Third-party litigation funding (TPLF) is big business. It claims to widen access to litigation to allow plaintiffs (who otherwise could not afford a lawsuit) to bring a claim against a defendant. The secondary market for patents, in which non-practicing entities (NPEs) can buy patents from innovators and litigate against defendants, has created a robust market for litigation. Fueled by the capital markets, investment funds place bets on litigation in hopes of a financial return, with little interest in the underlying technology or innovation. Yet litigation growth drains social welfare and creates a hidden tax on innovation.
A new dataset from Unified Patents shows that there was a dramatic increase in both the number of cases and the percentage funded by third parties in the United States from 2002 to 2021. While we cannot say with certainty that third-party funding has caused this growth in patent litigation, we can observe its high correlation. Looking at the total number of patent cases and total number of third-party funded patent litigation cases in the United States from January 2000 to November 2021, both the number of cases and those funded by third parties increased, starting in 2010, and have remained statistically significant ever since.
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