsky & Popeo headed to trial. But having taken a more back-seat role, they had to scramble, attorneys familiar with the case say. The Mintz lawyers didn't have a third-party technical expert ready for the trial; they tried to use an in-house engineer, but the judge denied it. A lawyer from one of the companies that settled, who declined to be named, said the Nortel team called him at the last moment, asking to use his technical expert.

Richard Lehrer, a Baker Hostetler partner who was on the Mintz trial team at the time, said his group was not caught unprepared. "We were ready for trial." He said Nortel had not taken a back seat, either.

"The defendants worked very well together," he said. "I thought everybody pulled their own weight for the most part."

Juniper came out the best, settling for one hundredth of the initial $28 million verdict against Nortel, which was later reduced to $12 million.

MOVING THE CHEESE

New approaches are emerging that aim to minimize the drama that can come with joint defense groups.

Instead of each party using its own lawyers, clients are pooling their money to hire a single law firm to fight their case. Orrick, Herrington & Sutcliffe IP partner Fabio Marino said his firm is representing a clutch of defendants in two separate patent cases.

"It's a nice evolution in the process, because 10 years ago no one would do that," Marino said.

Marino said it cuts down on the time spent "herding cats" (i.e. stubborn patent lawyers) in joint defense efforts. It also makes it less likely that one party will be left holding the bag. But Marino said the clients must be similarly situated for joint representation to work.

Michael Sacksteder, an IP lawyer at Fenwick & West, said he's also seeing more clients looking to pool their lawyers. But he always warns clients that their interests might not be the same as the others, and that differences can get lost if one law firm is representing everyone. That might surface when it comes time to settle or during claim construction when the court defines the claims of a patent that will be used in trial.

"It could be [that] a claim construction issue comes up, and claim construction A is good for one client, and claim construction B is good for [another]," Sacksteder said.

Both approaches have their ups and downs. Sacksteder agreed that when collaborating with other defendants, it's always good to watch your back.

"You definitely need to have an oar in the water when you're in one of these joint defense groups," he said.