Why Is Litigation Finance So Appealing to IP Litigants?

May 23, 2018

Why is Litigation Finance So Appealing to IP Litigants?

Intellectual property is one of the most active areas of practice when it comes to funding. A recent survey by Law 360 shows that 49 percent of responding attorneys that used a funder to finance their litigation did so in IP cases.

What is it about litigation finance that appeals so much to claimants and law firms engaging in IP cases? We think it has to do with the fact that in IP litigation, specific benefits can accrue for funded entities. Here are just a few:

Keeping Secrets Safeon a Budget. Bentham receives many funding requests from companies pursuing litigation over the misappropriation of trade secrets from, for example, departing employees.

The problem for such companies is two-fold: First, they need to protect against suffering commercial harm by having their valuable business assets misappropriated by competitors. This necessity has increased as the digitization of IP assets has made them easier to steal. Second, bringing litigation to secure such protection can eat into their bottom lines.

As we’ve discussed before, by utilizing litigation funding, companies shift the cost of pursuing claims off their balance sheets and onto their funders’ books. This allows companies to preserve their profitability and enhance their company value. Meanwhile, the litigation made feasible by such funding can help companies deter others from misappropriating their IP assets.

Substantiating Damages Claims. In trade secret misappropriation cases, the projected financial return for a particular innovation is often up in the air. A company may say the innovation has great prospects, but have nothing other than untested technology to back up the claims. Further complicating the issue is the fact that the value of trade secrets may erode when they are misappropriated.

Litigation funding can afford the resources companies need to engage damages experts that can help them develop the non-speculative evidence they need to prove they have been damaged by trade secret misappropriation, or that it has unjustly enriched the opposing party.

Keeping Investors Interested and Happy. By involving a funder, a litigant—particularly a startup—may be able to assuage the worries of venture capital investors made wary by litigation. Though litigation is never a “sure thing,” a funder’s decision to invest in a matter can send a strong signal about the strength of the claim. Furthermore, using funding for the litigation unlocks capital that the company would otherwise use for the case. The company can invest that capital into its operational and business needs, boosting investor confidence in the long-term viability of the business.

Operating Capital for a Protracted Legal Battle. Litigation costs—particularly in bet-the-company IP cases—can put enormous strain on a company’s financial reserves. A protracted legal battle can prevent investments in revenue-generating opportunities and can even lead to cutbacks in staff and operations. This is especially challenging for companies engaged in IP cases, since they tend to last longer than other types of litigation.

When a funder deems the potential returns on claims to be large enough, they may offer clients the opportunity to use the claims as collateral for working capital. This working capital, which can be recognized as income, can give companies the breathing room they need to stay afloat throughout IP cases.

Conclusion

Using litigation funding to bring IP cases affords benefits to companies that cannot be secured by traditional contingency arrangements or self-funding. As the oldest litigation funder in the business, Bentham IMF’s investment team has extensive experience evaluating IP cases and funding them in ways that allow law firms and companies to enjoy these benefits.

For more information on how litigation finance can be utilized in IP matters, contact us.