On Litigation...(Azul)

I spent much of my early legal career as a litigator. To be honest, I didn't really enjoy it. I found that I derived more professional satisfaction from preventing issues, rather than resolving them after they had turned into conflicts. As a result, over the course of my career, I've developed a framework for how I view litigation. It consists of four principles:

No. 1 - You only litigate when you have an important interest to protect. Litigation is costly. Incredibly costly. But it is not the expense that is the real issue, it's the diversion of resources. Time employees spend reviewing e-mails and documents, educating lawyers and preparing for depositions is time away from the business. That's the real cost of litigation.

No. 2 - A non-judicial resolution is almost always preferable. When you file a complaint, you are turning over resolution of an issue to a third party - be it a judge, arbitrator or jury. To a great degree you lose control of the outcome.

No. 3 - You litigate when you have a high degree of confidence that you will prevail. Bluffing is for weekend games of Texas Hold'em . When you file suit, you need to have fully evaluated all aspects of the case to ensure that the outcome will be favorable.

No. 4 - You litigate to win. This means that your employees, board and management team fully understand and support the commitment (both financial and time) required to prevail. It also means having seasoned litigation counsel who understand your business and objectives.

We recently concluded a case that is illustrative of some of these points.

In early 2005, Azul Systems was getting quite a bit of press when it announced a Network Attached Server product based on a new technology known as "chip multi-threading". Many industry analysts and people in the engineering community questioned how a small, young company like Azul could develop this product so quickly. So did we. And, we knew quite a bit about this area. Sun had spent almost ten years and hundreds of millions of R&D dollars developing this technology. We also wondered whether Azul's hiring of approximately a dozen former Sun employees, many of whom worked on the same technology while at Sun, might have helped Azul succeed so quickly in their development efforts. To point number 1 above, we had a very important interest to protect – our IP, and our shareholders' investment in creating it.

In keeping with point number 2, we met with Azul six times in 2005 and multiple times in early 2006 to discuss our concerns. As part of these meetings, we provided Azul's management team with a detailed analysis supporting our view that its products infringed Sun patents and incorporated Sun trade secrets. At the same time, we tried to resolve the matter through negotiation. We even sought creative approaches to resolve the dispute. One of these included offering to have Azul make their designs available under a GPL license similar to what we have done with OpenSPARC.

In March, 2006, Azul filed a Declaratory Relief action against Sun. In essence, they were seeking to have a court determine that their products were not using Sun intellectual property. When the case was filed, Azul executives were quite vocal and used it as the opportunity to garner media attention. As it is our policy not to comment on pending litigation, we kept quiet. No press releases, No CEO interviews. No public statements from our attorneys. As a result, we received a fair amount of negative press coverage. However, to point number 3, we had fully researched and prepared our position and felt confident that we would be heard as part of the judicial process.

Forced by Azul to litigate, and to point number 4, we put together the resources necessary to defend against Azul's case. We also filed a cross-complaint bringing patent infringement and trade secret misappropriation claims against Azul.

Now, after nearly fifteen months of litigation, the case has been resolved. The specific settlement terms are confidential (not uncommon in a case like this) but, they are favorable to Sun. I think it's likely that Azul had a change of heart about the case once they viewed some particularly damaging evidence that was provided in discovery.

So why do I discuss all this? Because companies are increasingly looking to litigation to resolve intellectual property claims. But it's important to remember that litigation is just a tool. And, as with all tools, it is effective only when used dispassionately, in the right way and for the right reasons.

Comments:

Hello Mike, Thanks for sharing your insight and using Sun's own case as an example to help guide the readers' understanding. Cheers, Kempton

Posted by Kempton on June 19, 2007 at 05:53 AM PDT #

So why do you discuss all this? While I think that the end of litigation is almost always good news for everyone concerned, it's a bit hard to believe that you posted this blog entry solely as an example of how the framework of litigation works. You could have simplified the blog to the following two sentences: Today Sun and Azul settled our very, very passionate and personal feud because we had evidence that they stole our technology. While we're not providing details, we won.

Posted by Dave on June 19, 2007 at 10:02 AM PDT #

Dave: because if I wanted to read corporate news, I'd subscribe to sun.com ;) Mike: is it sort of assumed that this includes a #5 'only sue if litigation is clearly more effective than the threat of litigation', or is that subsumed in the other four in your mind? I was trying to explain to someone why FUD is a much better approach for Microsoft than actually suing RH, and while your post sort of applies, it seems to assume that FUD is not an option. Thoughts?

Posted by Luis Villa on June 19, 2007 at 12:01 PM PDT #

[Trackback] Mike Dillon, GC at Sun Microsystems, has a terrific post explaining a GC's view of the litigation process. He offers...

Posted by Goldman's Observations on June 19, 2007 at 11:55 PM PDT #

[Trackback] Mike Dillon, a General Counsel and Corporate Secretary for Sun Microsystems, Inc. has some great thoughts about litigation posted on his blog, The Legal Thing.  He notes: No. 1 - You only litigate when you have an important interest to...

Posted by California Labor and Employment Defense Blog on June 25, 2007 at 10:53 AM PDT #

This was an interesting read. Our IP partner just finished a four week trial defending the former employee of an intermational oil field company alleging his use of confidential information and unfair trade practices. The former employer failed to apply the four principals discussed above. The jury returned an 11-1 verdict finding the former employer was in bad faith filing the suit. Not only did they incur $7 million in legal fees but they are now going to reimburse the former employee for the costs that he incurred. And there is no "confidentiality" provision in the judgment. The former employee is free to mail a copy to current and prospective customers. Good, nuts and bolts advice. Thanks for stating it so clearly.

Posted by Gary McGoffin on June 28, 2007 at 09:35 AM PDT #

Thoroughly enjoyed the post and your views of the litigation process. I wholeheartedly agree with you. Points numbers 2 and 4 in particular resonate with me. While a negotiated resolution as preferable in most cases for a whole host of reasons, there are times when you must be prepared to take the matter to trial. The key is to understand when to settle and when to forge ahead, as you have noted. I applaud your company's policy concerning comments on pending litigation. I wish more companies took the high road in this regard.

Posted by Diane Evans on June 29, 2007 at 02:03 AM PDT #

Your post omits another important principle of litigation that many clients don't understand. When you are sued you have only two choices -- fight in court or settle on terms that the other side is willing to accept. You can't just quit because you don't feel like litigating if you aren't willing to accept the other side's terms which are, almost as a matter of custom, usually more than a fair resolution of the conflict calls for in a particular case at first.

Posted by ohwilleke on June 29, 2007 at 06:10 AM PDT #

Mike, your final comment about using litigation in a dispassionate manner shows \*exactly\* why you are a corporate General Counsel, and why Sun is very fortunate to have you on board.

Posted by James McPherson on August 14, 2007 at 11:41 PM PDT #

Great post!

Posted by James on October 01, 2007 at 11:49 AM PDT #

Definitely its winning logic make a step forward to prevent issue is always cheper that to solve it

Posted by Hold em Texas on August 16, 2008 at 01:13 PM PDT #

Great posts and infomation to a layman. I suppose with a large corporation vanue matter may be a less important issue. Our small company recently was addressed that our product infringes a certain patent owned by a company may be 10 times our size. We are sure that our product does not infringe and we sued to gain vanue in our state, and presently we are organizing prior art to request USPTO to re -examaine that patent. I wonder if this decision to sue is too hasty ?
WKH

Posted by WKH on September 07, 2008 at 12:52 AM PDT #

I am taking law classes and I am not sure how to write a litigation report can you tell me the outline what it looks like that would be so helpful. Thank you
Mrs Claudia Smith

Posted by Claudia Smith on October 15, 2008 at 04:26 AM PDT #

I have an inventor friend who has been sued by a 2 billion dollar a year company which claims my friend’s invention patent rights belong to them. For over two years this case has dragged through state court, appellate court, state supreme court, arbitration, federal court, and my friend has won every motion, appeal, and arbitration up to the final judgment, before which, the state judge retired. Now, that my friend has spent his life’s savings, the big company is trying to start the suit over again.

Posted by John on November 07, 2008 at 09:31 AM PST #

Keep up the good work bro.Your article is really great and I truly enjoyed reading it.Waiting for some more great articles like this from you in the coming days.

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