A Patent’s Value Means Little Without the Means to Defend It
Valuing a patent isn’t simple—methods like the cost, market, and income approaches are commonly used—but even a high-value patent may be worthless if its owner can’t afford to enforce it in court. Legal battles over patent rights are notoriously expensive, with median costs surpassing $3 million in some cases. For small patent holders, this financial barrier can put them at a major disadvantage when facing infringement by larger, better-resourced companies.
What Is Third-Party Litigation Funding (TPLF)?
Third-party litigation funding offers a potential solution. These firms provide financial support to litigants in exchange for a portion of any settlement or award. Importantly, TPLF is usually non-recourse—if the case is lost, the litigant owes nothing. Returns for funders can be significant, ranging from 200% to 400% or more. The growing number of TPLF firms in the U.S. since 2013 reflects the profitability of this model. For under-resourced patent owners, TPLF can level the playing field, enabling them to pursue cases they would otherwise have to abandon.
The Rise of Patent Trolls
However, TPLF has also fueled concerns about abuse. Non-practicing entities (NPEs), often called “patent trolls,” acquire patents not to use them in production, but to generate income through licensing or litigation. These entities exploit the system, and when backed by TPLF, they gain the resources to aggressively pursue lawsuits—raising ethical and legal questions.
TPLF: Leveler or Enabler?
TPLF firms aren’t altruists; their funding decisions are driven by expected returns, not justice. As a result, they’re more likely to fund cases with a high likelihood of success, regardless of whether the claims serve a broader social good. When TPLF and NPEs align, the result may be more predatory litigation and fewer cases that actually promote innovation or fairness. The lack of required disclosure about funding arrangements in most courts makes it even harder to determine whether TPLF is helping or harming the system.
The Debate Over Disclosure
A December 2024 Government Accountability Office (GAO) report examined TPLF’s role in patent litigation. It found that requiring disclosure of litigation funding could uncover conflicts of interest, reveal foreign involvement, and encourage settlements—especially if defendants realize their opponents are well-funded. On the other hand, funders argue that disclosure has no bearing on a case’s legal merits and could unfairly tip the scales in favor of defendants while adding administrative burdens to the courts.
The GAO report also noted a rise in TPLF-backed patent cases over the past five years, though precise data is elusive due to the lack of disclosure requirements. One estimate suggests that over 60% of patent infringement lawsuits filed since 2020 have received third-party funding.
A Tool for Smaller Players—With Caveats
For small patent holders facing possible infringement, TPLF can provide a much-needed lifeline to defend their rights. Still, the system’s increasing complexity and potential for misuse raise valid concerns about transparency and fairness. As the debate over regulation continues, both benefits and drawbacks of TPLF remain under scrutiny.