As litigation funding becomes more prevalent in patent litigation, defendants in the US are likely to attempt to obtain discovery into such agreements. However, litigation funding discovery is usually nothing more than a fishing expedition aimed to create additional burden for plaintiffs. Recently, Judge Gilstrap ruled precisely that discovery of ligation funding documents is irrelevant to any claim or defense and improperly shifts the burden of proving proper standing to sue. Fleet Connect Solutions LLC v. Waste Connections US, Inc., Civ. No. 21-cv-00365-JRG, Dkt. #59 (E.D. Tex. June 29, 2022).
In Fleet Connect, Waste Connections moved to compel discovery of litigation funding documentation between Fleet Connect and any litigation funder, notwithstanding that Waste Connections had no evidence that any funding agreement existed. Waste Connections’ two arguments were that a litigation funding agreement may be related to standing or control over the litigation. Fleet Connect responded that Waste Connections had not alleged any facts exist for the scenarios where the documents may be relevant, and Waste Connections had not cited any case from the Eastern District of Texas that permitted such discovery.
The court rejected Waste Connections’ arguments because Waste Connections failed to show that discovery of any litigation funding agreement, if one even existed, would be relevant to any claim or defense. The court noted that Waste Connections’ ownership argument was a “fishing expedition” to shift the burden of standing onto Fleet Connect prior to a good faith challenge of standing by Waste Connections.
Similar arguments are typically presented when a defendant seeks discovery of litigation funding arrangements, and they are almost always without merit. First, litigation funding agreements do not involve the transfer of ownership or rights in the patent. Typically, these agreements provide funds for the patent owner to use for legal fees and/or expenses in the litigation. They do not involve the litigation funder taking an ownership interest in the patent or acquiring one of the bundles of rights associated with patents, such as the right to enforce the patent.
While a litigation funder may sometimes obtain a security interest in the patent, that is not the same as acquiring ownership or rights in the patent. Second, reputable litigation funders are passive investors. In other words, the litigation funder has no control over the litigation, such as settlement or litigation strategy. Those decisions remain in the complete control of the plaintiff, and this is typically clearly stated in the funding agreement.
Litigation funding helps patent owners bring meritorious claims by leveling the playing field in the very expensive, high stakes arena of patent litigation. Judge Gilstrap rightfully described discovery into litigation funding agreements as a “fishing expedition” as these agreements are almost certainly irrelevant to any claim or defense in the litigation especially where the defendant is unable identify any reason to believe otherwise.
This post was authored by Woodsford’s Vice President, Business Development Ryan Schultz. If you have any questions about litigation funding, please contact Ryan directly.
