The Importance of Claim Language in Underwriting Patent Litigation Finance

Along the continuum of risk of different claim types in litigation finance, patent litigation sits far towards the high-risk end. Accused infringers are often large technology companies with the means and will to litigate aggressively. The many ways that accused infringers can avoid liability, coupled with the existence of inter partes reviews (IPRs), the requirement to file some cases in district courts or before judges viewed as hostile to patent rights, and the high rate at which jury verdicts are altered by the Federal Circuit, means that a patent owner faces a daunting endeavor. This also explains why the cost of capital for patent cases is generally higher than for generic commercial cases, such as breach of contract litigation.

When evaluating a patent matter for potential investment, a litigation funder will consider a variety of items. In most cases, funders evaluate the following factors: the strength of the infringement reads, the validity of the patents, the potential damages and collectability of the defendant, the invention story and availability of witnesses to tell a compelling narrative at trial, the experience, and budget of litigation counsel, the overall litigation strategy, and more. Each of these factors is examined and influences a funder’s decision of whether the matter is suitable for investment. Among the items considered, however, the single most important factor is the quality of the patent assets – the strength and value of the patents that are (or will be) asserted in litigation.

A patent’s claims define the scope of the invention and, therefore, serve as the focal point for evaluating patent infringement, validity, and damages. In patent litigation, this patent claim language is closely scrutinized and has an outsized role in determining the strength of the case. Crafting high-quality patent claims that appropriately capture the invention requires considerable skill and expertise. Indeed, patent claim drafting is often referred to as an art form – and one that is rife with challenges and the potential for missteps.

When evaluating a patent case for funding, it is not uncommon for funders to determine that the patent claim language has flaws that limit what would otherwise be an attractive and compelling case. Sometimes the concerns materialize quickly; other times they only become apparent upon closer examination of the invention and an analysis of the precise wording and structure of the claims. If even a single claim element is not practiced by the accused infringer, there is no infringement of that patent claim. The scope and wording of patent claims is important to critical issues such as determining whether they are infringed, whether there will be a significant challenge to their meaning during claim construction, whether there is prior art that may invalidate them, whether they are properly supported or enabled by the patent’s specification, and whether there may be non-infringing alternatives that may affect the damages analysis.

For patent owners developing an IP portfolio and applying for patent protection, the skill and experience of the patent drafter – the patent attorney who will work with the inventors and applicant to draft and refine the patent specification and claim language – is critically important. For a patent to be a valuable asset, the patent attorney needs to craft patent claims in a way that will be effective should the patent be asserted in litigation. This requires the patent drafter to be forward-looking in identifying how others will practice, and may try to avoid practicing, the invention.

With the high stakes of patent litigation, it is important and difficult to obtain quality patent claims that position the case for litigation success and helps secure funding. While many factors go into determining whether a patent case is suitable for investment, above all else the patent merits must be exceptional – and the heart of that analysis is the patent claim language.

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