GAO: Patent Litigation Funders Use Many Factors to Decide to Invest in a Lawsuit

Patent litigation funders say multiple factors that inform their decision on whether to invest in a particular patent lawsuit, according to a new study by the Government Accountability Office.

The GAO was asked to review recent developments in third-party funding of patent litigation. The GAO developed a report that describes funders’ perspectives on factors that influence patent litigation funding decisions. The report also provides information on the extent of patent litigation funding as estimated by data the GAO reviewed and stakeholders the GAO interviewed.

The GAO conducted interviews with selected entities with knowledge of recent developments in third-party funding of U.S. patent litigation. It also interviewed patent litigation funders, large technology companies, research universities, law firms, district court judges, mediators, individual inventors and other industry stakeholders.

To compile the report, the GAO reviewed 12 patent litigation cases suspected of being third-party funded.

Third-party funded patent litigation now accounts for a substantial proportion of all patent litigation, according to stakeholders GAO spoke with and industry estimates.

One patent ligation funder told GAO they prefer cases in which a patent owner shared information about an invention with another company that then used the invention without permission since such a scenario may be compelling to a jury. Funders also said they look to fund lawsuits with strong patents that unlikely to be invalidated during litigation. Funders use various arrangements to fund patent litigation.

The GAO’s analysis of funding agreements shows some funders require two to three times their investment before the patent owner receives any proceeds from a successful lawsuit.

According to the GAO, most large technology companies said that more than half of all patent infringement lawsuits filed against them had confirmed or suspected third-party funding. Most of the companies reported dozens of lawsuits filed against them each year.

Technology companies said the patents associated with many of the third-party-funded cases have weak infringement claims, and that they must incur legal defense costs even though they say these patents are likely to be invalidated. Third-party funders may also complicate settlement negotiations, contributing to longer settlement times, according to those the GAO interviewed.

Many stakeholders GAO spoke with, including some funders, were open to some requirements that would mandate that plaintiffs disclose to parties involved in a lawsuit whether the plaintiffs have received third-party funding, given the limited public data on third-party funding.