The Patent Enforcement Economy Is Leaving Inventors Behind/ IPWatchdog Unleashed

The patent system makes a promise that has become increasingly conditional. An inventor discloses an invention to the public and, in return, receives a limited right to exclude. On paper, that bargain remains intact. In the real world, however, a patent owner often discovers that functionally the right is only defensible if the infringement is large enough (but not too large), the damages are high enough (but not too high), the portfolio is deep enough, and somebody is willing to finance years of litigation.

Our conversation this week for IPWatchdog Unleashed is about what happens after a patent owner has completed the tedious work of understanding what is actually owned and is now ready to pursue a licensing or enforcement campaign. Unfortunately, delay tactics favor the alleged infringer, which is the core reality facing patent owners and the omnipresent backdrop for every monetization decision that must be made on the path to turning patents or a portfolio into revenue. Whether we like it or not, and whether it should or could be different, the stark truth is that time reduces pressure on the implementer, increases cost for the patent owner, and creates more opportunities to challenge the patent, narrow the dispute, exhaust the owner, and/or outlast funders.

The practical result is ugly but unavoidable: infringement can be economically rational even when the patent is strong. If an accused infringer knows that enforcing the right may cost $12 million to $20 million, delay is not incidental to the strategy. Delay is the primary strategy.

Litigation Finance Is Not the Scandal

Litigation finance has become an easy political target. Critics portray funders as outsiders manufacturing lawsuits for profit. That framing ignores the problem that created the industry. Most patent owners cannot write checks for eight figures to enforce rights the federal government examined and granted. Contingency firms can defer legal fees, but law firms are not banks. Experts, discovery vendors, depositions, travel, testing, and other hard costs still require cash.

Phil Goter, a partner at Barnes & Thornburg and a former litigation-funding professional, put the structure plainly: “it’s non-recourse financing.” If the case loses, the funder’s capital is gone. That is not charity, and nobody pretends it is. But neither is it evidence that the financed claim is frivolous—if anything the contrary is true. Goter explained that funders “have no interest in investing in cases that are not very highly likely to win.” A point to which Brad Close, who is Senior Vice President of Transfacific IP, agreed, further pointing out that when a case does get financed it has been reviewed by not just the patent owner, not just the contingent fee attorneys, but often multiple funders who each put the patent, infringement and damages case through excruciating diligence because for them it is not personal, it is an investment. You cannot fund cases where the fundamentals are bad no more than you could invest in a company that is failing.

The point about the extraordinary diligence funded cases go through is routinely lost in the public discussion. Before a financed patent case reaches a courtroom, it has survived multiple different levels of scrutiny carried out by multiple different actors all with a slightly different stake. That does not guarantee the patent owner will prevail, or that the patent cannot be successfully challenged. Nothing in litigation is guaranteed. It does, however, expose the mythology that patent finance exists principally to propel worthless patents into court.

Litigation finance is not the disease. It is a market response to a system in which enforcing a federal property right has become prohibitively expensive.

Most Portfolios Never Reach the Starting Line

The economics are so unforgiving that the merits of infringement may not receive serious attention until a portfolio has cleared several earlier gates. Close, described the screening reality bluntly: out of 20 portfolios maybe 1 moves forward to a serious round of diligence, with 19 falling out not having survived even modest, initial level scrutiny.

The first questions are threshold questions. Does the patent owner actually own everything it claims to own? Are there marking problems? Prior licenses? Government funding obligations? Divided or induced infringement issues? A viable venue? A sufficiently large market? Enough historical sales to support meaningful damages? Only after those questions produce acceptable answers does it make economic sense to spend heavily on the technical infringement analysis.

Even a clean, infringed patent may not be enough. Close explained the brutal economics facing individual inventors: “if the damages aren’t $100 million, we can’t put together the financing necessary to take this to court.” The precise threshold will vary, but the point does not. A $10 million or $20 million infringement can be economically devastating to the patent owner and still be too small to enforce rationally given the likelihood the case will take 8 to 10 years through an appeal to the Federal Circuit and cost $5 million to $10 million to litigate, often even more.

That should bother anyone who believes a patent is supposed to mean something. We have effectively created a minimum damages threshold for meaningful access to patent justice.

Depth matters as well. One newly issued patent is rarely a monetizable asset. Goter said that “Three, four, five, six independent assets is a very good start.” Multiple patent families provide optionality when eligibility, validity, claim construction, reexamination, or Patent Trial and Appeal Board proceedings eliminate claims along the way. The accused infringer needs only one successful escape route. The patent owner must continue winning at every stage.

Leverage Changes Behavior

The American system’s hostility to injunctions and tolerance for delay have weakened the bargaining position of patent owners. That is why the discussion of Brazil was more than an international-law detour. Matheus Ramalho, a partner at Licks Attorneys, described a jurisdiction where injunctive relief, prevailing-counsel fees, and disgorgement-based damages can change the calculus. As Ramalho explained, “our criteria for damages calculation is disgorgement of profits.”

No jurisdiction is perfect, and global campaigns create their own traps. Positions taken in one court or licensing negotiation can compromise an assertion elsewhere. Ramalho’s advice was therefore strategic, not simply aggressive: “be sure that all your moves are not taking out your pressure points instead of putting them on.”

That is exactly right. A monetization campaign must be managed globally because pressure is cumulative and mistakes travel. But the larger lesson is equally important: remedies shape conduct. When an implementer faces a credible injunction, meaningful damages, or consequences for holdout behavior, negotiation becomes rational. When the only likely consequence is years of litigation followed by a discounted royalty, infringement becomes a financing strategy.

We should stop acting surprised when rational companies respond to the incentives the courts and Congress have created.

Enforceability Begins During Prosecution

Patent owners cannot repair the entire enforcement system themselves, but they can stop building portfolios as though infringement proof will take care of itself. Kyle Vallecillo, senior IP counsel at LG Energy Solution, offered the right prosecution lens when he said that “if you’re prosecuting applications that you know are designed to be monetized, I would how would somebody infringe those claims” – a question that should be asked before the application is drafted, not after the patent is asserted.

The idea sounds obvious. It is not routinely done for a variety of reasons, not the least of which many patents are acquired to accumulate portfolio size rather than written and prosecuted as an asset that will eventually need to stand up to enormous scrutiny to survive. But every noninfringing alternative left uncovered narrows the exclusive perimeter. Every ownership defect, unnecessary claim element, and admission becomes leverage for the other side. Thinking about evidence of use should begin while prosecutors are speaking with inventors and engineers, not after infringement has matured and the company is searching for litigation counsel.

Large corporations may have additional options. They can use pools, special-purpose vehicles, cross-licenses, portfolio sales, or commercial arrangements that convert patent leverage into supply relationships. As Vallecillo emphasized, “at the end of the day, it’s a business decision.” Of course it is. But business flexibility works best when backed by a credible right to exclude. Without that, the patent owner is not negotiating. It is requesting voluntary payment.

The Right Must Be Real

Patent owners need better portfolios, earlier diligence, realistic damages analysis, and sophisticated campaign strategy. But better planning cannot solve the underlying policy failure. A system in which only the largest infringements can attract counsel and capital is not delivering equal justice. It is rationing enforceability according to expected recovery.

The answer is not to demonize the funders and contingency lawyers who make some enforcement possible. The answer is to reduce unnecessary cost and serial review, restore meaningful consequences for infringement, protect credible access to injunctive relief, and stop rewarding holdout as a default business model.

A patent does not need to guarantee commercial success, but it should provide a realistic path to enforcement. Otherwise, the government is handing inventors an expensive certificate that sophisticated infringers can ignore whenever the market is too small to justify the lawsuit, or too big not to scare the Federal Circuit into reducing damages.

More IPWatchdog Unleashed

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