As every US patent litigator will tell you, the US has become a much more difficult place in which to enforce patents in recent years. The introduction of inter partes reviews (IPRs) in 2012 and the Supreme Court’s 2014 ruling in Alice Corp. v. CLS Bank International on patentable subject matter combined to put a serious dent in the plaintiff-side patent litigation market, hitting non-practising entities (NPEs) and plaintiff law firms especially hard.
The stats speak for themselves. The 2000’s saw a rapid year on year increase in the number of Defendants sued for infringement, from a little over 1,000 in 2000 to nearly 7,000 in 2011. Since then, volumes have fluctuated but the clear overall trend is a significant decline in the number of NPE cases brought, combined with more gradual decline in the number of operating company cases. The total number of Defendants sued in 2017 was around 50% of the 2011 peak.
2017 also brought new challenges for plaintiff patent holders, including the Supreme Court’s decision in TC Heartland determining that infringement cases must be heard in the district in which the defendant is incorporated, it no longer being sufficient that the defendant simply conducted infringing business in the chosen district. This has created a huge shakeup where new suits are filed. Whereas once the Eastern District of Texas was the venue of choice for NPEs and many operating company plaintiffs alike, the District of Delware is now the most popular venue for NPE lawsuits.
Is the tide beginning to turn?
Watching these developments from across the pond, European patent holders could be forgiven for hesitating to enforce their US patents. However, the developments are not all bad news for plaintiffs. Whilst Alice does present a risk for many computer software patents, technology-oriented, as opposed to business method, patents have actually fared better, according to some commentators, and the Federal Circuit has reversed a number of invalidity rulings in 2016 and 2017.
For smaller or illiquid businesses, finding the resources to step into the ring with a major US infringer is often a barrier and with the 2011 patent plaintiff boom times behind us, finding good lawyers to take patent cases on contingency is more difficult that it was.
However, while NPEs have declined and the contingency fee market has hardened, litigation finance in the US has been enjoying something of a purple patch. The number of litigation funders operating continues to grow rapidly and the established players have raised dizzying amounts of capital. Whereas once many litigation funders shied away from patent litigation, many of the major players and specialist funds now have good appetite and capability to underwrite such opportunities.
2018 has also brought the availability of sophisticated European-style litigation insurance options for US patent litigation for the first time. Insurance can be structured to enable a law firm to hedge fee risk (guaranteeing a minimum level of fee income) when considering full or partial contingency fee opportunities in the more challenging legal environment. Similarly, for larger, well-resourced patent holders that do not require external capital, insurance can be used to hedge some or all of the litigation budget, reimbursing the company for their legal spend if the case is unsuccessful.
Structuring litigation finance and/or insurance for anything from a single US litigation to a multi-jurisdictional, multi-target campaign remains a complex process which needs to be managed carefully, especially in light of the rapidly evolving market and growing range of financial and risk management options available.
TheJudge has brokered more patent litigation funding and risk transfer structures in more jurisdictions than any other company in the litigation finance market, and has pioneered the development of the US litigation insurance market. Please contact us to discuss the potential options available.
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