This is Part of Greg Wood's Series on Why to Choose Early Mediation in Intellectual Property Cases

Resolving disputes through litigation is expensive, time-consuming, emotionally and physically draining. The unique characteristics of IP cases make mediation ideal. Here's why.

Uncounted Market Costs Make Litigation Untenable

 

The direct dollar cost of intellectual property litigation – amounts paid to lawyers, experts, paralegals, and so on -- does not begin to capture its whole economic impact.  Other, less direct, costs often mean IP litigation is not an option.

Because the intellectual property assets of a company may represent the lion’s share of its value, threats to them naturally make shareholders nervous.  Economic studies of publicly traded companies involved in IP litigation reveal significant impacts on the market value of the litigating entities.  Bessen and Meurer [1] that business entities litigating patent suits lost market value equivalent to between 1.5% and 3.13%, depending on the study consulted.  In absolute dollar terms, this represented a median loss of approximately $20 million. [2]

Because Bessen and Meurer relied on historical data, this figure is stated in 1992 dollars. Adjusted for inflation, this represents approximately $33.2 million dollars in indirect costs, stated in 2013 dollars (the latest full year for which data is available). [3]  This means that the indirect cost to the parties is more than ten times the direct costs. 
Why so much? Bessen and Meurer outline the components of the loss:

  • "Legal costs.
  • Indirect costs, such as management distraction, loss of market share during the lawsuit, and loss of lead-time advantage.
  • Financial costs arising from greater risk, including risk of bankruptcy. These include possibly higher costs of funds and also the loss of wealth associated with a higher risk- adjusted discount rate applied to the stream of future expected profits.
  • Costs of expected outcomes including those associated with a settlement agreement and trial outcome. Investors take expectations over all possible outcomes and also over the length of time and cost incurred before outcomes are reached.
  • Lost opportunities, such as potential licensing forgone by an entity unsure of the long-term viability of the patent.” [4]

Successful early mediation limits all of these costs. 

By Greg Wood

ENDNOTES

[1] Bessen, James, and Michael J. Meurer. "Private Costs of Patent Litigation," JL Econ. & Pol'y 9 (2012): 59.

[2] Id. 

[3] The adjustment from 1992 values to 2013 values was made using data in Sahr, Robert, "Inflation Conversion Factors for years 1774 to estimated 2024... to convert to dollars of 2013” See http:oregonstate.edu/cla/polisci/sahr/sahr (accessed July 8, 2014).

[4] Chachkes, Alex,  Small Claims Won't Fix Rising Patent Litigation Costs," published in both Corporate Counsel and The Recorder, 2013  (now available only through Lexis-Nexis).

Drawing on an engineering background, thirty five years as an advocate in commercial, intellectual property and e-discovery disputes, twenty years serving as an arbitrator, 200+ mediations and 400+ hours of formal ADR training, Greg is “all in” in assisting parties in the speedy and economic resolution of disputes whether as a negotiation or settlement counselor, a mediator or an arbitrator. While Greg is available for mediation and arbitration of various disputes, his focus remains on complex commercial and intellectual property matters including e-discovery disputes. Greg can be reached at greg.wood@agencydr.com