The spread of patent litigation and spiralling costs

Of course, the rise of patent litigation is not confined to the US, and emerging markets such as India are currently experiencing similar trends, especially in the pharmaceutical sector.

"The country is witnessing a number of litigations filed by multinationals, which are attempting to enforce their patents and stop the generics from selling copycat versions of their patented drug," says Calab Gabriel, a partner at K&S Partners. "We also see a number of Indian generic companies opposing the patents filed by multinational companies for new drugs and drugs undergoing clinical trials," he continues. Clearly, the rise of generics companies is an important factor in the rise of patent litigation in India, but it is only part of the story. In 2005, India introduced the product patent regime, which allows patents to be granted more quickly, and furthermore, allows patentees to exercise their rights more effectively. "These new provisions in the Patent law have given fresh impetus to the patent litigation scenario in India, which was almost dormant until recent years," explains Shanti Kumar, a partner at Lex Orbis. "There were five reported patent suits in 2004, compared with one in 2005, six in 2006, eight in 2007 and 22 in 2008. In the last year alone, nine patent infringement actions have been reported," he adds.

These trends seen in India and the other emerging markets can generally be traced back to those seen in Western jurisdictions. As such, it can be useful for companies and counsel based in emerging markets to keep a close eye on patent-related trends in these jurisdictions. For example, in the US, there has been a rise in contingency fee litigation, one of the main drivers behind person injury and product liability suits. "Increasingly, corporations which traditionally pay their lawyers on hourly-fee basis have turned to contingency or partial contingency arrangement to enforce their patents, while flat fees and other alternative arrangements are also on the rise," explains James Li, a partner at Greenberg Traurig LLP. "This new trend will lead to more legitimate enforcement of patents, especially by small patent holders. It will also result in more frivolous patent lawsuits in the US." So clearly, the likelihood of litigation will continue to increase, and companies should start to rethink their patent strategies and to consider more ways to protect themselves from litigation risk, if they have not already.

But where litigation is already underway, both sides can take steps to smooth the process. In broad terms, both plaintiffs and defendants should allocate adequate resources to the process as early as possible. Indeed, simply understanding the facts of the claim being made can help defendants to avoid surprises, which could result in a faster, more satisfactory solution. However, experts warn that there will always be unpredictable factors such as time and cost to take into account. "Patent litigation costs vary wildly from case to case, and country to country," says Daryl Fairbairn, an associate at Clifford Chance. "The main factors are the value of the allegedly infringing product, the number of patents and claims, the complexity of the technology and the depth of discovery. Cases in the US typically take two years or longer to go to trial at a cost of more than $1m." However, he warns that the cost can be significantly higher where the stakes are high for both sides.

In other parts of the world, such as continental Europe, time and costs can be significantly less because discovery is restricted. The costs also tend to be somewhat lower in many emerging markets. "The average cost of patent litigation in India can range from $25,000 to $45,000, depending on the degree of contest by the opposite party and the engagement of senior counsel to argue the matter. For example, if the opposite party challenges the validity of the patent in reply to the suit filed, a significant amount of resources will have to be invested in defending the validity of the patent," explains Mr Kumar, adding that the need for expert witnesses tends to make patent litigation more expensive than other kinds of litigation. In addition, cases can take as long as four to five years to conclude. Mr Kumar further states, "Under the Intellectual Property Imported Goods Enforcement Rules of 2007, the import of a product infringing a patent may be stopped by customs authorities, if the right holder of the patent has pre-registered his rights with them and fulfilled all procedural formalities under the Rules." Recently, invoking the provisions of these Rules, customs officials have interdicted consignments of mobile phones alleged to be infringing on Indian patents.

Mitigating the threats

However, the situation is by no means beyond control. While there are clearly unpredictable elements, plenty can be done to make the process of patent litigation a little more certain. For example, building a defence patent portfolio, forming advice counsels and making key patent acquisitions before investment, can all help to mitigate patent-related risks. Patent litigation insurance is another option, but it is sparsely offered and very expensive. Furthermore, Mr Li warns that the mandatory patent insurance proposed by the EU could end up hurting innovation.