Enforcing your intellectual-property (IP) rights can be an expensive proposition. The litigation costs for a typical patent infringement case can range from $1 million to $25 million. Cases can last for several years. Plus, the outcome of the typical case is very unpredictable.
Many companies are not equipped to deal with such uncertainties. As a result, some companies are exploring litigation financing as a way to mitigate the risks associated with IP rights enforcement.
Litigation finance refers to the practice in which a financing company will lend a potential plaintiff the money to pay its attorneys and other litigation costs in exchange for a portion of any litigation or settlement proceeds. These loans are non-recourse loans that use the claim(s) or the potential claim(s) as security. This means that if a potential plaintiff does not win their case, they do not have to pay back the loan.
Litigation finance has been a common practice in the United Kingdom and in Australia. However, the development of litigation finance has lagged in the U.S. This is due to the prevalence of U.S. attorneys that take cases on a contingency basis.
A recent whitepaper by Burford Capital, a leading litigation finance firm, included a survey that showed that around 33% of the U.S.-based respondents were associated with firms that had used litigation finance in the past. The rates for U.K. respondents and Australian respondents were 41% and 40% respectively. Another metric indicated that the percentage of the U.S. respondent’s firms that had used litigation finance increased from 7% in 2013 to 36% in 2017.
IP cases are one of the more common types of cases for which litigation financing is used. Such cases are particularly attractive to litigation funding firms when the potential damages are high (i.e., in excess of $10 million).
Litigation funders will often look for patent cases in which the patent owner holds multiple patents and there are multiple infringers.
A patent owner can make its case more attractive to a litigation finance firm by engaging an attorney that is willing to take the case on a contingent basis. Patent owners should also pledge to have its staff and its in-house counsel devote a substantial amount of time to the case.