October 30th, 2012 / Insight posted in

Threatened by an American lawsuit

MB writes: Our firm has spent five years developing software that is selling well in America. Now we face a legal claim from a company that says it has patented the intellectual property behind our product. We think it is spurious but are worried about the expense of a court case in America. What do we do?

First, find an American intellectual property lawyer who will be able to advise on your chances of success if you choose to fight the case, writes Jon Sutcliffe, partner at Kingston Smith LLP. He or she will also give a steer on how much it will cost, and where you might find the money. America has many financial companies that do nothing but fund litigation in the hope of getting a slice of the winnings, and there are no-win, no-fee lawyers.

Alternatively, rather than fight the case, you could explore mediation to come to a settlement, or pay royalties, which might be more affordable. The key question is, what is the long-term value of the American business?

If you conclude, as others in your situation have done, that American litigation is too expensive, or the outcome too uncertain, you could consider a radical option that will leave your attackers grasping air.

You could cast off the lawsuit by using a pre-pack administration. Pre-packs have acquired a bad name in recent years as the perception is that the business owner is walking away from his responsibilities, but they have their place.

The pre-pack works by a sale agreement being negotiated before the administration and then completed immediately after, leaving behind any toxic elements, in this case the American litigation.

As existing management are often the purchasers in a pre-pack, this can raise suspicion among creditors if they are not paid in full. An independent valuation of the business must be undertaken in advance to ensure that it is sold for the full value.