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After devoting roughly three years and a couple million dollars to a lawsuit, a small fitness equipment maker has been awarded close to $7 million in damages. Despite the favorable ruling, the company's general counsel maintains that, in light of the risks for the company and its in-house lawyer, "litigation is the last resort."
Litigating is expensive and unpredictable, the GC said, and if it doesn't go your way, company executives will want an explanation. In certain cases, though, it's a business necessity.
Fitness Anywhere, known as TRX, filed suit against competitor WOSS Enterprises in 2014 in the U.S. District Court for the Northern District of California in San Jose, alleging patent and trademark infringement, among other claims. Three years later, on March 22, a California federal jury awarded the makers of TRX fitness and training equipment around $6.8 million after finding willful patent and trademark infringement. A hearing on post-verdict matters is scheduled for June 15 to likely finalize the verdict.
While the case came out in TRX's favor, there was unsurprisingly a lot for the company's general counsel, Sid Nasr, to consider ahead of the decision to litigate. "You want to exhaust all your remedies first," he said, such as attempting to negotiate a settlement, considering an alternative dispute resolution and looking at business-oriented solutions, for example a licensing scheme with the other side.
"Litigation is the absolute, absolute last resort," Nasr said.
One reason is because of the uncertainty, according to Nasr. "It's hard to give up control and sit back and hope [a jury] will see things the way you do," he said. "Because the upside of winning is great. But the downside of losing would have been disproportionately worse."
Nasr added: "Losing would have emboldened a marketplace of folks [selling infringing products] who were eating into our revenues and we would've sunk a lot of money and would have had a lot of explaining to do."
Litigation is of course also expensive, the GC said. While he wouldn't give an exact tally of the fees that stacked up throughout the three-year litigation process, Nasr said that the average patent infringement trial comes in at around $2 million on the low end and TRX was "within that sort of usual rule of thumb."
When it comes to patent infringement cases, specifically, Nasr said, there's added risk in litigating because of the claim construction hearing in which a judge determines the meaning of words from a patent claim. If the judge construes the words in a certain way, "part of the risk is that we could go through a claim construction hearing and that might narrow the scope" of the patent, he said.
Despite the unpredictability, there were two factors that tipped TRX in favor of "going to the mat," according to Nasr.
One was to affirm the validity of the company's intellectual property, he explained. "We thought: We know we have strong patents and trademarks, but maybe the market perception is different," he said. "Litigation was a manner in which to stand by the validity of [our IP] and see what the jury thinks."
The second was an attempt to stem the tide of infringing products sold in the "Wild West of digital marketplaces," such as Amazon.com Inc. and eBay Inc., Nasr said. "We noticed a precipitous impact on our revenues and we had to figure out what that was attributed to," he said, "and after a couple of years, that wasn't just chump change being siphoned away. It was in the millions of dollars."
Nasr said TRX was not getting anywhere trying to work directly with these marketplaces to remove infringing products, so he saw a possible favorable ruling as an opportunity to "hopefully shut off this valve."
Once the decision was made to move forward with litigation, Nasr said there was a sense of pressure to ensure the "lawsuit was managed in a way where even if we lost, I could say confidently that we did everything we could." For him, that meant he "micromanaged" outside firm Vedder Price in the beginning, passed notes to the lawyers arguing the case and was very hands-on in the jury selection process, he explained.
Given that WOSS' actions were hitting TRX's pocketbook in a very serious way, it didn't take a lot of convincing to get company execs on board, Nasr said. "Even though it's a legal case, I look at it like anything else: there's a cost-benefit analysis," he said. But given the impact of WOSS' practices, TRX executives were "very bullish about going forward on this case."
"We went through it, but that doesn't mean there wasn't risk. It doesn't mean there weren't moments in trial where a couple of key points in testimony went the other way," Nasr said. "But we all felt we had to put our flag in the sand on this, so to speak."