Publications

Patent litigation is an expensive proposition and many patent owners cannot assert their rights against infringers without an investment from a third-party funder.

Funders, however, take a significant risk on every case they back. To be sure, a successful litigation can earn their investors a very high return, but to get there, the initial investment is usually in the millions of dollars.

To minimize their risk, funders have identified certain red flags that make a case less likely to result in a significant verdict or settlement. For some funders, any of the ones listed below is a deal-breaker.

1. Divided Infringement

Infringement requires that a single entity practice all the limitations of an asserted patent claim. Generally, if the accused infringer does not practice even a single element of the claim, then there is no infringement.

Under certain circumstances, however, it is possible to obtain damages for divided infringement- that is, when two or more parties practice the invention collectively. Divided infringement, also known as joint infringement, is particularly common in software patents where the end user’s actions are one of the steps recited in the claim.

Liability for the divided infringement of a method claim attaches when a single entity directs or controls the performance of the other parties, and all the parties form a joint enterprise. For a system claim, liability is established when a party puts the invention into service, controls the system as a whole, and obtains the benefit from it. Furthermore, to put the system into service, the end user must be using all portions of the claimed invention.

Meeting the burden of proof in divided infringement cases is difficult because the facts are often complex and require an added layer of costly discovery and litigation about the relationships between the parties.

Thus, funders do not often invest in these cases because damages recovery is less likely in a divided infringement situation, while at the same time the costs of such litigation are likely to be much higher.

2. Doctrine of Equivalents

A patentee can assert literal infringement or infringement under the doctrine of equivalents (DOE). Literal infringement requires that each and every element of the claim be practiced by the infringer. DOE holds that an infringer may also be liable if its product, system, or method is substantially equivalent to the claimed invention. To prove substantial equivalence, a patentee must either show that (1) the infringing product does the same work in substantially the same way, and accomplishes substantially the same result, or (2) the differences between the claimed element and the accused element are insubstantial to a person of ordinary skill in the art.

As with divided infringement, infringement under the DOE is more difficult to prove, and the parties are often mired in disputes about the substantiality of the differences from the claim elements.

A case is also much weaker when its starting position is that a patent is only infringed under the DOE. In this situation, the patentee does not get to assert two alternative theories of infringement – literal and DOE – and is only left with the weaker of the two. Therefore, funders are likely to pass on such a case.

3. Limiting Prosecution History Estoppel

When prosecuting patent applications in the U.S. Patent Office, amendments and arguments that the patentee makes to overcome an examiner’s rejection may give rise to limiting prosecution estoppel that significantly narrows the scope of the claims. Such estoppel may result in claims that no longer cover the accused product, method, or system even if infringement can be proven when the claim is read without the context of the prosecution history.

If limiting amendments or arguments are found in the prosecution history, it is a safe bet that the court will take them into consideration when analyzing the scope of the claims and will rule that prosecution history estoppel applies.

When reviewing a potential case, funders will consider the prosecution history, too, and will not fund a case that does not take the narrowing scope of the claims into account.

4. History of Litigation

Similar to amendments and arguments during prosecution, statements made by the patentee about a patent in a previous litigation can have a limiting effect on future litigation. A patentee cannot take inconsistent positions about the meaning of the same claim terms in different cases. It also cannot take inconsistent positions on what the claims mean for the purposes of infringement and invalidity.

Thus, even if the previous cases asserting the same patent were successful, some funders may decline to fund the next case because of the limits that the patentee’s litigation history imposes.

5. Messy Ownership

To have standing to bring suit for infringement, the patent owner must have the full rights to the patent. Originally, a patent is owned by the inventors listed on the patent.

Inventors often assign their rights to employers. Indeed, many employment contracts require employees to assign their work-related inventions to the employer and to collaborate in helping the employer obtain IP protection for their inventions.

Sometimes, ownership is unclear. For example, some inventors may fail to execute an assignment, or the patent’s ownership changes through a series of corporate transactions.

Having clear title to the patent is foundational for being able to bring an infringement suit. It is also foundational for securing third-party funding.

6. Extensive History of Licensing

Paradoxically, even though many cases settle with the patentee granting a license to the accused infringer, granting many licenses to the patent before litigation can have a negative effect on recovery of damages. First, the prior licenses establish a baseline royalty, and if infringers are willingly taking a license to the invention, it is likely that the royalty rate is too low. Second, a patentee’s willingness to license the patent negates any arguments that the infringer’s actions hurt the patentee’s competitiveness and business. Third, the previous licenses may include terms – such as geographic or industry exclusivity – that can limit the ability of the patentee to settle the case with future infringers.

When choosing a case to invest in, funders often balk at patents already subject to previous licenses because of how significantly they may dampen the potential for damages available in the case.

7. Uncooperative Inventors

The inventors’ testimony is often pivotal in a patent case. From the patentee’s side, an inventor can present a powerful story of discovery, recounting how a spark of inspiration followed by a lot of hard work resulted in the patented invention. From the accused infringer’s side, questioning the inventor creates an opportunity to gain damaging admissions about prior art references, about the scope and utility of the invention, and about other potentially problematic aspects of the invention story.

But many inventors prefer not to be involved in the litigation process for a variety of reasons. Some may be worried about being deposed and potentially questioned at trial. Others may be disgruntled former employees with an ax to grind against the patentee. Still others may believe that they were the sole inventor and are unhappy about sharing the credit with other named inventors.

Because inventors play such a starring role in a patent case, it is essential to understand their availability and attitude prior to commencing litigation, and funders will often decide to pass on an otherwise promising case if an inventor is uncooperative or hostile.

Conclusion

Funders carefully consider these and many other issues as part of their diligence process before investing in a patent case. We spoke with Josh Meltzer of Finitive for funder input for this article.

If you are considering seeking third-party funding for your patent case, we can help. Reach out to Kate Cassidy, Katie Rubino, or Maria Granovsky to discuss your patents and any potential steps you may take to maximize the chances of funding.