Using legal finance to unlock university IP assets

In the last decade, changes in the patent industry have had a perverse effect on a cornerstone of scientific research and development: The university.

Many of the factors are familiar: There has been substantial growth in the risks, costs and duration of extracting value from patent rights. Fewer and fewer licensing deals are achieved outside the litigation context. This shift has benefitted firms that implement technology at the expense of owners of potentially relevant intellectual property—especially universities.

Risks frequently deter universities from pursuing litigation

Universities face procedural risks and costs associated with enforcing their patents through litigation. Yet they must also consider the impact on their relationships with commercial industry. Will a licensing dispute put at risk valuable research partnerships between the university and corporate sponsors? Will individual colleges and professors—the university’s equivalent of a business unit—support such a venture? What will the aggressive stance of litigation signal to other research partners?

Understandably, these risks have made many universities reluctant to bring patent litigation. Universities might, for instance, file suit only as a last resort after all attempts at amicable discussions have failed. But this reluctance is apparent and can anchor licensing negotiations rather unfavorably.

Ironically, a university’s reluctance to enforce its rights in court results directly from concrete evidence of their value. For instance, a university with a research grant from a company—a partnership that recognizes the value of the university’s continuing research and innovation—will hesitate before putting that grant at risk in a licensing dispute.

Companies might argue that universities are already compensated for the value such a licensing negotiation would theoretically capture. Indeed, companies do acquire technology from pipelines built by university technology transfer offices, which are charged with identifying and transferring the university’s most promising innovations to market. At the beginning of this pipeline, university technology transfer offices provide outbound intellectual property licenses to promising start-ups spun out of university labs, sometimes with graduates or professors of the labs themselves. These start-ups often build significant value in their early commercial years and are eventually acquired by an industry incumbent, which scales and commercializes the technology. The acquisition value might flow back to the university and its inventors through royalties or the like, to reward good work and to be reinvested in future groundbreaking research. In this way, companies do compensate universities indirectly for the value of their innovation.

But the process of commercialization is imperfect. Even the most well-equipped university technology transfer programs face an extraordinary challenge: They must identify viable technology development opportunities at the earliest and most uncertain stages of research. They must do so among sometimes dozens of disparate subject matters within their technical colleges. And they must often do so on a very limited budget.

Recovering ex post value of IP research

Inevitably, there are not enough resources to pursue all viable opportunities, and some patents with reasonable prospects for commercialization end up on the shelf. Even the technologies on which universities choose to focus may struggle to cross the funding gap between basic research (funded by government grants and the like) and commercialization (funded by seed or venture capital), a gap known colloquially as the “valley of death.”

Without question, innovations that cross the funding gap are exceptional. However, those that don’t are not necessarily without value; they might simply have been victims of the inherent uncertainty of the process. It follows that there are at least a few valuable patents sitting unlicensed on the university’s shelf. The question is whether universities can extract that residual value—or, conversely, whether universities must just accept that there is no market value for such inventions.

However, that latter conclusion fails to acknowledge the considerable benefit university research provides indirectly, through the natural flow of university ideas into industry. Through graduation and publication, students and professors naturally pollinate companies, trade organizations and the like with their ideas and experience. Indeed, this transfer is desirable, to the extent the university and its innovators have chosen to donate the value of their research and development to the public. But, in doing so, these students and professors may inadvertently draw upon research that is captured in intellectual property rights of the university which, due to the foregoing uncertainty, were never formally licensed to industry.

Universities should have some means through which to identify and capture that value ex post as well as ex ante. Otherwise, the integrity of the university technology transfer pipeline—and therefore, the university’s ability to recoup a meaningful amount of its substantial investment in innovation—risks erosion.

If this indirect flow of ideas into industry is indeed occurring, how might a university ultimately recover that value? The good news is that identifying the value is more straightforward once the technology has been commercialized. Realizing that value is the real challenge. As noted above, the climate for patent licensing is chilled, and potential licensees are well aware of universities’ reluctance to litigate. Further, patent litigation is an expensive and probabilistic exercise even under the best of circumstances.

Using legal finance to fund meritorious litigation

Litigation finance can provide a solution. In those situations where the university’s research has a narrow focus or where the university prefers to proceed cautiously, single-case financing might be the right fit. In single-case financing, the financier will work with the university and its litigation counsel of choice to finance the attorneys’ fees and costs through trial and appeal, including the inevitable PTAB proceedings. From the university’s perspective, this no-cost option is a welcome prospect, as it allows the university to preserve its funds for its core mission. Likewise, the support of a financier helps overcome the perception that universities are unwilling to see litigation through.

For universities with research crossing over far-ranging fields, however, one case may not be enough. Diverse portfolios often require a multi-faceted licensing approach for the overall licensing program to be successful. On the other hand, it is a daunting task to pursue multiple actions related to disparate technologies in parallel. The right financial partner can provide the significant financing and strategic input needed for such an effort, thus enabling the university to spread its risk of loss and providing the leverage necessary to facilitate a broader resolution.

Litigation finance in the university context is thus particularly valuable. Even for smaller matters, litigation finance shifts spend off the university’s balance sheet, allowing it to put its own capital to use in its primary endeavors: Education and innovation. For larger matters, litigation finance shifts risk from the university—which, despite its diverse technology portfolio, may have only a small number of claims with attractive litigation prospects—to an entity with a much larger book of diversified risk across uncorrelated claimants. Indeed, Burford’s entire business is focused on precisely this exercise: Selecting a diverse group of legal investment opportunities which produce meaningful aggregate returns despite individual risks of loss.

Why Burford? 

Burford’s size and seniority in the litigation finance industry is valuable to its clients beyond just the substantial access to capital we provide. Our size, broad focus, and decade of experience in identifying and valuing litigation risk give us a strategic view of the market, which in turn gives our partners valuable perspective on the financial viability of their claims. All of this is provided without any loss of control in return: Burford’s finance is provided without recourse to the underlying assets, and without any right to control the litigation.

With Burford, universities can achieve the scale and diversification necessary to pursue an effective intellectual property licensing strategy even in today’s challenging market.