This proposal will provide new private funding options to those litigants who otherwise would refrain from starting certain proceedings, due to legal fees or the uncertainty of awarded damages. This is a more established practice in other jurisdictions, such as the US.
But before moving on, let's follow the track of the 5 W’s and H questions, customised for IP practitioners in the 4 W’s+H.
-The WHO: Third Party Litigation Funding refers to any private undertaking that enters into a third-party agreement to invest in lawsuits in exchange for a percentage of any settlement or judgment. It is a mechanism not entirely unknown in Europe, but of limited use, so far in actions of collective redress for consumers.
-The WHAT: The private funder will not act or appear at any stage of the court proceedings. Do not misunderstand: they are not like patent trolls, because the legitimation and capacity to enforce legal actions remain unchanged in the sphere of the right holders or assignees, as appropriate.
-The HOW: TPLF will act under the principle of fiduciary duty of care, that is, the claimant will retain the direction and choices on how legal actions evolve. Funders will not even have the option to abandon funded parties in ongoing litigation, except in exceptional and strictly regulated circumstances.
-The WHEN: The current EU Parliament proposal -aka “Voss Proposal”- is still at a very early stage of the legislative process. It will have to move up to the EU Commission and the Council. So, the next step is not likely to happen until well after June 2023, because the draft requires an assessment of the impact of the related Directive (EU) 2020/1828 on Collective Redress for consumers, whose transposition deadline will end on that month.
-The WHY: This is the most critical topic, given the fact that the principles that back the initiative of the European Parliament are more connected with the public interest, in the way that TPLF would ease the access to justice in countries where legal costs are very high or for marginalised collectives, those with funding barriers.
And what about Intellectual Property?
Being a resolution of the European Parliament that only addresses a general framework for TPLF, Intellectual Property is not directly mentioned in the draft yet, although it is a perfect suitable subject matter: a quick review at the figures of the supporting studies shows that the global TPLF market is now worth between €40bn and €80bn.
Among the numerous challenges this initiative may put forward for the future landscape of IP litigation across the EU, one in particular stands out: the management of the damages eventually awarded and their distribution between claimant and funder. The proposal recommends imposing a limit on the proportion of the award that litigation funders can obtain: the claimant should always receive 60% or plus of the damages. Likewise, claimants will always get paid the awarded damages first, so their entitlement takes priority over that of the funder.
In the event of an unsuccessful outcome, the claimant will first be responsible for adverse costs, and only where they have insufficient resources, will courts or administrative authorities be empowered to make cost orders against litigation funders, whether jointly or severally with claimants.
The legal responsibility and accountability of TPLF will pose other challenges, since these entities will have to be supervised by a public authority to ensure that they comply with registration duties, corporate governance requirements, and other minimum standards set forth by the Directive.
Furthermore, the burden of transparency within proceedings will enable any counterparty involved or the Court itself to request the disclosure of funding agreements, and defendants must be informed of the existence of a TPLF behind the action brought and its identity.
FICPI's view and involvement
FICPI plans to monitor the legal procedure and whether or if any specific IP provisions are introduced.
Next steps
National courts in the EU tend to diverge to a great extent in the practice of damage awards for IP lawsuits and the cap of 40% for this external funding could have a deterrent effect in certain jurisdictions.
Consider getting involved with one of FICPI's Study & Work groups such as CET 7 IP Enforcement and Alternate Dispute Resolution.