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How Innovators Can Combat Patent Infringement Using Litigation Funding

Aug. 4, 2022, 8:00 AM

It’s critical to remember that there isn’t a “patent police” in the US government. Innovators must fend for themselves and pay the legal fees to protect their patents.

Startups, universities, and similar innovators need to be aware of an increase in overlooked, but costly, infringement on their intellectual property and learn how to tap into a growing litigation funding market to help them combat this type of “efficient” patent infringement.

It may come as a surprise that it makes better financial sense for some companies to increasingly opt to infringe on a patent instead of paying licensing fees upfront. It can make sense for those companies because they’re rarely sued for infringement, which means they rarely need patent licenses. In the end, these economically “efficient” infringers will often pay next to nothing for using a patented technology without permission.

For innovators seeking to protect their patents it can feel like there’s no way to adequately punish this type of infringement.

The Wrong Incentives

If the efficient infringers ever get sued, the law may only require them to pay the “reasonable royalty” they would have paid for a license if they had done the right thing in the first place. In most cases, there are no additional penalties.

Unlike other areas of the law, there are no punitive damages in patent lawsuits. Patent owners, however, can get their litigation damages tripled if a defendant is found to have willfully infringed on a patent. Unfortunately, this can be very difficult to prove.

Efficient infringers also know that, even if they are sued, they can avoid license fees by getting the patent invalidated by the courts. The popularity of inter partes reviews—a specialized legal proceeding used to invalidate patents—is another way the system incentivizes efficient infringers.

Many startups and institutions such as universities likely hesitate to litigate their patents simply because they fear these invalidation proceedings. Some innovators may not even apply for a patent because they are concerned about the costs of being tied up by efficient infringers who refuse to obtain a license or would try to invalidate the patent.

This set up encourages a strategy of efficient infringement and undermines the integrity of the US patent system—which is supposed to reward innovators, not those who defy the system.

A Better Support Ecosystem for Innovators

The two most significant hurdles innovators must overcome to successfully protect their patents are not small—the lack of a financial war chest and the risk of losing patents if they’re invalidated by a court. Spending huge sums of money on a lawsuit to potentially have your patent portfolios destroyed surely doesn’t sound wise. No one wants to have patents invalidated.

But what good is having a patent if you can’t enforce it?

Now is a good time for startups and universities to think more seriously about leveraging litigation funding to protect their intellectual property.

During the last decade, a sophisticated ecosystem of litigation funders, patent portfolio companies, patent monetization consultants, and law firms has evolved to better assist innovators. These resources can help innovators protect their patents against efficient infringers by picking the most promising patents to enforce, identifying the most egregious offenders , and most importantly funding and building a case in the most cost-effective manner possible.

Also, litigation funders are increasingly interested in taking on intellectual property cases. According to a 2021 Westfleet Advisors litigation funding report, patent litigation “attracted a significantly higher percentage of new commitments in 2021”—nearly one-third of “all capital commitments.” The report observes that this is a “61% increase from 2020.”

Both in-house and outside counsel should consider the following recommendations when helping innovators take on efficient infringers:

  • Educate innovators about how litigation funding works and how to maximize its potential benefits;
  • Help innovators identify the valuable patents they haven’t licensed yet —if a patent hasn’t been licensed, then litigating the patent won’t interfere with existing licensing revenue;
  • Minimize the threat of losing a patent through invalidation proceedings such as inter partes reviews so that innovators have more confidence to litigate their patents;
  • Examine any joint ventures where an innovator’s patent might have been willfully infringed because willful infringement can result in triple damages, which in turn, can help financially offset the risk of losing patents in future litigation; and
  • Pay closer attention to high-tech innovators because efficient infringement may be more prevalent within the high-tech industry than others.

You Can Win

Recent big patent infringement verdicts won by Columbia University and the California Institute of Technology should give innovators greater confidence that enforcing their patents is worth the fight in court—especially if litigation funding can cover the lawsuit’s cost.

These academic institutions had the willpower to litigate their patents and it paid off handsomely. In May, Columbia won more than $150 million in a suit against a computer security company and may have those damages tripled for willful infringement. In 2020, CalTech won more than $1 billion against Apple Inc. and Broadcom Inc.

These victories are a critical reminder that innovators can step up and successfully fight efficient infringement.

Using litigation funding, it’s become much easier for innovators to pursue efficient infringers, bring offenders to justice, and maximize the value of their patents in the process.

This article does not necessarily reflect the opinion of The Bureau of National Affairs, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

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Jonathan Barbee is an attorney with MoloLamken LLP in New York. He represents inventors, innovators, startups, and research institutions in intellectual property and technology-related litigation. He litigates complex patent, trade secrets, and copyright matters across an array of technologies and industries, including the high tech, medical devices, and pharmaceutical industries.