IP Finance Glossary

Claim construction

The judicial process of interpreting the meaning and scope of patent claim language, which governs what the patent does and does not cover and therefore which products or processes infringe. Claim construction is a question of law decided by the court — not the jury — and is typically the single most important legal ruling in a patent case because it determines both infringement and validity. Funders treat claim construction risk as a binary event: an unfavorable construction can collapse an infringement theory entirely, and a favorable one can force early settlement. Pre-investment technical and legal due diligence almost always includes an independent claim construction analysis to assess whether the funder's investment thesis is vulnerable to a defendant's alternative interpretations.

Continuation patents

Patent applications filed during the pendency of a parent patent application that claim the benefit of the parent's priority date while introducing new or narrowed claims — enabling patent owners to pursue additional claim coverage from a single original disclosure across multiple related patents. Continuation patents are central to patent portfolio strategy because they allow owners to tailor claim language in response to known products, prior art developments, or evolving market conditions. In litigation finance, continuation portfolios present both opportunity and risk: a plaintiff can assert continuation patents with claims specifically written around a defendant's product, but defendants may challenge the continuation on written description, enablement, or double-patenting grounds. Funders evaluating portfolio campaigns assess the continuation chain's prosecution history for prosecution history estoppel that might limit claim scope and for any terminal disclaimers that tie the continuation's term to the parent.

Contributory infringement

A form of secondary copyright or patent liability in which a party that has not directly infringed is nonetheless liable because it knowingly induced, facilitated, or materially contributed to another party's direct infringement. In copyright, contributory liability requires knowledge of the infringing activity and a material contribution to it; in patent, it requires selling a component specifically designed for use in a patented combination with no substantial noninfringing use. Litigation funders encounter contributory infringement claims primarily in cases targeting platforms, component suppliers, and distributors whose direct-infringement liability is limited or absent. The doctrine expands the defendant pool and can provide funders access to deep-pocketed defendants who are upstream of the primary infringer, significantly affecting recovery potential and the case's commercial structure.

Copyright fair use

A statutory affirmative defense in U.S. copyright law, codified at 17 U.S.C. § 107, that permits unauthorized copying of copyrighted material for purposes such as criticism, commentary, scholarship, news reporting, and transformative creative use — evaluated through a four-factor balancing test. The four factors are: the purpose and character of the use (including whether it is transformative), the nature of the copyrighted work, the amount used, and the effect on the market for the original. For litigation funders evaluating copyright claims — particularly in AI training data, music sampling, and content aggregation disputes — fair use is the primary defense variable because its outcome is highly fact-specific and courts have significant discretion. The transformativeness inquiry has produced inconsistent circuit-level results, requiring funders to assess jurisdiction-specific precedent when modeling defense strength.

Design patents

Patents covering the ornamental or aesthetic appearance of a functional article — as distinct from utility patents, which protect functional aspects — providing 15 years of protection from grant and subject to a distinct infringement standard based on the ordinary observer test. Design patents gained prominence in litigation finance following Apple Inc. v. Samsung Electronics, where the court applied the entire article damages rule to award Samsung's entire smartphone profits for design patent infringement of certain interface elements. This total-profits remedy under 35 U.S.C. § 289 creates potentially outsized damages relative to a design's functional contribution, making funded design patent campaigns highly sensitive to how courts define the relevant article of manufacture for damages purposes. Funders evaluating design patent cases must assess whether the design drives consumer purchasing decisions and what the defendant's total profits on the accused product line represent.

DMCA (Digital Millennium Copyright Act)

A 1998 U.S. federal statute that implements international copyright treaties, creates safe harbors for online service providers from secondary liability for user-generated infringing content, and establishes anti-circumvention prohibitions on bypassing digital rights management technologies. The DMCA's Section 512 safe harbor is the most litigated provision in copyright litigation finance — online platforms routinely assert it as a defense, and litigation turns on whether the platform had actual or red flag knowledge of infringement and whether it exercised control over and received a direct financial benefit from infringing content. Funders evaluating copyright cases against platforms must assess whether the defendant satisfies safe harbor requirements, because safe harbor eligibility can eliminate damages liability entirely. DMCA anti-circumvention claims under Section 1201 are separately valuable in software and digital media IP cases where the copyrighted work is protected by technological controls.

DTSA (Defend Trade Secrets Act)

A federal statute enacted in 2016 that created a private civil cause of action for trade secret misappropriation in federal court, harmonizing trade secret enforcement with existing federal IP litigation infrastructure. Before the DTSA, trade secret plaintiffs were limited to state court under the Uniform Trade Secrets Act or its state-law equivalents. The DTSA matters to litigation funders because it provides access to federal courts, federal discovery tools, and extraordinary remedies — including ex parte seizure orders — and enables cases with nationwide or international misappropriation to be litigated in a single forum. The DTSA's whistleblower immunity provision and the requirement that employers notify employees of these protections have also become relevant in employer-employee trade secret disputes, which represent a significant segment of funded trade secret dockets.

Enhanced damages

Discretionary damages of up to three times the compensatory award available in patent infringement cases where the defendant engaged in willful or egregious infringement, codified in 35 U.S.C. § 284. Enhanced damages are not automatic upon a willfulness finding — courts apply a multi-factor analysis examining the infringer's behavior, degree of culpability, closeness of the case, duration of the misconduct, and remedial actions taken. In funded patent cases, the prospect of enhanced damages creates upside beyond the base damages model and strengthens the plaintiff's negotiating leverage by exposing the defendant to worst-case exposure multiples. Funders building return models typically apply probability-weighted enhancement scenarios rather than assuming full trebling, consistent with courts' variable and discretionary application.

Entire market value rule

A damages doctrine that permits a patent owner to use the entire revenue of a multi-component product as the royalty base only when the patented feature drives consumer demand for the entire product. Courts have substantially narrowed application of the entire market value rule following decisions such as Cornell v. HP and LaserDynamics v. Quanta, pushing patent damages toward the smallest salable patent-practicing unit as the appropriate base. For litigation funders, the viability of an entire market value rule argument can dramatically change projected damages — and therefore return modeling — since the royalty base difference between a component and an end product can be tenfold or greater. Funders pressure-test whether plaintiffs' damages experts can survive Daubert challenges on royalty base theory before underwriting large commitments.

FRAND licensing

A commitment by a standard essential patent holder to license its patents on terms that are fair, reasonable, and non-discriminatory — a condition required by major standards-setting organizations (SSOs) such as ETSI, IEEE, and ITU as a prerequisite for including technology in a standard. FRAND disputes are among the highest-value IP cases globally, with aggregate royalty determinations affecting semiconductor, smartphone, and automotive industries at scale. For litigation funders, FRAND cases are attractive because of their damages magnitude but complex because royalty rates are constrained by the FRAND commitment and courts in different jurisdictions apply materially different methodologies for rate-setting. Funders evaluating FRAND cases must analyze both the patent owner's ability to obtain an injunction (which drives settlement leverage) and the realistic FRAND rate range across the product volume at issue.

Hypothetical negotiation (Georgia-Pacific)

The analytical framework used to determine reasonable royalty damages in patent infringement cases, requiring the fact-finder to reconstruct the royalty terms a willing licensor and willing licensee would have reached in a hypothetical arm's-length negotiation at the moment infringement began. The Georgia-Pacific Corp. v. U.S. Plywood Corp. decision (1970) identified 15 non-exhaustive factors — including existing royalty rates, the nature of the license, relative bargaining positions, and the patent's commercial success — that guide this analysis. In litigation finance underwriting, the Georgia-Pacific analysis is the primary vehicle through which damages experts construct recovery models, and a funded case's investment thesis often rests on a specific reading of which factors dominate given the technology and market. Funders who invest across patent portfolios develop institutional views on how courts in particular circuits weigh these factors.

Inevitable disclosure doctrine

A legal doctrine — recognized in some states but rejected in others — under which a plaintiff can obtain trade secret protection and injunctive relief by showing that a departing employee will inevitably disclose or use the former employer's trade secrets in the new role, without requiring proof that disclosure has already occurred. California expressly rejects inevitable disclosure; states like Illinois and Pennsylvania apply it with varying stringency. For litigation funders evaluating employee mobility and trade secret cases, the applicable jurisdiction's stance on inevitable disclosure directly affects the availability of injunctive relief and the strength of the misappropriation claim, which in turn affects the defendant's settlement incentives. Cases in inevitable-disclosure-friendly jurisdictions can achieve earlier resolution because defendants face broader injunctive exposure even before evidence of actual use is discovered.

Injunctive relief in IP

A court order prohibiting the defendant from continuing infringing activity — available as a remedy in patent, copyright, and trade secret cases — which historically represented the most powerful leverage instrument in IP litigation. Following eBay Inc. v. MercExchange (2006), courts apply the traditional four-factor equitable test for injunctions in patent cases, and NPEs frequently fail to obtain them because they cannot demonstrate irreparable harm given their non-practicing status. For litigation funders, the availability of injunctive relief fundamentally affects settlement dynamics: practicing entity plaintiffs who can credibly threaten to shut down an infringing product or process command substantially larger settlements than those limited to damages. Funders underwriting patent cases model both the damages-only and injunction-plus-damages scenarios when projecting expected recovery ranges.

Inter partes review (IPR)

A post-grant administrative proceeding before the Patent Trial and Appeal Board (PTAB) in which a petitioner challenges the validity of an issued patent on grounds of anticipation or obviousness based on prior art. IPR is one of the most consequential risks in IP litigation finance because a successful IPR petition can invalidate the very claims being asserted in district court, eliminating the funded claim's value entirely. Funders routinely commission IPR vulnerability assessments before committing capital, and funding agreements often include provisions governing how IPR proceedings are managed and whether the funder can direct or veto IPR-related strategic decisions. Since institution rates and claim cancellation rates at PTAB have historically exceeded 70% for instituted petitions, IPR exposure is a primary driver of case-level risk pricing.

Lost profits damages

A damages theory in patent infringement cases that seeks to recover the patent owner's actual lost sales or margin caused by the infringement, rather than a royalty construct. Lost profits require the plaintiff to demonstrate it would have made the infringing sales but for the infringement — satisfying demand, absence of acceptable noninfringing alternatives, capability to meet demand, and proof of lost profits amount (the Panduit test). Because lost profits can substantially exceed reasonable royalty damages in cases where the patent owner actively competes with the infringer, they represent a significant upside driver in funded cases. However, they require the plaintiff to be a practicing entity with traceable lost sales, limiting their availability in PAE or portfolio monetization contexts.

Markman hearing

A pretrial hearing, named after Markman v. Westview Instruments (1996), at which the district court construes disputed claim terms and fixes the scope of the patent's protection for purposes of trial. Markman rulings are interlocutory and generally not immediately appealable, but they effectively determine the litigation's trajectory — a ruling that narrows claim scope often triggers settlement discussions or case abandonment. In the litigation finance context, funders monitor the scheduling of Markman hearings closely because the ruling represents a major valuation inflection point and can trigger milestone-based disbursement provisions in funding agreements. Some funders stage capital deployment around Markman outcomes, committing initial tranches for pre-Markman work and reserving additional capital contingent on a favorable ruling.

Non-recourse financing

A funding structure in which the funder's return is contingent solely on the proceeds of a successful case — if the litigation fails, the plaintiff owes nothing. In IP litigation finance, non-recourse capital is particularly valuable because patent and trade secret cases carry binary outcome risk and multiyear timelines. Funders price this structure by applying risk-adjusted return multiples to their committed capital, typically targeting 3x–5x on successful patent cases. The non-recourse feature shifts litigation risk from the IP owner or counsel to the funder's portfolio, making it the foundational instrument of the asset class.

Patent assertion entity (PAE)

An entity that acquires patents primarily to generate licensing revenue or litigation recoveries rather than to practice the underlying technology. PAEs — sometimes called non-practicing entities or patent trolls — are significant participants in the litigation finance market because their entire business model depends on capital efficiency across a portfolio of assertions. Funders evaluating PAE opportunities assess claim validity, claim construction risk, prior art exposure, and the defendant's willingness to settle versus fight. The reputational and regulatory scrutiny surrounding PAEs has caused some institutional funders to maintain policies against backing purely assertion-driven campaigns.

Patent troll (NPE)

A colloquial and pejorative term for a non-practicing entity (NPE) — an entity that holds patents without manufacturing or commercializing the underlying technology and derives value solely from licensing or litigation. The term captures a broad spectrum from individual inventors and universities to large patent aggregation funds. In litigation finance, the NPE label carries strategic significance: courts, defendants, and juries often respond less favorably to NPE plaintiffs, and some jurisdictions have adopted local rules or venue restrictions that disproportionately affect NPE campaigns. Institutional funders distinguish between legitimate patent monetization by technology developers and purely extractive assertion campaigns, because the former typically carries less reputational risk and stronger judicial reception.

Portfolio monetization

A strategy in which a company or inventor monetizes a collection of related patents through licensing, litigation, or structured sale rather than asserting individual patents opportunistically. Litigation funders frequently structure portfolio deals in which a single capital commitment covers assertion costs across multiple patents and multiple defendants, enabling diversification of claim-specific risk. Portfolio monetization is attractive to funders because a single adverse claim construction or IPR outcome may not destroy the entire portfolio's value, and because licensing campaigns against multiple defendants create negotiating leverage and settlement optionality. The economics of portfolio deals typically involve revenue-sharing arrangements tied to gross recovery, with the funder's return tied to aggregate portfolio performance rather than any single case.

PTAB (Patent Trial and Appeal Board)

The administrative tribunal within the U.S. Patent and Trademark Office that adjudicates patent validity challenges through inter partes review, post-grant review, and covered business method review proceedings. PTAB has reshaped the IP litigation finance market by providing defendants with a faster, cheaper path to invalidating asserted patents than district court litigation. A funded patent campaign that survives a PTAB challenge often commands higher settlement value because the defendant has exhausted or been denied the administrative invalidity route. Funders track PTAB institution rates, panel composition patterns, and art unit tendencies as part of their underwriting process.

Reasonable measures standard

The legal requirement that a trade secret plaintiff demonstrate it took objectively reasonable steps to maintain the secrecy of the information claimed as a trade secret — a prerequisite to protection under both the DTSA and state-law equivalents. Reasonable measures are evaluated contextually and may include NDAs, access controls, employee training, data encryption, and physical security protocols, but courts do not require perfection. In litigation finance diligence, the reasonable measures inquiry is often determinative: plaintiffs who maintained lax security practices or widely shared the alleged secret face substantial risk of summary judgment before recovery is possible. Funders analyze contemporaneous security documentation, onboarding practices, and any public disclosures that might undermine the secrecy element before committing capital to trade secret cases.

Reasonable royalty damages

The minimum measure of patent infringement damages under 35 U.S.C. § 284, calculated as the royalty a willing licensor and willing licensee would have agreed to at a hypothetical negotiation on the date infringement began. Reasonable royalty analysis is the most commonly litigated damages theory in patent cases and the primary basis on which funders model expected recovery in technology and pharmaceutical disputes. The methodology — governed by the Georgia-Pacific factors — is highly expert-dependent, and damages opinions in the same case can diverge by orders of magnitude. Funders scrutinize royalty base selection (entire product versus smallest salable patent-practicing unit), comparability of licenses, and the patent's contribution to the accused product's value when sizing investments.

SEP (Standard Essential Patent)

A patent that covers technology necessarily implemented by an industry standard — such as 5G wireless protocols, Wi-Fi, or Bluetooth — such that anyone practicing the standard must use the patented technology. SEP holders are generally required to offer licenses on FRAND (fair, reasonable, and non-discriminatory) terms as a condition of having their technology included in the standard. SEP litigation finance presents unique dynamics because the FRAND commitment constrains but does not eliminate the licensor's leverage — courts still determine what FRAND rates actually require, and these determinations can involve billions of dollars in cumulative royalty liability across global product lines. Funders backing SEP holders analyze the standard body's FRAND commitment terms, the SEP holder's licensing history, and the defendant's global exposure across all jurisdictions where the standard is implemented.

Trade secret misappropriation

The unauthorized acquisition, use, or disclosure of a trade secret through improper means — including theft, breach of confidentiality obligation, or corporate espionage — giving rise to civil liability under state law and federal law (DTSA). Trade secret cases are among the most attractive to litigation funders in the IP space because they are not subject to IPR invalidity risk, they can involve large damages theories based on unjust enrichment or reasonable royalty, and the improper acquisition narrative often resonates with juries. However, the plaintiff must establish that the information qualified as a trade secret (i.e., was sufficiently secret and had commercial value) and that reasonable measures were taken to protect it — both elements subject to intensive fact discovery. Funders conducting diligence on trade secret claims focus on documentation of the alleged secret, the circumstances of misappropriation, and the defendant's competitive head start or unjust enrichment.

Utility patents

The most common form of patent — protecting new, useful, and non-obvious processes, machines, manufactures, or compositions of matter — and the primary subject of IP litigation finance in the technology, pharmaceutical, and biotech sectors. Utility patents run 20 years from the earliest effective filing date, subject to maintenance fees, and are the vehicle for the vast majority of high-value patent disputes. In litigation finance, utility patent underwriting centers on claim validity (anticipation and obviousness over prior art), claim scope, and damages methodology — with IPR vulnerability, claim construction risk, and damages expert credibility as the primary value drivers. Utility patent cases in the pharmaceutical space frequently involve paragraph IV ANDA challenges, which carry their own specialized timing, burden-shifting, and injunction rules that funders must account for separately.

Vicarious liability

A form of secondary copyright liability that attaches when a party has the right and ability to supervise infringing activity and receives a direct financial benefit from that infringement — without requiring actual knowledge of the specific infringing acts. Unlike contributory infringement, vicarious liability does not require the defendant to have known about the infringement; the financial benefit and supervisory control elements are sufficient. This doctrine is particularly significant in litigation finance because it can reach corporate parents, platform operators, and content aggregators who profit indirectly from infringing content created by users or subsidiaries. Funders evaluating copyright claims assess vicarious and contributory theories together as alternative paths to the deepest-pocketed defendant in the case.

Willful infringement

A finding that an infringer knew of the patent and deliberately continued to infringe — as opposed to innocent or accidental copying — which makes the infringer eligible for enhanced damages of up to three times compensatory damages under 35 U.S.C. § 284. The Supreme Court's Halo Electronics v. Pulse Electronics (2016) decision relaxed the standard for willfulness, giving district courts broader discretion to award enhanced damages in cases of egregious misconduct. For litigation funders, the presence of a credible willfulness theory substantially increases the expected value of a case and may influence whether to structure an investment around a damages-only theory versus seeking injunctive relief as leverage. Pre-suit notice letters and opinion-of-counsel defenses are key factual inquiries during diligence because they directly affect whether a willfulness claim will survive summary judgment.