In May the UK’s biggest provider, Harbour Litigation Funding, announced that it was tripling its available finances, to £180 million. An increasing amount of this is going on patent cases, with Harbour hiring Stephen O’Dowd, a commercial litigator at BT who had worked on several patent cases for the company, at the end of last year.
“Patents are definitely on the rise,” Susan Dunn, Harbour’s head of litigation funding, tells Managing IP. “We normally get two or three inquiries a month concerning patent cases; there were 10 in May.”
Litigation insurance is also increasing, with IPCom winning its appeal in May against Nokia in the Court of Appeal with the help of insurers. IPCom’s patent for accessing a random access channel on a mobile was held valid and infringed.
“IPCom was a classic example of a case that would never have been taken on in the past,” says James Blick of TheJudge, a broker for litigation insurance and funding. “It was high risk, technical and expensive. Its success shows how much more sophisticated the market has become.”
Blick found funding for his first patent case in 2005 and it was the only one that year. Today TheJudge works with 12 different providers, each taking on five to 20 cases a year. “New insurers have entered that market and are often prepared to take on bigger risks,” he says. “And litigation funding, which used to be the preserve of small hedge funds, has seen banks enter, such as Investec.”
Investec was the first bank to begin offering litigation funding in the UK, at the beginning of 2011. In November it said it had lent out £5 million so far.
Greater patent expertise
Historically, patents have been seen by third-party funders as too complicated and unpredictable. While funders like Harbour still turn down cases that seem to turn too much “on the arguments of two sets of experts, neither of which we understand”, according to Dunn, there is increasing expertise in-house and outsourcing to patent lawyers.
Indeed, a patent case can present the perfect fact pattern for a litigation funder: a small, risk-averse company with a specific claim, experience in the area and a counterparty that is good for the costs. “Patents are ripe for growth. They can be very lucrative cases and there are lots of individuals out there looking for help,” says Blick.
Gareth Morgan at Winston & Strawn helps companies such as Harbour understand the cases that come to them. “Patent litigation is still a big call for SMEs. Having spent £100,000 to £150,000 on protecting a patent, the last thing you need is enforcement that could cost up to €1 million. There is no such thing as cheap litigation – even in Germany and the Netherlands it’s often more expensive than people think. Cost awards in the Dutch courts are often above €500,000,” he says. “In that situation third-party funding can be a big help.”
The unitary patent in the EU, the final vote on which has been postponed by the European Parliament, would increase the potential upside for funders while keeping costs relatively stable. “Damages across the EU could be up to eight times what you can get in the UK at the moment,” estimates Morgan.
Food for the trolls
This would of course also be an incentive to patent trolls or NPEs, and the distinction between funders and NPEs has become increasingly blurred. “We have been approached by patent owners who were approached by trolls, but didn’t want to give away control of their case,” says Blick.
The legal principle of champerty prevents third-party funders from taking any active role in a legal case. But the IP rights themselves can be assigned – another benefit of funding IP cases – and Blick refers to a recent case where the funder decided to take on a more active role, rather like an NPE. “Plus the money behind trolls and funders often comes from similar sources – so the distinction can become quite fuzzy,” he says.
“The choice between insurance, funding and NPEs is about control and costs,” says Morgan. “With insurance you cede a lot of the control over how the case proceeds. But the costs are likely lower. Third-party funders will charge something approaching 50%.” And NPEs can charge even more.
“Any patent owner should consider third-party funding, though. If the technology is straightforward and you have a clear claim, funders will be interested,” says Morgan. “Show you are serious. If you have already invested your own time and money in getting a QC’s opinion, for example, that is a good start.”
