Europe may be a patent enforcement hotspot, but for litigation funders, it’s traditionally been something of an afterthought.
That mindset appears to be changing, however, and not just because of the Unified Patent Court (UPC).
In-house sources at litigation funders, as well as private practice attorneys with experience of funded cases, say Europe is more important than ever and could soon become a hive of activity.
The reasons for funders’ historic lack of interest in Europe are well-known.
The scale of the damages awards available in Europe just can’t compete with what plaintiffs can take from US patent litigation.
Some European jurisdictions, most notably Germany, also favour injunctive relief over monetary damages.
Injunctive relief is great news for patent owners, many of whom see it as the best weapon to get out of a patent suit.
But it’s not so good for funders, who are after the proverbial pot of gold.
At least, that’s the conventional wisdom.
Some funders are now eager to find a place for Europe in their investment strategies, including Germany.
“Multi-jurisdictional campaigns that leverage both the injunctive potential of European jurisdictions and the large monetary damages available in the US pack a particularly strong punch,” says Sarah Tsou, senior investment manager at Omni Bridgeway in New York.
Funders appear to be responding to market demand.
Tsou has seen more interest from European patent owners for external funding in the past few years.
“We have seen an uptick in requests from corporates seeking to enforce and monetise valuable, global IP portfolios with the help of funding,” she says.
Among the most popular technology areas for investment are pharmaceuticals and biosimilars, automotives, semiconductors, and telecoms standard-essential patents.
The arrival of the UPC could also make for a more perfect storm.
Funders hope patent owners will seek to mitigate the risks of using an entirely untested system.
The new court will likely only bolster Europe’s appeal to funders, and maybe even establish a market to rival the US.
Shifting sands
The UPC has tended to dominate the conversation on whether funders will take more of an interest in Europe.
But there’s some evidence that the shift has already started.
David Knight, partner at Fieldfisher in London, says he has detected an increase of funder interest in UK patent cases.
“Litigation funding is becoming more sophisticated and as volumes of funded cases increase, it’s easier for investors to assess their level of risk,” he says.
And a partner at a German litigation firm says he has noticed a definite increase in funded patent cases in the last few years, and is working on several currently.
Germany is by far the biggest patent litigation hotspot in all of Europe – but historically, the partner says, there was very little funder activity there.
German courts nearly always grant injunctive relief where a patent is infringed.
Other complicating factors like the country’s bifurcated system, which deals with infringement and validity matters separately, can act as a deterrent to funders.
An investment manager at one US funder tells Managing IP they normally have little appetite for the typical German patent case’s inevitable string of appeals.
But Tsou of Omni Bridgeway is much more positive when it comes to what Germany has to offer.
“Germany’s automatic injunction system is a definite plus from a finance provider’s perspective,” she says.
Not even the massive damages awards that are known to issue occasionally from US courts deter all infringers.
In Germany, where the threat of an injunction hangs over defendants, funders will seek to target a quick settlement instead.
As for how funders can secure a return on their investment in the absence of US-style damages, Tsou says they just need to get creative.
“It is certainly more complex when a claimant’s ultimate goal is the injunction itself, as opposed to a licence or other monetary relief.
“But by no means should such claimants be discouraged from seeking funding,” Tsou says.
“If anything, we view such disputes as having tremendous potential value. We have creatively structured investments so that we, and often counsel, are compensated in the event of an injunction so that all interests are aligned,” she adds.
That’s not to say that funded cases are always straightforward.
Knight of Fieldfisher says the involvement of a funder can often delay resolution of a dispute.
“There are too many parties pulling in different directions, and the case inevitably drags out,” he says.
Curb your enthusiasm
While funder interest in patent matters is growing, Knight says, he doesn’t want to overstate the trend.
Typical UK infringement suits still don’t tend to attract funders. The inevitable counterclaim for invalidity can often be a red flag, Knight argues.
“A defendant can pull a good bit of prior art out of the bag and what you think is a strong case can collapse overnight.
“Unless a funder goes in on a speculative punt basis – and likely demands a much bigger share of the damages – they probably won’t get involved until they’ve seen what prior art the other side has,” he says.
In some circumstances, Fieldfisher is even willing to fund a case itself, although it has yet to do so for an IP matter.
“We did come close to it recently, but the dispute settled,” Knight says.
Mitesh Modha, business development and origination director at US-based funder Woodsford in London, says the firm’s patent activities are still anchored in the US.
“We’ve previously explored funding matters in other jurisdictions, but the main hurdle is that the damages quantum is usually insufficient,” he says.
“Our experience is that it simply isn’t economically viable to fund patent disputes solely in other jurisdictions,” Modha adds.
But he agrees with Tsou that multinational litigation with a European component is an increasingly attractive prospect for funders.
Strength in unity
Sources agree that growing funder interest in Europe is likely to accelerate when the UPC becomes operational, probably next year.
Modha says the firm will watch closely to see if the UPC will make European patent cases worthwhile as standalone investments.
The biggest unknown with respect to the UPC is how many patent owners will make early use of the new system.
Tsou of Omni Bridgeway expects the uncertainty associated with an entirely new system will continue to drive claimant interest in external funding.
“We are actively considering investments with a potential UPC angle and tapping our extensive network of European IP counsel to collect their anticipated strategies as we speak,” she says.
The arrival of the UPC will likely prompt Omni Bridgeway to expand its global IP team, if the expected level of market interest comes to pass.
Having played second fiddle to the US for so long, Europe is now firmly in funders’ thoughts.
