09 May 2022

Eight of top 10 UK litigation funders now actively seeking intellectual property cases as startups look to take on industry giants

Data provided by Mathys & Squire has featured in an article by City A.M. highlighting UK litigation funders’ increased interest in intellectual property cases. Click here to read the article in City A.M.

Eight of the UK’s top 10 litigation funders* are now actively looking to fund intellectual property (IP) cases, says leading intellectual property law firm Mathys & Squire.

Litigation funders pay the legal costs of a litigant’s case in exchange for a share of any damages if the case is won or settled. If the case loses, the litigant owes the funder nothing.

Litigation funding has emerged as a major new asset class for institutional investors over the last decade, meaning there is significant capital to invest in strong intellectual property claims.

IP litigation is a particularly good fit for litigation funding as cases involving the infringement of patents, trade marks and registered designs can be complex, lengthy and international in nature. The cost of pursuing these kinds of claims, often against very deep-pocketed defendants, makes third party funding essential. Of course, the potential for a healthy return, particularly in the US, is another key factor as to why funders find these kind of claims attractive. Even for smaller companies bringing claims, the settlement sums can be significant.

Andreas Wietzke, Partner at Mathys & Squire, says: “Litigation funders see IP cases as a key area to deploy their capital.”

Leading global litigation funder Woodsford says that a particularly attractive growth area for litigation funding is cases of patent infringement by a US corporation against a smaller business such as a UK startup. It is disappointingly common for major tech businesses to meet with startups to discuss their IP under an NDA and then copy their idea, in breach of the NDA.

IP infringement cases in the US can result in very substantial damages being awarded. In 2020, Apple was ordered to pay the California Institute of Technology $838m in a case brought over Wi-Fi technology. In 2016, Inedix Pharmaceuticals won $2.54bn from Gilead Sciences in a dispute over hepatitis C drugs. The year before that, Smartflash Technologies was awarded $533m in damages from Apple related to software patent infringement.

Mitesh Modha, Director at Woodsford says: “Tech giants often assume a small startup won’t have the resources to pursue a potentially expensive and time-consuming patent infringement case. Litigation funders are increasingly enabling David to fight back against Goliath.”

Mathys & Squire says that the availability of litigation funding for UK businesses to pursue IP claims in the US makes it more economically viable to register IP in the US at an early stage. The possibility of pursuing cases using a litigation funder has also led to more UK businesses examining their catalogues of IP for possible instances of infringement by US tech businesses.

Andreas Wietzke says: “Registering your IP in the US can pay for itself many times over if that IP is compromised by an American company.”

“Given the potential for a huge settlement, many companies may have parts of their IP portfolios that have been infringed in the US that are equivalent to ‘Rembrandts in the attic’.”

Small businesses benefit from the increase in litigation funding for IP disputes as it will allow them to challenge the infringement of their IP by larger businesses without having to risk their own cash.

Larger corporations can also benefit from litigation funding through agreements for funders to actively pursue cases on their behalf. This way large businesses can defend their IP portfolios without having to expend resources on actively monitoring infringements themselves.

Andreas Wietzke adds: “For smaller businesses, using a litigation funder means more capital to invest in growth. For bigger businesses, it can allow them to completely outsource IP defence and take it off the senior management agenda.”

“Litigation funding increases the value of IP in particular for smaller companies. For some of them the cooperation with a litigation funder can even be symbiotic, when the startup is interested in an injunction to secure the market and the funder gets a significant part of the financial benefit.”

If a litigation funder wins a patent case on behalf of a company in one EU country then its sets a non-binding precedent in other EU countries – making it easier for the funder to collect damages across the EU. The upcoming Unified Patent Court (UPC) will boost this by offering an EU wide litigation option providing one ruling to be enforced in all participating countries.

*The Top 10 UK litigation funders by assets