I’ve always believed that patents are among the most powerful tools an innovation company has. A well-managed IP portfolio is your most valuable set of assets. Patents can drive growth, secure investment, and keep competitors at bay. But a patent is only as strong as your ability to enforce it, and that’s where many companies run into a roadblock.

Here’s a tough reality: enforcing a patent is expensive. Too often, I’ve seen companies with strong, legitimate claims walk away from litigation, not because their case lacked merit, but because they lacked the financial resources to fight. Meanwhile, deep-pocketed infringers know this and use it to their advantage, dragging out cases or forcing unfair settlements.

I’ve also seen the other side of the equation. Some companies have successfully leveraged patent litigation funding to pursue cases they otherwise couldn’t afford, turning their intellectual property into the strategic asset it was meant to be. Litigation funding has changed the dynamics of patent enforcement, giving patent owners the ability to stand toe-to-toe with wealthier legal opponents.

But make no mistake—funding isn’t a magic bullet. It comes with trade-offs. I always advise clients to proceed carefully. While securing funding mitigates some immediate financial risk, it also introduces new considerations, including decision-making authority, settlement dynamics, and ethical concerns.

I want to talk with you about the mechanics of litigation funding, the benefits it offers, and the challenges you should be aware of. If you’re considering this path, my goal is to help you navigate it strategically so you can protect your innovations without losing control in the process.

Scales of justice on a blue desk

Patent Litigation Funding Overview

Patent litigation funding is a financing mechanism for patent owners who can’t afford the up-front cost of defending their intellectual property rights in court. A third-party funding company (the funder) agrees to help cover the plaintiff’s (patent owner’s) litigation costs in patent infringement cases. If the litigation succeeds, the funder receives an agreed-upon percentage of the damages or settlement. If the case is unsuccessful, the patent owner typically has no obligation to repay the invested funds.

The funding process may vary slightly between companies, but typically includes the following steps: 

Initial Presentation 

The patent owner will search for a funder and prepare documentation to present their case for consideration. This documentation should include relevant information such as:

  • Patent details and prosecution history
  • Evidence of alleged infringement
  • Market analysis
  • Financial projections and potential damages
  • Prior litigation history, if any

Funder Assessment 

Many funders establish specific criteria for case selection, though these requirements may vary slightly. Some firms may have a minimum potential damage threshold. The funder will evaluate cases based on multiple factors such as:

  • Patent validity and enforceability
  • Strength of infringement evidence
  • Potential damages calculations
  • Financial capacity of alleged infringers
  • Jurisdiction and venue considerations

Agreement Structure 

Patent litigation funding differs from traditional litigation loans because the patent owner’s repayment obligations depend on the case outcome. Funding agreements typically specify:

  • Costs covered by the funder
  • Revenue sharing percentages
  • Decision-making protocols
  • Settlement parameters
  • Communication procedures
  • Termination conditions

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Benefits of Patent Litigation Funding

Patent litigation funding has changed how many companies approach patent enforcement. There are several potential benefits to consider, as well as concerns that should be addressed before deciding if IP litigation funding is right for your situation. Here are a few of the benefits that make patent litigation funding an attractive choice for some companies. 

Access to Justice 

Litigation funding provides a path for patent owners to pursue valid infringement claims without depleting their operational capital. Small companies and midsized companies are able to defend their patent rights against better-resourced defendants rather than abandoning legitimate claims due to cost constraints.

Risk Mitigation 

Patent litigation funding shifts the financial exposure away from patent owners through its non-recourse structure. Companies can pursue infringement claims without taking on debt. This arrangement proves particularly important for early-stage companies where the cost of litigation might otherwise threaten their ability to maintain normal business operations.

Leveling the Playing Field 

Funding allows patent owners to retain experienced legal counsel and technical experts throughout the duration of litigation. Without external funding, smaller entities often face pressure to accept unfavorable early settlements due to resource limitations. When cases can proceed based on technical merits rather than financial resources, smaller innovation companies can more fairly challenge larger competitors.

Deterring Patent Infringement 

The availability of litigation funding may influence overall market behavior regarding patent rights. When companies know that a patent owner has access to litigation resources, they may be more likely to seek licensing agreements rather than risk infringement. This would suggest that companies with known funding relationships experience fewer instances of patent infringement. The result may be a preventive effect on potential violations.

Concerns & Criticisms of Litigation Funding

There are several important considerations that warrant careful attention when considering patent litigation funding to help you make an informed decision about pursuing funded litigation.

Lack of Transparency 

The disclosure requirements for litigation funding vary by jurisdiction. Some courts require parties to disclose funding arrangements, while others maintain no specific requirements. When funding arrangements remain undisclosed, defendants may proceed through litigation unaware they face a funded opponent. This information gap can affect settlement strategies and defense approaches, particularly when assessing litigation costs and risks.

Increased Legal Actions 

There is some concern that easier access to litigation funding could affect the volume and nature of patent cases filed. The availability of external funding might influence some companies to pursue frivolous or weak infringement lawsuits in order to seek settlements. Courts already managing substantial caseloads may face additional pressures if funding leads to increased filings and delayed decisions on legitimate disputes. 

The Funder’s Role in Decision-Making 

The relationship between funders, patent owners, and legal counsel presents potential conflicts of interest. While funding agreements typically outline decision-making protocols, financial interests may still influence outcomes. This becomes particularly relevant in settlement discussions, where funders could exert pressure on plaintiffs to accept settlements or pursue specific legal strategies that prioritize financial return over client interests.

Attorney-Client Privileges 

The presence of third-party funders with significant financial stakes in litigation outcomes could also impact attorney-client privileges. Some critics of patent litigation funding have raised questions about attorneys’ ability to maintain undivided loyalty to their clients when a funders’ interests diverge from those of the patent owners. This dynamic affects decisions that could influence both the case outcome and the funder’s return on investment.

Best Practices for Engaging with Litigation Funders

Successful patent litigation funding requires careful attention to preparation, documentation, and relationship management throughout the entire process. If you choose to pursue third-party funding, you can minimize potential complications by understanding and following established best practices.

Do Your Due Diligence 

Patent owners should thoroughly research potential funding partners before entering any agreements. Carefully examine the funder’s track record, financial stability, and industry reputation. Speak with previously funded parties about their experiences. Seek to gain insight into your potential working relationship and challenges you should look out for.

Carefully Construct Your Contract 

Carefully outline and document key terms and conditions to avoid future complications. Funding agreements should clearly specify cost coverage parameters, revenue sharing structures, and decision-making authority. The contract should also address settlement approval processes, confidentiality requirements, and exit provisions. These elements help prevent misunderstandings and establish clear expectations for all parties.

Maintain High Ethical Standards 

Patent owners should establish clear boundaries between funding support and litigation control from the outset. Proper information sharing protocols and transparent communication channels protect all parties’ interests throughout the relationship. Regular evaluation of these practices helps identify and address potential conflicts early. This can help maintain the integrity of the litigation process and the funding relationship.

Seek Qualified Counsel

Before pursuing patent litigation funding, consider consulting with experienced intellectual property counsel who can analyze your specific situation. Whether to seek funding depends on the unique factors of your patent dispute. Legal counsel can help assess the strength of your case, potential funding options, and whether this approach aligns with your business objectives.

An experienced patent attorney can help by:

  • Review your patent portfolio and infringement evidence
  • Evaluate potential damages and recovery scenarios
  • Analyze funding agreement terms
  • Identify key risks and opportunities specific to your case
  • Guide you through the funding process if appropriate

No single approach works for every patent owner. Each situation requires careful analysis of legal, financial, and business considerations. Qualified legal counsel can provide the detailed guidance needed to make an informed decision about patent litigation funding for your specific circumstances.

Final Thoughts

When you discover that someone is infringing on your intellectual property rights, your first response may be an emotional one. It can feel like a personal violation, one which often leads to impulsive decisions. Escalating an infringement case should be done carefully and with great deliberation. There are many steps you should take before you go down the road of litigation.

For the right cases, patent litigation funding provides a critical path to justice, allowing you to stand up for your innovations without risking the lifeblood of your business. But I also know funding isn’t a one-size-fits-all solution. Litigation should be an option of last resort, no matter how well-funded you are. I always encourage my clients to explore all available avenues before filing suit. 

If you’re considering patent litigation funding, my advice is simple: be informed, be strategic, and don’t lose sight of the bigger picture. Understand the trade-offs, work with the right funder, and most importantly, be sure you’re serving your broader business objectives.

More than anything, I recommend that you take your time and evaluate your options carefully, working with experienced IP counsel to help you navigate the process. Your patents are your most valuable assets, but your ability to defend them is what undergirds their strength. A well-managed portfolio, overseen by professionals, is your first, and in my experience, greatest line of defense against infringement. Mitigating your risk to avoid infringement will always be my preferred route to protect your IP.

Michael Dilworth

Any examples are solely for educational and illustrative purposes. They do not constitute legal advice and should not be construed as recommendations for specific actions. For personalized legal guidance, please consult a qualified attorney.

This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. The opinions expressed in this article are those of the author only and are not necessarily shared by Dilworth IP, its other attorneys, agents, or staff, or its clients.