Litigation Finance Revealed in Rare Move by ‘Open’ Company

In a rarity among companies, a coatings maker has voluntarily revealed that it’s using litigation finance to pay for a patent infringement lawsuit.

SilcoTek Corp., based outside State College, Pennsylvania, said disclosing its use of lawsuit financier Omni Bridgeway is in line with the company ethos regarding transparency.

“We are extremely open internally and we’re frankly extremely open externally,” said Geoff White, SilcoTek’s general counsel and chief intellectual property counsel.

The openness clashes with the broad trend of companies that keep secret their use of the tool, even as states press to require the disclosure. In litigation finance, investors pay the up-front costs of a lawsuit in return for receiving part of the award if the case is successful.

Some states have moved toward passing laws that require all parties in a litigation to disclose whether they are using litigation funding. New Jersey, Wisconsin and California already have regulations in place. Montana recently enacted a law that will go into effect next year, and Louisiana’s disclosure bill is awaiting signature from the governor.

SilcoTek used the tool to sue Waters Corp. in March, alleging the company infringed on two patents related to SilcoTek coating materials.

“SilcoTek’s lawsuit has no merit, regardless of how it was financed, and we intend to vigorously defend ourselves,” said Kevin Kepskie, senior director of public relations at Waters. “We are confident in the strength of our portfolio of products and intellectual property.”

SilcoTek declined to reveal the amount of litigation funding it took, citing a non-disclosure agreement with Omni Bridgeway, one of two publicly traded litigation funders.

Litigation finance, which has been in existence in the US for a little over a decade, is estimated to have nearly $14 billion assets under management, according to a 2022 Westfleet report.

Disclosure Risk

Omni warned SilcoTek about the risks of disclosing use of the funding, as defendants could subpoena information or start a discovery sideshow that could end up costing more money.

“It’s always their choice,” said Matt Harrison, managing director and co-chief investment officer at Omni Bridgeway. “Oftentimes they typically just don’t want other people to know about their private financial information. It’s almost like it’s insulting that someone wants to take a peek into their bank account and their litigation budget, because it provides the other side with a strategic advantage.”

Even so, Harrison said Omni Bridgeway is confident in fighting any potential discovery battles. “The courts are, are pretty uniform in their rejection of this as discoverable information,” he said.

SilcoTek’s White said the company isn’t often in litigation but had been looking to enforce the two patents at issue in the Waters case. When he listened to a panel about litigation finance, he said he thought it could be a good option and a way to avoid dipping into company funds.

”We were comfortable funding the effort on our own, but if you can reduce cost and the downside is not too much, then I had an obligation to bring to our board and talk it through,” White said.

White said that he met with a handful of funders before choosing Omni Bridgeway and that the diligence process lasted about a month. While Omni Bridgeway suggested attorneys for the company to use, SilcoTek chose from its own list. It is being represented by The Webb Law Firm out of Pittsburgh.

Detractors of litigation finance, such as the U.S. Chamber of Commerce, criticize the secrecy of the industry. One large concern is whether funders will exert influence over the litigation.

White said of Omni Bridgeway, “They are definitely not in control. They allow us to make all decisions.”

The case is: SilcoTek Corporation v. Waters Corporation, D. Del., 23-00281, 3/16/23