Litigation Finance in Patent Litigation
Third-party litigation funding is, above all else, a form of investment in an economic interest. Funders need and want the best possible ratio between risk and potential reward. Patent cases are increasingly attractive to funders because they often promise a very favorable ratio.
In many respects, there is much in common between third-party funding companies and venture capital firms. Both seek to obtain an interest in an asset with extensive latent or potential value. Both engage in extensive due diligence to assure that the assets in which they invest really do have a substantial prospect for a large return on the investment. And both are willing to make investments without any guarantee of a return.
This is why the ratio between investment and potential return is so important. Because some of their investments are bound to fail, regardless of how good their due diligence is, funders, like venture capitalists, look to fund cases that, if successful, will result in a recovery of a multiple of their investments. As a general rule, funders look for investments that could pay off by a factor of ten.
There are no readily available statistics on the types of cases in which third-party litigation funders have made investments, but all major litigation funding firms have noted their investment in patent and other intellectual property cases. This is because such cases often involve very high stakes.
There is another reason why patent litigation is a fruitful field for third-party investment. In many cases, a well-funded enterprise wrongfully obtains or exploits the intellectual property of a small, up-and-coming company. The disparity in resources makes it difficult or impossible for the smaller company to defend its rights. But with a third-party funder behind it, that smaller company can sustain even expensive litigation and can win back the valuable rights that may have been taken from it.
Keywords: litigation finance, third-party litigation funding, patent litigation, intellectual property
Work Cited: Michael J. Garvin, Third-Party Funding of Patent Litigation (Aug. 2, 2018) available at https://www.lexology.com/library/detail.aspx?g=f11e44e2-1f2a-4075-9436-17e421166226
