The rise of third-party litigation financing (TPLF) in patent enforcement has sparked debate across the legal and business communities. Critics argue that it primarily benefits investors, but a closer examination reveals that TPLF is a powerful tool for empowering innovators, leveling the playing field in patent disputes, and driving economic growth. Here’s why this trend is a net positive for both inventors and the broader U.S. economy.
Empowering Resource-Constrained Innovators
Patent litigation is notoriously expensive, with costs often running into millions of dollars. For small businesses, startups, individual inventors, and even universities, these costs can be prohibitive. Without access to sufficient resources, many innovators are unable to protect their intellectual property (IP) from infringement by larger, well-funded corporations. TPLF provides a critical solution by enabling these resource-constrained patent owners to pursue justice without bearing the financial burden upfront.
According to the Government Accountability Office (GAO), TPLF allows small entities to enforce their patents when traditional contingency fee arrangements are unavailable due to the high risks and costs of patent litigation. This funding ensures that innovators can defend their rights and reap the rewards of their inventions, fostering a more equitable innovation ecosystem[1][2].
Encouraging Innovation Through Risk Sharing
The availability of TPLF reduces the financial risk associated with patent enforcement. Innovators can focus on creating new technologies and solutions without fearing that enforcing their patents will bankrupt them. By sharing the financial risks of litigation with third-party funders, inventors are incentivized to innovate boldly, knowing they have a mechanism to protect their work if infringed upon.
Moreover, this dynamic aligns with the constitutional purpose of the U.S. patent system: promoting progress in science and technology by granting inventors exclusive rights to benefit from their creations. TPLF ensures these rights are not merely theoretical but enforceable in practice[1][3].
Driving Economic Growth
Patent protection is a cornerstone of economic growth in technology-driven industries. When innovators can confidently enforce their IP rights, they attract investment and create jobs. TPLF plays a vital role in maintaining this confidence by ensuring that all inventors—not just those with deep pockets—can protect their contributions.
Additionally, TPLF contributes to economic efficiency by improving the quality of settlements in patent disputes. Funders bring expertise and capital to litigation, reducing bargaining imbalances between plaintiffs and defendants. This often results in settlements that better reflect the merits of a case rather than disparities in financial resources[4]. As a result, companies are more likely to respect patent rights from the outset, reducing infringement and fostering fair competition.
Leveling the Playing Field Against Large Corporations
Large technology companies often dominate patent litigation due to their extensive legal resources. Without TPLF, smaller entities would struggle to compete in this uneven landscape. By providing financial backing to inventors and smaller firms, TPLF ensures that even the largest corporations cannot infringe on patents without facing consequences.
This dynamic not only protects individual innovators but also promotes accountability within industries where monopolistic practices can stifle competition and innovation. The GAO notes that TPLF has become increasingly prevalent since 2019, empowering plaintiffs who might otherwise have been unable to challenge powerful defendants[1][2].
Addressing Concerns About Abuse
Critics often raise concerns about potential abuses of TPLF, such as frivolous lawsuits or funders exerting undue influence over cases. However, these risks are mitigated by funders’ self-interest in supporting only strong cases with valid patents—after all, funders only profit if lawsuits succeed or settle favorably[1]. Furthermore, disclosure requirements for third-party funding arrangements could enhance transparency while preserving the benefits of TPLF.
Increasing third-party litigation financing is an important development in patent enforcement. By enabling resource-constrained innovators to protect their intellectual property rights, it fosters innovation and levels the playing field against corporate giants. These benefits extend beyond individual inventors; they strengthen America’s innovation economy as a whole.
While challenges such as transparency remain important considerations, they do not outweigh the significant advantages TPLF offers for inventors and society at large. In an era where technological progress drives economic growth, ensuring that all innovators have access to justice is not just fair—it’s essential for America’s future prosperity.
If you have any questions about obtaining or enforcing patents, the experienced Denver patent law firm team at Schell IP offers free initial consultations. Set up a free consultation here.
Citations:
[1] https://www.gao.gov/products/gao-25-107214
[2] https://www.gao.gov/products/gao-25-107214
[3] https://www.harbourlitigationfunding.com/litigation-finance-spurs-innovation-by-moving-past-single-cases/
[4] https://journals.law.harvard.edu/hnlr/2020/08/how-litigation-funders-have-improved-the-quality-of-settlements-in-america/
[5] https://news.bloomberglaw.com/us-law-week/ip-litigation-financing-protects-investors-not-inventors
[6] https://www.csis.org/analysis/third-party-litigation-financing-national-security-problem
