When two industry giants get involved in a patent war, the details often get reported in the newspapers. In fights like that, it’s pretty clear the companies are battling over their own patents that typically claim innovations they developed. But most patent cases aren’t part of any patent war.
Many patent cases aren’t between operating companies—the majority of patent lawsuits are brought by non-practicing entities (NPEs). Some NPEs, particularly patent assertion entities (PAEs), hide behind shell companies and use undisclosed third-party litigation funding (TPLF) to finance their assertions.
When a patentee relies on TPLF, it can be hard for the defendant to determine where settlement money goes or even understand who is making decisions for the other side. Overall, this frustrates efforts to study and understand the patent ecosystem. More specifically, it’s harmful to operating companies forced to hire lawyers, settle lawsuits or pay damages without ever knowing who is behind the suit.
In 2022, we saw a trend toward greater transparency concerning TPLF in the district courts. In the District of Delaware, Chief Judge Colm Connolly issued a standing order compelling disclosure of TPLF. The order requires parties receiving third-party funding to disclose the identity, address and place of formation of the third-party funder(s); whether the third-party funder’s approval is necessary for litigation or settlement decisions, and if so, the nature of the terms and conditions relating to that approval; and a brief description of the nature of the financial interest of the third-party funder(s).
Other courts have similar requirements; New Jersey’s local rule even predates Judge Connolly’s order. But Judge Connolly is in Delaware, which sees more NPE suits than most venues outside Texas. He’s had to fight to preserve the integrity of the order. So far, the Federal Circuit has not intervened.
This brings us to a recent nod toward transparency at the International Trade Commission (ITC). The ITC has not yet delved into TPLF, though we know there have been at least some cases with third-party funders involved.
Administrative Law Judge (ALJ) Cameron Elliot recently issued orders requiring a few patent holders to disclose information about their parent corporations. The orders apply to NPEs in at least three investigations:
Inv. 1323 (Certain Video Processing Devices and Products Containing the Same), brought by VideoLabs, Inc.;
Inv. 1332 (Certain Semiconductors and Devices and Products Containing the Same), our little-to-big automobile case, brought by Daedalus Prime LLC; and
Inv. 1340 (Certain Electronic Devices, Semiconductor Devices, and Components Thereof), brought by Bell Semiconductor, LLC.
Complainant _ shall, no later than _ [date], file a corporate disclosure statement identifying any parent corporation of Complainant and any publicly held corporation possessing an ownership interest in Complainant, or state that there is no such corporation.
The order only asks for a corporate disclosure similar to a district court’s required disclosure under Civil Rule 7.1. It may peel back the first layer, but it doesn’t get to the third-party funders. Still, it’s a step in the right direction for the ITC.
Such orders, however, may reveal very little. For example, Daedalus Prime LLC identifies Daedalus Group LLC as its parent corporation. VideoLabs has no parent corporation.
But sometimes the results are interesting. Consider Bell Semiconductor, LLC. It sounds like a tech company, and it claims the legacy of Bell Labs in its complaint. But the famed Bell Labs, which is now part of Nokia, is not a corporate parent. According to its disclosure statement, Bell Semiconductor’s parent corporations are Hilco Patent Acquisition 56, LLC; Hilco IP Merchant Capital, LLC; Hilco, Inc.; Fifith Street Station LLC; and KLIM AIV I, LP. That looks like a group out to monetize intellectual property with little interest in getting an exclusion order—except as a matter of leverage.
That’s one for transparency. But we need one more.
The ITC should consider adopting rules requiring the disclosure of third-party funders. That would benefit the respondents, who would know who they are dealing with immediately. It would also benefit the public by showing who uses the agency’s resources and for what purposes.
Will 2023 be the year of transparency at the ITC? We sure hope so.
Image credit: Ashley Blackwell