Deminor was approached by a Canadian start-up with patents over a technology to improve efficiency and save energy, but the client’s strategy was not aligned with Deminor’s own strategy.
Process & Approach
Deminor carried out its standard first phase due diligence process on a patent family for a Canadian start-up. It was clear that the company had received strong patent advice as the drafting and prosecution was strong and protection had been obtained in key jurisdictions. The client had identified a large industry player and had a strong infringement case against it. The client was new into the market and was still optimising its own manufacturing.
Deminor’s due diligence process not only looks at the strength of the patent’s validity and infringement cases but, most importantly, looks to understand the client’s strategic objectives in bringing the case. The client in this case wanted to commercialise products under its patents and so its core objective was to obtain an injunction and for the large competitor to stop infringing.
Valuation of patent disputes is difficult and when assessing a case for funding, both past damages as well as compensation for damages until patent expiry is important. It is an important objective in Deminor’s funding approach for the client to receive the majority of the damages awarded. A review of the budget, that would require third party funding, against the potential damages is a crucial part of the due diligence process. The Canadian start-up’s ambitions to scale its manufacturing and obtain an injunction in the proposed litigation meant that only past damages would be awarded. Given that the client was a relatively new business and its technology was new to the market, the past damages were not sufficient to provide Deminor with its return of litigation funding capital and success fee and for the client to receive its share. As such, this was not a case that Deminor could invest in.
Deminor seeks to understand the client’s business, business strategy and litigation strategy in order to build a tailored litigation funding offer. There are many different structures for financing litigation but litigation funding is the only structure which removes litigation risk from a company’s balance sheet. However, companies should consider their case strategy and objectives alongside their financial options to select the right financial structure for the case. Deminor views its litigation finance as a partnership with the client in achieving a successful outcome to the client’s claim. If the client will not receive the majority of the damages paid, the client is likely to be less committed to the action which in turn may impact the likelihood of winning the case. Given that Deminor provides non-recourse funding, if the case is lost, Deminor will lose all its investment. As a result, Deminor aims to fund cases where its strategic interests are aligned with those of its client.
"This case had a great infringement read but the low damages available would have meant that the client would not receive much of the award. At Deminor, we will only invest in cases where the client receives the lion’s share of the award. We like our interests to be aligned and for all parties to be motivated to drive towards a successful outcome. In this case, the technology was only recently introduced and so this is one of the cases that I watch given that the case could become viable for funding from an economic perspective as the market for the patented product develops."