US jurisdiction report: Mainstream financing of patent litigation


US jurisdiction report: Mainstream financing of patent litigation

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The funding of US contingency-fee patent and IP litigation has morphed into a respectable industry. No longer does private patent litigation funding carry the stigma once associated with it. The number of funders is increasing and their arrangements with owners of US patent portfolios are being more frequently examined and embraced by ‘big law’.

They are being lured by the marriage of enjoying the steady revenue from traditional hourly-billable work, together with the hoped-for huge potential recoveries from patent infringement settlements or favourable jury verdicts.

Those handling contingency litigation will always be drawn to the fantasy of multimillion or billion dollar recoveries, even when the uncertainties surrounding such cases introduce more than one wild card.

No-one will ever with a straight face claim that they can reliably predict how juries will decide cases. Emotional and psychological factors, together with the possibility of jury nullification, make impossible the quantifying or scientific mapping of jury verdicts. Presumptively valid patents can be invalidated, and juries can find non-infringement of valid patents, leaving their owners empty-handed.

District court rulings may be reversed and/or remanded when appealed to the US Court of Appeals for the Federal Circuit. Of course, this uncertainty will always be attractive to those addicted to David and Goliath contingency battles.

"Another factor faced by contingency attorneys concerns the amount of damages that a court may award. Juries may not be as generous as is hoped for."

Some patent owners may believe that a patent is worth something only if it will be enforced against alleged infringers. However, they must face the fact that the median fees typically charged by law firms in ordinary patent infringement lawsuits can easily reach four to five million dollars, quite apart from costs such as the fees of technical/damages experts and court reporters. Patent owners who are unable to muster these financial resources will often simply be out of luck, as they observe infringers of their rights go unpunished.

Changes to the law

Many patent attorneys believe that recent changes in the law have made challenging the validity of patents easier. The US Patent Trial and Appeal Board (PTAB) has made many rulings which invalidate one or more claims of issued US patents. This has encouraged some to forgo the district court litigation route and to pursue invalidity arguments in petitions submitted to the PTAB.

The very jurisdiction of the PTAB over patent validity is being challenged at the US Supreme Court. The court has heard arguments that only US district court judges, under article 3 of the US Constitution, have the power and jurisdiction to make such rulings. At the time of writing, we are awaiting the Supreme Court’s ruling on this issue, with oral arguments having already been heard.

Another factor faced by contingency attorneys concerns the amount of damages that a court may award. Juries may not be as generous as is hoped for.

By way of example, this author has experienced in a non-contingency case
(i) his winning a jury finding of wilful patent infringement and patent validity in a first liability-focused trial; (ii) successfully achieving an affirmation thereof on appeal to the Federal Circuit; (iii) obtaining an award of $5 million in past damages from a second jury during a damages trial a year thereafter; and (iv) successfully achieving affirmation of that verdict on a second appeal to the Federal Circuit—only then to be denied an expected tripling of the jury’s award by the judge.

This denial was within the judge’s right via exercising her discretion. With attorneys’ fees having approached $5 million over the four years of litigation, the client actually received no damages at all after deducting these fees. Had the award been tripled to $15 million, the result for the client would clearly have been more meaningful.

The reason for presenting the foregoing story is to emphasise this additional factor facing contingency attorneys and their financiers. That said, the list of risk factors goes on. Among the rights enjoyed by patent owners is their ability to obtain court-ordered injunctions which stop infringers in their tracks. In years past the courts routinely awarded injunctions where patents were found to be valid and infringed, but this is no longer a certainty. Courts today are perfectly within their rights to deny injunctive relief to the winner, and corporate counsel are expected increasingly to seek financing of patent infringement litigation.

Paul J Sutton is founding partner of IP boutique law firm Sutton Magidoff. He can be contacted at:

Sutton Magidoff, jurisdiction report, litigation, IP litigation, patent, patent portfolios, US Court of Appeals for the Federal Circuit, PTAB