The Fiduciary Dimension of Infringement Risk

The oversight of patent infringement risks represents perhaps the most significant liability exposure for companies with substantial patent portfolios.

Under Caremark standards, directors and officers must ensure that reasonable systems exist to identify, assess, and mitigate infringement risks in two directions:

1. Inbound Risk: The potential that the company is infringing others’ patents
2. Outbound Protection: Ensuring the company’s own patents are not being infringed without compensation

The Delaware courts have been increasingly clear that when substantial company assets are at risk, passive oversight is insufficient. For patent assets, this means executives cannot simply defer all infringement matters to legal counsel without maintaining appropriate oversight mechanisms.

The Comprehensive Risk Framework

Directors and officers must establish systematic approaches to infringement risk that include:

• Regular competitive intelligence gathering and analysis
• Systematic freedom-to-operate analyses for new products
• Established protocols for responding to identified risks
• Clear decision frameworks for enforcement actions
• Processes for assessing settlement versus litigation options

Most importantly, these systems must generate actionable information that reaches appropriate decision-makers. A reporting system that fails to elevate material risks to leadership could itself constitute a Caremark violation.

Your Strategic Advisory Role

As patent strategists, your role transcends technical legal advice. You must help your clients establish governance structures that satisfy their fiduciary obligations while advancing business objectives. This includes:

Conducting Thorough Risk Assessments

• Implementing competitive monitoring systems that track patent filings and technology developments in your client’s space
• Performing product-specific clearance analyses with business-relevant risk assessments, not merely legal opinions
• Creating risk assessment matrices that categorize and prioritize potential infringement issues

Developing Mitigation Strategies

• Designing around potential blocking patents when possible
• Identifying licensing opportunities before product launch
• Building defensive patent portfolios with cross-licensing value
• Establishing response protocols for cease-and-desist letters

Providing Enforcement Guidance

• Creating criteria for when enforcement actions align with business goals
• Developing staged enforcement approaches from notice letters to litigation
• Establishing settlement parameters that maximize business value
• Ensuring enforcement actions support rather than undermine business relationships

The Business Integration Imperative

The most sophisticated clients now integrate infringement risk management directly into product development cycles. They don’t wait until products are ready for market to conduct freedom-to-operate analyses. Instead, they establish continuous monitoring systems that inform design decisions throughout development.

As their advisors, you should push for this integration, helping clients understand that addressing infringement risks early is not merely legally prudent but economically advantageous.

Case Example: Pharmaceutical Risk Management

Consider a pharmaceutical company that implemented a systematic approach to patent risk management. They established:

• Quarterly portfolio reviews mapping patent protection to product pipelines
• Competitive patent monitoring systems for similar therapeutic areas
• Regular executive briefings on potential infringement exposure
• Integration of patent counsel into drug development teams

When a competitor launched a potentially infringing product, they had already documented their risk assessment process, enforcement decision framework, and business justification for their actions. This systematic approach not only protected them legally but maximized their negotiating position in subsequent settlement discussions.

Your Client Communication

When discussing infringement risk management with clients, frame the conversation not just in terms of legal compliance but as strategic business governance. Help them understand that systematic risk management isn’t merely defensive—it creates competitive advantages through greater operational certainty and leverage in business negotiations.