Tag: litigation

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Patent Law Patent Litigation

TPLFA: Protecting Predatory Infringers

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.

Categories
International Law Patent Law Patent Litigation

Hudson Institute Panel Focuses on Patent Litigation in China

The following post comes from Wade Cribbs, a 2L at Scalia Law and a Research Assistant at CPIP.

a gavel lying on a desk in front of booksBy Wade Cribbs

Questions about how Chinese patent protection operates in the international patent landscape are relevant to both companies doing business in China and policymakers in the United States. China is becoming an increasingly frequent patent litigation location for major international corporations. With this new forum for patent disputes come questions about how China can handle anti-suit injunctions and parallel proceedings regarding fair, reasonable, and non-discriminatory (FRAND) agreements for standard-essential patents (SEPs).

To discuss these questions, the Hudson Institute hosted a virtual panel presentation last week entitled Patent Litigation in China: Navigating a Changing Environment. The panel, which was moderated by Hudson Institute Senior Fellow Urška Petrovčič, included Mark Cohen (Distinguished Senior Fellow, University of California Berkeley; Director, Berkeley Center for Law & Technology, Asia Intellectual Property Project), Vivienne Bath (Professor of Chinese International and Business Law, University of Sydney), and He Jing (Founder, GEN Law Firm; Executive Director, Beijing Zhongguancun Intellectual Property Strategy Research Institute).

Mr. Cohen sees differences in patent litigation between western countries—such as the United States and the European Union—and China, particularly with injunctions due to China’s quasi-civil law system and the Chinese economy’s size. He does not view the recent emergence of anti-suit injunctions in China as unusual because they were not necessary, given that China readily awards injunctive relief. It is not unusual for the courts to get through litigation and appeal in China before a U.S. court has commenced discovery. Therefore, a litigant could initiate proceedings in China after suing in the United States and receive an injunction from the Chinese court, using it to compel the party to settle any parallel proceedings.

Mr. Cohen sees no real difference between the current practice of anti-suit injunctions and Chinese courts’ prior practice of ignoring any parallel proceeding. He agrees with Prof. Bath that the shift of Chinese courts to anti-suit injunctions is motivated by judicial sovereignty and the desire to exercise power over international FRAND rate disputes in order to protect Chinese business interests. Mr. Cohen is concerned that this desire is expanding to dictate international behavior in technological markets by leveraging SEP holders.

Mr. Jing believes that the most important SEP disputes in China are focused on the issuance by Chinese courts of anti-suit injunctions, which he notes are relatively recent for these courts. Chinese courts award these injunctions in such circumstances as preventing Huawei from enforcing a German court’s holding of a FRAND rate that was significantly higher than the rate issued by the Chinese courts. Similarly, Chinese courts have issued preliminary anti-suit injunctions against Sharp Corporation, preventing Sharp from initiating litigation in Germany after it began litigation in China.

Mr. Jing admits the logic is straightforward in the case of cell phone manufacturing, since most of the global manufacturing occurs in China. Therefore, he posits that China should have a say in cell phone SEP FRAND rates. However, he is unsure whether there is proper jurisdiction for such cases. To claim jurisdiction in some cases, Chinese courts docket FRAND disputes as contract cases. Mr. Jing’s problem with FRAND as a contract is that there is no concluded contract, and he is not convinced that such disputes meet the specific legal standard required by Chinese law to hear foreign and international contract disputes. Mr. Jing is concerned that Chinese courts are stretching beyond their bounds for jurisdiction and service to hear cases.

Prof. Bath observes that since the Chinese court systems are now fully equipped to handle IP cases, they are incredibly litigious. In this setting, the Chinese Communist Party is trying to tighten its control over the courts’ behavior as the courts streamline the process and improve injunctive enforcement. Prof. Bath sees these two forces resulting in the Chinese court system seeking to use Chinese law in an international setting through attracting dispute resolution to China. The China International Commercial Court and the one-stop diversified dispute resolution, which combine mediation and litigation in the court system, are examples of how the Chinese government is trying to attract foreign arbitration to China.

However, when it comes to international agreements, Prof. Bath notes, China has tended to agree to international instruments only where it is exempt from intellectual property judgments. Prof. Bath warns that, while China is taking steps to make its courts more available for international litigation, it is necessary to remember that the court does not always decide adjudication. Senior judges who did not sit for the case may make the final adjudicative decision, and this risks politicizing any crucial adjudication rulings.

Professor Bath sees the Chinese courts’ problem with parallel proceedings in the form of anti-suit injunctions stemming from its focus on judicial sovereignty. This focus results in China not having many tools to handle parallel proceedings. The Chinese courts will hear almost any suit brought before the court and will not refuse the case because it is already being heard elsewhere, unless a foreign judgment has already been issued and enforced in China. These practices result in foreign judgments being rarely enforced in China as a result of a Chinese court’s having already begun proceedings.

To watch the video of the panel discussion, please click here.