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Delaware Chief Judge Targets Funding Disclosures in Patent Cases

Nov. 4, 2022, 9:10 AM

Personal injury attorney Jimmy Chong was unknown in the patent world before 2019, when he burst onto the Delaware federal court scene, filing nearly 800 infringement lawsuits there in the last three years.

Now, Chong finds himself summoned to a series of hearings in one of the nation’s busiest patent courts—with the first set for Friday—probing whether his clients obscured financial ties that could impact the direction of cases against defendants that include global IT services firm Ingram Micro and Swiss automation congolomerate ABB Inc.

Delaware Chief Judge Colm F. Connolly has called Chong, William P. Ramey of Texas IP litigation firm Ramey LLP, Andrew Curfman of Ohio IP law firm Sand, Sebolt & Wernow LPA, and some of their joint clients—plaintiffs in more than a dozen patent-infringement suits—to appear in court over the next two months to determine whether the parties have accurately disclosed information about their funding arrangements.

The court dates build on Connolly’s April standing order for parties in all cases, not just patent disputes, to disclose when they’ve accepted litigation funding from an outside source—an uncommon requirement seen in few other US courts.

His scrutiny could shed light on the often-murky area of patent litigation financing, which has grown in prevalence in recent years, though not all courts agree that it’s useful to unmask funding sources at the outset of a patent infringement suit.

Connolly likely feels something is amiss, attorneys said, and wants to investigate the financial facts presented to the court by digging into whether the named parties are indeed the ones authorized to make decisions in the cases. Last month, he ordered Ramey and Chong to disclose “any and all documents, including but not limited to contracts, term sheets, correspondence, emails, notes, and agreements, that set forth the terms of the funding” at play in some of the cases.

“When something strange is going on, judges will and do inquire, and they should,” Andrew Cohen, a director at legal finance firm Burford Capital Ltd., said.

Prior Disclosures

Chong previously told the court he represents clients including Missed Call LLC and Safe IP LLC on a recourse basis—an unusual arrangement that means the borrower has to repay the loan no matter what, even if they lose in court.

Ramey LLP also provides nonrecourse funding, according to prior disclosures, which typically must only be repaid out of a winning judgment.

Connolly wasn’t happy with these filings and said it “confirms that Plaintiffs violated the Court’s Standing Order on Third-Party Litigation Funding Arrangements.”

For Friday’s hearing, Connolly will summon Chong’s clients Mellaconic IP LLC and Lamplight Licensing LLC, which have asserted patents against Ingram Micro, ABB, and timesheet management companies Timeclock Plus LLC and Deputy Inc. Curfman is co-counsel in the Mellaconic case.

The defendants in those cases aren’t required to appear at the hearings, and they don’t have counsel listed on the dockets. ABB declined to comment on the proceeding. Ingram Micro and Deputy didn’t immediately respond to requests for comment on the lawsuits.

Chong’s and Ramey LLP’s offices didn’t respond to repeated requests for comment, and Curfman didn’t immediately respond to requests for comment Thursday.

Drilling Down

There are several reasons a judge might want to drill into funding arrangements, particularly in patent cases, said Joshua Landau, patent counsel at the Computer & Communications Industry Association.

For one, plaintiffs that accept outside funding may behave differently in the courtroom, rejecting settlements and taking a case all the way to trial on the off chance that it results in a big payout, he said.

“That model leads to a decreased willingness to settle and increased interest in litigation,” Landau said.

Potential conflicts of interest may be another other reason that third parties involved in a lawsuit should be disclosed—including for judges’ sakes, said Stanford Law School IP professor Mark Lemley.

He pointed to the June nixing of Centripetal Networks Inc.’s $1.9 billion patent infringement verdict against Cisco Systems Inc. after the Federal Circuit found a district judge should’ve recused himself once he belatedly learned his wife owned 100 shares of Cisco stock.

“It allows judges to assess conflicts,” Lemley said of funding disclosures. “Judges can’t assess recusal if they don’t know who is actually involved.”

More Disclosures?

Connolly is one of the few judges in the country to issue a standing order that requires funding arrangements be disclosed up front.

The Northern District of California and District of New Jersey federal courts have implemented similar disclosure rules for all their courtrooms, but other judges and districts so far haven’t followed their lead.

“This is really the minority that we’ve seen across courts in the United States,” said Michelle Eber, portfolio counsel at Validity Finance, a commercial litigation funder. “The vast majority of courts have held that funding is not relevant to the facts of the case, absent some other indication that makes it relevant.”

For example, East Texas Judge Rodney Gilstrap shut down discovery into litigation funding arrangements in a patent case, saying the documents weren’t relevant to the issues of the case and that he was wary of launching a “fishing expedition.”

In the meantime, many of Chong’s, Ramey’s, and Curfman’s clients in the cases designated for hearings voluntarily dismissed their lawsuits after Connolly called the hearings. TimeClock Chief Operating Officer Derek McIntyre said his company entered a confidential settlement with Mellaconic earlier this year “in lieu of litigation.”

Most, if not all of the plaintiffs, will still have to appear before Connolly anyway.

The hearings are scheduled to run into December.

To contact the reporter on this story: Kelcee Griffis in Washington at kgriffis@bloombergindustry.com

To contact the editors responsible for this story: Adam M. Taylor at ataylor@bloombergindustry.com; Jay-Anne B. Casuga at jcasuga@bloomberglaw.com