Software Patent Litigation: A (Very) Costly Affair

Did you know that Amazon had a patent on one-click shopping? Or that Apple has a patent on “swipe to unlock"? In the US, patents have been granted on broad ideas like Double-Clicking, Online Shopping Cart, Podcasting, connecting to a Wi-Fi network, etc. The United States Patent and Trademark Office (USPTO) has granted millions of patents till date and is extremely lax when it comes to granting software patents despite software developers and the Free and Open Source (FOSS) community arguing that software should not be patentable subject matter. This has led to a huge amount of litigation, from Amazon preventing competitor Barnes and Noble from using one-click shopping, Apple successfully sued Samsung for $120 million over its “slide to unlock” and other patents, while Innovatio IP Ventures LLC which owns a patent on connecting to a Wi-Fi network, sued hotels, coffee shops and companies like Cisco, NetGear, and Motorola .

Fortunately, patents are jurisdictional and Section 3(k) of the Indian Patents Act says that, “mathematics, business methods, computer programs per se and algorithms,” are not patentable subject matter. Despite this, there have been varying interpretations of the term “per se” by the Indian Patents Office (IPO). However, a study funded by FOSS United and researched by the Software Freedom Law Center found that the amount of software patents being granted in India has been increasing. Our review found that patents are being granted on basic, obvious and non-inventive processes like “machine to machine communications.” If this trend continues, we will see waves of software patent litigation hit Indian shores soon. When that happens, the risks for Indian businesses will increase, and companies will have to plan for increased legal fees.

Quantifying the costs of software patent litigation

Software patent litigation can be an expensive business, but how expensive? To understand this, we reached out to a few litigation lawyers. Most of them were reluctant to speak to us and understandably so. After all, the more software patents there are in the country, the more software litigation will happen, and more business for lawyers. However, a few lawyers were willing to speak to us and we could quantify the costs of software patent litigation with their kind assistance.

Imagine you are sitting in front of your computer, busy at work, sipping your cup of coffee. Suddenly a letter lands on your desk. You open it and see that it is from a law firm stating that your company has violated their client firm’s intellectual property. Very few details are given as to what has been violated. You, therefore, reach out to your lawyer, if you have one, and start a communication channel. Legal fees vary, but if you are a startup or a small company, you may have to pay Rs 1.5 lakhs to Rs 2 lakhs in legal fees. If you are a larger company, engaging a top-tier law firm, this initial fee, and all other estimated fees will have to be multiplied many times.

After a month or two of back and forth, you get the details of the patents you have allegedly violated. Getting a legal opinion on whether you have really violated those patents or not will cost you a minimum of Rs 1 lakh to Rs 4 lakhs. Around the time you get this legal opinion, you may also receive a notice that a legal suit is being filed against you. Responding to this could set you back by Rs 8-10 lakh rupees.

At this point, the plaintiff (the individual or company pursuing the claim) can ask the court to issue an interim, ex-parte injunction. If they are successful, you will have police and the plaintiff’s lawyers land up at your office, search through your phones and computers for evidence of violation, and ask you a ton of questions. This could disrupt your operations for anywhere between 24-72 hours. Ideally, you have your lawyer with you during this time. Your legal costs in this phase are hard to quantify, and the financial costs are lower than the intangible costs of management time spent and disruption to your normal business operations. Unfortunately for you, interim injunctions are easier to get in India, depending on the court.

Injunctions can also prevent your company from being able to do business for a significant period of time. For example, if your company sells speakers that use a particular codec upon which the plaintiff claims right, you will have to license the codec or feed a different codec into your speakers. Also note that injunctions are usually applied right when the company is taking a product to market, as that is the time when plaintiffs have maximum leverage.

As the defendant, you can either (1) go to court before the injunction is granted to prevent the court from granting the injunction in the first place or (2) go to court after the injunction is granted asking the court to cancel (i.e. vacate) the injunction. Sometimes, when a case is filed, injunction can be granted before you get a chance to appear before the court with your lawyer. This is known as an ex-parte injunction, which is usually granted if the patent holder can prove that there is urgency and that they cannot wait for notice, etc., to be served on your company.

Generally speaking, the plaintiffs don't want the matter to go to court because it is a long, time-consuming process. Their preferred option is a licensing agreement where the amount you pay depends on the settlement negotiated with the plaintiff. If your company is in the middle of being acquired or raising a new funding round, or you do not have the financial resources to sustain a long court battle, settling is the easier option.

Going to trial

If your organization decides to fight the matter in court, the costs of the trial can be anywhere between Rs 15-25 lakhs. Depending on the intensity of the matter, type of client, and type of law firm you engage, it can be lower or higher. Depending on the court, the case can take up to seven years, though the Delhi High Court has decided some cases within 1-2 years. At this stage, you will also need to get expert evidence to disprove the plaintiff's assertions. This can cost anywhere between Rs 5-10 lakhs. The final arguments could take place over 2-3 days and cost between Rs 4-5 lakhs. If you hire a senior advocate to represent you in court, costs could go even higher. The very senior counsel can even charge Rs 25 lakhs per hearing.

If you lose the case and the court orders you to pay damages, you may have to pay between Rs 25-50 lakhs. Again, this is just an approximate range, and costs could go higher or lower depending on the facts of your specific case.

As you can see, software patents litigation is a costly affair. In this article, we have only quantified the financial costs, but the intangible, non-financial costs can also add up. You could be prevented from selling a core line of products and services, or you may need to fundamentally overhaul your business model. If you are a startup founder, multitasking and working long hours into the night, litigation could prove to be a massive distraction. Many courts, especially lower courts, may also not be capable of understanding software patent cases, which slows down the process considerably.

We have summarized the costs in the table below. Amounts are in Rupees Lakhs.

Stage of Litigation	Costs (Lower Range)	Costs (Higher Range)
Opinion on legal letter	1.5	2
Opinion on patent	1	4
Responding to suit	8	10
Fighting court case	15	25
Expert evidence	5	10
Final hearing	4	5
Damages	25	50
Total	59.50 lakhs	1.06 crores to Rs 3 crores, depending on the nature of the case, law firms hired, etc.

What can you do about this?

We are lucky that India has not seen much software patent litigation. However, things can change anytime. On paper, Section 3(k) of the Indian Patents Act says that "mathematics, business methods, computer programs per se and algorithms" are not patentable subject matter. The granted patents that we reviewed included patents on basic methods like "machine to machine communications." Patent litigation will inevitably follow, and studies by researchers like James Bessen and Michael Meurer of Boston University have found that software patents account for 38 percent of all patent litigation in the US.

If the law changes, and the software patents lobby becomes as entrenched in India as it is in the US, the industry will pay heavily. In the US, patent trolling has become a business model in itself. Trolls are companies who do no other business activity except acquire software patents and use them to litigate against others. As we saw earlier, even coffee shops who provide Wi-Fi to their customers have been targeted by patent trolls. Luckily, India has managed to escape this madness so far. To ensure that our patent landscape remains sane, support our End Software Patents efforts.