Patent litigation can sometimes be very expensive. So, it is normally advised to take out patent infringement insurance policy that can cover such legal costs.
However, another best alternative way is patent litigation financing. It includes investment firms that are willing to finance the cost of litigating patent in lieu for a specific percentage of legal damages that are likely awarded.
These days, investors want to fund the patent infringement cases since in some of the instances, enhanced damages are usually awarded for the infringement up to 3 times of the financial damage. Moreover, the fees of attorney can even be recovered offering a much large financial windfall for the investor as well as his/her financial backers. However, there exist some big misconceptions surrounding patent funding. The following section explains them in brief.
Patent financing is not Patent Trolling
Patent trolls use weak or overly broad patents to get in court. In this way, they can force the companies to settle for nuisance values of the lawsuits. It is an attempt to extort money out of small or large companies. On the other hand, the firms that are interested in financing the patent litigation are in search for the patent holders that can show that their IP is infringed in a properly demonstrable way that warrants a financial compensation.
It requires quantifiable proof of damages to draw maximum attention of the litigation financers. In some of the courts, you will even have to include all these damages assessment in initial filing with the court. One should be able to provide at least an estimate of the potential damages to get qualified for the patent litigation financing.
Panduit Test for examining Patent Infringement Damages
It is a complex process that needs services of a reliable and experienced patent litigation lawyers. However, the damages normally boil down to two important factors, the profits that were a list as a result of the lost sales, and the profits lost as a result of price erosion. If the profit losses can’t be demonstrated, a reasonable royalty is generally considered as minimum for compensation.
The benchmark to identify the lost profits is called Panduit test. It identifies for factors that the investor needs to show to establish that the profits were lost. These factors are as follows.
- There was actual demand for infringed upon the product.
- How much of the profit was lost as a result of infringement?
- Whether there were non-fringing alternatives for the customers to select from.
- The inventor had capacity to market and manufactures their product to meet demand.
Once this test is applied, it is then time to start calculating the lost profits. It becomes necessary to imagine the environment in which infringement never happened and then calculate inventor’s profits in this scenario, which is hypothetical. These hypothetical profits can then be compared to the actual generated profits.
Thus, external capital can indeed benefit intellectual property space when it comes to patent litigation funding. The above article has surely cleared the air and have busted the myths surrounding it, isn’t it?