Assetless by Design: When a Funder’s Security Becomes the Claimant’s Problem

A patent claimant pledged its patents, its licenses and every dollar those patents might ever earn to the funder paying for the case. The Unified Patent Court read the pledge, called the company “basically assetless in an economical sense,” and ordered it to produce €200,000 in cash before the litigation could continue. The collateral did exactly what it was drafted to do, and that is precisely why it cost money.

I own one live patent position — $100,000 committed through LexShares in December 2018, still unresolved — and I am a limited partner in three private litigation-finance funds. My quarterly reporting tells me a case name, a stage and a mark. It has never told me what any matter in those funds would owe if it lost, or whether the entity bringing it could find cash on short notice if a court asked for some up front. This order is about a claimant whose funding arrangement was ordinary and competently drafted, and about a downside line that does not appear anywhere on a statement I receive.

What the Court Was Looking At

The claimant is Nixu FL IP Protection LLC, a US entity incorporated in March 2025. Weeks later it acquired European patent EP 2 005 696 from FusionLayer Oy, and it issued infringement proceedings less than two weeks after the transfer of ownership was recorded. The defendants — Infoblox Inc., Infoblox Germany GmbH and Nomios Germany GmbH — applied to the Hamburg Local Division for security for their costs.

What made the application work was not anything the claimant said. It was a securities filing. Nixu’s holding company, SIM IP Inc., reports to the SEC, and those filings disclosed the funding architecture: the claimant’s expenses, including the cost of these proceedings, were covered by advances from a third party; the assets it acquired were pledged to that third party; and under section 2 of a Patent Security Agreement it had pledged all of its patents, all of its patent licenses, and “all income, royalties, proceeds and liabilities at any time due or payable or asserted under and with respect to” those patents.

There was one further detail. The portfolio had not been paid for in full. Roughly $2 million of the purchase price remained outstanding, to be paid out of proceeds the claimant had not yet generated.

The Argument That Failed, and the One That Worked

The defendants ran two arguments and only the second landed.

The first was geography: a costs order against a Florida-domiciled claimant would be hard to enforce. The court declined to accept it, holding that a claimant’s domicile in the US does not by itself justify security, finding no reason to doubt that US courts would in practice recognize and enforce European judgments, and observing that Florida’s statutory recognition criteria reflect international norms that exist in Europe too. That is worth registering on its own: the reflexive assumption that a foreign claimant is a collection risk did not survive.

The second argument was the balance sheet, and it did. The court noted the claimant had no credit history, that its assets consisted essentially of a patent portfolio, and that the portfolio’s value depended both on the outcome of the very proceedings in question and on whether it could actually be reached to satisfy a costs award. Then it turned to the pledge, and the sentence that matters is the one about ownership: the complete pledge of the claimant’s assets and revenue rendered it “basically assetless in an economical sense,” regardless of continuous legal ownership. The unpaid $2 million made it “mainly illiquid” as well.

So the claimant still owns its patents. It simply cannot be collected against, because everything the patents are or might produce is already promised to someone else.

The Pledge Is the Mechanism

This is what makes the order worth reading rather than merely noting.

A security package over a claim is written to answer one question: if this goes wrong, what does the funder get? The strongest possible answer is everything — the asset, the licenses flowing from it, and every future payment it could generate. That is not aggressive drafting or a sign of a distressed borrower. It is what a competent lender does when the only collateral available is a legal claim and its progeny.

The order establishes that the same document answers a second question the funder was not thinking about: if this goes wrong, what does the defendant get? And the more completely the first question is answered, the more emphatically the answer to the second is nothing. A funder that takes total security manufactures a judgment-proof counterparty. Judgment-proof is not a neutral condition in a loser-pays system; it is a fact a defendant can put in front of a judge, and here it converted a routine interlocutory application into a cash call.

There is a neatness to it that is easy to miss. The court did not need the funding agreement, which was presumably confidential. It needed a securities filing made by the parent for entirely unrelated reasons. The pledge was disclosed by the claimant’s own side, in a document filed to satisfy a different regulator, and it became the evidence that gated the case.

How the Number Was Reached

The quantum reasoning is more moderate than the headline suggests, and it cuts against reading this as a hostile bench.

The defendants asked for €1 million. The court valued the infringement claim together with the potential revocation counterclaim at €2.5 million, which produced a recoverable costs ceiling of €400,000, and it declined the invitation to inflate that value on the strength of a high out-of-court settlement offer. It then set security at €200,000 — half the ceiling — expressly balancing the defendants’ interest in recovering costs against the claimant’s right to an effective remedy under Article 47 of the EU Charter. Security can be posted either as a deposit with the court or as an irrevocable, unconditional, open-ended bank guarantee.

A companion decision reported at the same time closes the obvious workaround. In La Siddhi v Athena Pharmaceutiques, the Court of Appeal upheld €75,000 of security against an SME claimant, confirming that SME status does not by itself exempt a party from the obligation. The reduced fees and cost ceilings available to SMEs are one regime; security under Article 69(4) UPCA and Rule 158 is another, and it contains no carve-out. That order was set against a €112,000 ceiling — a materially higher proportion than Nixu’s 50%, which is a reminder that the fraction is discretionary rather than a rule.

What It Does to the Shape of the Return

When I took apart the economics of patent funding, the durable finding was not a return number but a shape: bounded upside, long duration, and no tail to bail out a mistake. That analysis was built on US cases, and it treated the downside as the invested capital — you lose what you put in, because the American default is that each side pays its own way.

Europe removes that assumption twice over. There is a loser-pays exposure at the end, which has always been true and is priced by anyone underwriting there. What this order adds is a demand at the front: cash, in an account, before the case proceeds, sized against a ceiling rather than against the merits. On a matter valued at €2.5 million, €200,000 is 8% of the amount in dispute, posted as a non-earning deposit for the duration of proceedings that will take years. It is not a loss. It is capital that is committed, locked and returning nothing while the case runs, on top of the budget for running it.

For a strategy whose upside is capped and whose duration is already long, a deposit is a worse cost than its size suggests. It lands at the beginning, on every case that draws an application, in a vertical where the median outcome is moderate.

What an LP Cannot See

My funds take security over the claims they fund. I have never seen one of those agreements, and until this order I would not have thought to ask what a complete pledge does to the claimant on the other side of it.

Nothing in my reporting would surface any of this. I receive a mark and a status. I do not receive whether a matter sits in a loser-pays jurisdiction, whether an adverse-costs reserve has been set aside against it and at what level, whether any portfolio company has been asked for security, or whether the fund would meet such a call from committed capital or by drawing more from me. If one of my funds had a European matter gated behind a deposit tomorrow, the line item that changed would be a valuation, and I would not be told why.

The question worth putting to a general partner is narrow enough to answer: in which of our matters can the other side ask for money before the merits are heard, and what have we reserved against that?

The Honest Handicap

Several things cut against the way I have framed this.

This is a procedural order, not a judgment on the case. Security for costs says nothing about infringement or validity. Nixu may well win, recover, and never see the deposit again except as a refund. Reading an interlocutory ruling as a verdict on the claim would be a mistake.

The court did not criticize the funding. There is no suggestion in the reasoning that the pledge was improper, that the arrangement was abusive, or that a funded claimant is unwelcome. The court took the security agreement as a fact about recoverability and nothing more, and it protected the claimant’s access to the court by halving what was asked for. If anything the order is a model of the balance it claims to strike.

€200,000 is not a lot of money to the party that will actually pay it. A funder capable of buying a patent portfolio and running a UPC infringement action can write this cheque without difficulty. What makes the order interesting is the principle — that a complete security package is itself evidence of assetlessness — not the amount, and I would be overstating things to present a mid-six-figure deposit as a crisis.

One order is not a doctrine. This is a first-instance decision of one local division, reasoned on its own facts: a weeks-old entity, no credit history, an unpaid purchase price and a total pledge, all together. A claimant with an operating business and the same pledge might well be treated differently. I do not know how often the combination recurs, and a single order cannot tell me.

And my own exposure to this is genuinely limited. My patent position and the bulk of my funds’ activity are American, and the US has no general loser-pays rule, so the direct read-across to what I hold is narrow. I am reading a European procedural order because it makes a mechanism visible, not because I think a deposit is about to be demanded of something I own.

Where I Land

I am not changing anything, because there is nothing available to change — the capital is called, the positions are illiquid, and the only decision I ever hold is whether to commit more.

What has changed is a question I now think belongs on the list. I have spent years asking what a funder’s security consists of, on the assumption that more security is strictly better for the investor. This order is the case where more security was worse: the pledge was complete, it was correctly drafted, it did what it was for, and the completeness of it is the reason a court could look at a company that legally owns a patent portfolio and describe it as having nothing.

The collateral was never the problem. What the funder did not price is that a document written to describe what happens if the case fails also describes, to anyone who reads it, what the other side would collect if the case fails. Somebody read it.

Sources

Unified Patent Court, Hamburg Local Division — Order on Security for Costs, R. 158 (redacted), UPC_CFI_360/2026, Infoblox Inc., Infoblox Germany GmbH and Nomios Germany GmbH v Nixu FL IP Protection LLC — the claimant pledged “all of its patents and patent licences” and “all income, royalties, proceeds and liabilities at any time due or payable or asserted under and with respect to any of the foregoing” under section 2 of the Patent Security Agreement, “thus rendering the Claimant basically assetless in an economical sense,” and “[r]egardless of continuous legal ownership” the pledge “highly questions that the patent portfolio can effectively serve as recourse”; no credit history; security of €200,000 by deposit with the court or an irrevocable, unconditional and open-ended bank guarantee; Art. 69(4) UPCA, R. 158 and R. 158(5) RoP, Art. 47 EU Charter; patent EP 2 005 696
Mishcon de Reya, UPC Update: August 2026 — incorporation in March 2025 and acquisition of the patent from FusionLayer Oy weeks later; SIM IP Inc. SEC filings disclosing that expenses including the cost of the proceedings were covered by third-party advances and that acquired assets and all patent income were pledged; the court’s rejection of the domicile argument, holding that “a claimant’s domicile in the US did not, in itself, justify security for costs” and that Florida’s recognition criteria reflect standard international norms; the companion Court of Appeal decision in La Siddhi v Athena Pharmaceutiques (UPC_CoA_48/2026) upholding €75,000 against an SME and confirming that “a party’s SME status does not, by itself, exempt that party from the obligation to provide security for costs,” with no SME carve-out in Art. 69(4) UPCA or Rule 158, against a €112,000 recoverable costs ceiling
Bristows, Irides weekly global patent litigation update — proceedings issued less than two weeks after the transfer of ownership was recorded; the $2 million outstanding purchase balance payable from proceeds generated by the claimant, supporting the finding that it was “mainly illiquid”; the defendants’ request for €1 million; the court’s assessment of the infringement claim and potential revocation counterclaim at €2.5 million, giving a €400,000 recoverable costs ceiling, and its award of €200,000 as 50% of that ceiling after balancing against the claimant’s right to an effective remedy and a fair hearing; the court’s refusal to raise the value in dispute on the basis of a high out-of-court settlement offer
Legal Funding Journal — “UPC Orders €200,000 Security After Finding Patent Claimant Had Pledged Its Assets to a Funder” (Aug 25, 2026), reporting the Mishcon de Reya update
Author’s own records, reconciled against the Portfolio page — one active LexShares patent position ($100,000, December 2018, unresolved) and three private litigation-finance fund positions

Commentary and personal experience — not investment, legal, or tax advice. Investing carries risk, including total loss of capital. Always do your own due diligence.