A study from the University of Utah School of Law’s Jonas Anderson, published in early December, showed that patent lawsuits in the District of Delaware have declined significantly following an order requiring the disclosureOne of the primary objectives of the patent system. In return for the government-granted right to exclude that is embodied in the patent, the inventor must disclose to the public through his patent the invention for which protection is sought. Inventors unwilling to disclose their invention to the public may instead opt for trade secret protection. of third-party investments in any case before the court. The analysis confirms what we have long argued on Patent Progress – transparency measures to bring third-party funders out of the shadows effectively reduce frivolous and abusive litigation against legitimate inventors.
In April 2022, Delaware Chief Judge Colm F. Connolly issued a standing order requiring all parties in his courtroom to disclose their third-party funders, outline the terms of their funding, and indicate whether they have any direct say in litigation or settlement decisions. Connolly implemented the rule to address “potential abuse of our courts,” by foreign- and private equity-backed investors in one of the most popular patent infringement lawsuit venues in the country and to ensure that “our courts are [not] casinos where people should just go to profit.”
This month’s study found that in the two years since that groundbreaking order, patent suit filings fell a whopping 41%, compared to a less than 15% drop-off in patent filings nationwide during the same period. What’s more, in the past year, third-party funded patent cases in the District of Delaware have all but disappeared, with only one filing in all of 2024 and none since January. As the study’s author concludes, “the data leads one to assume that TPLF patent plaintiffs have abandoned Delaware because of Judge Connolly’s Order and subsequent enforcement of that Order.”
Also this month, a report from the Government Accountability Office suggested that third-party investors may exercise undue influence over litigation strategy and noted that “litigation funding could be used by foreign entities to divert U.S. companies from their core mission by entangling them in costly and distracting legal battles,” both of which raise grave conflict-of-interest concerns.
The paper refutes claims that lawsuit investments simply “democratizes litigation by giving plaintiffs access to financing,” as its supporters like to suggest. Rather, it lends credence to the argument that these funders wield their financial leverage for ulterior motives, whether strategic or financial. As I noted in a previous post, “it should go without saying that if plaintiffs’ motives were all above board, they would have no reason to abandon their multi-billion claims just because their funders are required to step out of the shadows.”
While the large-scale abandonment of TPLF filings in the District of Delaware is a positive development, the real test is ensuring plaintiffs don’t just shift their cases to other, less transparent districts. Nationwide legislation is needed to close the remaining venues for profit-driven investors to exploit. As we’ve covered extensively on Patent Progress, if passed, the Litigation Transparency Act of 2024 is poised to do exactly this – mandate disclosureOne of the primary objectives of the patent system. In return for the government-granted right to exclude that is embodied in the patent, the inventor must disclose to the public through his patent the invention for which protection is sought. Inventors unwilling to disclose their invention to the public may instead opt for trade secret protection. of litigation finance agreements in civil lawsuits in every courtroom nationwide.
In the absence of blanket transparency, rulemaking is necessary to curb “judge shopping,” the abusive practice by which plaintiffs and investors effectively pick the courtrooms most favorable to them. Anderson points out that following Judge Connolly’s order, “the forum shoppingThe practice, by plaintiffs, of picking the most favorable court to file a lawsuit in. calculus has tipped further toward Texas,” a state with built-in advantages for third-party funded plaintiffs, including “judge shopping, hostility towards transfer motions and motions to dismiss, refusal to stay cases when the defendant brings an inter partes reviewAn adversarial procedure created by the AIA for challenging patents. Intended to be similar to a court proceeding, the parties argue before an Administrative Patent Judge, not a patent examiner. The challenger must show a reasonable likelihood of successfully invalidating one claim before the PTAB will agree to grant a petition for review..” Thus, litigation investment disclosureOne of the primary objectives of the patent system. In return for the government-granted right to exclude that is embodied in the patent, the inventor must disclose to the public through his patent the invention for which protection is sought. Inventors unwilling to disclose their invention to the public may instead opt for trade secret protection. is just one of a series of reforms that the U.S. Judicial Conference, the policymaking body in charge of our federal courts, should undertake to standardize federal court procedures and restore fairness and balance to our courts.
