By Yoav Navon
Innovation and entrepreneurship involve struggles to protect your intellectual property rights. According to studies, intellectual property can constitute up to 70% of the value of a company. Therefore, infringement or theft of intellectual property may cause irreversible damage to a business, and the intellectual property will be of real value only when the owner can enforce it effectively against competitors in the field. IP and Patent owners must therefore effectively and aggressively defend their rights if their company is to succeed. But infringement is often by huge multinationals across multiple jurisdictions and enforcement strategies can be intimidatingly complex and expensive.
Obtaining a patent is a complex challenge. But patent registration is only the first, and relatively cheap, stage to preserving the intellectual property rights of a company. Notwithstanding the impression that has been created, registration of a patent does not automatically grant the patent holder protection against third parties using their invention without permission—the patent holder must actively monitor and police the infringement of their patent rights.
In many cases, a patent holder discovers that their intellectual property is used by other companies in the market. Regardless of whether the misuse of intellectual property by a third party is by a collaborator or a competitor, the risks facing the patent holder are enormous, and the options available to protect their IP have significant financial implications.
The first option is of course to try to protect and enforce the patent. Legal disputes in this area tend to be complex and require highly skilled lawyers and experts. The cost of managing patent litigation is typically higher than any other type of litigation. In the first instance alone, a patent infringement litigation campaign in the US can cost well over $ 5 million in attorneys’ fees to resolve at trial, and in addition there will be potentially significant expenses associated with paying appropriately qualified experts. This is, therefore, an unusually long, complicated and costly process, in which the very fate of the businesses involved may depend on the result.
The second option, which many parties will have to select from lack of choice, is to waive the enforcement of the patent. This does not result in an immediate financial cost, but the result will be that the company’s foundation, its intellectual property, will be infringed and copied by third parties, which may cause a decline in the patent-owning company’s value that can sometimes be terminal.
Additionally, inter partes review (“IPRs”) proceedings in the US have resulted in even longer timelines to case resolution—if the infringement case in district court is stayed after institution of an IPR, there will be at least a 12 month delay.
Due to the huge costs, trends, and the great risk of loss of exclusivity over intellectual property, many companies are now looking for solutions that will enable them to continue the company’s operation as usual, while enforcing their intellectual property rights.
A popular solution that has become an integral part of the field of patent enforcement is receiving funding from a litigation funder that will support and finance claims where they believe there is a high possibility of a positive outcome. This type of funding is typically non-recourse, meaning that he patent holder only has to pay the funder in the event of a positive outcome. If the claim is unsuccessful, the claimant pays nothing.
The advantages of litigation funding for both patent owners and patent litigators are substantial. Most fundamentally, litigation funding facilitates access to justice. A capital constrained patent owner who might not otherwise have the resources to protect its invention is given the opportunity to have its day in court. This is particularly true in “David v Goliath” cases, an all too frequent scenario in patent infringement, where a smaller claimant, such as an inventor, takes on a bigger, more well-resourced defendant, who may use a strategy of attrition to exhaust the claimant’s appetite and ability to prosecute its claim. A well-capitalized funder substantially levels the playing field and allows a claim to survive on its merits. Even where a patent owner has the resources to fund a dispute, litigation funding offers many other advantages. Funding allows a claimant to unlock the value of a potential claim and preserve capital for other uses, while transferring the ongoing costs and contingent liabilities of the claim to a third party. For Israeli start-ups or entrepreneurial companies focused on research and development, funding can allow them to protect their critical IP rights, while also getting on with their core businesses.
Ultimately, funding permits a patent owner to hedge some of its risk, ensuring that it will be in a better position if the claim is successful, but in no worse position if the claim is not successful. Thus, funding transforms patent litigation from a traditional “win-lose” proposition to a “win-don’t lose” proposition.
Litigation funding can also have substantial strategic benefits and lead to better settlement outcomes. A patent owner, knowing that they have the resources to fully prosecute a dispute, will be in a more advantageous position for settlement and will not be forced to accept a low offer merely on account of their capital constraints. Additionally, where a funder’s involvement in a case is made public, we find that it often leads to rapid and positive settlement discussions. The knowledge that a sophisticated, objective, dispassionate 3rd party has assessed the claim and is prepared to invest several million dollars on a non-recourse basis sends a very powerful message to the defendants. A recent example is a funding transaction that Woodsford closed in the spring of 2018, which resolved in October 2018 with an attractive settlement for an Israeli claimant against a large international conglomerate. As the settlement conference wrapped up, the defense counsel remarked to the claimant’s lawyer that the company never settles any of the (100+ per year) patent claims against it – and only did so on this occasion because the case was supported by a funder. A clear example of a funder’s power to level the playing field. It is not surprising therefore that a growing number of small and large companies recognize that financing their claims is the wisest and most effective solution to be used in legal disputes.
The author is a Director of Litigation Finance, Israel, at Woodsford Litigation Funding
These newsletters are provided for general information only. They are not intended as legal advice or opinion and cannot be relied upon as such.