Patent cases can drain operating companies of the resources necessary to keep running their businesses, leaving them no options but litigation funding as a solution. Litigation funding, is a practice where a third-party investor provides financial support to a party involved in a patent infringement lawsuit in exchange for a portion of the financial recovery if the case is successful. It is a means for plaintiffs or patent holders to mitigate
This is a key advantage of litigation funding as it increases access to justice by enabling smaller entities or individuals with meritorious patent claims to pursue litigation against larger and more financially resourced defendants. It helps bridge the gap in resources and provides access to justice that might otherwise be challenging for some patent holders.
Considerations in Patent Litigation Funding
When patent funders evaluate potential funding opportunities for patent litigation, they carefully consider various factors to assess the viability and potential for a successful outcome. One crucial aspect is the merits of the case. Funders extensively analyze the strength and enforceability of the patent at issue. They assess the validity and infringement claims, the scope of the patent’s protection, and any potential prior art or challenges that may weaken the patent’s position.
Additionally, funders evaluate the overall litigation strategy and the expertise and track record of the legal team involved. They assess the attorney’s experience in patent litigation, their knowledge of the specific technology involved, and their ability to craft a compelling legal argument. The funder will consider whether the legal team has a sound plan for presenting evidence, examining witnesses, and navigating potential legal obstacles throughout the litigation process.
Another critical consideration is the potential damages or financial recovery that may result from a successful outcome. Funders assess the potential economic impact of the patent infringement and estimate the potential damages that could be awarded by the court. They also consider the financial stability and ability of the defendant to pay potential damages, as well as any potential licensing opportunities or future revenue streams associated with the patent.
Furthermore, funders carefully evaluate the risks and challenges involved in the case. They assess the potential counterclaims or challenges from the defendant, any ongoing or previous litigation involving the patent, and any other factors that may impact the likelihood of success or the potential recovery.
Ethical considerations are also taken into account. Funders review the ethical standards and professional conduct of the legal team involved in the litigation. They ensure that the litigation is pursued in an ethical manner and that the interests of all parties involved, including the patent holder, the funder, and the legal team, align appropriately.
Overall, patent funders conduct a comprehensive analysis of the merits, legal strategy, potential damages, risks, and ethical considerations before deciding to provide funding for patent litigation. This process often takes months before completion but is necessary to ensure successful financial recovery.
Patent cases are multi-million dollar cases
Even for financially secure claimants, patent litigation can be financially draining – especially when representing themselves individually or through small entrepreneurial companies.
While litigation funding comes in various forms, funders generally aim to profit from either damage awards or licensing revenue arising from lawsuits they fund. Furthermore, funding may help lower overall litigation costs and risks by positioning plaintiffs for success – thus giving funders a potential source of profit from winning cases.
Therefore, funding has become an increasingly common solution for litigants who face multi-million dollar cases. Patent litigation often requires experts, discovery documents and trial presentations which can total well over $2 million in expenses.
Third-party litigation funding (TPLF) represented nearly 25% of patent litigation in the US between 2015 and 2021. TPLF allows plaintiffs to secure funding from non-party investors who provide backing in return for a percentage of damages or licensing revenue generated during litigation.
Due to the rise of third-party litigation funding arrangements (TPLF), district courts must determine whether disclosure of these arrangements are required by civil procedure rules. Furthermore, discovery may shed light on issues like standing as well as whether third-party funders control settlement decisions or participate in making important litigation decisions.
Private sources report that the TPLF market for patent litigation is rapidly expanding, with the U.S. now being home to the world’s biggest TPLF market.
This growth is driven by non-practicing entities (NPEs). NPEs are shell companies used as legal vehicles and typically created or controlled by individual inventors to monetize inventions patented by themselves.
NPEs are often funded by litigation finance companies who possess the financial means to engage in frivolous lawsuits with exaggerated damages awards, fuelling abusive litigation that hurts inventor-manufacturers, drives up costs and ultimately discourages future technological innovations.
With so much at stake, patent owners and their attorneys must understand how to monetize litigation and maximize the value of any wins. Parabellum provides support services that work for everyone involved – patent litigators as well as patent owners themselves.
CFOs are increasingly taking notice
CEOs and boards increasingly depend on CFOs as strategic leaders who can drive growth, transform organizations and manage disruption within businesses. This shift can be especially significant for CFOs aspiring to be CEOs as it places them into an influential position to shape company strategy.
CFOs need to understand both the complexities of an industry and technology as well as risk management and legal requirements to successfully assist their businesses in meeting regulatory burdens, often falling on them as the CFO. These challenges become particularly acute in an ever-evolving global environment where additional compliance burdens frequently fall onto CFOs’ shoulders.
As such, they must be able to balance the commercial risks associated with specific businesses with those that must be addressed from a financial risk mitigation perspective. This requires having an in-depth knowledge of both types of risk facing an organization: traditional and commercial. In both instances they should assess how this affects profitability of business activities.
Similarly, if a company is considering investing in a major product line that could bring substantial revenue and profit growth, the CFO must conduct a comprehensive risk analysis that takes into account all possible impacts to financial performance posed by this investment. This includes an evaluation of failure risks such as credit and liquidity risk as well as how it fits within overall strategy.
The CFO plays an essential role in driving overall enterprise performance by overseeing various areas, such as employee engagement and customer experience. As such, their KPIs have become an effective way of monitoring business health.
KPIs today are more strategic than in the past, as they consider data that covers not just finances but all areas of a business’ ecosystem. Furthermore, digital has made collecting and analyzing this type of metric easier – helping CFOs more quickly recognize impacts such as an improved employee experience on overall profitability.
Increasing certainty in outside counsel spend
Patent litigation funding provides companies with greater certainty in their outside counsel expenses by giving them the financial strength to tackle precedent-setting cases and reach out to new clients, leading to repeat business, higher revenue streams and enhanced growth potential for law firms.
The phrase “increasing certainty in outside counsel spend” refers to the effort made by a company to enhance predictability or control over the amount of money spent on hiring external legal services or law firms. External legal services can be expensive, and their costs can vary depending on factors such as the complexity of the legal matter, the hourly rates of the lawyers involved, and the duration of the engagement.
To increase certainty in outside counsel spend, companies can implement measures or strategies that aim to make the costs associated with engaging external legal services more predictable or manageable. This can involve various approaches, such as negotiating fixed or capped fee arrangements, setting budgets or cost estimates for specific legal projects, or implementing systems to track and control legal expenses effectively.
Other ways to increase certainty in outside counsel spend in patent litigation include:
Alternative Fee Arrangements: This involves negotiating alternative fee arrangements with outside counsel, such as fixed fees, flat fees, or capped fees. These arrangements provide a predetermined cost structure and limit potential cost overruns.
Fee Transparency and Billing Guidelines: This requires establishing clear billing guidelines and expectations for outside counsel. Companies can also request detailed billing statements that outline the work performed, hours spent, and expenses incurred. Additionally it involves regularly reviewing and auditing the billing statements to ensure accuracy and compliance with the established guidelines.
Legal Project Management: This means adopting legal project management techniques to effectively plan, monitor, and control the progress and costs of the litigation. This involves setting milestones, tracking tasks and expenses, and proactively managing the resources allocated to the case.
Early Case Assessment: This is done by conducting a thorough analysis of the litigation case at an early stage to identify potential risks, costs, and strategies. This assessment helps in developing a realistic budget and enables better cost management throughout the litigation process.
Collaboration and Communication: This requires maintaining open and frequent communication with outside counsel to discuss budget expectations, cost-saving opportunities, and potential areas of concern. Collaboration can help align legal strategy with financial goals and ensure that costs are managed effectively.
By implementing these strategies, organizations can gain better control over their legal expenses in patent litigation, reduce uncertainties, and make informed decisions regarding the allocation of resources and legal budgeting.
By increasing certainty in outside counsel spend, organizations can better plan and allocate their legal budgets, avoid unexpected or excessive legal costs, and gain better control over their overall legal expenditure.
Concerns for the Patent System
Patent quality awarded by the US Patent and Trademark Office can be an immense boon for inventors, providing them with compensation when their creations are patented. Unfortunately, thousands of low-grade patents are granted each year making it more challenging for innovators to get back their rightful compensation when their inventions are infringed upon.
This poses several problems. One such reason is that investors often view patents as a potential source of large returns; had the system worked correctly, all granted patents would have been of high-quality standards.
But the reality of patent awarding is that every year there are numerous low-quality patents being given out that are violated by companies using them in their products or services, often leading to lawsuits with significant damages being awarded against inventors who created these inventions but rarely returning their investment in terms of payment back to them.
The patent system should serve to advance science and useful arts; however, this goal hasn’t always been realized. Instead, patents have sometimes become a tool for exploiting innovation for profit at the expense of inventors.
To combat this problem, attorneys and funders must disclose the presence of funding in litigation to both the court and all parties involved. Unfortunately, this requirement has been opposed by lawyers and litigation finance providers who claim that disclosure enables abusive practices like discovery sideshows that distract from the merits of their cases.
Concerns arise when some legal finance entities rely on one source of capital that exerts an undue influence over how this capital is utilized and deployed. Clients may not realize this is the case and may strike deals with one entity that then fizzle out.
In conclusion, patent litigation funding offers a valuable solution to increase certainty in outside counsel spend. By securing financial support from third-party funders, patent holders can mitigate the risks and costs associated with patent litigation. This funding provides access to resources necessary for pursuing a strong legal strategy, including expert guidance, specialized legal expertise, and the necessary financial means to cover legal expenses. With a shared financial risk, patent holders can better plan and manage their outside counsel spend, as the burden is shifted to the funder. This allows organizations to allocate their budgets more effectively and confidently pursue patent litigation without fear of overwhelming legal costs.
Furthermore, patent litigation funding promotes access to justice by enabling smaller entities and individuals with valid patent claims to take on larger, financially resourced defendants. It levels the playing field by providing the necessary financial resources to mount a robust legal challenge. This increased access to justice ensures that meritorious patent claims have a fair chance of being litigated, strengthening the overall patent system. Overall, patent litigation funding not only increases certainty in outside counsel spend but also promotes fairness, enhances the chances of a successful outcome, and empowers patent holders to protect their intellectual property rights effectively.