How does patent litigation funding work?

The short answer: In litigation funding, a specialized funder covers the costs of a patent case – attorneys, court and experts – as well as the adverse-cost risk if the case is lost. The funder is only paid if the case succeeds, with a share of the proceeds, market-standard 30–40 %. It requires a robust case with provable infringement, solid validity and relevant damages.

The principle: costs in exchange for a share of success

Patent litigation is expensive and risky – as explained in What does patent litigation cost?. Litigation funding takes both off the patent holder’s shoulders: a funder pays the costs of the proceedings and bears the risk, and if the case succeeds, receives a share of the proceeds. For the patent holder, the litigation costs nothing – only the success is shared.

Who funds?

Litigation funders are specialized investors who treat legal disputes as an asset class. They invest in individual cases or portfolios of cases and evaluate each commitment like an investment: what recovery is realistic, how high is the risk, and how long will the capital be tied up? For patent cases, the relevant funders are those with experience in technical subject matter and in the venues in Germany and at the Unified Patent Court (UPC).

What is covered?

Funding typically covers the full costs of the proceedings:

• Attorneys’ fees for attorneys-at-law and patent attorneys – including the defense against validity challenges,
• court fees,
• expert costs,
• the adverse-cost risk – the other side’s costs if the case is lost.

Attorneys’, court and expert costs are thus fully covered – including the risk. The patent holder does not have to pay anything upfront.

How is the funder paid?

The funder only earns if the case succeeds – by judgment, settlement or a license agreement. Market-standard is 30–40 % of the proceeds. Where exactly the share lies depends on the likelihood of success, the damages and the strength of the portfolio. If the case is lost, the funder receives nothing and bears the costs incurred.

The specific terms are agreed case by case. In addition to the funding, there may be a success-based compensation for TYR, which depends on the tasks TYR takes on and is agreed at the start of the cooperation.

What funders look for: the investment case

A funder does not review a case like a court, but like an investor. The question is whether the capital is worth committing. At its core, it comes down to four questions:

1. Infringement

Can it be shown that a specific product uses the patent? What is needed are claim charts against the actual product, evidence of use and a technically sound argument.

2. Validity

Will the patent withstand an attack? A validity search shows which prior art could be raised against the patent and how robust it is.

3. Damages

Is the economic damage relevant enough to justify the proceedings? This covers the infringer’s revenues, the duration of the infringement and the calculation methods – reasonable royalty, infringer’s profits or lost profits.

4. Enforceability

Is the defendant within reach and able to pay? Is there a suitable venue, and can a judgment actually be enforced? A strong claim against an unreachable defendant is of little value to a funder.

Formal risks – such as ownership, remaining term or deadlines – and the defendant profile come on top.

TYR’s role

TYR sits between the patent holder and the funder and makes sure a case becomes fundable. TYR assesses, prepares, funds and coordinates:

1. Case building: technical analysis with claim charts, validity search, formal risks, damages estimate – the case’s risk/reward profile from an investor’s perspective.
2. Investment case: prepared as a pitch for funders: claims, evidence, damages potential, defendant profile.
3. Placement: presentation to suitable funders from TYR’s network. If desired, the funding is structured via an SPV (special purpose vehicle) under TYR’s management.
4. Proceedings: funding covers attorneys, court, experts and adverse-cost risk; on request, TYR coordinates the team of patent and litigation attorneys.

As a guide, it takes around 25 weeks from analysis to filing; the longest items are arranging funding and drafting the complaint. TYR analyzes a case’s funding potential free of charge – an initial assessment is usually available within two weeks.

Who the model suits

Litigation funding is particularly attractive for patent holders who have a robust case but cannot or do not want to carry the cost risk themselves: mid-sized companies, individual inventors, research institutions and insolvency administrators. Funding levels the playing field – including against multinational corporations.

The legal assessment of an individual case and representation in court are provided by specialized law firms and patent attorneys, which TYR coordinates on request.

This article is for general information and is not legal advice.

Litigation funding