A dispute between a patent owner and its own IP licensing arm shows how a complicated partnership with an IP monetisation firm – and the presence of a litigation financier in the mix – may have prevented the IP owner from reaping the rewards of a major damages award secured against Samsung. Now the funder argues it has first dibs on those funds.

KIP, the licensing arm of Korea Advanced Institute of Science and Technology (KAIST), won $203 million from Samsung for infringement of a FinFET semiconductor patent in 2020. KAIST is a highly respected research body and it appeared the award would bring it a windfall for valuable IP.

In March, though, KAIST sued Paulina FundingCo, and an entity connected to KIP and KIP’s CEO In Gyoo Kang. The Korean university alleged it hadn’t seen a dime of the 2020 settlement and blamed a $6 million litigation finance agreement KIP had made with Paulina for the hold-up. It argued that KIP didn’t disclose the deal despite business agreements that laid out revenue-sharing rules and duties to consult and gain approval before monetising the US and South Korean FinFET patents.

KAIST complained that KIP has paid $24 million to Paulina and there is another $23 million in an escrow account in US Bank, which is also a defendant in the case. KAIST contends that it will lose its rightful share of the money if the court does not intervene.

However, the funder argues it should be paid first. Court filings say: “Given that Paulina is a secured creditor, while KAIST is not, the well-settled system for creditor priority would give Paulina the right to collect before KAIST—not the other way around.”

Collecting against debtors

Paulina claims it filed an arbitration case against the KIP entities for allegedly refusing to pay Paulina its 350% return-on-investment under a 2016 litigation funding deal for $6 million relating to the Samsung litigation. While KAIST is in the dispute with KIP entities – alleging they have failed to pay the university too – Paulina counters that KAIST can’t allege wrongdoing just because the funder sought to enforce its own contractual rights.

Paulina has asked the US District Court for the Eastern District of Wisconsin to dismiss KAIST’s unjust enrichment and tortious interference claims against it. “Paulina’s efforts to collect against those same debtors cannot amount to a tort against KAIST,” its motion to dismiss said.

“KAIST’s only gripe is that Paulina has successfully enforced its contractual rights under the purchase agreement to obtain funds from the KIP entities—and that this may leave the KIP entities too cash-strapped to someday pay their debts to KAIST,” the motion says.

A US litigation finance firm created Paulina in 2016 for the KIP deal, but its identity is not known.

US patent ownership disputed

Though KAIST’s lawsuit claims the university sought to monetise both the Korean and US patents for its FinFET technology, the defendants’ court filings show there’s a dispute over who owns them.

“KIPB wholly owns the US patent,” says a motion to dismiss by the KIP entities. “KAIST has had no rights in the US patent at any time.”

They argue that Jong-Ho Lee, the named inventor, independently prosecuted the US patent, secured ownership of it and assigned all rights to KIPB, one of the KIP entities.

Though the KIP entities argue that their 2019 agreements with KAIST did mention revenue sharing for both patents, KIP claimed this would have applied in litigations which asserted both the Korean and US patents.

It says the Samsung litigation involved the US patent alone and it obtained funding from Paulina only to litigate the US patent. The motion says that KAIST erroneously believes that KIP needed to discuss matters concerning the US patent under the pair’s agreement.

“Nowhere in the four corners of the business agreement discusses the rights or imposes on KIP any obligations concerning the US patent. Indeed, the business agreement imposes no contractual obligation on KIP as to what KIP or KIPB should do in connection with the patent that KAIST does not own,” the KIP entities claim.

According to the motion, the agreements between KAIST and the KIP entities were meant to enforce the university’s IP rights in Korea and they specified disputes would be settled by arbitration in Korea.

The IP licensing business is asking the Wisconsin court to dismiss KAIST’s claims.

Angela Morris