How Litigation Funding Allows Small Companies to Invest in Innovation Instead of Lawyers

The story is every inventor’s nightmare: A small innovative company develops a breakthrough technology. A much larger company takes notice. Shortly thereafter, it launches a suspiciously similar product.

I understand this story well,because I lived it as General Counsel of SilcoTek, a small technology company.

SilcoTek’s team of fewer than 100 employees in Bellefonte, Pennsylvania develops revolutionary coating technology that enables products to withstand extreme temperatures and harsh chemicals, reduce contamination buildup, and more.
When a large company began selling their suspiciously similar products, SilcoTek faced a stark choice that confronts many small innovators: Ignore the concerns or take on an expensive patent enforcement battle that could drain resources from SilcoTek’s core business.

Fortunately, SilcoTek found an equalizer by partnering with a global legal finance and risk management company. That company is providing funding support to enforce SilcoTek’s patent rights while SilcoTek continues to invest in innovation. If successful in court, the funders will claim a share of the judgment.

It’s the same concept as hiring a lawyer who will work on contingency and take a cut of any winnings rather than demanding up-front payment.

The strategy of using this “third party litigation funding” has enabled SilcoTek to stay focused on improving products and serving clients, making advances that might never have come to fruition if SilcoTek had to divert resources to litigation.

The reality is that patent litigation can easily cost millions of dollars. This is exactly why some larger companies engage in what’s known as “efficient infringement.”They calculate that smaller patent holders like SilcoTek won’t have the resources to enforce their rights in court.

Partnering with financial firms disrupts this predatory calculation.

Yet, despite its crucial role in preserving innovation, litigation funding has become increasingly controversial. Some courts and legislators have proposed mandatory disclosure requirements for all funding arrangements, arguing that transparency serves the public interest.

SilcoTek chose to publicly discuss how the financial partnership helped level the playing field. But the choice to be transparent was just that; a choice. And while it made sense for SilcoTek, it may not for other small inventors. The most important priority is preserving the opportunity for innovators to do what they do best: innovate. That’s where companies like SilcoTek should be devoting their resources, not battling in court.

Small firms like SilcoTek account for roughly half the nation’s private sector workforce, employing close to 62 million Americans. Small businesses are also responsible for a disproportionately large share of approved patents per capita each year.

This isn’t just about SilcoTek’s particular legal issue or even about litigation funding. It’s about maintaining a fair playing field for small businesses. Lawmakers who want to make it harder for small businesses like SilcoTek to access third party funding are essentially siding with huge corporations over the small businesses and family-owned firms that built—and continue to build—this great nation.

This article relates to SilcoTek v. Waters Corporation. Waters’ reply brief is available via PACER here.

Image Source: Deposit Photos
Author: kchungtw
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