For many independent inventors and small startups, protecting intellectual property (IP) against tech giants can feel like an uphill battle. Large corporations have deep pockets and legal teams that can easily outlast an individual inventor in a prolonged court battle. That's where litigation funding companies come in; offering financial support that levels the playing field and ensures that inventors can fight for their rights.

What is Litigation Funding?

Litigation funding, also known as legal financing, provides financial resources to plaintiffs in exchange for a portion of any settlement or judgment. This allows inventors to pursue legitimate patent infringement claims without the risk of financial ruin.

Without litigation funding, patent litigation is unavailable to most patent holders due to its high cost.  Small patent holders are therefore denied access to the courts, denied the right to petition the government for their grievances, a right protected by the First Amendment. 

The AIPLA Economic Survey for 2023 provides that when damages are less than $1 million, the costs of suit per patent for simple technologies is $900,000 through trial and appeal.  When the damages are between $1 million and $10 million, the cost increases to $1.6 million.  Where the damages alleged are between $10 million and $25 million, the cost is $4.5 million.  Further, where the damages are in excess of $25 million, the costs increases to $5.125 million, per patent. The report further provides that for complex technologies, these reported costs can increase by up to 50%.  As any reasonable person can see, patent litigation has become so expensive that the courthouse is closed to most patent owners.  Litigation financing helps open the courthouse doors to patent owners.

How Litigation Funding Benefits Inventors

1. Access to Capital – Patent litigation is expensive, often costing millions in legal fees. Litigation funders provide the necessary capital to hire top-tier attorneys and expert witnesses.
2. Leveling the Playing Field – Big Tech companies rely on inventors being unable to afford lengthy legal battles. Litigation funding ensures that inventors have the financial backing to see their cases through to the end.
3. Risk Mitigation – With funding in place, inventors don't have to drain personal savings or seek outside investors who might demand a stake in their IP. Litigation funders assume the financial risk.
4. Encouraging Fair Settlements – When facing a well-funded plaintiff, large corporations are more likely to negotiate in good faith rather than drag out proceedings in an attempt to exhaust the inventor's resources.
5. Deterring IP Theft – Knowing that inventors have access to legal funding, companies may think twice before infringing on patents, ultimately fostering a fairer innovation ecosystem.

A Powerful Tool for Innovators

Litigation funding empowers inventors to stand up against powerful corporations that might otherwise steamroll over their intellectual property rights. By removing financial barriers to justice, these funding companies help ensure that innovation is protected and rewarded fairly.

Big Tech Challenges Inventor Rights

Big Tech companies have been actively challenging the role of litigation funding companies, particularly in the context of patent litigation. These efforts are often framed as concerns over transparency and fairness but can have the effect of undermining the financial support that enables inventors to protect their intellectual property rights.

Advocating for Mandatory Disclosure of Litigation Funding

One primary strategy employed by large technology firms is lobbying for legislation that mandates the disclosure of third-party litigation funding in lawsuits. For instance, in October 2024, over 100 major companies, including Amazon and Google, urged the U.S. judiciary to implement a nationwide rule requiring plaintiffs to reveal their financial backers. These corporations argue that such transparency is essential for defendants to make informed litigation decisions, as external funding can significantly impact settlement dynamics.

However, critics contend that mandatory disclosure could deter litigation funders from supporting inventors, thereby limiting the resources available to challenge patent infringements by well-funded tech giants. The International Legal Finance Association has expressed opposition to such legislation, suggesting it could unfairly disadvantage claimants and increase litigation costs.

Influencing Public Perception and Policy

Big Tech companies have also sought to shape public perception and policy by highlighting potential negative aspects of third-party litigation funding (TPLF). The U.S. Chamber of Commerce, representing numerous large corporations, has criticized TPLF as a "multibillion-dollar global industry that operates largely in secret," suggesting it maximizes profits for investors at the expense of the legal system, defendants, plaintiffs, and consumers.

Such narratives can influence policymakers to enact regulations that may restrict litigation funding, thereby making it more challenging for inventors to secure the financial backing needed to enforce their IP rights against large corporations.

Potential Impact on Inventors

The concerted efforts by Big Tech to regulate or limit litigation funding can have significant implications for inventors. Without access to third-party funding, many inventors may find it financially unfeasible to pursue legal action against large companies that infringe upon their patents. This imbalance can discourage innovation and allow dominant players to appropriate new technologies without fair compensation.

In summary, while Big Tech's actions are often presented as initiatives to promote transparency and fairness in litigation, the true motive is to close the courthouse doors to most patent owners.  Congress should not enact any law that makes it more difficult for patent owners to express their First Amendment rights.