This is a story about that flash of insight when intelligence, creativity, experience and a lot of hard work combine and a lightbulb goes off, as they say.
Or, more accurately, turns on. Which is what happened when the attorney financiers of Longford Capital sought out an area in which to make a big impact in the increasingly competitive field of litigation finance.
What Longford partner Michael Nicolas and the Longford team found was something right in front of their eyes: the untold riches generated in intellectual property by universities. And, to be precise, the need for financial resources to support protecting those assets without draining a university’s budget.
For one of their largest investments in the university field they underwrote – what else – litigation to protect that lightbulb, or more specifically a breakthrough LED filament that was allegedly being ripped off without proper compensation to the University of California at Santa Barbara, where it was created.
Lawdragon: Tell me please how you came to focus on universities as a key component of Longford Capital’s litigation finance portfolio.
Michael Nicolas: We focus on three areas of law at Longford Capital, which are the same areas of law in which our legal team has significant professional experience: first, commercial claims of all types; everything from large breach of contract cases, fraud cases, joint venture disputes, and the full panoply of commercial litigation claims.
Second, we fund antitrust and trade regulation claims, as well as some international arbitration claims.
Third, we fund intellectual property claims of all types, with an emphasis on patent litigation. A little over two years ago, we launched our university initiative, which provides financial assistance to universities to help them realize the full value of their research and development activities, largely through the enforcement of their intellectual property rights, without having to come out of pocket and burden their budgets. Over the last year, we have made a number of investments in the university space, including the UCSB matter. I believe that our hard work over the last two years has made us an industry leader in working with universities.
LD: Can you talk a bit to the origin of Longford’s thinking about funding university patent claims? What led Longford to focus in this fascinating area?
MN: Our university initiative really began with a simple question: who are the most prolific creators of the intellectual property and life-changing inventions in the United States? The answer is universities.
LD: So smart.
MN: We viewed the area as an untapped resource of potential investment opportunities for us. We carefully studied the money being invested by universities in research and development nationwide. Using publicly available data, we determined that the top research universities in the United States collectively spend hundreds of millions of dollars a year creating the inventions that change our lives.
We also discovered that while universities spend a very significant amount of money on research and development, they often struggle to generate meaningful revenue from those research and development dollars. At the same time, public and private universities are facing more pressure than ever before to generate new sources of revenue to keep tuition and other costs in check. Litigation finance can help universities protect their valuable intellectual property rights while at the same time generating revenue that can be reinvested into the universities.
LD: Broadly speaking, is it fair to say that the situation that you found was one where universities were allocating funds to the actual creation of intellectual property, but not so much to the enforcement of it? And therein lay the opportunity.
MN: That's right. As a general matter, universities do not spend significant time and resources enforcing their intellectual property rights. Rather, the mission of the university and its tech transfer office is to generate inventions, patent those inventions, and see that those inventions make their way into the public domain. On the other hand, Longford Capital possesses significant experience evaluating intellectual property claims and working with our clients to generate the highest value from their intellectual property rights. We thought that by bringing our experience and financial resources to universities, we could help realize the full value of their intellectual property rights.
LD: How did you go about finding the right opportunities and the right universities that would be a good fit for Longford's expertise and capital?
MN: We are strong believers in building partnerships. What we've learned over the past two years is that the only way to identify, and ultimately pursue, valuable enforcement campaigns is to build strong partnerships with universities.
We do this in multiple ways. First, we have wonderful relationships with the law firms with which we’ve worked for years, including during our careers practicing law at national law firms. Our law firm partners are trusted advisors to their university clients and are willing to introduce us to those clients because of the relationship of trust we have established over many years. Our law firm partners know that we will be good stewards of their client relationships and will bring value to their clients beyond the capital that we provide.
Second, we focus heavily on educating universities about the services we offer. Our team spends quite a bit of time reaching out to the key decision makers within universities, including the general counsel’s office, the tech transfer office, and the C-suite to let those folks know what we do and how we can be a benefit to them.
LD: Those are such thoughtful approaches, knowing the university structure inside and out. Any other approaches you’ve found helpful?
MN: We also participate in university-related conferences and activities. The Association of University Technology Managers or AUTM is a perfect example. AUTM’s membership is comprised of leaders in university tech transfer from throughout the United States, and a key focus of the organization is to educate its members on current developments in the world of university tech transfer. We are an active supporter of AUTM and a frequent speaker at their regional meetings.
Finally, we believe that we are thought leaders in intellectual property monetization and university-related issues, and spend quite a bit of time writing and speaking on these issues.
Our activities are very time intensive, but we love the results we are seeing.
LD: So, you take a multi-pronged approach, and one that invests you very heavily in the university culture of intellectual property. So, taking for example your work with UCSB, and the filament lawsuit you’ve financed with them led by Nixon Peabody and its partner Seth Levy, is he someone you knew in advance? Or did you identify UCSB as a generator of intellectual property and then followed the chain to how they’re monetizing and protecting their IP, like a chicken and egg situation?
MN: With respect to UCSB, my colleague, Russ Genet is a former partner at Nixon Peabody. Before he joined our company, he was the nationwide practice group leader of Nixon Peabody's intellectual property litigation group. He had a long-standing and close relationship with Nixon Peabody generally, and with Seth Levy specifically.
When we launched our university initiative, Seth was one of the first people we called because of his sterling reputation in the university space, and his strong relationships with a number of the nation’s top research universities.
At the same time, we studied publicly available data to determine which research universities invested most heavily in research and development over the last 5 to 10 years. Our research revealed that the University of California System was one of the most prominent creators of intellectual property in the country. As such, they were a natural fit for us.
LD: I’ve been a Californian a long time, and we’re pretty familiar with the riches of our UC system.
MN: The other piece of the puzzle was the intellectual property itself. Our single greatest focus at Longford Capital is investing in what we believe to be the most meritorious legal claims. We feel that the LED filament technology developed by the Nobel-laureate led team at UCSB is literally world-changing.
LD: How does it work when Longford actually starts talking to the appropriate people within the university about using litigation finance? What is their reaction?
MN: The discussion often begins with an explanation of our significant professional expertise in patent litigation and our extensive experience in intellectual property monetization.
Russ Genet and Cindy Ahn are two shining examples of that expertise. Russ joined us after a 20-year career in patent litigation, most recently as the nationwide leader of Nixon Peabody’s intellectual property litigation group. Cindy Ahn also has 20 years of patent litigation experience and has served as General Counsel of a public company. The rest of our litigation team has at least ten years, and in my case over 15 years, of complex litigation experience.
After discussing our backgrounds and experience, we next discuss our university initiative, and how we assist universities with monetizing their intellectual property. This often includes a discussion of the patents in the university’s intellectual property portfolio, and any past efforts by the university to license or enforce its intellectual property.
The reaction we receive varies from university to university. Some universities have spent quite a bit of time analyzing, with the assistance of their counsel or outside consultants (or both), the most valuable assets within the university’s patent portfolio. Other universities seek our guidance on how best to strategically cull their intellectual property portfolios to identify the most valuable assets.
LD: Is it fair to characterize the work that you're doing with universities as - if not entirely the first time a university has thought about using litigation funding - still novel? That there's an education component involved.
MN: Yes, absolutely. We often speak with universities that have never heard of litigation finance. In those instances, the education curve is a bit steeper. That said, there is an ever-growing number of universities that have either heard us speak or read one of our publications, and have a base line understanding of litigation finance and the services we offer. Finally, we have spoken with a number of universities that have long track records of enforcing their intellectual rights and are exploring litigation finance as a way to monetize their intellectual property without burdening their budgets. The knowledge curve spans this entire spectrum.
LD: I would also suspect that one area in which universities might have developed a greater awareness is the push-pull of this. That traditionally, the university would have to allocate more funds for enforcement, but also the law firm would have to accept a lot of risk and expense that sometimes puts more pressure on the very teams that they want focused on going out and protecting their rights.
MN: To me, this falls within a phrase we use daily at Longford Capital, which is “alignment of interests.” We like to think of ourselves as a bridge between our clients and their law firms that allows the entire team to move forward with perfectly aligned interests.
In the past, when considering whether to enforce their intellectual property rights, universities were faced with a difficult decision: either pay the costs of the enforcement campaign themselves – costs that could easily run into the millions of dollars – or forego the campaign altogether. Most universities lack the financial resources and internal expertise to pursue big-ticket litigation.
Similarly, while many large law firms are willing to accept a modest reduction in their standard hourly rates, most firms are not comfortable taking cases, particularly complex patent cases, on a full contingency.
Longford Capital acts as a bridge between the university and its law firm by paying a meaningful portion of the university’s attorneys’ fees and expenses, while structuring the transaction to align the interests of all parties involved.
LD: I imagine there are many administrative hurdles to structuring a transaction with a university. What levels of approval must you navigate when negotiating a transaction with a university?
MN: What we have learned - and it’s why this process is one that relies heavily on partnerships - is that every university has multiple layers of decision-making, including the heads of the tech transfer office, the general counsel of the university, the Chief Financial Officer and President of the university, and the offices of the Provost and Chancellor. Each of these individuals is responsible for different constituencies within the university and are important stakeholders in a university’s decision to enforce its intellectual property rights. Over the last two years, we have learned a lot about navigating the various levels of decision making within universities and have become a recognized, and I believe highly respected, presence in the university community.
LD: Can you explain a bit more about the tech-transfer offices and the role they play in enforcement?
MN: Many tech transfer offices focus largely on licensing their university’s intellectual property to university-backed startup companies with the hope that those startup companies attract the attention of larger industry participants. This process frequently takes many years and generates only modest revenue for the university. We’re helping universities to think differently, viewing their intellectual property as valuable assets capable of much faster monetization through effective enforcement.
Also, because the primary goal of university tech transfer is to “transfer” the university’s technology to the world, we help universities understand that the quickest and most efficient way of transferring a university’s technology is by licensing that technology to large, existing U.S. companies that are best equipped to make the technology available to the public through licensed commercialization.
LD: So, can we spend a little time talking specifically about UCSB and filaments? As you became aware of this technology and how it was not accruing to the benefit of the university that developed it, how was this campaign devised?
MN: This is a campaign that was developed by Nixon Peabody and the outstanding team at UCSB. The process that they went through to prepare for and launch this campaign is set out in extensive detail at UCSB’s website filamentpatent.ucsb.edu.
Nixon Peabody has a longstanding relationship with UCSB, including the university’s tech-transfer office and the Nobel-laureate led team that developed this technology. With the assistance of the university, Nixon Peabody carefully vetted the patents at the heart of the enforcement campaign and determined that they had significant value. One of the most compelling aspects of this enforcement campaign is that although the technology is extremely sophisticated, proving infringement is fairly straightforward.
Nixon Peabody and UCSB identified a number of companies that were actively infringing UCSB’s intellectual property rights and those companies were named in the actions currently pending in the International Trade Commission and in United States district court.
LD: So, a jury can see it with their own eyes?
MN: Yes, they can. That said, before agreeing to fund this enforcement campaign, Longford Capital conducted its own rigorous two-stage underwriting process and concluded that the campaign was highly meritorious. Because we fund less than 5% of the matters presented to us for investment, this was a very high bar to meet. We believe that this a very strong and valuable set of patents.
LD: It’s also a very big damage profile.
MN: That’s very true. There is no question that the infringing use of UCSB’s patented technology has exploded over the last several years and will continue to do so for years to come. We believe that this is world-changing technology and are proud to be supporting UCSB in its enforcement efforts.
LD: That’s also your job, right? To find worthy claims, and ones that can bring significant returns to your business. That this fits so squarely within the university sector that you had focused on seems like the perfect storm, isn’t it?
MN: As I said earlier, our greatest focus at Longford Capital is identifying what we believe to be the most meritorious legal claims for investment. That is certainly the case with UCSB, and we consider ourselves fortunate to be working with such an outstanding client and law firm.
LD: What is the status of the claims now?
MN: In late August, the International Trade Commission instituted a formal investigation of the infringements detailed in UCSB’s complaint. Simultaneous with the filing of the ITC action, UCSB filed lawsuits in United States district court alleging infringement of its patents by the parties named in the ITC action. Those lawsuits are currently pending. The ITC has set an accelerated schedule for the ITC action, meaning that there will be a lot of activity in the coming months.
In addition, Nixon Peabody and UCSB have been approached by at least 50 companies, including many companies not currently named in the litigation, to discuss licensing UCSB’s technology without the need for protracted litigation. We believe that these discussions are a testament to the quality of UCSB’s patented technology, and a recognition of the seriousness of the campaign launched by UCSB and Nixon Peabody.
LD: What is your involvement now that the claims have been filed?
MN: Once we agree to invest, we are a truly passive investor, meaning that we have no control over the litigation or settlement decisions. Rather, all control of the litigation rests with UCSB and Nixon Peabody. That said, as we do with all of our investments, we will monitor the progress of the ITC action and the district court lawsuits, and will stay abreast of major developments in each case.
About the Author: Katrina Dewey (firstname.lastname@example.org) is the founder and CEO of Lawdragon, which she and her partners created as the new media company for the world’s lawyers. She has written about lawyers and legal affairs for 30 years, and is a noted legal editor, creator of numerous lawyer recognition guides and expert on lawyer branding. She is based in Venice, Calif., and New York. She is also the founder of Lawdragon Campus, which covers law students and law schools.