Wednesday, 31 December 2008

Patent Litigation, the ITC, and Hardship in the Chip Industry

One of the verities of IP law and practice is "Wilkof's Law". For those of you (probably all of you) who have never heard of "Wilkof"s Law", it goes like this. Question: "How do you know when there is economic slowdown?" Answer: "There is an increase in patent litigation."

A clear example of this principle was described recently on (23cDecember 23) under the title--"Chipmakers Hire Armies of Lawyers to Boost Revenues Amid Slump." The report described the efforts of chip (of the computer and not the confectionery kind) manufacturers to make increasing use of patent litigators to try and make up for the expected severe downfall in profits for the industry during 2009. The anticipated drop in revenue for 2009 is indeed grim. According to the report, 2008 witnessed a 4.4% decline in sales, and a 16% crater-like decline in sales in forecast for 2009. Never has the industry experienced back-to-back declines in overall annual sales.

The list of current and possible patent litigation activity is broadly based in the industry. Thus it is reported that Qimonda, LSI and Spansion have all brought patent infringement actions before the ITC. Such actions tend to take much less time than a court action, and they may lead to a settlement with payment made into the patentee's coffers. Particularly notable is Spansion, which is reported to have not recorded a profit since going public in 2005. Licensing fees from defendants is one way to remedy this situation, if only in part.

When licensing fails, going forward with the suit is always a possibility. In one such high profile court filing, Spansion has recently sued Samsung for patent infringement in the area of flash memory chips. As well, Qimonda is reported to crossing patent swords with Seagate Technology, and LSI has commenced patent litigation matter with Freescale Semiconductor and Elpida Memory.

The pros and cons of bringing an ITC action with the intention of reaching a licensing arrangement were described by Robert Krupka of Kirkland & Ellis as follows. On the one hand, an ITC proceeding might actually be more expensive than a regular court proceeding (this is due to the procedural requirements of such action), with costs in the area of $5 million or more. On the other hand, for the target, settlement might be the better part of valor, especially since such an arrangement ensures the target's continuing right to sell in the U.S. market. It would seem that there is a bit of the patent-troll mind-set in all of this, although I suspect that none of the plaintiffs to such an action would so characterize themselves.

Your friendly patent trolls in action

In considering this expected flurry of chip-related patent litigation during 2009, we bring you the following comment from from the Bloomberg article. As noted, "Jerry Sanders, the founder of AMD, used to say, "Real Men own fabs", said Craig Berger.... That's kind of changed. Now it's, "Real men have huge armies of lawyers."

Or, stated otherwise, Wilkof's law is alive and well.

"Real men own fabs"--that is so yesterday ...

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