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30% ROI Anyone? (3) – Why Does It Exist?
Continuing from the last post, this time we are focusing on three questions: What is patent litigation financing? Why does this market exist? Why hasn’t it been monopolized by institutions?
They explained that patent infringement, especially by large companies, is very common. However, patent owners usually find it extremely expensive to go through the legal process to fight these cases. The costs start at around $500,000 and typically range from $3-5 million, with some cases reaching $10 million in legal fees. As a result, most patent owners can’t afford to litigate and protect their rights.
Traditionally, here’s how it works: financially strong patent owners or companies start the process with hundreds of thousands or even millions of dollars to engage a major law firm. After spending the initial amount, the lawyers will have a good sense of the case’s chances of success. If the odds are favorable, they will approach specialized litigation funds to apply for funding. If these funds also see potential, they will cover all subsequent legal fees. If they win, the profits are shared; if they lose, the money is lost. In this model, the lawyers always profit, while the risk lies with the patent owners (the plaintiffs) and the litigation funds. The cases accepted by these funds usually have a high chance of winning, and the returns can often doubled, making it a win-win-win situation for the plaintiffs, lawyers, and funds.
However, these gentlemen, having come from large law firms/private equity, saw flaws in this model. Large law firms are very profitable. For cases that secure funding, it’s a no-brainer. Even for those that don’t get funding, charging thousands of dollars per hour over several years is quite lucrative.
This leads to a phenomenon where solid cases only circulate among big law firms and their regular litigation funds, making them inaccessible to outsiders. Meanwhile, ordinary patent owners can’t even start the process because they can’t afford to hire a big law firm.
Thus, the opportunity lies in the mid-market, where the cases aren’t large enough to attract big law firms or litigation funds. Mid-market cases, with compensation ranging from $10 million to $100 million, aren’t appealing to the funds. Hence, this mid-market hasn’t been divided up by large institutions!
So, how do they operate? According to them, they are the only group that can directly and precisely find patent owners, rather than waiting for big law firms to feed them cases. They have an internal system that handles the entire case underwriting process, from technical assessment to legal analysis. This allows them to directly contact patent owners, negotiate with them, and avoid reliance on external law firms or third parties. By screening out time-wasting cases from the start and only focusing on solid cases, they can begin with a six-figure investment instead of needing seven figures. This also means they don’t need large funds to get started; a few high-net-worth individuals pooling resources can do the job.
Next time, we’ll continue to share how they connect with patent owners and their screening criteria. Stay tuned!