What’s The Cost Of Allowing Patent Theft? Don’t Wait To Find Out

By Russ Genet

Protecting patents can be expensive, especially for companies competing in a global arena where aggressive startups, cut-rate competitors and industrial giants are all vying for the next big innovation to snatch up or move to market. However, failing to protect patents can be equally expensive. It is estimated that patent theft costs the US economy billions each year. And for the corporate patent owner, failing to defend patent rights today can significantly limit their value in the future.

In some cases, the decision to take patent pirates to court is a no-brainer. If a product is already in distribution and driving revenue growth, then it is well worth a few million dollars in legal fees to maintain market share and keep thieves from undermining your success.

But for companies with active R&D units and an expansive patent portfolio, things can get complicated — and costly. What if you learn that someone is infringing a patent that you aren’t using? What if it’s been stolen by a company that doesn’t pose an obvious commercial threat?

When the immediate cost of infringement seems minor, the question of whether to engage in a time-consuming and resource-intensive legal battle can be vexing. And there are other reasons for anxiety. Maybe you’re running a small company and you can’t afford to build a patent portfolio or fight a patent battle. Maybe you are waiting until your company is in a stronger financial position. Or maybe you’re at a public company and don’t want a lawsuit to drag down quarterly earnings.

Regardless of the company’s size or sector, there’s a temptation to let patent theft pass unless it is going to have a significant impact on short-term revenue, put existing products in peril or give competitors an upper hand in an innovation race.

But giving in to that temptation is a mistake.

What’s often overlooked is the hidden cost of not protecting patents when companies become aware of infringement. Patent lawyers know full well that failing to defend patent rights can significantly limit their future value – but it’s a lesson that corporate executives may not have yet learned.

Patents have a limited life of 20 years measured from the earliest filing date. Once a patent expires, it cannot be renewed. If you are trying to license or sell a patent, one with only three years left on its life is much less valuable than one with 10 years left. Furthermore, unless you are properly marking your products with your patent number, you may be unable to get damages for any infringements that occurred prior to the date when a lawsuit is filed. If you decide to wait to protect your patent, the value of your patent declines with each passing year. The decision to save a few million dollars in the short term could end up significantly reducing a revenue stream that could have been worth much more over the long term.

However, even savvy lawyers who recognize the risks involved in these cases might lose the debate on whether to litigate, simply because immediate cost concerns win the day.

If a company must choose between covering operational costs and waging a patent lawsuit that requires months (or years) of expensive discovery, then avoiding litigation is an understandable decision. But this paradigm only exists if the company relies on conventional legal strategy and funding models.

Litigation finance provides companies with a solution to this funding dilemma, untethering them from budgetary constraints. Having made the shift from being an intellectual property attorney with Nixon Peabody to a director at Longford Capital, I have spoken with a range of clients about what opportunities they see with litigation finance:

• Protecting critical corporate IP assets without sacrificing core parts of the business or slowing growth.
• Pursuing affirmative legal claims based on merit as opposed to budgetary pressure and impact on the bottom line.
• Driving shareholder value by keeping litigation off the expense sheet but still getting maximum value from legal claims.
• Hiring the best lawyers for the job, versus making concessions for affordability.

It’s important to note that litigation finance can turn legal departments into profit centers. Litigation expenses are paid by the litigation finance company, thereby reducing legal department expenses. Any proceeds generated from the litigation feed right back into the company – proceeds that would not be generated otherwise without the litigation. Budgetary money that was previously allocated for litigation expenses can be redeployed for company operations, research and development, or further development of a patent portfolio.

There was a time when companies that declined to go after patent infringers could justify the decision because of the direct and indirect costs of litigation. With more than a third of law firms in the US now using litigation finance, and a similar percentage of in-house counsel onboard, there’s an irreversible shift underway.

When meritorious legal claims arise, the boardroom conversation is now much simpler. Is the legal team confident in the case? How much is the claim worth? And with whom should we team up to get us to the finish line?

Russell J. Genet is a Director at Longford Capital involved in investment sourcing, due diligence, and monitoring of portfolio investments.

Image Credits: Longford Capital