LEGAL GUIDE
Written by attorney Deepak Malhotra | Nov 14, 2010

How to Monetize Your Patent Using Contingency Fee Patent Enforcement

If you have an issued patent that is being infringed by a competitor, you may be wondering what your options are. Of course, you can send threatening letters but those may be ignored. If you decide to fund your own enforcement action, legal fees can quickly add up. It may be worth considering contingency fee enforcement of your patent.

Here are some things that contingency fee litigators will want to see before accepting your patent for contingency fee enforcement:

  1. a well written patent--it is amazing how many poorly written applications are out there full of patent profanity, having only one independent claim, having only method claims, having claims that are only infringed by end users, having only means-for clauses, etc. (see my legal guide on how to choose a patent attorney for a list of common mistakes);
  2. damages--since the cost of enforcement averages 1.5 million or so and we are only getting a portion of damages, we need damages of at least 10 million or so (using the reasonably royalty damages calculation method if there has been an offer to license);
  3. a client who is willing to accept a financial result as opposed to one who is out for blood or to shut down the infringer;
  4. clear literal infringement;
  5. minimal harmful file history; and
  6. preferably multiple infringers of various sizes, not just one or two big ones.

There are other ways to monetize patents, and contingency fee litigation is just one option. Another option is to use a holding company that has "negotiators" who enforce patents that are infringed by others. The way one of them works is that they pay a small hourly consulting fee and high percentage only up to the first million or so in damages or royalties, then the percentage drops down significantly after that, with a net to the inventor being much lower than contingency fee litigation if there is a big win, but with some income to the inventor if there is a loss. With such an arrangement, they avoid having to take instructions from clients who are out for blood. The majority of inventors do not make money from their patents. The ones who I have seen achieve success are those who are venture funded start-ups, those who actually manufacture the product they have patented, and those whose patents end up being infringed by others and who use contingency fee litigation.

In certain "hot" fashionable technology areas like Web 2.0, certain companies with ties to certain large software companies will buy patents to put them on the shelf but that is not the norm. In this rough economic environment, auctions are generating little interest these days and one of the only ways to monetize patents is through contingency fee enforcement. The litigators are being highly selective in the cases they accept, so having a well drafted patent with clear infringement and minimal harmful file history is very important. If you believe you meet the points I've laid out above, it may be worth considering contingency fee enforcement. Just be aware that the vetting process can take several months.

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