An Inventor’s Guide to Enforcing Patents on a Budget

By John Handy
March 11, 2020

“Just because lawyers agree to take your case on contingency does not mean that litigating and enforcing patents costs you nothing out of pocket. There are other litigation expenses that must be accounted for, and it is usually your responsibility to pay for those up front.”

Patent litigation and enforcing patents can be cost prohibitive for many individual inventors and smaller businesses. Hourly rates at large firms may be out of reach for those with “not so deep pockets,” and most litigation funding companies either avoid patent litigation altogether or require a case valuation in the tens of millions of dollars. So, if you think your patent rights are being infringed, what enforcement options do you realistically have?

Contingency Fee Representation

A contingency legal fee is “contingent” on the outcome of your patent litigation. Rather than charging an hourly fee, lawyers representing you on contingency set their fee as a percentage of any litigation settlement or judgment. This percentage must be “reasonable” in accordance with factors such as those listed in Rule 1.5(a) of the American Bar Association’s Model Rules of Professional Conduct (“ABA Model Rules”). This will reduce your overall financial risk since the lawyers only get paid if the patent litigation is successful.

However, just because lawyers agree to take your case on contingency does not mean that litigating costs you nothing out of pocket. There are other litigation expenses that must be accounted for, and it is usually your responsibility to pay for those up front. Most of these expenses are predictable and manageable (e.g., filing fees, travel expenses, or deposition costs), especially during the initial phase of a patent litigation through claim construction. But once expert discovery begins, necessary infringement, validity, and damages experts can increase litigation costs considerably. The hourly rates for such experts vary widely depending on how much experience they have in the relevant industry, their educational background, and their experience testifying in patent litigations. So be sure to interview a good number of candidates before retaining; the most expensive expert is not necessarily the best one for your case.

Local counsel fees are another litigation expense to be mindful of. Most district courts require a local attorney who is admitted to their court and practices nearby to appear on your behalf. Unless your contingency lawyers (i.e., your lead counsel) qualify as local counsel per district court rules, separate local counsel and their hourly rates will be required. It is, therefore, critical that you communicate your expectations with local counsel up front to avoid sticker shock on monthly invoices. Negotiate hourly rates, determine if more affordable associates or paralegals can handle certain tasks, and confirm that local counsel will defer to and take direction from your lead counsel. Local counsel can be a highly beneficial resource, so finding the proper balance between managing your budget and enabling productive collaboration between your lead and local attorneys is important. But if you become dissatisfied for whatever reason, ask your lead counsel to search for and provide local counsel alternatives sooner rather than later.

An important aspect of a contingency agreement is whether these litigation expenses are deducted from any settlement or judgement before or after the contingent fee is calculated. Depending on the eventual litigation recovery and contingency percentage, this may have real financial consequence. Although it may seem like a foregone conclusion that contingent fees are based on gross recovery, meaning litigation expenses are only deducted from a settlement or judgment award after disbursing your lawyer’s fee percentage, ethical rules governing attorney conduct contemplate either scenario. For example, Rule 1.5(c) in the ABA Model Rules provides that a contingent fee agreement must specify “whether such expenses are to be deducted before or after the contingent fee is calculated.” Certainly, if your agreement provides for litigation-related expenses to be deducted from a settlement or judgment first and before calculating the contingent fee, your lawyers will have additional financial incentive to closely manage those expenses.

In sum, a contingency agreement shifts financial risk even though other litigation expenses may remain your responsibility. And even if the eventual contingent fee ends up being greater than it would have under a straight hourly rate billing arrangement, the contingent fee should always be “reasonable” in accordance with applicable attorney rules of ethics.

Patent Assertion Entities

A patent assertion entity (PAE) is a company that acquires patents from third parties and tries to generate revenue by asserting them against alleged infringers. A patent assertion entity may also be referred to as a “non-practicing entity” or “NPE” because it does not practice the patented inventions it acquires or produce consumer goods or services generally.

A PAE acquires your patents for purposes of monetization through licensing, litigation, or sale to third parties. In exchange for assigning your patents to the PAE, you are entitled to a percentage of any monetization revenue. It is important to understand, however, that this percentage is not subject to the same “reasonableness” ethical standard that governs lawyer contingent fees. The PAE is not your lawyer, so the PAE can keep whatever percentage of settlements, judgements, licensing fees, or patent sales that you contractually agree to.

Because you no longer own or otherwise retain enforcement rights after assigning your patents to the PAE, it controls all strategic decision-making, including when and whether to settle cases. This is in stark contrast to retaining lawyers on contingency which enables you to remain the patent owner with definitive authority over the course of litigation and settlement decisions.

Assigning your patents to a PAE is no trivial matter, so make sure you ask the right questions before doing so. For example:

  • How many attorneys will be responsible for monetizing your patents?
  • How many patents does the PAE currently own?
  • How many patents has the PAE licensed?
  • Has the PAE ever sold/assigned patents to third parties without imposing future revenue sharing requirements?
  • What is the average revenue per patent licensed or sold?
  • What is the financial health of the PAE?
  • Will you be granted a non-exclusive license to practice the patents after assignment?
  • Will you have a reversionary right to the patents if the PAE goes bankrupt or ceases to assert the patents?

Getting as much information about a PAE’s business practices can help you gain confidence that your interests and the actions of the PAE will be better aligned.

Although you relinquish all control over your patents and how they are monetized post-assignment to a PAE, there are some advantages over contingency representation. First, you will not be liable for any enforcement expenses: Local counsel fees, expert witness fees, and other expenses are all handled by the PAE. Second, you will avoid the publicity of being a named plaintiff in patent litigations. This may be important depending on your business and who you anticipate the PAE will sue for infringement. And third, you are not liable for litigation sanctions that may be imposed against the PAE for whatever reason.

Overall, monetizing your patents by assigning them to a PAE can be an attractive option for those who want to avoid all costs of litigation and patent enforcement generally. Although you may not agree with every licensing and litigation decision that a PAE makes, working with a PAE requires no financial commitment and insulates you from the stress and procedural obligations of fighting in court.

Representing Yourself

Finally, there may be circumstances – albeit rare – in which you are comfortable filing a patent litigation on your own. This is called proceeding “pro se.” You can always represent yourself in district court without an attorney and will not be subject to local counsel requirements.

Setting aside the complexity of patent litigation, you should be aware that proceeding pro se does not mean that you cannot obtain legal advice. For example, suppose opposing counsel files an early motion to dismiss your case and you have no idea how to oppose. Instead of relinquishing your pro se status by retaining lawyers to appear on your behalf (which you may have trouble affording for the duration of a litigation), you could retain a lawyer for the limited purpose of providing guidance or helping draft your opposition brief. If you are capable of handling other case deadlines and hearings on your own, such targeted and narrowly defined legal assistance can help you maintain strict control over your legal fees. And though it varies from one court to the next, many do not view drafting assistance for pro se plaintiffs unfavorably It is largely encouraged, however, that such drafting assistance be disclosed to the court and opposing counsel.

Ensure You’re Well-Equipped

Enforcing your patent rights can be an expensive endeavor, but affordable options do exist. Retaining lawyers on contingency enables you to maintain control over a litigation and related settlement decisions but may subject you to additional expenses. Assigning your patents to a PAE relinquishes all of your patent rights and your percentage of monetization revenue is not governed by any “reasonableness” ethical standard. But it can save you more money up front than a contingency arrangement, and you largely avoid the publicity and requirements of litigations involving your assigned patents. Finally, proceeding pro se is usually only attractive if you have a legal background and familiarity with patent litigation. But in theory, you would be able to maintain strict control of any narrowly defined legal assistance and ultimately keep 100% of any settlement or judgement. If you understand the relevant distinctions between these options in view of your own financial risk tolerance and goals, you should be well-equipped to make appropriate decisions for asserting your patents against infringers.

The Author

John Handy

John Handy is the Founder and Managing Principal of IP Advanced LLC, a boutique intellectual property law firm that provides accessible, affordable, and effective legal representation to inventors and companies of all sizes. John specializes in patent litigation and prosecution and provides intellectual property counseling to entrepreneurs seeking to protect new products and services and introduce them to market.

For more information or to contact John, please visit his Firm Profile Page.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 9 Comments comments.

  1. angry dude March 11, 2020 10:18 am

    John,

    Would your company represent independent inventor on a contingency basis in multiple IPR cases filed on bequest of Apple, Google, Amazon etc. ???

    No need to go any further…

    P.S. The stronger the patent the more IPRs to be expected

  2. Mr.259 March 11, 2020 11:13 am

    I’ve had experience with, flat pay, contingency fee and PAE scenarios. Read countless agreements, signed NDA’s, and utilized their shared risk litigation strategies. Your patent, invention and idea has to have value, a market and pool of users-infringers. Just to get a call back.

    Pre Alice, a well crafted deal with the PAE was an ideal situation. In the pre-Alice landscape a PAE, on occasion may pay an upfront acquisition fee to the inventor, then recoup costs and pay a percentage to inventor on a successful licensing campaign. Post Alice, in my experience, there are fewer opportunities for the “on a budget inventor”, that make practical business sense.

    Both PAE and Contingency Fee representation are a shared risk business proposition. Both parties have risk, the law firm financial and time risk and inventor risk of losing the patent or claims.

    My advice for the inventor-know your patent. Do the research that includes; prior art searches, infringement analysis, damage analysis and infringer company analysis and monetary expectations. Do the work. In my experience this will go a long way in finding the right contingency fee firm. These law firms are your partner, for better or worse.

    As well, it makes sense to know the venue you will end up in. Everyone should want to be in the only court on a level playing field, the Eastern District of Texas, but that might not be available. So, the keep costs down, you may need to find a contingency fee firm with offices in the state of the litigation.

    As well, make sure the corporate structure that manages the patents is air tight. You spent years developing the idea, possibly building a business, thousands of $$ getting through the USPTO to patent grant, protect the asset.

    Other contract issues to be concerned with in a shared risk licensing relationship.
    Costs-If the district court levels costs against the lawyers for, in the courts opinion, litigation abuses, who pays the costs? Out of pocket costs come out first in any potential settlement, in my opinion basic business. How is a potential, (that’s a joke) the probable IPR handled, by same firm or outside and who pays the cost? As the article talks about, who is responsible for expert witnesses? At that point in litigation you are down the road a bit, just prior to the Markman hearing, and the costs will accumulate rapidly. And, if you made it through an IPR or multiple, prevailed and won a judgement, the case will end up at the CAFC, who pays this step of the next phase?

    This is the business of intellectual property. The individual inventor vs. corporations built on their backs. Without the shared risk PAE and contingency fee law firms, even the best patents don’t stand a chance, never did.

  3. Jonathan Stroud March 11, 2020 12:12 pm

    What about litigation financing?

  4. angry dude March 11, 2020 1:59 pm

    Mr.259 @2

    Wow, dude !

    That’s lots of info, lots of sentences – all discouraging in nature

    And dudes here blame ME for being overly pessimistic ?…

    We do not need such patent system. Period.

  5. Mr.259 March 11, 2020 3:16 pm

    angry dude

    The answer to your constant yelling about the better the patent the more IPR’s etc… The reality is the better your patents, the broader the level of infringement, the more detailed analysis, the better partners you will find. Period.

    And yes, you may run into road blocks, setup purposely by congress and judiciary. You have a choice to defend your patents or complain about the injustice. I’m sure you watched “Flash of Genius”, probably multiple times, Robert Kearns risked everything, and lost everything until he won. He stayed in it. He did the work.

  6. angry dude March 11, 2020 5:46 pm

    Mr.259 @5

    I watched “Flash of Genius”
    Kearns got VERY lucky at the end – infringers were waiting him out until his patents expire but there was new patent court established around that time to move patent cases quickly
    So Kearns finally got his day in real court, not kangaroo court
    And NO, Kearns did not lose his patents for there were no IPRs at the time
    If he had to face multiple serial IPRs then he would have lost everything including his valid patents

    At present you will not find any investors or contingency lawyers to defend your patents against IPRs no matter how good your patents are…
    Until this racketeering scheme called IPR and PTAB is gone and buried nothing is going to change
    Perhaps you don’t realize how lucky you are and ascribe it to you staying in the fight. Wrong answer.

    Josh Malone at least acknowledged that he was in very privileged position politically and financially AND ALSO VERY LUCKY (he got into the right court just before TC Heartland) otherwise he would have joined the crowd of very angry disenfranchised patent holders here

  7. anonymous March 11, 2020 11:39 pm

    Pro se patent litigation is a terrible idea, if not completely impossible. Has anyone ever won a patent infringement jury trial pro se, much less survived an appeal pro se and actually collected a damages award or secured an injunction? I don’t know of even one example.

  8. Elizabeth Hannah Rader March 12, 2020 9:00 am

    I agree with anonymous (7), but also bear in mind that, at least in jurisdictions I’m familiar with, an individual can represent herself pro se, but a corporation cannot. If an inventor starts a corporation and assigns her patents to the corporation, that corporation most likely will need a licensed attorney for court proceedings.

  9. angry dude March 12, 2020 1:10 pm

    Elizabeth Hannah Rader @8

    Yes,

    If you assign your patent to LLC or corporation you HAVE to be represented by a licensed attorney BUT then you don’t have personal financial liability (e.g. for sanctions) in a lawsuit

    If you represent yourself you have full personal liability (under Rule 11 or any other sanctions etc.) so your adversaries can possibly go after your personal bank account to recover their legal expenses (7 to 8 figures)

    Not a good situation either way…