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How IP can reduce risk for litigation financiers
The litigation financing industry is an ever-evolving industry. Litigation financing can be essential for the success of a small business that does not have the financial resources to fight their cases in court effectively. Third party (non-lawyers) litigation funding is recognised in India, but it is nascent when compared to other jurisdictions across the world. As corporate litigation policies evolve, it is inevitable that this industry in India will also grow.
“Litigation funding allows lawsuits to be decided on their merits, and not based on which party has deeper pockets or stronger appetite for protracted litigation.” - Eileen Bransten, New York Supreme Court Justice.
So how can litigation financiers use Intellectual Property (IP) to reduce their risk of investment in litigation funding and improve their chances of success?
Due diligence is used to determine the likelihood of a successful outcome in a commercial suit. However, the value of a company’s IP is often a forgotten asset that could help financiers reduce their risks of investment. Back in 2013, Kodak famously sold their digital imaging patent portfolio for $525 million to pay down bankruptcy debt. The deal for the 1,100 patents allowed Kodak to secure $830 million in financing. The patent deal was led by Intellectual Ventures and RPX Corp, and allowed some of the world’s largest technology companies (including Adobe, Apple, Amazon, Facebook, Google, Huawei, HTC, Microsoft and Samsung) to license or acquire the patents.
If a suit is financed and won, then it’s a win for both the funder and the small business. The business returns back to business as usual, while the financier makes a share of the wins. However, if a suit is lost, the loss exposure for the financier is maximised. The use of IP could be used to reduce that risk.
A business’s IP could be used as collateral when deciding the terms of third-party litigation financing, especially when an unsuccessful outcome in the litigation would result in the dissolution of a business. This collateral would significantly reduce the risk for the financier in the case of the litigation being lost. Although a financier will have lost the monies from funding the litigation, the IP could be an invaluable asset, especially when the case may not be an IP related suit. If a business willingly offers its IP as collateral, it also suggests that the business itself believes its case is strong enough to win.
In a lawsuit, the monetary recoverables and damages may be relatively low; but a significant amount of value could perhaps be sitting in the IP of a company. The ability to recognise and leverage this value will prove to be a major differentiating factor in the future of litigation financing across the world.