US IP litigation for Asia-based companies

US intellectual property litigation has become increasingly protracted and costly. This is particularly true for IP rights owners, as the cumulative effect of legislative and judicial reform has taken its toll. One could imagine ex-US companies would stick to their own enforcement jurisdictions, given these challenges. However, despite the challenges, Asia-based companies are actively pursuing US monetization strategies. Notably, Huawei has pursued affirmative IP litigation despite not only the expense of litigation but also the possibility of public backlash, given US attitudes on 5G. And Huawei is not alone: Sharp, Nichia and others count themselves among active Asia-based plaintiffs in US courts.

Recent awards suggest US patent litigation may be worth the expense and effort—assuming patent owners have the stamina and patience to fight. At least 6 litigation awards in excess of USD 200 million—including Caltech’s stand-out $1.1 billion verdict against Apple and Broadcom—were issued at verdict or entered into judgment just since the start of 2019.

Of course, several of these cases still have months if not years to go in the US litigation process. But the sheer existence of multiple awards at extraordinary levels suggests there may be a counternarrative to the traditionally pessimistic view of US litigation.

Into this narrative enter a number of prominent Asia-based technology companies. Seiko Epson, Maxell, LG and many others have filed collectively dozens of complaints in US courts for IP infringement just since the start of 2019. The presence of Asia-based plaintiffs in US patent litigation is not at all a recent phenomenon, but the strength of their presence today perhaps reflects the way technological innovation is reshaping Asian economies. Asia is now home to more than one-third of the world’s ‘unicorns.’[1]  Driven in part by the region’s rich venture capital market, Chinese startups today attract nearly 30% of global venture capital.[2]

One can thus understand why Asia-based companies would need defend their US rights notwithstanding the challenges of the process. Unfortunately, as global economic conditions worsen and cash becomes scarce, US IP litigation will become even more difficult to pursue. Asia-based patent owners would do well to find creative ways to finance and de-risk their claims.

Legal finance offers a compelling solution: Using outside capital, plaintiffs can shift legal fees and the risk of loss onto passively invested third parties. These legal finance providers can generate working capital by monetizing claims or judgments, all while adding significant value to the legal claims in which they invest, allowing companies to strengthen their IP monetization programs, despite cash paucity. As Asia-based companies consider how best to enforce their US IP, it is incumbent upon them to take advantage of the financial tools at their disposal.

Why the US?

Although costly, US IP strategies are an unavoidable part of the monetization calculus for global tech and life sciences companies. At $1.7 trillion, the US tech market comprises nearly a third of global tech sales.[3] The US prescription drug market is also the largest in the world.[4] Hence, most global high tech and life science companies own US patents and rely on US trade secret protection as part of their global IP portfolios.

Naturally, then, US IP litigation often is the centerpiece of a global enforcement strategy. While there are robust IP protection systems in Korea, Japan and other Asian jurisdictions, the potential for meaningful standalone remedies (sizeable damages in particular) is often absent. Even as other nations—namely China—vie with the US for market dominance in IP protection and enforcement, the US will remain a critical part of an effective global strategy, especially when paired thoughtfully with enforcement programs in other nations.

The challenges of US IP litigation and how legal finance can help solve them

Challenge

US IP suits are famously lengthy and expensive, so for a US-centric IP strategy to succeed, companies must be able to “weather the storm.” US IP proceedings generally last many years just through trial, and can take as long as a decade to resolve through post-verdict challenges and appeals. Naturally, such suits are expensive. Adding to the duration-related costs, expert witnesses and elite counsel present sizeable and necessary expenditures for an effective litigation strategy. Even shorter-duration IP disputes are more expensive than comparably lengthy commercial litigation.

Solution

Given these unavoidable costs and risks, legal finance is indispensable—and worthwhile.

In its most basic form, legal finance is non-recourse capital provided by a third party to either an IP owner or its law firm to pursue an IP claim, in exchange for some portion of an eventual award. In the event the case loses, the provided capital need not be repaid, thereby eliminating downside risk for the IP owner and its law firm. Further, client and counsel retain control of the case strategy and all decision-making authority. Legal finance allows IP owners to litigate claims thoroughly and independently, ensuring that they are pursued to completion.

In more complex arrangements—namely, portfolio financing—outside capital offers additional benefits. Not only does portfolio finance come at a lower cost of capital, it can cover future claims as well as current claims, thereby allowing patent owners to broaden and strengthen their IP monetization strategy.  Finance providers can also provide capital upfront via a monetization of a claim or judgment, providing IP owners with working capital that can be used in their underlying businesses.

It would be wrong to focus solely on the economic and risk-shifting benefits of third-party capital. Legal finance offers more than mere monetary value. Capital providers add value during the “diligence” process—the period of case review preceding a financial commitment. Financiers can provide unbiased assessments of claims, help clients to align budgets with litigation strategy and suggest counsel, if the IP owner has yet to retain counsel. Even after an investment is made, finance providers continue to monitor cases, acting as a “second set of eyes,” offering insight and suggestions as the claim proceeds, but without controlling the case or its ultimate resolution or settlement.

What to look for in a legal finance provider

That said, not all capital providers are created equal, and neither is their capital. If you do choose to work with a capital provider, it is important to perform careful diligence. For instance, sophisticated finance providers will sign an NDA before any substantive conversation, and you should steer clear of finance providers that do not. Additionally, top legal finance providers do not offer off-the-shelf terms or teaser rates, and they won’t demand exclusivity early in the financing process. Too often, Burford is approached after a patent owner has signed a term sheet with a finance provider that has required exclusivity, and then materially changed pricing terms after conducting due diligence, leaving the patent owner to restart the process with Burford or accept inferior pricing.  Exclusivity should never be the price of a provider undertaking early due diligence.

Although legal finance is capital provision, professional legal finance providers build relationships with their counterparties in the same way investment banks build relationships with their clients, adding value throughout the commitment process.

It is critical for an IP owner to build a relationship directly with its funder. Though it may be tempting to rely on outside counsel or a broker to handle that relationship, a hands-off approach generally is ill-advised. Though this may require extra effort, an outside translator or additional resources, the upfront investment will be worth it. Top legal finance providers work hard to ensure client, law firm and financier all walk away with mutually aligned interests, and they want and need the IP owner involved in the financing process.

Moving forward

US IP litigation is not for the faint of heart, but where there is risk, there is also reward. Recent US judgments bear this out. Fortunately for Asia-based IP owners, legal finance exists not only as a risk-management tool, but also as an important resource to help assess claims and navigate the nuances of US IP disputes and to generate working capital. Regardless of whether IP owners can secure capital, top legal finance providers are relationship builders: They add value and share insights. Whether a company is already pursuing US monetization or would like to begin, Burford Capital stands ready to help.

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[1] McKinsey Global Institute: Asia’s future is now – A Discussion Paper (14 July 2019). As of April 2019, Asia was home to 119 of the world’s 331 ‘unicorns’ (startups valued at more than US$1b) — 91 of these companies are based in China, followed by 13 in India, six in South Korea and four in Indonesia.

[2] PitchBook Analyst Note: Venture Capital in China (15 March 2019)

[3] https://www.comptia.org/content/research/it-industry-trends-analysis

[4] https://documents.deloitte.com/insights/2020globallifesciencesoutlook