funding patent litigations

FUNDING PATENT LITIGATIONSChandran B. Iyer

Sughrue Mion, PLLC

cbiyer@sughrue.com

(202) 663-7466

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CONUNDRUM – PART 1

• Need to innovate• Need to protect innovation• Seek patent protection

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CONUNDRUM – PART 2

• Pace of Imitation is Accelerating• Widespread imitation only takes months• Protect your investment• Lawsuit• How to fund it

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COST OF PATENT LITIGATION

• Expensive• Fairly consistent cost• No chance of decreasing

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FUNDING A PATENT CASE

Billable Hours Contingency Many other arrangements in-between

Contingency cases play an important role It’s an equalizer Gives everyone a chance to redress an injury

But, the funding arrangement ultimately depends on the type of plaintiff, defendants’ potential strategy, litigation strategy and

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RISK TOLERANCE

More firms are willing to take on contingency cases.

Many of the big companies are requiring contingency arrangements

But, what’s the threshold?

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NATURE OF PLAINTIFF

Why is this relevant – because it impacts the fee arrangement

Different types of patent holders Companies that make products

All other than the largest companies should be exploring alternative fee structures GE / Cisco

NPES NPEs is a broad term – encompasses all types

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NPES

Entities that use their patents to license or bring a law suit, without any intention of practicing the technology of that patent.

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TYPES OF NPES

Non-manufacturing holding companies that acquire patents from inventors Intellectual Ventures Acacia

Companies or research group that develop inventions for purpose of licensing and enforcement, not manufacturing Universities Jerome Lemelson Thomas Edison

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TYPES OF NPES

Failed companies that developed patents initially Kodak

Companies that acquire patents to bring suit against competitors Broadcom

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ANTICIPATING DEFENDANTS’ MOVES

AIA has made it more difficult for NPE Plaintiffs Joinder rules Post-Grant Proceedings

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ADDITIONAL CONSIDERATIONS

Quality of Pre-Filing Investigation Possibility of Early Settlement Discovery Needed Increased use of the ITC

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PRE-FILING INVESTIGATION

Quality of pre-filing investigations More mature and experienced NPE’s have

developed thorough investigations over time. Newer NPE’s are less willing to invest in a

thorough pre-filing investigation. Need to satisfy Rule 11 obligations Could end up with motion practice in litigation

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HOW QUICKLY CAN THE CASE SETTLE

NPEs are holding out. Increasingly wanting to settle on their terms

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DISCOVERY & PROOF

Discovery increases cost of litigation What’s the technology of the patent

Nature of the claims How much discovery is anticipated

3rd party discovery – indirect infringement case? Spoliation issue

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ITC AS AN OPTION

ITC administrative hearings are becoming more common as an alternative or lead in to NPE litigation.

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VARIOUS FUNDING OPTIONS

Strict Billable Hours Law firm’s compensation is based on hourly rate

for each attorney working on a case. Only the largest companies should use this

arrangement. Client is unsure on how much to budget for a

case. Law firm’s interest and client’s interests are not

fully aligned. Client has all the risk of litigation

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VARIOUS FUNDING OPTIONS

Pure Contingency Fees Attorney’s compensation is contingent on

settling or winning a financial award Attorney is paid a percentage of the client’s

recovery Percentage escalates depending on key events or as

case progresses.

Client is generally responsible for expenses Client’s and law firm’s interests are fully

aligned Sharing of risk and reward

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VARIOUS FUNDING OPTIONS

Partial Contingency Fees Attorney’s compensation is portion of hourly rate

plus a smaller percentage of any recoveries in the lawsuit

Client is generally responsible for expenses Client’s and law firm’s interests are still

somewhat aligned. Structure can be used for defense

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VARIOUS FUNDING OPTIONS

Fixed or Flat Fee Law firm will handle a matter for a sum certain or

for a fixed amount per month Sum certain can be paid upfront Fixed amount does not need to have a cap

Client’s and law firm’s interests are aligned. Structure can be used for defense

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VARIOUS FUNDING OPTIONS

Budgeting and Capping Each phase has a budget A cap on total amount spent

Tough to estimate

Many companies do this in defending suits

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VARIOUS FUNDING OPTIONS

Success Bonus Part of the money is paid up front, and a portion

is withheld if successful Have to define success Use when monetary damages are not high

Can be used in defense context Invalidity Limiting damages

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VARIOUS FUNDING OPTIONS

Insurance Check if there is coverage for defense under CGL

policy IP Abatement policies

Will fund enforcement of patent Helps with settlement

Defendants cannot run out the clock IP Defense policies

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Questions?