IP and Patent Litigation Funding: Damages, PTAB Risk, and Underwriting

How funders evaluate patent claims, the damages methodologies, and the threat of inter partes review.

Intellectual property litigation finance, and patent litigation in particular, is one of the most established categories in the asset class, because patent cases combine high potential recoveries with costs that exceed what many patent holders can fund alone. A patent infringement case can require millions in expert fees, claim construction proceedings, and trial preparation, while the potential recovery, especially against a large infringer, can be very substantial. This combination makes patent litigation a natural fit for funding, though it carries distinct risks.

Damages methodology is central to valuing a patent case. The two principal theories are reasonable royalty, the minimum statutory measure reflecting what a willing licensor and licensee would have negotiated, and lost profits, available when the patent holder competes with the infringer and can prove lost sales. Reasonable royalty analysis under the Georgia-Pacific factors is highly expert-dependent, and the selection of the royalty base, entire product versus smallest salable patent-practicing unit, can change the damages by an order of magnitude. Funders scrutinize whether the damages theory can survive Daubert challenges.

The threat of inter partes review before the Patent Trial and Appeal Board is the defining risk in patent funding. An accused infringer can petition the PTAB to invalidate the asserted patent claims on prior art grounds, and a successful petition can eliminate the case's value entirely. Historical institution and cancellation rates at the PTAB are high enough that IPR exposure is a primary driver of case-level risk. Funders routinely commission IPR vulnerability assessments before committing capital and address IPR management in the funding agreement.

The distinction between operating companies and non-practicing entities also shapes underwriting and, increasingly, reputational considerations. Cases brought by companies that practice their patents and compete with the infringer can support lost profits damages and carry different optics than cases brought by entities that exist primarily to assert patents. Some institutional funders maintain policies regarding purely assertion-driven campaigns. Funders weigh the nature of the patent holder, the strength and validity of the claims, and the IPR exposure together.

Criterica Capital funds patent and IP litigation, assessing damages strength and IPR vulnerability against outcome data drawn from 106M+ court records, including the disposition history of comparable patent dockets and PTAB proceedings. This grounds our underwriting in observed outcomes. Patent holders and their counsel can contact our institutional team to discuss funding.

Discuss your matter with our institutional team.