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Issues of cost and funding underpin much of the current debate surrounding a number of the key issues facing the patent litigation sector, ranging from the pros and cons of the United Patents Court, to issues of forum shopping, patent thickets and the threat of patent trolls starting to take an interest in the European market.

These issues appear to represent a crucial barrier to patent litigation amongst the SME community; a barrier which can be overcome with innovative insurance and funding solutions.

For example, the Westminster Legal Policy Forum and Westminster Business Forum Keynote Seminar on ‘Patent reform – innovation, enforcement and the future of the single European patent’ revealed concerns amongst the SME community that their only option of litigious forum is the Patents County Court due to the distinctive costs cap protection provided. However, if a case is worthy of being litigated in the High Court, other mechanisms – such as After the Event (‘ATE’) insurance – can be used to limit adverse costs exposure.

To expand, effective use of ATE insurance (or ‘litigation insurance’) can cap or completely remove the risk of having to pay the opponent’s costs following a defeat in the High Court, as well as covering some or all of the policyholder’s own side’s costs. The premium for such cover is typically deferred to the end of the case and contingent upon success, meaning the policyholder only pays the premium at the end of the case and only if they win.

Therefore, for SMEs – or large corporates alike – litigating complex disputes in the High Court brings the benefit of unlimited recoverable costs and damages, whilst using ATE insurance to reduce the downside risk. This improves the risk v reward ratio for a client and takes costs out of the equation when considering litigation strategy.

SECURITY FOR COSTS?

Another barrier which was highlighted at the seminar was the issue of security for costs, especially for those facing a ‘David v Goliath’ situation. Although ATE insurance alone is not usually deemed as adequate security for costs, most ATE insurance providers can provide a financial bond to guarantee payment of adverse costs, if that liability arises, which can satisfy a security for costs order according to recent case law.

‘DEEP POCKETED’ CLIENTS CAN BENEFIT TOO

Concerns about cost and funding are not restricted to the SME market. Whilst it is clear that SMEs are concerned about being excluded from effective patent enforcement due to cost, a key motivation for seeking funding and insurance solutions is a desire to manage budgets and risk. Funding is therefore highly relevant to strategic decision-making and IP risk management for any business looking to innovate and operate in the high tech, bio tech or industrial sectors.

Whilst the new possibility of UK lawyers acting on a contingency fee basis has grabbed headlines, the practical realities of financial management, coupled with the current uncertainty over the scope of the Regulations, mean that DBAs are unlikely to become a mainstay in complex and high value patent litigation.

WHAT THE STATS SAY

In a recent survey conducted by Briefcase Analytics, the overwhelming majority of GCs and CFOs surveyed felt that third party litigation funding should be viewed as simply another form of corporate finance and that it was an important tool which enabled non-contingency firms to do cases which they otherwise could not.

Therefore, third party litigation funding and insurance has a critical role to play, both in providing cash flow and risk management options to clients, whilst providing a viable alternative to law firms unwilling or unable to offer contingency fee arrangements. It is certainly unlikely that these options will be taken up by every client – far from it – however these ideas must at least be given due consideration when advising clients about the range of cost issues they face, such as forum selection and enforcement or licensing strategy.

TheJudge is the world’s largest patent litigation funding and insurance broker. Contact us to see how we can help you.