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Timing May Not Be Everything

In love and in IP warfare, timing may not be everything, but it can be very important.

I recently consulted on an IP war between two companies. My client had had a significant bad outcome on the defense in the first case to get to trial. Our analysis of the seven ongoing cases showed that with the back and forth in the remaining cases, they would get to a total expected dollar break even in five years or so. The last case, in which the client is the plaintiff, is, on an expected value basis, a big win. Given the recent big win for the other side and the very distant threat of a significant loss, they were not inclined to negotiate an overall settlement and so all of the litigation and the accompanying costs are continuing.

That final case expected big win for the client as plaintiff had been delayed on our appeal of a pretrial ruling that, while not disastrous, was not favorable. However, pursuing that appeal before trial postponed the ultimate resolution (if there is such a thing) of the case off by at least 18 months. Our analysis showed that, again on an expected value basis, winning the appeal ¬†added about 20% to the value of the case, not insignificant. However, foregoing the appeal and speeding up the schedule might have moved the other side to negotiate an overall settlement. We could have analyzed that decision, but unfortunately it was made well before we were consulted and at that point, there were only a few months to be gained which wouldn’t have changed anything.

Take-away: When engaged in an IP war, while it is important to maximize the value of each case, timing issues – often made apparent by an analysis of all the cases – can lead to different decisions in individual cases.

Litigation Decisions versus Litigation Outcomes

One of the fundamental bases of our approach to assisting our clients to make better litigation decisions is the distinction between decisions and outcomes. A decision is something over which you have control: What issue you will raise in your pleadings; how much you will spend on the case; what you are willing to settle for. Outcomes, on the other hand, are things over which you do not have control: The judges ruling on particular motions; the jury’s liability and damage findings; the minimum /maximum amount the opposing side is willing to settle for. That’s not to say that your actions can’t influence the likelihood of various outcomes, but you do not have direct control over them.

If you judge the quality of counsel’s or colleague’s work on the basis of outcomes, the message you are sending is that they should spend every last possible dollar and do everything in their power to reduce the probability of a bad outcome. In fact, what you really want them to do is maximize the expected or probability weighted average outcome. And the best way to do that is to analyze the decisions using decision analysis (decision tree analysis) using probabilities that reflect the best available judgment, knowledge and experience.

For example, if you judge outside counsel on a defense case by the outcome -“Lose this case and you’re history.” – they will naturally exert every possible billable effort to minimize the possibility of losing the case (whether or not any particular expenditure is worth it) and then, on the courthouse steps, recommend a settlement, thus guaranteeing that there won’t be a really bad outcome.

The alternative is to analyze the case using decision trees and probability inputs from the appropriate attorneys and business people, see how sensitive the expected or average value of the tree is to various inputs and assumptions, and determine the value of the case. That value is your reservation price. If you are a defendant, then any settlement that is less than that value plus the expected remaining litigation costs is a good settlement. If the case can’t be settled for less than that, take it to trial understanding that there is an explicit probability of losing, and that going to trial is the right decision. The decision to try the case is then a collaborative effort among outside and inside counsel and management.

All have agreed, before they know the outcome, that it is the right decision. This minimizes second-guessing and finger pointing after the fact. And, in the long run, this collaborative process saves you money and the aggravation of worrying about things you can’t control. The litigation is being conducted on a business-like basis which can be clearly communicated to all the stakeholders, in particular, to senior management. It also has the benefit of unambiguously conveying to them what they need to hear, not what they want to hear.