Patent Litigation Financing: What Is It?

Patent litigation financing, generally referred to as patent infringement financing, involves the funding of legal proceedings brought by the injured party for the use, copying, or sale of the injured party’s invention. Essentially, the inventor is alleging that the defendant illegally used, copied, or sold the invention without the express approval of the inventor. 

Overview

Patent litigation financing has its risks. The more complex and larger the patent litigation suit is, the greater the financial risk. And like any finance company, third party funding companies are always looking to maximize financial outcome with the least amount of risk. Investors want to find value in what they are investing in and not reckless patent litigation suits. Therefore, the more reputable an injured party is, i.e. large law firm, the greater chance the firm as of winning in a patent suit thereby causing the funders to make a return on their investment.

The Evolution of Patent Litigation Financing

A patent is an exclusive right. The owner of the patent, generally the inventor, can prevent others from using, copying, or selling one’s invention without his or her approval. Litigation funding is crucial for many patent owners. Nowadays, patent litigation has become a difficult challenge for inventors, as it has become harder to prove that the patent was infringed. Further, it is rather difficult for the inventor to find funding for such legal disputes. Therefore, if patent owners don’t have the funding or financial resources to be able to afford such litigation, they may not do so.

However, there are many large investment and advisory firms out there that provide financing solutions for large companies and/or law firms that are involved in complex patent litigation suits.

While smaller companies may have a difficult time hiring an investment or advisory firm to assist in the legal process, those companies should not ignore if or when someone else engages in patent infringement. Those smaller companies, or even individual inventors, can take out loans from various financial institutions and can maybe speak to an attorney who will charge less money to represent you in a patent suit. Some qualified patent attorneys may charge a contingent fee, meaning that if you don’t win your suit, you owe nothing.

Who’s in Charge of Patent Litigation Financing

Commercial litigation finance is an ever-growing industry. As previously noted, there are investment and advisory firms out there that dedicate their time to financing other companies during large and complex patent litigation suits.

With that being said, such companies are very particular in who they choose to work with. Unfortunately, a small business may have a very hard time obtaining funding from such investment and advisory firms, whereas a large law firm will have a much easier time obtaining financial assistance. Some of the largest financiers include:

  • Westfleet Advisors. Based in Tennessee, Westfleet Advisors advises injured parties who are seeking litigation finance, assisting them in finding funders, while also helping those seeking finance negotiate the terms of the contracts with such parties providing the funding.
  • Burford Capital. Based in New York City, Bogart is one of the largest litigation funders in the world.
  • Gerchen Keller Capital (now owned by Burford). This company, before being bought out by Burford, was based in Chicago.
  • Bentham IMF. Based in New York City, this is the U.S. branch of the Australian litigation funder IMF Bentham. It was launched in NYC in 2011.

Pros and Cons of Patent Litigation Financing

Patent litigation is risky and costly. Notably, the typical patent lawsuit in the U.S. costs roughly $3 million alone in attorney fees. Other fees, inclusive of discovery, expert witnesses, court reports, etc., can add an additional $1 million.

A newer solution for those unable to fund their own suits is something called “third-party funding.” Common candidates include single inventors, small entities, and universities as they generally don’t have the financial resources to self-finance a patent suit.

Before considering this option, you’ll first want to consider the factors associated with receiving funding and going through the process of patent litigation. One reason that patent litigation is so uncertain is that, if the defendant in the suit can find some sort of similarly situated prior product that was created before your patent was obtained, then a court may find your patent invalid after the fact. Thus, you’ve now spent money on obtaining the patent as well as investing in a third party to fund the lawsuit.

There are several different fee arrangements that parties can enter into for the financing of patent litigation, including contingent fees, cheaper flat fees, or fees that cannot exceed a certain amount (regardless of how much additional time is needed).

Parties can be creative in helping those injured parties afford the fees associated with patent litigation. For those who can’t afford to pay for patent litigation on their own, be sure to investigate the avenues you can go down. Conduct your research into the different third-party funding companies that may fund your suit. After compiling a list of companies, reach out to each one to obtain additional information about the company, any other requirements that must be met, and the fees associated with receiving funding. Try to set up appointments in person to go over your potential suit and the reason why your suit is a winning case with little risk.

You’ll want to establish the following:

  • That you have a solid patent position
  • That you have clear and convincing proof of infringement
  • That you have a significant claim monetarily
  • That you have a judgment-worthy defendant

Some other things to keep in mind regarding third-party and self-funding include:

  • While a law firm might take a case on a contingency basis, it’s likely that it will be unwilling to pay the other costs of litigation necessary to prosecute the case.
  • Those entities that pay 100 percent of the patent suit may end up taking almost all the funds from the compensation awarded to the injured party in the suit thereby leaving very little awarded to the injured party in the end.
  • While funding entities usually expect a 5-10 time return on the money they invest, their charges may increase substantially if the case takes longer to litigate.
  • Funding through a third party provides companies more “staying power,” which makes it likely that they can see litigation through to the end of the suit.
  • Those who self-fund must keep in mind that, taking on greater risk and investing more money in the litigation suit may not be wise.

If you need help applying for patent litigation financing, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Stripe, and Twilio.