Patent Litigation Funding: Friend or Foe?

March 30, 2022

March 30, 2022

Patent Litigation Funding: Friend or Foe?

From the research, development and manufacture of pharmaceuticals to biotechnology-based food to medicines and medical devices, intellectual property (IP) litigation is growing in the technology sector and the life sciences industry.

One narrative is that plaintiffs are cash-strapped startups lacking the means to take on large corporations that illegally use their proprietary design or technology. These entities would sooner risk an infringement lawsuit than pay rightful licensing fees or royalties.  

Another perspective is that IP plaintiffs are trolls—funded by hundreds of millions of dollars from shady investors—employing broad, low-quality patents to extort profits from productive large and small businesses that develop products, create jobs, and drive the economy.

Any way you look at it, IP plaintiffs are enjoying an influx of litigation capital anticipating a lucrative award despite high upfront expenses. One commentator compared the high-risk, high-reward nature of IP litigation investment to buying lottery tickets: Although many suits are duds, one win can cover the initial investment…and exponentially more.

In 2021 we saw the second largest patent verdict ever for $2.18 billion against Intel. The case, from the Western District of Texas, is just one in a series filed against Intel by VLSI Technology, which is owned by a large investment group. A month after the verdict, Intel successfully dismissed a second case filed by VLSI, but a third case was already in the pipeline. The patents involved relate to power and speed technologies affecting possibly millions of processors sold in the U.S. each year. While the verdict in the first case may still be challenged, the high jury award demonstrates the potential of a windfall recovery in a patent case that could have gone either way.

Some were unimpressed by Intel’s cries of litigation investors leveraging patents to extract exorbitant awards, considering that Intel has mostly dominated the $400 billion chip industry for the past 30 years and that the large award represented roughly half of Intel’s fourth-quarter profit. But one can see how patent litigation could jeopardize the solvency of a smaller business or at least force them to divert resources from jobs and innovation to defend themselves.

Whether we like it or not, financial interests in patent cases are expanding.  

Last year nearly a quarter of patent litigators responding to a Bloomberg Law Survey indicated that they had employed funding in their cases. (This is up a whopping 25% over 2020.) The increased activity placed IP litigation as second only to commercial litigation in incidence of funding use, and patent litigators were among the only groups where respondents with experience obtaining funding outnumbered those with an unrealized interest in getting funding.  

For their part, investment firms are hiring internal patent specialists to conduct skilled due diligence to identify promising IP cases and are rounding out their portfolios with stakes in patent licensing as well as litigation funding.

Insurers are offering verdict protection policies to cover portions of patent awards that may be overturned on appeal.  

The U.S. government is also grappling with the increased funding activity. Corporations are agitating to eliminate a federal patent office rule that limits specialized government review of infringement claims when a lawsuit is pending. And Congress has introduced legislation that would require disclosure of patent ownership every time a patent issues or changes hands.  

Developments in IP case funding will be interesting to watch, but it’s clear investors fronting lawsuit costs in exchange for a portion of the eventual recovery will continue to appeal to lawyers and firms.

At LevelEsq, we prefer funding solutions that empower attorneys like you to keep full control of their cases and maximize the portion of an award that stays with them and their clients, all while boosting profitability and protecting their firm against a financial blow in the event of a trial loss. If you also do, check out our unique, innovative Litigation Cost Protection insurance and fast, flexible Lawsuit Cost Financing.

How can we help your firm?

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