Recent articles published on Bloomberg Law1 and
Law3602 have suggested that third-party litigation
finance providers are "fleeing" the District of Delaware
because of Chief Judge Connolly's standing order regarding
third-party litigation funding arrangements.3
That Order, which issued April 18, 2022, requires litigants
receiving nonrecourse litigation funding to disclose the identity
of their funders, note whether the funders exercise control over
litigation or settlement decisions, and provide a brief description
of the funders' financial interests in the
litigation.4
The articles draw on a December 2024 paper5 by Professor
J. Jonas Anderson of the University of Utah's S.J. Quinney
College of Law, which studied whether there is a connection between
Judge Connolly's standing order and the recent drop in new case
filings in the District of Delaware.
The implication of the articles seems to be that third-party
litigation finance providers do not wish to be disclosed.
To the contrary, responsible funders have no reason to fear disclosure, and have no problem with their identities being disclosed if the claimant chooses to do so. Such funders generally embrace the District of Delaware — which plaintiffs and defendants have both long regarded as an experienced and reliable patent venue — when claimants and their counsel determine that is the appropriate venue in which to bring their claims.
Many factors unrelated to third-party funding could explain the
recent drop in patent filings in the District of Delaware.
As Professor Anderson's paper observes, patent filings have
slowed nationally in recent years; the former chief judge of the
District of Delaware, Judge Leonard Stark, was elevated to the U.S.
Court of Appeals for the Federal Circuit in 2022, and the district
has taken measures to alleviate its "overwhelming
docket.6
Indeed, in November 2014, the Administrative Office of the U.S.
Courts observed "a worsening shortage of Article III judges to
resolve critical copyright, trademark, patent, and contract
disputes."7
The continuation of the long-term decrease in filings of
abbreviated new drug application cases — suits that are
unlikely to involve third-party funding — in Delaware
accounts for a substantial portion of the total decrease in patent
cases, especially over the past year.
In addition, as Aaric Eisenstein, founder of ASE Monetization LLC,
observed in the above-referenced Bloomberg Law article, it is
possible that the decline in filings is the result of just one
large-scale filer slowing down its activities.
We spoke to Steve Cherny8, a partner at Quinn Emanuel
Urquhart & Sullivan LLP and prominent trial lawyer with a
strong practice in the District of Delaware, about Professor
Anderson's paper and the recent stories covering it.
He does not believe Chief Judge Connolly's standing order is
responsible for the 41% drop in District of Delaware filings that
has been observed sine Judge Connolly's Standing order was
issued.9 He said, "I doubt that there are enough
funded cases filed within the year to explain the observed
decrease, even if no more funded cases were filed in the District,
which I know is not the case. It is more likely that recent steps
to filter out lower-quality claims from [nonpracticing entities]
against numerous defendants have proven to be effective. But I
don't associate such claims with litigation funders who, in my
experience, seek to fund claims of sufficient quality to ensure a
return on their investment." Cherny's observations are
consistent with Anderson's paper, which found that funded cases
are dismissed at approximately half the rate of nonfunded
cases.10 And, according to Professor Anderson, far less
than 41% of cases in the District of Delaware appear to be
funded.
Although responsible funders have no reason to be afraid of
disclosure, they may have reason to be concerned about the costly
and irrelevant satellite litigation that arises when defendants
seek broad discovery of financial terms, privileged analyses and
work product, and other protected information related to funding
arrangements.
Courts around the country — including the District of
Delaware — have repeatedly held that litigation funding
agreements and funders' communications with plaintiffs are
irrelevant, protected by attorney-client privilege, and/or
protected by the work product doctrine.11
Yet that has not stopped defendants from seeking this discovery if
they suspect that a funder is involved. Defendants should not be
entitled to information in funding agreements any more than
plaintiffs should be entitled to defendants' internal
litigation budgets, valuations, and settlement tolerances.
As attorney Ken Rosen noted in a Dec. 5 Bloomberg Law
article,12 "Disclosure of litigation funding gives
an advantage to the defense counsel in knowing how long it can run
the meter of its adversary before bringing the adversary to its
knees. Courts should decide cases with third-party litigation
funding the same way as those without: on the law and the
facts."
It is hard to imagine how the details of litigation funding
arrangements are relevant to the issues to be tried in a patent
case, or any other case.
Mandatory disclosure of funding, as Judge Connolly requires, does not equate to judicial approval of more permissive discovery into irrelevant funding-related documents and communications. Articles suggesting that funders are fleeing districts that require disclosure appear to be conflating these two distinct issues.
At the end of the day, it is claimants and their counsel who select venue — not third-party funders, who do not control litigation strategy.
Footnotes
1.
https://news.bloomberglaw.com/business-and-practice/disclosure-order-targeting-funders-stunts-delaware-patent-suits.
2.
https://www.law360.com/trials/articles/2270416?nl_pk=e3c81349-d32b-4979-bba1-cb4f17addb4b&utm_source=newsletter&utm_medium=email&utm_campaign=trials&utm_content=2024-12-09&read_main=1&nlsidx=1&nlaidx=9.
3]https://www.ded.uscourts.gov/sites/ded/files/Standing%20Order%20Regarding%20Third-Party%20Litigation%20Funding.pdf.
4. Order at 1-2.
5.
https://assets.law360news.com/2270000/2270416/ssrn-5040456.pdf.
6. Anderson Paper at 32 and n. 136.
7. The Need for Additional Judgeships: Litigants
Suffer When Cases Linger | United States Courts,
https://www.uscourts.gov/data-news/judiciary-news/2024/11/18/need-additional-judgeships-litigants-suffer-when-cases-linger.
8.
https://www.quinnemanuel.com/attorneys/cherny-steven/.
9. Anderson Paper at 31–32.
10. Anderson Paper at 27–29.
11. See, e.g., United Access Techs., LLC v. AT&T Corp., No. 11-338-LPS, 2020 WL 3128269, at *1 (D. Del. June 12, 2020) (denying defendant's motion to compel production of communications to or from third parties regarding potential investment by those parties in plaintiff's lawsuit, finding defendant failed to meet the threshold requirement of showing that the litigation funding-related discovery was relevant to the specific claims or defenses in the case).
12. https://news.bloomberglaw.com/ip-law/we-dont-need-more-disclosure-rules-for-litigation-funding.
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