Intellectual Property, Litigation Finance

3 IP Takeaways From The 2023 LF Dealmakers Forum

The discussion at this year’s LF Dealmakers confirms how relevant litigation funding is in today’s IP litigation field.

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Intellectual PropertyBefore writing this year’s recap of the recent LF Dealmakers event, held in New York City a few weeks ago, I decided to take a look at my column on the 2022 edition of this well-regarded industry event. In truth, a lot of what I said last year still holds true, especially in terms of the place that LF Dealmakers continues to hold as a major event in the busy fall conference calendar for litigation finance professionals.

Once again, I was lucky enough to get a press pass to the event, in my capacity as your trusty IP columnist. This year, I was able to attend a few panels in person, as well as a panel or two of particular interest via recordings on the event’s virtual platform more recently. As usual, there was plenty of relevant discussion to IP lawyers and their clients — and I think the industry is already at the point where the relevance of litigation funding, particularly for those focused on patent litigation, is a fact that we can take the equivalent of judicial notice of. Put another way, the discussion at this year’s LF Dealmakers confirms how relevant litigation funding is in today’s IP litigation field, with a reach that is waxing, not waning.

As with prior recaps, this is in no way a full distillation of all of the content at LF Dealmakers. For that content, or for the just-as-valuable networking opportunities, I recommend reading whatever in-depth coverage of the event can be found or, even better, consider attending in person. At the same time, I hope the following takeaways will help impart some of the flavor of the event, with a focus on the issues most relevant to IP practitioners.

First, the increased importance of the burgeoning litigation insurance market to the IP ecosystem can’t be overstated. In last year’s column, I claimed that “it is not too early to say that the development of an insurance market for litigation finance is unfolding before our eyes.” Having had first-hand exposure to the insurance market over the past year, I have personal knowledge of the truth of that statement. Anyone who attended this year’s LF Dealmakers was treated to an in-depth look at the applicability of insurance to a wide variety of IP litigation funding scenarios. Leading the pack, for now, is the availability and use of what is called judgment preservation insurance, whereby successful patent plaintiffs, for example, can insure a healthy percentage of any verdicts they are fortunate enough to garner through their enforcement efforts. Insuring patent verdicts is something that is becoming increasingly commonplace, in part because it is easier to assess or price risk post-judgment than at the start of a patent case.

That is not to say, however, that other types of insurance products are not gaining traction in terms of funded patent enforcement campaigns. Other options discussed included at least the two following ways that insurance could be used to benefit funders or claimants pursuing patent cases. While both would involve plenty of diligence by the insurer or insurers, the benefits of each would more than likely justify the cost of that diligence — when, as is standard, that cost is passed on to the prospective insured. One way to deploy insurance to benefit a litigation funder, for example, would be for a funder to insure a basket of cases at the early or middle stages of development. Ideally, that basket would be diversified, not only in terms of having different cases or groups of cases involving disparate targets or technology areas, but also in terms of the progress of the underlying cases themselves along the litigation track. Another insurance product that was spotlighted at LF Dealmakers was the option for IP owners to perhaps insure a prospective return from licensing or enforcing their patents over a period of years and then using that policy to attract the funding needed to pull off those enforcement efforts. Clearly, insurance companies, as long as they continue to pay claims in a timely manner and offer bespoke products to help funders and IP owners, will continue to seize an even more important role in the years to come.

Second, while insurance was an important and well-discussed topic, it was also interesting to consider the continued lack of discussion around the performance of existing investments by litigation funders, particularly with respect to patent litigation campaigns they have backed. Everyone acknowledges that the amount of diligence that goes into the decision to fund a given patent case is extensive, if not harder than ever, now that funders are more experienced in assessing a wider swath of variables that could impact on the performance of their patent litigation investments. Add in the additional layers of diligence required to pursue insurance midstream, if that is of interest to a funder, and there is no doubt that funded patent cases are among the most vetted cases around. Still, there are a lot of ways to lose a patent case, as compared to the often narrow path to victory, which can diminish the value over time of pre-suit diligence, while enhancing the importance over time of active management of a funded patent case in terms of getting to the best possible result. For passive funders, however, the latter role is something that is by definition entrusted to the funded clients, as informed by their trusted counsel. Yes, funders price for that lack of control when structuring deals. But they also face the challenge of having to sit around and trust that the patent cases they have funded are being managed optimally by others. What impact that has on their returns and success rates is something that will perhaps be addressed in future conferences, as more funded patent cases see their way to some kind of resolution on the merits.

Lastly, it remains important for IP lawyers and their clients to appreciate the challenges that funders face when trying to handicap patent cases. In one very telling comment, a panelist at LF Dealmakers commented that one of the four-letter words in the funding industry is “duration” — meaning how long it takes for an investment to generate a return. Ask a litigator, and it is likely you will be told that as long as it takes to get a win is a proper duration for a case. There is a good chance that a funded client would say the same thing, especially considering that they are usually dependent on getting that big win in order to have the funds to pay the funder back in the first place. Likewise, insurance companies are more than happy to collect insurance premiums today in exchange for a long runway until a claim can be made against a given policy. For funders, however, there can be huge opportunity (and other) costs associated with investments that take longer to pay off than originally anticipated. Sure, there are ways to price for duration risk, and sophisticated funders build that risk into their funding models and agreements. But there is also no doubt that funders would love to see their investments pay off sooner rather than later, thereby rendering duration risk a moot point.

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Ultimately, LF Dealmakers continues to mirror the increasing sophistication and development of litigation finance as an asset class and field of professional interest for so many talented lawyers and financial folks. There is plenty more to discuss, but hopefully the above will hold this audience over until the next event of interest to those in the IP community for whom litigation finance is of continued interest.

Please feel free to send comments or questions to me at gkroub@kskiplaw.com or via Twitter: @gkroub. Any topic suggestions or thoughts are most welcome.

Gaston Kroub lives in Brooklyn and is a founding partner of Kroub, Silbersher & Kolmykov PLLC, an intellectual property litigation boutique, and Markman Advisors LLC, a leading consultancy on patent issues for the investment community. Gaston’s practice focuses on intellectual property litigation and related counseling, with a strong focus on patent matters. You can reach him at gkroub@kskiplaw.com or follow him on Twitter: @gkroub.

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