Intellectual property and patents shape corporate growth, credibility and profitability, but the litigation associated with IP and patents is known for its high cost, complexity and duration. In 2021, IP and patent litigation stakes were heightened by disputes related to Covid vaccine development and a spate of nine-figure mega-verdicts across industries. While it’s not news that patent litigation can result in very sizeable monetary damages, the uptick in activity nonetheless drew headlines.
Patent holders will turn to divestitures to indirectly monetize corporate patent portfolios
Often, operating companies and universities with patent portfolios have business conflicts or reputational concerns that prevent them from pursuing affirmative litigation as named plaintiffs. While not exclusively, many such patent holders are electing to sell or divest patents to special purpose vehicles (SPVs) to monetize value without assuming reputational risk or damaging client relationships.
Still, many companies remain uncertain as to how best to capitalize on patent value and evaluate the risk/reward of pursuing infringement clams. Even those companies with large patent portfolios and established affirmative recovery programs may not know whether their portfolios are litigation-grade—particularly if the patents weren’t prosecuted with affirmative licensing in mind.
Whether such companies capitalize on their patents through divestitures or not, all have invested significant amounts of time and money into developing patents and intellectual property and are wise to explore their portfolios’ true value. By working with a legal finance provider, patent holders benefit from otherwise unavailable third-party data, gain access to experts in evaluating litigation assets and receive guidance on how to best capitalize on their patent portfolio and improve or implement an affirmative recovery program.
Complex medical device technology will drive patent activity
Burford’s IP team is fortunate to get an early look at opportunities involving cutting-edge technologies, among them augmented reality (AR), electric engine technology and wearable medical monitoring device technology. We’re often asked about the litigation activity related to these new technologies, but in reality, the commercial market for such technologies has yet to fully develop, meaning there are often not enough related sales or other market data to support high-stakes patent litigation activity.
Burford’s IP and patent legal financing focuses instead on complex, high-volume technology that has well-established commercial success. This has historically included semiconductors, 5G technology, LED lighting, robotics, energy, alternative fuels and medical devices. These technologies have been in the market long enough, and have the necessary level of market activity, to result in meritorious disputes.
In 2022, we expect these technologies to drive market activity and are keeping a particularly close eye on life sciences-related technology. The increased pandemic related attention and pressure on the medical and healthcare industries over the past two years have precipitated an intensified effort by those industries to innovate.
Intellectual property and patents are essential to protecting and advancing medical innovation, and with the uptick in R&D, we expect patent litigation and patent transactions to become more closely intertwined with medical device technology. As medical device companies build their patent portfolios and evaluate potential infringement, they should consider working with a legal finance team whose day-to-day focus is on identifying and evaluating the litigation value and risk of patents and IP.
Mega-verdict damages awards will be under close watch
In continuation of a trend in 20211, patent mega-verdict activity comes in waves, and at the current peak these eye-popping damage awards continue to make headlines. What’s often left out of the coverage is the fact that the announcement of a damage award is just the beginning; there is a long and costly road of appeals ahead and patent owners must be well-resourced to see a case through to completion. Nonetheless, the very real potential upside has grabbed the attention of patent holders, sophisticated investors and large insurance companies.
The ability to protect a portion of the verdict is extremely attractive—to patent owners as well as their counsel and investors—and the insurance industry recognizes the opportunity. We hear that a few recent large trial awards now have a portion of the verdict insured, but the true extent to which insurance providers are entering the patent space is difficult to determine.
When both the insurance coverage and the case are strong, there’s an opportunity for a sophisticated legal finance provider to finance against the insurance. For example, if a client were to obtain insurance for a large verdict (which thus guarantees a portion of the award), a legal finance provider could finance the premium as well as perhaps advance capital against the verdict. Approaching insurance and monetization in parallel ultimately benefits the client, because the insurers can work with Burford and increase confidence in the underwriting for both parties.
Though it is too soon to say how insurance will complement mega-verdicts, with more money in the market we expect the mega-verdict wave to continue into 2022. Legal finance providers will be keeping an eye on the judgment insurance and patent litigation space.
Patent cases will become more accessible to the public
Presided by Judge Thomas Zilly of the Western District of Washington, the first-ever Zoom patent jury trial—Ironburg Inventions Ltd. v. Valve Corporation—kicked off in January 2021 with virtual jury selection.
While not the first Zoom trial ever, the case marked a turning point for patent litigation. In response to pandemic-inflicted court closures, many patent hearings occurred via Zoom. The shift to virtual made available litigation insights that were previously difficult to obtain without traveling to the courthouse. This new visibility will allow litigators, investors and other interested parties to better understand the nuances of cases as well as of presiding judges. At the proceedings’ outset, Judge Zilly noted that the virtual trial would be “a very educational and worthwhile experience”2, and we could not agree more.
On top of the educational benefit, there is also the clear cost savings benefit. Virtual hearings lower costs for all parties, and clients who would otherwise have incurred travel expenses can now more easily engage with the case. While courts have since reopened, we expect that the increased accessibility and transparency of the entire IP/patent ecosystem are here to stay—a silver lining in challenging times.
Conclusion
With robust patent litigation activity continuing in 2022, patent holders will benefit from robust affirmative recovery programs to which legal finance can be an effective complement. By providing patent holders with risk-sharing solutions, offsetting legal costs, offering finance solutions that complement existing insurance policies and managing resources throughout the appeals process, legal finance can help companies and their law firms recognize the true value of their patent portfolios.
Katharine Wolanyk is a Managing Director with responsibility for leading Burford’s award-winning intellectual property and patent litigation finance business. She is an industry leader in financing intellectual property and patent litigation and writes and speaks frequently on intellectual property issues.
Christopher Freeman is a Vice President with responsibility for assessing and underwriting legal risk in patent matters. As part of Burford’s investment team, he evaluates intellectual property cases and patent monetization campaigns and crafts investment structures that align incentives among funder, law firm and claimant.
[1] Christopher Freeman, “The recent spate of mega-verdicts and patent holder litigation,” 26 April 2021, available at: https://www.burfordcapital.com/insights/insights-container/mega-verdicts-in-patent-litigation/.
[2] Ryan Davis, “In a first, game controller patent case kicks off on Zoom,” Law360, 25 January 2021.