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Protecting university IP in 2020

  • Emily Hostage
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Emily Hostage

Emily Hostage

Vice President

Former Vice President, RPX Corporation

Universities, despite being a bedrock of technological innovation, have long faced unusually significant pressures in licensing their patent rights to established industry players. Today’s patent licensing environment often leads to litigation, which of course presents procedural and cost risk. But for universities, it also comes with reputational risk—namely, the risk of being perceived as rent-seeking “trolls” instead of as value-minded innovators. In the past, these risks have dissuaded even the most IP-rich universities from litigating.

But things have changed.

Universities are now more confidently pursuing patent litigation as a means of enforcing their IP rights. CalTech’s recent $1.1-billion verdict over Apple and Broadcom—which admittedly has a long appellate road to travel—is powerful evidence of both the contrarian case for litigation and the latent value at stake. With similar cases playing out in court, reputational fears are slowly giving way. In their place has grown an understanding that patent litigation is an essential part of a functional technology transfer pipeline, both as a tool to recover lost value and a deterrent to future infringers.

As universities become more comfortable with reputational risk in patent litigation, procedural and cost risks are coming to the fore—followed by meaningful parallel university activity in the legal finance market. Risk-sharing tools like legal finance, which can entirely offset the cost and thus much of the remaining economic risk of litigation, now play a pivotal role in university IP strategy.

Recovering ex post value of IP research

Though universities now go to court when necessary, university technology pipelines are in the business of cultivating and transferring valuable technology to the world—not litigating. Technology transfer offices (TTOs) do an excellent job of triaging the natural outflow of university ideas to industry, a process that involves successfully identifying and licensing promising patents via startups and other spinoffs, often at the earliest stages of research and development.

But even the most effective TTO cannot identify and license every university patent that could conceivably be suited for commercialization. TTOs have limited time, bandwidth and resources; they must prioritize technologies with the greatest prospects for success and utility in society. Naturally, some patents with commercial potential are not chosen to be shepherded across so-called “valley of death” from basic research to practical realization.

Unfortunately this can mean that universities are left without compensation for the significant benefits their research investments confer—because some of the concepts embodied in unlicensed patents do make their way into industry via later publications or student co-inventors. Companies may profit from university IP for years before the university ever detects the infringement—and are often not amenable to ex-post licensing negotiations.

Litigation then becomes the only remaining action to take. Inaction threatens the long-term sustainability of broad university investment in technology research and development—which far outweighs any reluctance of suing for fear of losing valuable commercial grants or damaging long-standing relationships.

Indeed, universities now realize that meritorious and carefully selected litigation is essential to the long-term health of their licensing programs. It signals to would-be infringers that they will not simply write off the substantial investments they’ve made over a fear of conflict. With legal finance in hand, universities can prepare to pursue patent litigation with the backing of an independent third party and, if necessary, the ability to endure a potentially protracted and expensive legal battle. Legal finance is almost always provided on a non-recourse basis, meaning that the funder assumes the entirety of downside risk and is repaid only if and when matters resolve successfully. The university preserves funds for its core mission while still communicating that the university is willing and able to see its litigation through.

Legal finance options for patent litigation

Universities have differing needs and legal finance options to match.

  • Single case: In situations where the university’s research has a narrow focus or where the university prefers to proceed cautiously, they may identify a single case that is a priority to pursue and use financing to shift the cost and risk of litigation off the university’s balance sheet. The finance provider will work with the university and the university’s litigation counsel to finance fees and costs through trial and appeal, including PTAB proceedings.
  • Portfolio: For universities with research spanning far-ranging fields, where a multi-faceted licensing approach is needed for the overall program to be successful, a funder can provide a pool of capital tied to a pool of matters. This requires a funder with significant financial scale and strategic capability but enables the university to spread its risk of loss and provides the leverage necessary to facilitate a broader and likely more efficient resolution.

Defending university-backed startups

Legal finance can also be a game-changer for university-backed startups. Even when a TTO accomplishes the significant feat of spinning university patents out into a funded startup, an established and better resourced competitor can still infringe the alumni and faculty IP—potentially dooming the startup if it lacks the resources to fight.

Universities can connect businesses spun out of their labs with finance partners that are equipped to back high-risk patent disputes. In some instances, these disputes can be financed with accretive equity investments, in which the finance provider recoups its capital from the eventual litigation outcome and from an equity stake in the company. This can add significant value to the company’s competitive prospects and thus the university’s equity stake.

Clearly, with the range of financing options at their disposal, universities will become increasingly comfortable enforcing their patent rights through litigation. Universities and university-backed startups no longer need to succumb to the reputational and financial pressures unfairly placed on them by an imbalanced patent landscape. Legal finance is not a panacea, but it can help balance the scales for universities who seek to protect their IP.