Financing Patent Litigation: Insurance Troubles

Personal loans – such as a mortgage or automobile purchase financing – require that the borrower purchase insurance to cover at least some of the lender’s risk.  Business loans and venture investments are no different and a variety of insurance products are available to ensure a wide variety of entrepreneurial endeavors.

Although the particular order is rather mundane, the factual background of the investment/insurance in ABC v. Ironshore Speciality Ins. (2nd. Cir. 2014) is quite interesting.

Eidos holds several patents, including the U.S. Patent No. 5,879,958 covering certain LCD displays.  In 2010, Eidos obtained financing from Stairway Capital in order to fund its patent enforcement litigation campaign.  As part of the deal, Eidos also obtained insurance from Ironshore to cover the loan payable if the campaign fails to recoup at least the loan amount.  The infringement litigation was still ongoing in 2013, but Ironshore must have predicted a bad outcome and filed a demand for arbitration of its contention that the insurance policy was void ab initio.  And, the appellate order linked-to here affirms the lower court order requiring non-binding mediation followed by arbitration if necessary (as spelled out by the contract).  The patentee had raised a new argument on appeal that the panel refused to hear.   

In the parallel infringement litigation, the patent has now been found invalid as indefinite.  That decision is apparently on still appeal to before the Federal Circuit.

10 thoughts on “Financing Patent Litigation: Insurance Troubles

  1. 6

    Not sure there is anything interesting here. Where it takes money to get money there will always be people to go to borrow the money from.

    1. 6.1

      That is clearly not the case for obtaining suit money for an objectively losing patent suit, unless you are talking about a very high interest rate loan from the kind of folks who use painfully ungentle collection techniques.

      1. 6.1.1

        The terms are all in how much you need and what is the likelihood of you paying it back. It doesn’t really matter what it is, does it? Always someone will to risk some of that capital that the Fed. has been giving them for free.

  2. 5

    Is there not a realization that there is a paradigm shift in the application of the patent laws? Why is the American inventor left out in the cold?

    Perhaps an organization of all patent practitioners is in order, those that actually prosecute patents to issuance (if that is possible today), not those “intellectual property” litigators that have mucked up the system.

    Show me a Markman hearing that no term was in dispute. Have we lost the purpose of our patent system to reward inventors?

    1. 5.1

      Richard I think you labour under a misappehension, that one can trace all the blame back to patent litigators. Correct me (readers) if I am wrong, but the history of the last few years informs me that the blame is more fairly laid at the door of the judges asleep at the wheel or, worse, actively steering the law in the wrong direction.

      Me, I would ascribe the wild swinging of the jurisprudential pendulum to the Presumption of Validity, with its manifestation of the need for invalidity evidence, clear and convincing to a lay jury. That alone has given rise to a sense of entitlement amongst inventors, that have been helped by their zealous advocates to get the USPTO to issue them with what has turned out to be worthless junk.

      You can hardly blame your own lawyer for being hard-working and clever, can you?

  3. 4

    Wall Street investments in PAE law suits must have looked like a great opportunity back in 2010, as here, when more than 97 of patent suits settled, mostly with a significant payoff for the NPE, before any significant litigation costs for the PAE. That was before defendants got fast and relatively cheap AIA post-grant proceeding options and half a dozen favorable Sup. Ct. decisions. Law firms now taking patent suits on a contingent fee basis, having to risk their own time and funds, may need to do considerably more objective due diligence on their odds of a favorable settlement or ultimate success under these changed circumstances?

  4. 2

    Dennis: The infringement litigation was still ongoing in 2013, but Ironshore must have predicted a bad outcome and filed a demand for arbitration of its contention that the insurance policy was void ab initio.

    It does appear that the case was headed for troubled waters and whatever bets that Ironshore had made on Eidos chances for success were too optimistic. It’d be interesting to know what “misrepresentations” were allegedly made by Eidos in procuring the insurance. 2nd circuit order here: link to

    Where/why does this “ABC” entity enter the picture?

  5. 1

    In case it wasn’t obvious, Eidos is an NPE (defendant was AU electronics) and was sueing multiple defendants in East Texas. The patent was purchased from a competitor of the defendants after that competitor failed to successfully “monetize” it (and others).

    For what it’s worth, the patent was apparently also deemed non-infringed (see Wilson Sonsini’s press blurb here: link to

    Here’s the sole claim of the ‘958 patent. As is often the case, the indefinite issue didn’t jump off the page (the specification appears to be more poorly written than the claims). Apparently the issue was the construction of step G8 — evidently a key term for patentability — and specifically whether the claim requires the creation of two separate holes for the source wiring and gate wiring.

    1. A method for producing an electro-optical device in which an electro-optical material is put between a pair of substrates opposed to each other, at least a portion of opposing surfaces of the substrates is insulative, a plurality of source wirings and a plurality of gate wirings are formed crossing each other on the surface of one of said pair of substrates and a transparent pixel electrode and a thin film transistor are formed at each of the crossing points between the source wirings and the gate wirings, wherein the method comprises:

    a step G1 of forming a first metal film on the surface of said one substrate,

    a first photolithographic step G2 of patterning the first metal film to form a gate electrode and a gate wiring,

    a step G3 of forming a first insulator film, a semiconductor film and an ohmic contact film on the surface of said one substrate after the first photolithographic step,

    a second photolithographic step G4 of patterning the semiconductor active film and the ohmic contact film to form a semiconductor portion above the gate electrode in a state isolated from other portions,

    a step G5 of forming a second metal film on the surface of said one substrate after the second photolithographic step,

    a third photolithographic step G6 of patterning the second metal film and the ohmic contact film to form a source electrode, a drain electrode and a channel portion,

    a step G7 of forming a passivation film on the surface of said one substrate after the third photolithographic step, and

    a fourth photolithographic step G8 of patterning the passivation film to form a contact hole reaching the gate wiring, a contact hole reaching the drain electrode and a contact hole for source wiring and gate wiring connection terminals,

    a step G9 of forming a transparent conductive film on the surface of said one substrate after the fourth photolithographic step, and

    a fifth photolithographic step G10 of patterning the transparent conductive film to form a transparent pixel electrode.

    Magistrate Judge Love found that rather than resolving the ambiguity in the term, the expert testimony offered by both parties “demonstrated” the ambiguity. The Judge favorably cited the defendant expert’s testimony that the specification failed to provide any evidence that two separate contact holes were contemplated for the source and gate wiring connection terminals (the order is here: link to

    Interestingly, indefiniteness was found here on summary judgment, applying the “insolubly ambiguous” standard (pre-Nautilus).

Comments are closed.