Blog post by Michael Doane
The CEO of a small technology-based company with many groundbreaking patents in its field once asked me what the point was of obtaining patents when the company simply did not have the resources to enforce them. Although patents provide many benefits, the ability to enforce them against infringers is paramount. Patent infringement litigation is euphemistically referred to as “The Sport of Kings” due to the burden imposed by massive legal fees and the redirection of resources away from the core business to litigation support. The American Intellectual Property Law Association estimates that the median cost of patent litigation is approximately $5 million with a median cost of $600,000 for cases in which less than $1 million is at risk.[1] The cost of patent litigation is inflated by large well-funded infringers engaging in what they prefer to call efficient infringement but is more properly called predatory infringement. From their perspective, it is more efficient to infringe and engage in protracted litigation in district court and before the U.S. Patent and Trademark Office (USPTO) than to compensate the innovator at a properly negotiated market rate. Because of the high cost of litigation, they infringe because “they can get away with it . . .”[2] facing at worst a long delayed and potentially lower court-imposed royalty rate, assuming the patent owner survives the expense of litigation. Litigation funding or, in other words, third party investment in the potential outcome of litigation, is a step toward levelling the playing field by providing access to small innovators to the expensive enforcement mechanisms that are supposed to be available to all patent owners and not just a select few.
As if predatory infringement were not enough, a patent owner with limited internal resources now faces the prospect of third-party litigation funding being made unavailable to them. Recently, Senator Tillis tacked a bill known as the Tackling Predatory Litigation Funding Act (TPLFA) onto the One Big Beautiful Bill. Although it was ultimately removed on procedural grounds, it is highly likely that the TPLFA will be introduced as a standalone bill in the near future. Interestingly, the TPLFA does not make litigation funding illegal; instead it seeks to make litigation funding unprofitable. To discourage litigation funding, “qualified litigation proceeds” are to be taxed at “the highest rate of tax imposed by section 1 for such taxable year, plus 3.8 percentage points.”[3] In other words a penalty in excess of 40% is imposed on the proceeds of any litigation funding agreement paid to any third party that is not an attorney representing the party.[4]
Although the term “predatory” is in its title, the TPLFA does not purport to define or identify that which is predatory, but rather simply imposes this penalty on the proceeds from any litigation funding regardless of the nature and purpose of the litigation. Is it predatory for a small innovator to obtain the necessary resources to enforce its patents against a large well-funded infringer? Why should legitimate patent litigation be deemed predatory simply because the patent owner must seek outside resources to enforce its rights?
The other justification for TPLFA is China. The spectacle of purported Chinese investors targeting U.S. business through litigation funding is used as a strawman by those seeking limits on litigation funding to jury-rig some type of national security argument. Alleged fears of foreign investors gaining access to confidential information are properly and effectively handled by protective orders which limit access to attorneys. Ironically, most if not all the predatory infringers raising such concerns manufacture the vast majority of their products in China and certainly almost none manufacture in the United States.
In addition to the TPLFA, efforts are being made to impose disclosure requirements on those relying on litigation funding. The Litigation Transparency Act of 2025 would require an innovator relying on litigation funding to “disclose in writing to the court and all other named parties to the civil action the identity of any person (other than counsel of record) that has a right to receive any payment or thing of value that is contingent on the outcome of the civil action. . .”[5] along with a copy of the agreement. These disclosure requirements are meant to discourage litigation funding by imposing additional burdens on the patent owner while acting as a distraction from the real issue in such cases—patent infringement. As noted in the E-Discovery Model Order developed by the Federal Circuit Advisory Council the key and most consequential issues in patent litigation are:
- what the patent states,
- how the accused products work,
- what the prior art discloses, and
- the proper calculation of damages.[6]
The identity of those that may or may not be providing financial support for the litigation could not be more irrelevant to these issues.
The TPLFA and Litigation Transparency Act are being touted as litigation reform but are actually designed to limit the ability of small, less-resourced innovators to obtain the funding necessary to enforce their patent rights. Predatory infringers wish to maintain the expensive patent litigation system to enforce their own intellectual property rights, including against each other, without the annoyance of small innovators enforcing their intellectual property rights. Thus, they pursue their claimed reform around the edges by making intellectual property enforcement expensive and unprofitable. If the true goal is to eliminate predatory litigation funding, such activity should be specifically defined and identified so it can be properly addressed. Adopting the overbroad expedient of imposing an absurdly high tax on all litigation funding revenue to render it unprofitable further restricts access to the U.S. judicial system by small innovators. Requiring disclosure from the plaintiff, but not the defendant, imposes another burden and also provides the defendant with an expectation of exactly how long they will need to protract litigation … just long enough to use up the funding. The effect of these bills would be to keep patent litigation a Sport of Kings.
[1] 2023 Report of the Economic Survey, American Intellectual Property Law Association.
[2] Colleen V. Chien, Holding Up and Holding Out, 21 MICH. TELECOMM. & TECH. L. REV. 1, 20 (2014).
[3] Id. at Sec. 2: Litigation Financing, Pg. 2, 7-17.
[4][4] Id. at Sec. 2: Litigation Financing, Pg. 3, 9-17.
[5] H.R. 1109, 119th Cong. (2025) (Litigation Transparency Act of 2025).
[6] Federal Circuit Advisory Council, An E-Discovery Model Order and Model Order Regarding E-Discovery In Patent Cases at 2 (2011).
The arguments and views in this blog post are the author’s own and do not necessarily reflect those of IPPI or of any other organization.