Five Practical Settlement Strategies to Get Your Client Out of Dodge

“To truly act in the best interests of your client, you must not encourage the client to litigate out of principle. Use your experience and prove to your client that getting on with business is always a better alternative.”

settlement -’s face it, intellectual property (IP) litigation is a very expensive and risky endeavor. For the accused infringer, the prospect of going to trial means high legal fees and, even worse, a substantial disruption to the business. Even in cases where an accused infringer has viable defenses, leaving a ruling in the hands of the judge or jury is nothing more than a Las Vegas roll-of-the-dice.

Whether through informal settlement discussions, mediation, or court-mandated settlement conference, IP defense litigators must arm their clients with a bevy of effective, business-minded settlement strategies. Settling does not have to mean capitulating and paying the other side an arbitrary sum of money to go away. Instead, think of ways to put your client’s available settlement dollars to work. Here are a few practical concepts to set your client on a viable settlement path.

1. Take a Fixed-Term License

It seems simple and obvious enough, but a straightforward licensing arrangement is often overlooked out of “principle.”  Don’t let your client be pennywise and pound foolish. Instead of paying a lump sum up front, a fixed-term licensing deal lets your client pay the settlement over time while continuing to generate revenue from the accused product. It also gives your client flexibility to transition to a new product, trademark, or work over a pre-determined period or perhaps negotiate a renewal if the licensing arrangement proves profitable. Work with your client’s financial team to determine and negotiate the right royalty rate so your client can make a buck and solve the dispute at the same time. After the deal is signed, make sure your client accurately calculates the royalty payments so it can comply with audits and not overpay.

2. Assign and License Back

If your client is in a situation where infringement is questionable, but the plaintiff is fixated on owning the disputed IP, consider assigning the asset and licensing it back. Your client will have to check its ego at the door on this one, but in most cases such an arrangement is the best way to maintain the status quo and avoid sinking cash flow into litigation. Even better, in many cases the “license back” deal comes royalty-free because your client is giving up ownership of the accused asset.

3. Negotiate a Sell-Off

If your client is ready to cut bait, don’t let unsold inventory go into the dumpster. Negotiate a reasonable sell-off period as a part of a comprehensive phase out of the accused product. Usually 60 or 90 days is enough, but sometimes a year is necessary. Your client may have to pay a few more dollars on the front end, but if the numbers work then your client should clear out warehouse space the old-fashioned way and get out there and unload the accused product to paying customers while it can.

 4. Buy Some Product on Your Client’s Terms

If the accused product is a component or accessory of a central product, perhaps your client would be better off negotiating advantageous terms to buy the real deal from the other side. This is another “ego-checker” but this type of arrangement can solve both parties’ problems and keep your client’s business going forward without a hitch. Lean on your client’s business acumen to negotiate the right going-forward price and you’ll have a client for life.

 5. Agree to Co-Exist by Carving Out by Vertical or Geography

Sometimes agreeing to disagree can present opportunity. If your client is in a different industry, market, or location than the plaintiff, consider a carve out through a mutually beneficial co-existence agreement. Much has been written about co-existence agreements, but their power cannot be overstated. Although perhaps giving up some potential market expansion, the accused infringer maintains the status quo and keeps making money. Focus on negotiating the steps the parties must take to avoid market overlap and/or confusion—these terms are critical and can often benefit the accused infringer just as much as the plaintiff.

To truly act in the best interests of your client, you must not encourage the client to litigate out of principle. Use your experience and prove to your client that getting on with business is always a better alternative to the literal trials and tribulations of full-blown litigation. Incorporating just a few of these dispute resolution concepts will go miles with earning your client’s trust as an effective IP litigator and business counselor.

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One comment so far.

  • [Avatar for Paul F. Morgan]
    Paul F. Morgan
    August 7, 2019 01:46 pm

    Some good tips here, but here are a couple of caveats: “1. Take a Fixed-Term License” is now very hard to get because almost all patent owner plaintiffs are well aware that the defendant can just take that running royalties license to stop the litigation and then file a reexamination or IPR to get out of any further such royalties.
    As for unsold inventory, yes, a negotiated term is best, but if an injunction is likely in some cases one can ship some of it to another country, like Canada, before-hand.