The Evolution of IP Litigation Funding and Insurance Markets

Ashley Keller at the IP Dealmakers Forum on December 7, 2015.

Ashley Keller at the IP Dealmakers Forum on December 7, 2015.

A patent is an exclusive right. This means that the owner of a patent can prevent others from engaging in activities that are covered by an issued patent. But as is true with any right, a patent is only worth something if the owner is willing to take action to preserve the rights and litigate against tortfeasors who are treading on the rights granted. In the United States that means litigation in federal district court, which can easily cost millions of dollars.

Litigation funding is critical for many patent owners, and as a result of the changes to the patent laws, both statutory and through judicial tinkering, patents have become easier to challenge, it has become harder to demonstrate infringement and even if a valid patent has been infringed collecting meaningful damages has become exceptionally difficult, if not nearly impossible.

If patent owners do not have the financial resources to pursue infringers the patent becomes nothing more than a wall decoration – a very expensive wall decoration. And getting funding is more difficult than ever. According to Ashley Keller, Managing Director of Gerchen Keller Capital, speaking on the last panel of the day on Monday at the IP Dealmakers Forum in New York City, they are funding 1 out of ever 100 cases they review these days. Gerchen Keller Capital is the largest investment and advisory firm exclusively focused on legal and regulatory risk, providing capital and other financing solutions to companies and law firms involved in complex litigation, including patent litigation.

“Not to sound flippant, but what we look for has not changed – it remains the same. We are always looking for the same thing, we are looking infringement, validity and damages,” says Ashley Keller. Keller did go on to acknowledge that whether the facts of any particular case meet the legal standard for infringement, validity and damages over time can and does change, but at the core you always must take into consideration those critical issues.

“A lot of innovation has been moving to the cloud and Alice has a lot of murkiness to it,” Keller explained. Keller would go on to explain that in some of the initial cases the claims may have been invalid under 103, so perhaps invalidating the claims under 101, although analytically incorrect, was no-harm-no-foul. But with some of the cases that are coming out of the district courts, where the judges are identifying what are true innovations, if the Federal Circuit upholds invalidation under 101 it will be a different world for software.

Earlier in the day on a separate panel Keller said that certainty is critical and that while he things it would be wrong for the courts to rule that software is patent ineligible, at least if they did so it would provide certainty and the market and industry could move on. Indeed, certainty is sorely needed.

Moderator Jonathan Piurko, Managing Director at Northwater Capital, asked Keller: “How are you watching to European litigation market?” “With interest,” Keller answered. “It is kind of a wait and see. Europe offers some attractive alternatives, such as the ability to get an injunction.” Keller would point out that we are some time before we will know whether and how much people will use the unified court, but that it could be “a sea change.”

Also on the last panel of the day was Bill Manning, partner at Robins Kaplan. Manning spoke about litigation generally and how it is possible to turn a patent that may not initially seem like a foundational patent into one that, in fact, is a foundational patent. “The most important thing a trial lawyer can do is ask repeatedly, early on and constantly ‘what difference does it make?’”

“A theory of a case is very different than a statement of the invention,” says Manning. “By writing a statement of the invention early that everyone agrees on and continually asking what difference it makes allows for a very different dialogue to occur.”

One other interesting thing raised during the panel by James Blick, Director of The Judge, was the fact in the United Kingdom litigators must either take the case on a contingency or on an hourly basis, they cannot take a case on a hybrid fee model. This is leading some firms that have lower risk tolerance or who are financially not capable of accepting full contingency representation to seek insurance to offset the risk association with potentially losing a case and not receiving anything for the work performed, which gets around the prohibition against creative hybrid fee models.

In terms of predictions, Keller says that he thinks the market has bottomed and that the Supreme Court took the Halo case to reverse the Federal Circuit.

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