With the high costs and even higher stakes involved in patent litigation, patent holders must consider alternative means of financing their patent litigation. There are a few relatively new techniques of financing IP litigation. One new development is the emergence of investors—such as Altitude Capital—providing capital for patent holders to pursue their litigation in return for a share of the verdicts and settlements. There is also patent enforcement insurance offered by Intellectual Property Insurance Services Corporation which finances litigation (and seeks to arrive at licensing arrangements) brought by companies that believe their patents are being infringed.
However, patent holders are more likely to find that forward-thinking contingent fee IP counselors can be a source of financing their patent litigation. The challenge is finding the right IP patent litigators. Experience and expertise as evidenced by a track record of success is a necessary but not sufficient set of criteria in choosing legal representation.
In his presentation at IncreMental Advantage’s Strategies for Managing Intellectual Property Litigation Summit, Ronald Schutz of Robins, Kaplan, Miller & Ciresi discussed additional criteria that patent holders should take into account when selecting contingent fee patent litigators. A few of Mr. Schutz’s recommendations follow:
- Since patent litigation is extremely expensive and persists for long periods of time, the contingent fee law firm must be financially strong. Or at least have solid relationships with its bankers. The out-of-pocket costs alone can easily run between $1 million to $6 million as technical and damage experts charge egregious rates, there are massive document production costs and foreign discovery expenses can balloon the out-of-pocket costs into the stratosphere. Further, the law firm losses opportunity costs in terms of its contingent fee lawyers not billing their standard hourly rates. Another reason that it is important that the law firm be financially strong, is that no contingency fee patent litigation firm will win every case.
- Patent holders must seek out patent litigation firms that have a culture that encourages intelligent risk taking since contingency fee patent litigation is inherently risky.
- Patent holders should evaluate the law firm’s partner compensation structure. Contingency fee lawyers may not produce billable hours for extended periods of time. However, these lawyers will need to earn some income during this time and their partners must be willing to pay them salaries. On the other hand, when the contingency fee lawyers win a large case and bring tens of millions of dollars to the firm, there should be an understanding as to how such enormous fees should be shared among the partners. If these understandings are not pre-ordained, the law firm could blow apart during the patent litigation.
According to Mr. Schutz, once a law firm is chosen to pursue patent litigation on a contingency basis, the patent holder and the law firm should make sure that they have an understanding regarding the following:
- The technology and patents under dispute. This includes inventorying the foreign counterparts of the patents so that any licensing revenues received can be shared by the patent holder and the law firm (provided that the sharing of license revenue is part of the fee agreement).
- The patent holder should make representations and warranties that he has the rights to the patents, the rights to sue and will pay maintenance fees so that the patent remains in good standing.
- The scope of the representation. For example, it must be determined at the outset how settlements achieved by litigating counterclaims will be allocated.
- There should be agreement on how the fee will be calculated. Should it be calculated based on the gross or net verdicts? How should other compensation such as stock appreciation rights and options be accounted for? What is the timetable for making payments?
- When can the lawyer withdraw from the case? Under what circumstances can the law firm be fired? How will the law firm’s fee be calculated if it is terminated? How will the law firm be paid if the litigants resolve the dispute without money changing hands?
- Who specifically at the law firm is charged with managing the case?
- Under what circumstances may the law firm represent a target of patent litigation in completely unrelated matters?
Contingency fee patent litigators make enormous investments of their time, capital and reputation in representing patent holders. Conducting rigorous due diligence on the law firm and engaging in earnest dialogue at the outset enables patent holders to forge impermeable partnerships with experienced counsel.
David Wanetick, Managing Director, IncreMental Advantage, LLC–a valuation firm with an expertise in valuing intangible assets and emerging technologies–based in Princeton, NJ. David is the author of three books that have achieved world-wide acclaim, including the only two books that unveil Industry Analysis. He has been a guest on CNBC, Bloomberg and CNNfn and has been quoted in the Wall Street Journal, Barrons, Investor’s Business Daily, Boards & Directors, and many other newspapers, blogs and magazines throughout the United States. His articles on Valuing Patents and Early-Stage Technologies and Negotiating Licensing Agreements have been published in Intellectual Asset Management, Patent World, CEO Magazine, Licensing Journal, Willamette Insights, Valuation Strategies, Valuation Examiner, IP Frontline, IP Litigator, Technology Transfer Tactics, Inventor’s Digest, Private Equity Manager, Research & Development Magazine, The Canadian Institute of Chartered Business Valuators, and others. He speaks about issues of Financial Modeling, Negotiations, Business Valuation and IP Valuation before many organizations and corporations. He has lectured all over the United States, in Canada, the United Kingdom, Belgium, Germany, the Netherlands, Singapore, Kuwait, Malaysia, Hong Kong and Israel. Representatives from more than 425 Fortune 500 companies have attended his programs.