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Imagine a scenario where a reputable young enterprise, company X, whose technology has been favourably received, discovers that its patents are being infringed by a large well-financed competitor. The CEO of company X goes to the patent counsel who filed and prosecuted the subject patents.
After being shown the competitor’s products and reviewing the file history of proceedings before the US Patent and Trademark Office, the counsel confirms confidently that there is literal infringement of several of the patent claims. He reminds the CEO that while in a patent infringement jury trial one can never be guaranteed success, he feels certain that were he to handle such a case, he would be able to bring home a jury trial victory.
Now comes the difficult part of this story. When the CEO asks patent counsel if he will represent company X against the competitor, and what it will cost, he receives both good and bad news. The good news is that patent counsel would be thrilled to handle what he believes is a winning case. The bad news is that the fees and costs of representation could reach or even exceed $5 million. Company X is simply in no financial position to be able to afford such fees.
When the CEO asks counsel if he would represent company X in a patent infringement litigation on a contingency fee basis, counsel apologises and says that he and his small firm will be unable to do so.
The reader might be surprised by how often this hypothetical scenario actually plays out in the business world. There are many companies with valid patents that are infringed by players bent on ripping off the technological advances of others who have no recourse but to watch the rip-off artists benefit from their years of research and development. Some will be lucky enough to find patent litigators who are financially able to experience the thrill of taking on patent litigation on a contingency fee basis, but it’s fair to say that this is an exception to the rule.
This author has taken on several contingency fee cases and has come to realise that it is only after the case has been adjudicated does the title of “foolish” or “brilliant” apply. Winning for the contingency lawyer does not require obtaining a final judgment of patent validity and infringement. If the case settles with a reasonable compromise payment, this can certainly be seen as a victory.
"One obvious answer is that companies which use litigation funding are able to shift from their balance sheets the costs associated with pursuing infringement claims."
On the other hand, a jury verdict victory and final judgment at the US district court level may be overturned on appeal, and in some cases the appellate court may order a re-trial based on errors of the district court judge.
To the rescue
There can be happy endings in instances comparable to the hypothetical scenario set forth above. When it comes to funding, there is a surprising increase in the funding of litigation involving patent infringement and other types of IP disputes. An increasing number of parties and their attorneys who use litigation financing do so in IP cases. Why is this?
There are a number of answers to this question, a couple of which are discussed here. One obvious answer is that companies which use litigation funding are able to shift from their balance sheets the costs associated with pursuing infringement claims, for example. These costs are shifted to the books of their funders.
This has the benefit of preserving such companies’ ability to preserve their stated profitability, and the benefit of enhancing their stated value. It is unquestioned that these benefits are attractive to and relied upon by investors, whose companies are always seeking to keep happy.
Yet another benefit realised by using litigation funding resides in companies being able to use funds otherwise tied up in litigation in the financing of operational and business requirements. It should be obvious that the very high costs of patent litigation will put an enormous strain on a company and should be avoided wherever possible.
Finally, another change being experienced in the IP litigation field is an increasing reliance by litigation funders upon established, reputable patent firms, large and small. Rescue may indeed be possible.
Paul J Sutton is founding partner of IP boutique law firm Sutton Magidoff. He can be contacted at: firstname.lastname@example.org
US jurisdiction report, Sutton Magidoff, Patents, patent infringement, litigation funding, US Patent and Trademark Office, patent counsel