Funding Patent Litigations


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This is the presentation I gave at the AIPF Annual Meeting yesterday. Please let me know if you have any comments or thoughts. Thanks.

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  • In 2010, roughly 26% of in-house lawyers at Fortune 1000 companies said they used a contingency arrangement, up from 19% in 2007, according to BTI Consulting Group Inc., of Wellesley, Mass., which surveyed 300 lawyersrecently shifted almost all of its offensive patent litigation to contingency-fee arrangements. Now, GE "business leaders" are more excited about bringing those cases, he said. "The contingency model changes the dynamics" because "there's no cost to the business and you end up sharing the spoils, only if you win.“Even on the defense side, some big clients such as Cisco Systems increasingly use what are loosely described as "contingent" payments to their law firms, in arrangements where payment is contingent on the outcome of the case, said Mark Chandler, general counsel at Cisco.
  • Funding Patent Litigations

    1. 1. FUNDING PATENT LITIGATIONSChandran B. IyerSughrue Mion, 663-7466
    2. 2. CONUNDRUM – PART 1 • Need to innovate • Need to protect innovation • Seek patent protection 2
    3. 3. CONUNDRUM – PART 2• Pace of Imitation is Accelerating• Widespread imitation only takes months• Protect your investment• Lawsuit• How to fund it 3
    4. 4. COST OF PATENT LITIGATION • Expensive • Fairly consistent cost • No chance of decreasing 4
    5. 5. 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 5
    6. 6. 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? 6
    7. 7. 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 7
    8. 8. NPES Entities that use their patents to license or bring a law suit, without any intention of practicing the technology of that patent. 8
    9. 9. 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 9
    10. 10. TYPES OF NPES Failed companies that developed patents initially  Kodak Companies that acquire patents to bring suit against competitors  Broadcom 10
    11. 11. ANTICIPATING DEFENDANTS’ MOVES AIA has made it more difficult for NPE Plaintiffs  Joinder rules  Post-Grant Proceedings 11
    12. 12. ADDITIONAL CONSIDERATIONS Quality of Pre-Filing Investigation Possibility of Early Settlement Discovery Needed Increased use of the ITC 12
    13. 13. 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 13
    14. 14. HOW QUICKLY CAN THE CASE SETTLE NPEs are holding out.  Increasingly wanting to settle on their terms 14
    15. 15. 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 15
    16. 16. ITC AS AN OPTION ITC administrative hearings are becoming more common as an alternative or lead in to NPE litigation. 16
    17. 17. 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 17
    18. 18. 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 18
    19. 19. 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 19
    20. 20. 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 20
    21. 21. 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 21
    22. 22. 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 22
    23. 23. 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 23
    24. 24. Questions? 24