By: Dr. Donald E. Vinson
A U.S. District Court Jury recently awarded $466 million in damages to Masimo Corp. in its patent infringement suit against Phillips Electronics North America. Reminiscent of David versus Goliath, Masimo defeated the world’s largest lighting company in a dispute that involved innovative technology used in fingertip equipment that monitors blood oxygen and pulse rates using light absorption.
The jury award was the third largest in 2014 for a patent violation. Philips is looking to appeal.
While Masimo did not use a third-party funder to finance this case, I wanted to use this case to showcase the importance of patent protection and the benefits litigation finance can have on even the larger corporations who have the capital to pursue their own cases.
The Importance of Patent Protection
At its most basic level, patents offer protection to inventors, dissuading others from attempting to capitalize on novel creations that were not theirs to use. These important intellectual property protections incentivize individuals and businesses to develop new ideas, spur inventions and promote business growth. Ownership of these new ideas via patent protection also encourages outside investors to fund new developments, whose potential would otherwise never be examined. Patents can be valuable assets to individuals or companies, and they are the core of most successful technology companies. Allowing another party to infringe a patent can have serious repercussions, particularly on the ROI of that patent.
Patent litigation is Costly
Enforcing a patent through litigation is a costly endeavor. According to data presented by the American Intellectual Property Law Association (AIPLA) in January 2014, a typical federal court patent suit will cost approximately $700,000 for the trial phase alone, The median time-to-trial takes 2.5 years, according to PricewaterhouseCoopers Patent Litigation Study of 2014. In addition, upon judgment, there is a high possibility the case will go to appeal, adding onto the costs of the case. The high costs and lengthy litigation timeline all add up to one certainty: companies with large budgets can afford to wage war in patent litigation, but smaller companies with fewer financial resources often find themselves unable to avail themselves of the protections patents afford, even when patents are rightfully theirs. And many companies that do have financial capability to fund a patent litigation suit may find the costs prohibitive, or feel that the uncertainty and financial risks involved with such claims are too great. At what cost – and what opportunity cost – does a company pursue a case? How much of the company's budget is allocated to litigation – and in this instance, a single piece of litigation – and what could that budget be used for instead?
Litigation financing can help patent owners
Patent theft as a business strategy is nothing new. Infringer have been known to violate patent rights because they know the benefits of their infringement are greater than the costs of being caught. And even if caught, they know their ill-gotten gains may never have to be returned because the costs of recouping them – and the time required – present significant obstacles to successful enforcement actions. When facing a patent dispute against a more powerful and well-funded entity, working with a litigation financier can help patent owners, both large and small.
Litigation financing involves a third-party firm paying for the cost of a legal proceeding in exchange for a monetary return tied to the outcome of the case – usually a percentage of any settlement or judgment. Litigation finance can help in patent enforcement matters by:
- Providing much-needed capital for an inventor to pursue patent litigation
- Enabling a party in patent litigation to complete legal proceedings that exceed their litigation budgets
- Allowing working capital to be allocated to core business activities rather than legal costs
- Mitigating the financial risks associated with the prosecution of inherently uncertain legal claims
Patent owners have a lot at stake when it comes to enforcing their rights and protecting their inventions from infringement. Litigation finance enables them to pursue these important objectives by offering access to capital for the prosecution of meritorious patent litigation.