When businesses ask me about funding an IP dispute, the conversation usually covers two options IP insurance and litigation funding. They are often mentioned in the same breath, as though they are interchangeable. They are not. Understanding the difference matters, because choosing the wrong one, or not having either in place, can leave a business seriously exposed.
What is before-the-event IP insurance?
Before-the-event IP insurance is exactly what it sounds like — cover arranged before any dispute arises. You pay an annual premium and in return the insurer covers the legal costs of enforcing your IP rights against infringers and defending allegations that you have infringed a third party’s rights, subject to a merits assessment.
The key word is before. The policy needs to be in place before the dispute arises. Once a claim is on the table it is generally too late to obtain cover for that specific matter. This is the single most important thing businesses need to understand about IP insurance, it is a planning tool, not a rescue tool.
For most SMEs with patents, trade marks or other registered rights, before-the-event insurance is the most practical and cost-effective way to ensure they can act when it matters.
What is litigation funding?
Litigation funding is a completely different arrangement. A third-party funder typically a specialist investment fund, agrees to finance a legal claim in return for a share of any damages or settlement recovered. The funder is, in effect, investing in the outcome of the case.
Litigation funding is almost always arranged after a dispute has arisen, and it is almost exclusively focused on enforcement claims, situations where there are significant damages to recover. The funder needs to see a return on their investment, which means the potential award needs to be substantial enough to justify the risk.
The critical differences
The timing difference is the most obvious but not the most important. The more fundamental distinction is who the arrangement is designed to serve.
Before-the-event insurance is designed to serve the insured business. It covers both enforcement and defence, it does not take a share of any damages recovered, and it gives the business control over how the case is run subject to normal policy terms. The insurer’s interest is in resolving the dispute efficiently, not in maximising the financial outcome.
Litigation funding is designed to generate a return for the funder. That is not a criticism it is simply what it is. Funders typically take between 20% and 40% of any recovery, and they will often have views on how the case should be conducted to maximise that return. Their interests and the client’s interests are broadly aligned but not identical.
Why litigation funding is not the answer for most SMEs
Litigation funders are highly selective. They fund cases with strong merits and, crucially, substantial potential damages. In practice that usually means disputes where the recoverable damages are at least several million pounds. For the vast majority of SME patent and trade mark disputes the figures simply do not justify the investment from a funder’s perspective.
This is not a niche observation it is the commercial reality of the litigation funding market. I have seen businesses assume that litigation funding is an option available to them, discover it is not, and find themselves with no viable route to enforce rights they have spent years building.
The case for before-the-event insurance
Before-the-event insurance is available to businesses of all sizes, for disputes of all values, covering both enforcement and defence. Premiums for SMEs typically start from around £1,200 per year depending on the level of cover. There is no share of damages, no funder influence over the conduct of the case, and no need to wait until a dispute has arisen to put cover in place.
It is also worth noting that the two options are not mutually exclusive. Some businesses use before-the-event insurance for defence cover and explore litigation funding for very high value enforcement claims. But for most SMEs the practical starting point is insurance and the most important step is getting it in place before a claim arises rather than after.
The question I was asked to present on at the CITMA Spring Conference in 2023 was precisely this why before-the-event insurance is almost always preferable to after-the-event insurance and litigation funding for businesses of this size. The answer comes down to accessibility, breadth of cover, cost and timing. On all four measures, before-the-event insurance wins for the overwhelming majority of SMEs.
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This article is provided for general information purposes only and does not constitute legal advice. Readers should seek independent legal advice on their specific circumstances before taking any action.
