The new realities of funded patent litigation

March 2026 | SPOTLIGHT | INTELLECTUAL PROPERTY

Financier Worldwide Magazine

March 2026 Issue

Litigation funding in US patent cases has rapidly shifted from an occasional novelty to a consistent presence in a significant number of disputes, both in matters brought by non-practicing entities (NPEs) and in complex competitor actions.

For defendants facing a funded or likely funded plaintiff, it is increasingly important to understand how outside capital reshapes the plaintiff’s incentives, case selection and litigation conduct.

This article synthesises what recent experience and current litigation dockets reveal about the growth of funding in patent disputes, and offers practical defence‑side implications that can be implemented immediately.

What the available statistics generally show

Public and comprehensive statistics remain limited because funders, parties and counsel often treat financing arrangements as confidential and typically resist disclosure, even when protected by a court order.

Although some courts have begun to require disclosures, many still do not. Nonetheless, several consistent themes emerge across industry surveys and docket analytics. Commercial litigation funding has expanded substantially in the last five to seven years, with significantly more capital available for US matters and a meaningful portion allocated specifically to patent disputes.

The number of active US funders continues to grow, along with the pool of capital they manage. A substantial amount of this funding is directed at NPE enforcement campaigns, although competitor suits involving large damages models also attract third-party financing.

In districts that have historically seen heavy patent filings, such as Delaware and the Eastern and Western Districts of Texas, funded cases appear frequently even in publicly available, non-confidential information. Courts have also shown increasing interest in when and how much funding disclosure is necessary, resulting in new standing orders and case-specific inquiries that make such arrangements more visible than they once were.

For defence planning, the most important takeaway is not a single statistic but the sustained, multi-year trend toward more available capital, more sophisticated funders and broader reliance on portfolio‑based enforcement structures.

How funding reshapes plaintiff incentives and case posture

Funding alters three central dynamics in patent litigation: pre-filing screening, staying power and settlement posture. Funders often require rigorous diligence, typically far exceeding Rule 11 thresholds.

Plaintiffs who obtain financing usually have at least a colourable infringement theory, a clear understanding of where their noninfringement vulnerabilities lie, a defensible damages model and – critically – an executable recovery path against a solvent defendant. As a result, funded cases tend to have more staying power at the outset, although exceptions exist, and the quality of diligence varies across funders as the market expands.

Funding also extends a plaintiff’s staying power throughout the case. Access to non-recourse capital enables multitrack enforcement strategies, including parallel district court cases, intellectual property rights (IPRs) defence – though IPRs pose less danger to plaintiffs now that John Squires, director of the Patent Office, has been rejecting a large majority of petitions – early expert engagement and full discovery practice. Traditional defence leverage based on cost and delay is less effective when a plaintiff has access to deep capital.

Finally, funding shifts settlement behaviour toward risk‑adjusted value. Funders model decision trees across litigation milestones – claim construction, Patent Trial and Appeal Board (PTAB) institution or merits decisions, summary judgment, pretrial rulings and trial.

Plaintiffs therefore become less sensitive to short‑term cash constraints and more focused on data‑driven inflection points. Settlement windows tend to cluster around substantive events such as Markman rulings, PTAB institution decisions and Daubert outcomes that meaningfully alter damages exposure.

But once a funder has invested heavily, plaintiffs may not behave ‘rationally’ by traditional standards. Even after serious setbacks such as exclusion of a key expert or an unfavourable claim construction, sunk costs can push the plaintiff to continue the case rather than cut losses.

Disclosure and control: what courts are looking for

Several courts have sharpened their scrutiny of litigation funding in patent cases. Although there is no national rule mandating disclosure, defendants increasingly encounter case-specific orders requiring identification of funders, the nature of their financial interest and any rights they may hold to influence settlement or litigation strategy.

Courts also raise standing-related questions when financing structures involve ownership, licensing or revenue‑sharing elements that may bear on injury in fact, assignment or real‑party‑in‑interest status. In addition, parties are more frequently filing discovery motions aimed at funding documents or communications when such material may be relevant to issues such as bias, control, joinder, or valuation of the asserted patents.

For defendants, the goal is not to spark a costly satellite dispute but to obtain the information necessary to understand the adversary’s motivations and constraints. Courts are generally receptive to targeted, narrowly framed requests that serve a concrete case‑management purpose rather than broad fishing expeditions.

Although many courts treat core funding agreements and diligence materials as protected work product or irrelevant to the merits, limited discovery can succeed when it is tied to specific issues. For example, control provisions, such as funder approval rights over settlement, veto authority on litigation strategy or rights to replace counsel, may justify limited production or in-camera review because they can affect privilege, joinder or other procedural questions.

Funding structures that verge into control may also influence PTAB arguments about real party in interest or privity, potentially triggering estoppel or time‑bar consequences. And in certain circumstances, funding may support a bias theory for witnesses affiliated with the plaintiff or shed light on damages positions that rely on licensing comparables or ‘need‑based’ rationales.

Precision is essential. Unless a court has specific disclosure requirements, defendants should calibrate their requests to the minimum necessary information, such as funder identities, the nature of the financial interest and any control rights, and should expect to accommodate confidentiality protections or ‘attorney’s eyes only’ designations.

Standing, ownership and assignment pitfalls

Funding arrangements often intersect with monetisation structures involving assignments or exclusive licences. These structures can unintentionally impair standing if they transfer substantial rights without preserving the right to sue or if default terms shift effective ownership.

Defence teams should therefore scrutinise whether the named plaintiff held all substantial rights at the time of filing, whether security interests or revenue sharing mechanisms convey control inconsistent with exclusive rights, and whether any transfer triggered by financing decisions undermines pre-suit ownership or post-filing continuity.

When deficiencies exist, they may support motions to dismiss or compel joinder. Even if the issues are curable, raising them early can create settlement leverage or force clarifying amendments that narrow the case.

Fee shifting, section 285 and cost security

Funding does not insulate plaintiffs from fee exposure. In fact, courts evaluating exceptional case motions under section 285 sometimes consider whether a funded plaintiff pursued weak arguments unreasonably despite having sophisticated financial backing.

Defendants should maintain a clear record of notice, meet and confer efforts, and early disclosures to show that unreasonable positions persisted after the facts were clear. They should also consider targeted applications for cost or bond security where local rules permit and the record indicates a risk of non‑payment.

Funding alone is usually insufficient, but a motion tied to the plaintiff’s solvency, place of organisation, asset location or collection history may succeed. Such tools should be used judiciously; overreaching can damage credibility with the court, but a well‑supported, narrowly framed request can meaningfully alter settlement leverage.

Damages: valuation discipline and licensing realities

High‑end funders typically stress‑test damages models before committing capital. This diligence can make funded plaintiffs more resistant to early low settlement offers, but it also opens opportunities for cross‑examination.

Defendants can highlight inconsistencies between the valuation story used to secure funding and the damages model advanced by the plaintiff’s expert. If the plaintiff’s licensing history, technical footprint or apportionment logic diverges from what the funder likely evaluated – based on discoverable materials or inference – those gaps should be emphasised.

Defendants should also press for realistic royalty bases and rates grounded in technological comparability, contribution and actual usage. Some funded cases feature ‘portfolio premium’ theories; careful Daubert practice can strip away speculative components.

In negotiations, defendants should tie their offers to clear litigation risk milestones and demonstrate how each inflection point reduces expected value. Funders tend to respect disciplined, data‑driven proposals anchored in the record. However, funders can misjudge damages models due to imperfect information or flawed assumptions, and less‑scrupulous funders may simply accept inflated models from patent‑holders.

An incorrect or overly optimistic damages model can lead plaintiffs to make seemingly irrational decisions, such as continuing litigation even after a damages expert is excluded or after learning facts that undermine the value of their claims. As a result, funded plaintiffs may push cases much closer to trial – or through trial entirely – whereas an unfunded plaintiff bearing its own costs might have settled long before.

Practical defence playbook

Effective defence begins with early case mapping. Because funded plaintiffs often benefit from sophisticated pre-suit diligence, defendants should immediately target the weakest links, including claim preclusion, software patentability, divided infringement and clear noninfringement positions.

Strong early arguments can force a recalibration of the plaintiff’s expected value. Defendants should also pursue tactical, narrowly tailored disclosure motions where local practice or case-specific facts support inquiries into funding-related control, ownership or real party in interest issues.

Damages discipline is equally important: defendants should focus on apportionment, technological comparability and usage evidence from the outset, using Daubert to eliminate speculative components and push negotiations toward realistic valuation ranges. Throughout the case, defendants should maintain a meticulous record to support a potential section 285 motion if warranted; funded plaintiffs remain fully subject to exceptional case findings.

Conclusion

Litigation funding has matured into a durable and sophisticated feature of US patent litigation. The story is not only that more money is entering the space, but that it is increasingly smart money applied to cases with credible liability theories and realistic recovery paths. For defendants, this means fewer nuisance settlements, longer and more intensive litigation, and an increased focus on early merits pressure, procedural precision and data‑driven negotiation strategies.

Courts are paying closer attention to disclosure, control provisions and standing, creating new opportunities to test the limits of funded arrangements. Defence teams that incorporate these realities – without overreaching – will be best positioned to drive efficient resolutions and prevent outsized outcomes.

R. David Donoghue leads the intellectual property practice group at Holland & Knight. He can be contacted on +1 (312) 578 6553 or by email: david.donoghue@hklaw.com.

R. David Donoghue

Holland & Knight