Amicus Briefs Seek to Expose ‘Secrecy’ of 3rd-Party Litigation Funding

Communications and tech industry members of the Computer & Communications Industry Association, the High Tech Inventors Alliance and the Alliance for Automotive Innovation often find themselves the targets of “baseless suits” funded by third parties “in exchange for a share of the suit’s recovery,” said the groups in an amicus brief Wednesday at the 5th Circuit U.S. Court of Appeals. They oppose the mandamus petition of Nimitz Technologies to vacate an order from Chief U.S. District Judge Colm Connolly for Delaware demanding that Nimitz produce by Dec. 8 a volume of documents showing how it’s financing its four patent infringement lawsuits against defendants Bloomberg, BuzzFeed, Cnet and Imagine Learning.

Nimitz said Connolly’s order is an intrusive demand for documents that shouldn’t be exposed to the public eye, including bank statements and materials protected by attorney-client privilege. The defendants say Nimitz has itself to blame for arousing Connolly’s suspicions by not fully complying with his standing orders for such information.

The amici groups “have seen firsthand the various ways in which litigation funding warps the course of litigation to the detriment of the companies caught up in funders’ gambits, the judicial system, and innovation,” said their brief. Their members’ experience with funded suits “gives them unique insight into the concerns litigation funding raises and the importance of transparency into this burgeoning practice,” it said.

Third-party litigation funding is “increasingly common, yet it remains shrouded in secrecy,” said the brief. “Recognizing the need to shed light on this practice,” Connolly adopted a standing order that requires all parties to disclose whether they're receiving outside funding in exchange for a financial interest that’s contingent on the results of the litigation, it said.

Nimitz objects to Connolly’s standing order and how he's enforcing compliance with it. Contrary to Nimitz’s contention that Connolly’s demands are an unprecedented abuse of district court discretion, “mandated disclosure of litigation funding is both consistent with federal law and critical to ensuring the smooth functioning, fairness, and integrity of judicial proceedings,” it said.

With the source of the third-party funding identified, the court and defendants will know “who the major players in the suit actually are -- and accordingly, who is really driving the litigation, who ultimately stands to benefit, and whether they pose a conflict of interest for the judge,” said the brief. These and other interests “more than justify” Connolly’s standing order, it said.

Connolly’s disclosure order “is justified by a range of important interests that affect case management, the parties, and even the court’s authority to preside over the case,” said the brief. “There is a wealth of evidence that litigation funders participate in key litigation decisions related to (among other things) counsel and settlement,” it said. “The court thus needs to know if funders play a role, formal or informal, in key litigation decisions, so that the funder can be brought into mediations, settlements, or other proceedings as appropriate.”

Two other amicus briefs, also filed Wednesday, similarly oppose Nimitz’s petition for mandamus relief on nearly identical grounds. “The public has a right -- and need -- to know who is controlling and benefiting from litigation in publicly funded courts,” said the Electronic Frontier Foundation, the Public Interest Patent Law Institute and Engine Advocacy in one of the other briefs. Parties that conceal this information “through pseudonyms or shell entities undermine the presumption that the courts of this country are open to the public and provisions of the Federal Rules and Civil Procedure and Patent Act that exist to address and deter frivolous claims and litigation misconduct.”

Nimitz’s argument that only “the patentee” need be identified “begs the question of who ‘the patentee’ even is here,” said another brief by Dish Network, chipmaker Power Integrations and Assa Abloy Group, a consortium of security companies. “It is far from clear the individual assignees in this case -- who consider themselves passive investors -- control the litigation or otherwise have standing,” it said. The information sought by Connolly “is necessary to answer fundamental questions, including the constitutional question of standing,” it said.