In April 2022, Delaware federal court Chief Judge Colm F. Connolly introduced a standing order requiring that all parties appearing before him disclose any third-party funding they receive. Since then, his order—and what it revealed—has gotten a considerable amount of attention, including here on Patent Progress. It’s for good reason. Over the last two years, Judge Connolly has peeled back the layers on non-practicing entities IP Edge LLC and Mavexar LLC, required IP Edge-linked entity Nimitz Technologies to comply with the transparency order, caused Backertop Licensing LLC to dismiss what appears to have been a meritless patent infringement claim, and uncovered a China-based investment entity backing a lawsuit in his courtroom. In short, the transparency requirements are working.
While Judge Connolly certainly deserves credit for all he’s done to open up a conversation on transparency, it’s also worth taking a look at Florida, California, and New Jersey where similar measures–both in courts and by lawmakers–have been introduced.
Almost a year before Judge Connolly introduced his standing order, Chief Judge Freda L. Wolfson of the District Court of New Jersey adopted Local Civil Rule 7.1.1, which requires all parties to disclose third-party litigation funding (TPLF) arrangements, including a description of the funder’s financial stake in the case. In other words, what the funder will gain if things go their way. In the spirit of that order, there has been a larger push to enact TPLF transparency statewide but that proposal was rejected by a New Jersey Supreme Court committee in February.
In Florida, advocates for TPLF transparency are currently making headway through legislative action, rather than by court order. In early February, the Senate Committee on Fiscal Policy approved SB 1276, a bill that would require the “court’s consideration of potential conflicts of interest which may arise from the existence of a litigation financing agreement” and require “certain disclosures related to litigation financing agreements and the involvement of foreign persons, foreign principals, or sovereign wealth funds.” A parallel bill, HB 1179, passed the Florida House of Representatives’ Civil Justice Subcommittee in January. Florida joins Kansas as the only other state where TPLF transparency bills have gone before committee this year. Advocates say the bills in both states would not only make courts more transparent, but will address growing concerns over foreign involvement in financing U.S. litigation.
In California, there have also been pushes to increase funding transparency–both by lawmakers and in district court. In 2005 and 2017, respectively, the Central District of California and the Northern District of California adopted local rules requiring 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-parties in civil litigation. There has also been legislative movement. In 2023, Senator Anna Caballero introduced the Third Party Litigation Financing Consumer Protection Act. While the original bill required all parties in state courts to disclose third-party funding, the bill was eventually watered down to require disclosures only if ordered by a judge, following intense lobbying by litigation finance trade associations.
While Delaware, Florida, New Jersey, and California are all states that have taken steps to increase transparency, Texas has done the opposite. In fact, the Eastern and Western Districts of Texas have actively prohibited parties from asking for funding information. It’s no surprise that the Eastern and Western Districts took the lead in 2023 with a combined nearly 1,000 cases filed by NPEsNon-Practicing Entity. A broad term associated with trolls but now disfavored because it includes universities and legitimate technology developers that seek to license technology in advance rather than after a producing company has independently developed it. More.
Slowly but surely, more and more states are taking action–by court order or through legislation–to make our courts more transparent. Delaware, Florida, California, and New Jersey should serve as examples on how we might go about enacting basic transparency requirements while Texas should remind us all why these requirements are critical.
