Lex Machina Raises $4.8M First Round Led By Cue Ball Capital As IP Litigation Reaches New Highs

One of the fundamental problems in intellectual property (IP) litigation is the lack of information available to both plaintiffs and defendants. The identity of the plaintiff and the defendant, the district(s), judge(s), and lawyers involved in a particular case, have a significant impact on the outcome of a litigation, including whether a particular litigation will proceed at all. While legal professionals have anecdotal and scholarly information on individual districts and judges, granular data on lawyers, courts, judges, and districts can be invaluable in litigation decision making.

Lex Machina, which just announced that it has raised a $4.8 million Series A funding round led by Boston-based Cue Ball Capital, aims to provide this information. As the number of lawsuits and verdict amounts increase to all-time highs, the information is becoming increasingly valuable. The company claims that total patent litigation cases filed have increased more than 100 percent in the last three years, and three verdicts over $1 billion for patent infringement have been awarded in the last eight months, while median damages awards in patent cases now exceed $4 million. Existing investors XSeed Capital, Costanoa Venture Capital, and Yahoo! co-founder Jerry Yang also participated in the round. According to Josh Becker, CEO of Lex Machina, Cue Ball found Lex Machina through AngelList.

The participation of Cue Ball as an investor in the round is noteworthy because the fund’s Chairman and General Partner, Richard Harrington, served as CEO of Thomson for over a decade, leading its transformation into one of the world’s leading information services businesses. The fund therefore has a deep understanding of legal information businesses, and Lex Machina believes that the participation of Cue Ball will be instrumental in validating and growing the company. To that end, Cue Ball partner John Hamel and former Thomson executive Roy Martin, who also participated in the round, are joining Lex Machina’s board.

Lex Machina, whose clients include eBay, Microsoft, and Shire Pharmaceuticals, plans to use the funds to add new product features and to expand its sales team to serve corporate law firm demand for its IP litigation data and analytics. While the core of Lex Machina’s machine learning and a natural language processing (NLP) legal text classification system, which aggregates and normalizes court electronic records from PACER, was previously covered, some of Lex Machina’s features are worth highlighting.

In addition to litigation decision information useful to judges, lawyers and company decision makers, Becker explained that the company is focusing on tools for outside counsel selection and management, peer company benchmarking, and patent portfolio analytics. To help with outside counsel selection, companies can use Lex Machina’s data to review performance of particular law firms and attorneys in previous litigations. This performance data can be drilled down to particular districts, and even judges to show which attorneys are most effective.

Companies can use Lex Machina data to compare their performance in IP litigation against the performance of their competitors in similar litigations. Since many patent litigations involve multiple defendants, this can be a powerful tool not only for competitive intelligence, but also to identify strategic alliances and to coordinate defense efforts with other defendants. Of course, the data can also be useful to non-practicing entities (“NPE”) to identify potentially easy targets for assertion campaigns.

Finally, Lex Machina’s litigation data can be useful in patent portfolio evaluation. According to Becker, Lex Machina’s technology can help identify similar patents that have been enforced in order to show how those patents did in litigation, and to help establish patent value.

Of course, while it is not Lex Machina’s goal, the data can also be useful to non practicing entities to identify potentially easy targets for assertion campaigns.

For example, competitive intelligence information can help identify target companies that do not have particularly good results in litigation.  In addition, because Lex Machina uses PACER records, it requires an actual litigation to be filed. Therefore, asserting entities can “avoid being seen” by focusing on out-of-court practice, such as the mailing of demand letters. Unfortunately, because of the private nature of such demand letters, companies dealing with them are still largely left to fend for themselves.

So while Lex Machina’s IP litigation analytics appear to be very valuable for high-stakes disputes, a lot remains to be done for the smaller targets of patent enforcement.