Patent Funding: On-Line Source for Patent Litigation Funding
What Is Patent Funding?
Patent infringement litigation is very expensive. The cost of a patent infringement lawsuit can easily run into the millions of dollars. Even a small scale patent infringement lawsuit can cost $100,000 to $500,000 to prosecute. Few individuals and not too many businesses can afford the cost of patent infringement litigation. In order to successfully pursue a patent infringement lawsuit, most plaintiffs need patent funding.
Why Is Patent Infringement Litigation So Expensive?
There are two cost elements to a patent infringement lawsuit – legal fees and disbursements.
1. Legal Fees: Attorneys who try patent infringement lawsuits charge hundreds of dollars an hour, and it takes hundreds of hours – even thousands of hours – of an attorney’s time to prepare and prosecute a patent infringement lawsuit. Despite what you see on television and in the movies, most of an attorney’s time is NOT spent in a courtroom, but in preparation to try the lawsuit – researching the case, filing briefs, responding to briefs filed by the defendant, deposing witnesses, finding expert witnesses and creating trial demonstratives. Since most civil lawsuits do not go to trial, but are settled out of court, most attorneys spend far more time in negotiations with the defendant than they spend in an actual courtroom! Without patent funding, there is simply no way a patent owner who is not independently wealthy could afford the legal fees associated with patent infringement litigation!
2. Disbursements: In addition to the fees attorneys charge for their time, patent infringement litigation creates numerous out-of-pocket expenses that are called “disbursements.” These include filing fees, the cost of stenographers or videographers to record depositions, the cost of researching the case, the cost of locating and hiring expert witnesses, travel expenses, and the cost of creating trial demonstratives, exhibits that will be used to illustrate for the judge and jury exactly what the patented invention is, how it works and how the defendant infringed it. Patent funding also covers all of these items that are critical to a successful prosecution of a patent infringement claim.
Why All This Work If Most Cases Do Not Go to Trial?
The same reason one wears a seat belt. While most civil lawsuits – including most patent infringement lawsuits – do not go to trial, but are settled out of court, the plaintiff’s attorney has to be prepared to try the case before a judge and jury. There are many instances in which expert witnesses are lined up for trial – they are even deposed by the defendant’s attorneys – but the case is settled out of court so they never actually testify. The attorneys for both sides have to be ready to go to trial should they not be able to reach an out-of-court settlement. And patent funding makes that possible.
Patent Funding Enables Strong Prosecution:
In fact, patent funding is a critical element in a winning strategy for the plaintiff and attorneys trying a patent infringement lawsuit. They must convince the defendant and the defendant’s attorneys that they are headstrong, confident in their claim, prepared to go to trial, not afraid to go to trial, and they will not run out of money and be forced to abandon their claim. In fact, the image the plaintiff’s side wants to promote is that they would prefer to go to court and take their chances with a jury! Solid patent funding enables a plaintiff to aggressively prosecute a patent infringement lawsuit, and this type of aggressive prosecution enables the plaintiff’s attorneys to negotiate from strength when they sit down to hammer out an out-of-court settlement.
Lack of Patent Funding Can Spell Disaster! It would be nice if the good guys always won in the civil law system, and the bad guys always ended up paying for their indiscretions, but that’s not the way it works. The reality of the civil law system – and this often applies to patent infringement litigation – is that valid and totally righteous lawsuits are sometimes lost, but not lost at trial or before a jury. Far too many virtuous lawsuits are lost when the plaintiff has to walk away for lack of funding! Many patent owners with infringed patents have filed totally legitimate patent infringement lawsuits, but they had to give up their claims because they lacked the patent funding to pursue their lawsuits to a successful conclusion!
Patent Funding Options: When it comes to funding a patent infringement lawsuit, there are essentially five funding options to consider and chose from.
1. Self-Funding: The plaintiff covers both the legal fees and disbursements. That is possible if the plaintiff is independently wealthy or is a business that can afford to lay out millions of dollars over a two or three-year period. Needless to say, such patent funding is rarely a practical option.
2. Third-Party Funding: There are specialty financial services companies that provide funding for commercial litigation such as patent infringement lawsuits. These companies will advance funds to the plaintiff in commercial litigation such as a patent infringement lawsuit, and do so on a contingency basis (that is, repayment of the advance is “contingent” on the outcome of the litigation). These advances are also non-recourse (if the lawsuit does not produce an award or settlement, the funding company writes off the investment and has no “recourse” against the plaintiff to get its money back). The only problem with third-party funding is that these litigation funding sources will sometimes stop funding a case once they get $400,000 or $500,000 into the case, fearful that investing any more money will be throwing “good money after bad.” Third-party funding only works if the plaintiff can get a commitment from the third-party funding source to fund the entire lawsuit no matter how long it runs or how expensive it gets.
3. Partial Contingency Funding: There are patent litigation law firms that will represent clients on a contingency basis, some for both fees and disbursements, some for just their fees. They will agree to take a percentage of any award or settlement, and only if they produce an award or settlement for the client. However, some law firms will require the plaintiff to cover disbursements. While legal fees are the largest portion of the total cost of patent litigation, disbursements can easily run into the tens of thousands or hundreds of thousands of dollars, and funding for disbursements has to come from somewhere!
4. Mixed Contingency Funding: Plaintiffs are sometimes forced to combine Nos. 2 and 3. They find a law firm to take their fees on contingency, then find a patent funding company to cover the disbursements, with both being paid from any award or settlement produced by the patent infringement litigation. There are two potential problems with this, however. A patent funding company will generally not consider funding a patent infringement lawsuit until an attorney has agreed to take the case, so the plaintiff must first find an attorney to take the lawsuit on a partial contingency basis, then hope he can also find a source for funding of the disbursements. The other potential problem is that once the attorneys have taken their share of the award or settlement, and the patent funding company is re-paid for its funding of the disbursements, how much will be left for the plaintiff?
5. 100% Contingency Funding: The optimal patent funding option is to find a patent enforcement firm that will take the patent infringement lawsuit on a full contingency basis. A patent enforcement firm is NOT a law firm, so it will engage a law firm to try the lawsuit, and the patent enforcement firm will also provide funding for all disbursements. The better patent enforcement firms provide additional services, and some patent enforcement firms use a model that minimizes legal and financial risks for the patent owner. A patent enforcement firm is a one-stop, comprehensive patent funding solution that relieves a patent owner of much of the stress associated with patent infringement litigation.
Patent Funding Is a Key Success Element in Patent Infringement Litigation: A plaintiff must have a legitimate claim to win a patent infringement lawsuit, and it must be claim that is provable in a court of law. The plaintiff must have knowledgeable and competent counsel. However, those two elements alone will not insure a victory at trial or produce an out-of-court settlement. Without a source of patent funding for legal fees and disbursements, being right has little value in the world of patent infringement litigation.