Litigation Funding Protects IP ‘Davids’ from Predatory Goliaths

The recent legislative push—then retreat—to impose a tax on litigation funding returns didn’t change the law, but it clarified what’s at stake. It shined a spotlight on the solution that litigation funding provides for the legal industry and to intellectual property owners.

Litigation finance doesn’t present a taxation loophole to close. It’s a process that allows plaintiffs with strong claims—and limited resources—to make it to the courthouse steps.

In the IP world, where the costs of litigation can eclipse the means of most inventors, startups, and universities, non-recourse litigation funding often is the only way to level the playing field. The investment risks for funders are high; the returns shouldn’t be penalized.

The right policy response isn’t punitive taxation or blanket disclosure of sensitive funding terms, but acceptance of funding as a necessary tool and tailored transparency under the court’s supervision, so that financial disparity doesn’t become a tactical weapon.

The goal is simple: Keep the courthouse doors open while maintaining fairness and integrity in the adversarial system.

Litigation Finance’s Value

Litigation funding has been prominent in the patent space. All too often, individual inventors, startups, and universities lack the capital to enforce valid IP rights—leaving them vulnerable to infringement by larger tech companies and without funds to enforce their rights. There is no more classic David and Goliath story.

Intellectual property is inherently susceptible to misappropriation and infringement. Once there is infringement, a rightful owner is often in the worst financial position to pursue claims. Inventors spend years of time, money, and resources developing technology, and before they can capitalize on the value of the technology, it is stolen or infringed.

They may have valid and viable claims recognized under federal law, but they have no money to hire litigators or pay for the exorbitant costs associated with technical and damages experts.

The reality is that without funding as an available tool, enforcement of IP rights would be tilted even further in favor of infringing defendants. This violates common legal principles and disincentivizes innovation.

Three Possible Responses

The litigation finance industry already is advocating on many fronts to ensure access to capital for plaintiffs with strong legal claims. However, IP practitioners are in a unique position to help with this effort in at least three ways: Education, story-telling, and legislative reach-outs.

First, educating clients, colleagues, and the broader legal market about litigation finance—what it is and what it isn’t—is an important starting point to help decisionmakers realize the proper context in which to discuss potential regulation. Investment depends on the strengths of a case, and it doesn’t benefit a funder to back a frivolous suit. Continuing education is necessary to push back against the ill-conceived myths and depictions of legal funding.

Second, individual success stories of IP plaintiffs who have used litigation finance to pursue strong and meritorious claims against deep-pocketed defendants are a powerful tool in explaining to decisionmakers the importance of reasonable access to litigation funding. If an IP lawyer has a client who can tell such a story, the effect of sharing that experience is invaluable to both the legal industry and fellow IP owners.

Third, lawyers and law firms often have relationships with local lobbyists or legislators whose understanding of litigation financing’s benefits is imperative to regulating the industry appropriately. Make phone calls, talk with lawmakers, and share stories that show how important litigation finance can be to ensure access to justice.

Don’t assume others have this covered. The more contacts and discussions practitioners and their clients have with lawmakers, the better.

Responsible Regulation

Litigation finance isn’t a practice to be feared; it’s a modern tool that strengthens our justice system. It allows plaintiffs—particularly IP plaintiffs who most frequently face well-funded defendants—to have their claims vetted by an additional set of professionals, heard on the merits, and supported by sufficient resources.

It also incentivizes meritorious cases, filters out weak ones, and supports the enforcement of important legal rights. It helps ensure that justice is determined by the strength of a case, not the size of a party’s bank account.

The true danger lies not in litigation finance itself, but in misguided efforts to regulate it out of existence. The result would be less enforcement of valid rights and a legal system even more skewed in favor of those with the deepest pockets.

The answer to concerns isn’t to tax or expose funding out of existence; it is to focus on the purpose—to pair access to capital with strong and viable legal claims. That’s what belongs in a fair and unbiased justice system.

A system that allows widespread infringement without accountability undermines the very purpose of intellectual property law—innovation. That innovation ultimately benefits the Davids and Goliaths alike.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Molly Pease is the managing director and chief compliance officer of Curiam Capital LLC, a private investment firm that focuses on legal finance.

Kirstine Rogers is a legal director at Certum Group, a litigation risk firm that focuses on funding, claim monetization, and contingent risk insurance.

Both serve on the steering committee of WOLF—Women of Litigation Finance.

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