Outcome-Secured Litigation Financing: Offsetting Your Costs

June, 19th, 2018

Categories: Articles, Blog Tags: CAFC, IPR, litigation, patent, PTAB, startup, testimony, trademark, TTAB, USPTO, whipgroup

By Christopher J. Stankus & Michael J. Harris

Is a competitor infringing your patent, but you can’t afford the legal fees to pursue your claim? Or would you rather invest capital to grow your business instead of paying legal fees? If the answer to either of these questions is yes, then perhaps litigation financing is for you.

Litigation financing is a tool that helps plaintiffs and defendants pay for litigation costs. A third party provides funds (in whole or in part) to pay for legal fees in exchange for a financial interest in the outcome of the litigation. Litigation financing can enhance a company’s ability to manage litigation costs and hedge risk for legal matters that fall outside a company’s standard budget for legal expenses. It is available at any stage of a case but is often arranged at the outset when the budget and strategy of the case are being formulated.

It is important to note that litigation financing is not a loan. Repayment is contingent upon the outcome of the claim. If you are successful, the finance provider receives a portion of the recovery. If the case is unsuccessful, however, the provider receives nothing. The terms of the transaction will vary depending on the case and the provider you’re working with, but typically the provider will seek to achieve capital gains of two to four times its investment. For example, a finance provider who contributes $1 million to the case may seek a return ranging from $2 million to $4 million. While this may seem expensive, the costs should be viewed as a substantial savings in funding your legal claim.

Litigation financing can help reduce financial barriers to litigation and the risks associated with an adverse outcome. It can preserve your capital for reinvestment in company activities and promote engagement of your preferred legal counsel. If you are suddenly faced with unforeseeable expenditures, litigation financing provides the fuel to keep the litigation going when limited financial resources might otherwise cause it to stall. Further, you maintain the control, management, and decision making in the case, including all power to settle or dispose of the claim. As a result, reputable providers normally state their lack of control in their financing documents.

The downside of litigation financing is that it reduces the contingent recovery of your claim and obtaining financing can be a complex, time-consuming process. Additionally, the process to obtain financing requires specialized expertise in various legal and ethical issues. For example, a party utilizing litigation financing should ensure that a nondisclosure agreement is in place prior to sharing any information with a finance provider. Importantly, a reputable provider should never seek information that is subject to attorney-client privilege since disclosure may result in waiver.

Lack of funds should never be a reason not to enforce your intellectual property against infringing competitors. WHIPgroup can help you secure litigation financing so you can protect your assets. WHIPgroup’s patent litigation practice aggressively protects inventions and commercial products in Federal Courts and before the U.S. Patent Office’s Patent Trial and Appeal Board (PTAB). WHIPgroup’s attorneys excel in Federal Court cases on behalf of both plaintiffs and defendants, having successfully litigated numerous cases through trial, obtained favorable settlements, and won appeals at the Federal Circuit.

WHIPgroup is leading counsel for U.S. and international technology companies. We specialize in patent and trademark law.

© 2018 Whitmyer IP Group, Stamford, Connecticut.