Abstract

     Patent holding entities frequently approach companies with vague allegations of patent infringement, offering a license in exchange for a “nuisance” payment which amounts to less than the cost of litigating a defense. Although accused infringers often have strong arguments that the asserted patent claims are either invalid or not infringed, most risk-averse companies opt to settle rather than face the expensive, protracted, and uncertain prospect of litigation. Such “nuisance” patent settlements, however, defy their name–often amounting to millions of dollars.
     Despite a wealth of analysis in the tort context of the nuisancevalue settlement problem, there has been no comparable analysis in the patent context. This Article presents substance to that void with an economic model that explains the dynamics of nuisance-value patent litigation, as well as the background conditions in patent law which facilitate these dynamics. After exploring proposed solutions from the tort context, the economic model is used to explain why a unique solution is necessary for patent suits. Finally, this Article proposes a narrowly-tailored procedural mechanism which will allow district courts to liberally grant a stay of the infringement phase of a patent suit pending completion of an expedited validity phase. Such a mechanism will provide economic incentives for defendants to litigate against nuisance patents rather than opt for nuisance settlements.