Transcript Patent Valuation: A Patent as a Legal Document

Valuation of Settlement Positions
Alexander Poltorak, Ph.D.
General Patent Corporation
October 31, 2006
© General Patent Corporation 2006. All rights reserved.
Overview
 Rational Approach:
 Taking emotions out of the equation;
 Patent litigation as risk management.
 Litigation Risk Analysis:
 Decision Trees;
 Choosing probabilities.
 Other Decision-Making Tools:
 Monte Carlo Simulation;
 Game Theory.
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Rational Approach:
Taking emotions out of the equation
“Fighting to the death” is a sure way of getting
your death wish.
“Never hate your enemies – it clouds your
judgment.”
– The Godfather
“It’s not personal, it’s strictly business.”
– The Godfather
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Rational Approach:
Patent litigation as risk management
 Quantum Mechanics of patent litigation.
 Although patents are presumed valid, in
reality, they are neither valid nor invalid
until tried in court.
 Collapsing the wavefunction, i.e. going to
court.
 Litigation as risk management.
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Constructing a Decision Tree
Baby Tree
Patent is infringed
Patent is enforceable
35%
65%
Patent is unenforceable
11%
35%
Patent is not infringed
89%
Patent is valid
Patent is invalid
65%
$5,000,000
$0
$0
$0
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Decision Tree for Patent Litigation
Lost Profits
Enforceable
Reasonable
Royalties
Valid
Infringed
Treble
Damages
No Treble
Damages
Treble
Damages
No Treble
Damages
Unenforceable
Invalid
Uninfringed
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Choosing Probabilities
 National statistics:
 Validity: 65%;
 Enforceability: 89%;
 Infringement: 65%.
 Statistics for your district:
 EDT: 88%;
 Massachusetts: 34%;
 Statistics for your judge.
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Refining Probabilities
 Specific issues impacting on the merits of your
case:






Questions of ownership;
Questions of inequitable conduct;
Willfulness;
Marking;
Latches and/or estoppel;
Other claims, e.g. breach of contract.
 Delphi method.
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Rolling Back the Tree
$2,892,500
Patent is valid
$1,880,125
0.650
$3,250,000
Patent is enforceable
0.890
0.350
0.650
Patent is not infringed
0.350
Patent is unenforceable
0.110
Patent is invalid
Patent is infringed
$5,000,000; P = 0.376
$0; P = 0.202
$0; P = 0.072
$0; P = 0.350
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To Settle or Not to Settle
Win
Litigate
68%
Lose
32%
Settle
Litigate : $3.4M
0.680
Lose
0.320
Settle
0
$1M
$3.4M Win
Litigate
$5M
$5.0M; P = 0.680
$0.0M; P = 0.320
$1.0M
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To Settle or Not to Settle
 When the plaintiff is a NPE.
 When the plaintiff is a competitor.
 Valuing a patent monopoly.
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Present Value of Patent Monopoly
Vi (P)  GPi  GPi  i
l
V ( P)    i
i 1
i
PV ( P)  
i
(
1

I
)
i 1
i
l
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Common Mistakes
 Various outcomes are not
statistically independent.
 Jury bias.
 Law of large numbers.
 Catastrophic outcomes.
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Other Decision-Making Tools
 Monte Carlo Simulation
 Game Theory
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Conclusion
 Stay rational;
 Use of formal decision-making tools helps keep
emotions at bay;
 Use of decision tree helps compare certainty of
settlement with uncertainty of litigation;
 You get to play this game once – don’t gamble;
 Whatever the probability, if the result is
unacceptable you cannot take the chance;
 Trial is an expensive Russian roulette.
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