Written by: Keegan Caldwell

Today’s economy is knowledge-based, making intellectual property (IP) one of the most valuable asset classes for companies across industries. From tech giants to innovative startups, businesses increasingly recognize their IP portfolios’ potential to drive revenue, fuel growth, and create competitive advantages. However, many organizations are still not fully leveraging their IP assets, leaving significant value on the table.

We’ll examine how companies can unlock the full potential of their patents, trademarks, copyrights, and trade secrets through innovative financing mechanisms, strategic transactions, and effective communication of IP value.

The Rise of IP-Backed Financing

One of the most promising developments in recent years has been the growth of IP-backed lending and financing across industries. This approach allows companies to use their intellectual property assets as collateral to secure loans and raise capital, providing an attractive alternative to traditional equity financing for IP-rich firms looking to fund growth.

5 Key Features of the IP-Backed Financing Market:

1. Market Maturation: As more lenders and insurers enter the space, the market for IP-backed loans is becoming increasingly sophisticated. This has led to greater availability of capital and more competitive terms for borrowers.

2. Collateral Protection Insurance: The introduction of collateral protection insurance (CPI) has been a game-changer, making these deals more viable for lenders. CPI policies protect lenders against losses in case of borrower default, reducing risk and enabling more favorable loan terms.

3. Typical Deal Structures: IP-backed loans typically range from $25-50 million for growth-stage companies. These non-dilutive debt instruments allow companies to access capital without giving up equity, making them particularly attractive for firms with valuable IP but limited hard assets.

4. Underwriting Factors: Lenders consider a variety of factors when evaluating IP-backed loan opportunities, including:

• Quality and strength of an IP portfolio
• Company cash flows and ability to service debt
• Market opportunity and potential for IP commercialization
• Management team expertise

5. Geographic Expansion: While the US has been at the forefront of IP-backed lending, other regions are catching up. China, in particular, has seen explosive growth in this area, with its IP financing market reaching 486.9 billion yuan (approximately $75 billion) by the end of 2022.

For companies considering IP-backed financing, it’s crucial to work with experienced advisors who can help navigate the complexities of these deals and ensure favorable terms. As the market continues to evolve, we can expect to see more innovative structures and potentially larger deal sizes in the coming years.

Evolution of Patent Litigation Funding

Third-party litigation funding has long been an important tool for patent monetization, particularly for smaller companies or individual inventors looking to enforce their rights against larger infringers. This market continues to evolve, with several key trends emerging:

1. Focus on Unified Patent Court (UPC) Cases: The recent establishment of the Unified Patent Court in Europe has created new opportunities for litigation funders. The UPC’s potential for pan-European enforcement and injunctions makes it an attractive venue for patent assertions.

2. Judgment Preservation Insurance: As patent damages awards grow larger, there’s increasing interest in judgment preservation insurance. These policies protect plaintiffs against the risk of having a favorable verdict overturned on appeal, providing greater certainty in litigation outcomes.

3. Multi-Jurisdictional Strategies: Funders are adapting their approaches to support enforcement campaigns across multiple jurisdictions, recognizing the global nature of many patent disputes.

4. Portfolio-Level Funding: There’s a growing trend towards funding patent portfolios rather than individual cases, allowing for more comprehensive monetization strategies and risk diversification.

5. Alignment of Interests: Funders are placing greater emphasis on aligning interests with plaintiffs and their counsel, often through hybrid fee arrangements or success-based compensation structures.

For companies considering litigation funding, it’s important to carefully evaluate potential funders based on their expertise, track record, and financial stability. The right funding partner can provide not only capital but also valuable strategic insights and connections within the IP ecosystem.