New Patent Ownership and Litigation Funding Disclosure Requirements in Delaware District Court
Chief Judge Connolly of the U.S. District Court for the District of Delaware recently issued two Standing Orders effective in all cases assigned to him requiring litigants to disclose all ownership interests and any Third Party Funders, and certain terms and conditions of the litigation funding agreements.
Twenty-two percent of all new patent infringement cases filed in the United States in 2021 were filed in the District of Delaware, primarily due to the restrictive venue provision of the Patent Act, 35 U.S.C. § 1400(b). According to that statute, “[a]ny civil action for patent infringement may be brought in the judicial district where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business.” Companies that are incorporated in the State of Delaware “reside” in the U.S. federal District of Delaware. On April 18, 2022, Chief Judge Connolly issued two Standing Orders requiring additional disclosures in all cases assigned to him, including all pending cases as well as new cases filed after that date.
In “Standing Order Regarding Disclosure Statements Required by Federal Rule of Civil Procedure 7.1” (viewable here):
… where a party is a nongovernmental joint venture, limited liability corporation, partnership, or limited liability partnership, that … party must include in its disclosure statement … the name of every owner, member, and partner of the party, proceeding up the chain of ownership until the name of every individual and corporation with a direct or indirect interest in the party has been identified.
This Standing Order greatly expands the current disclosure requirement under Federal Rule of Civil Procedure 7.1, that is, a nongovernmental corporate party must identify only “any parent corporation and any publicly held corporation owning 10% or more of its stock.” While the rule applies to all litigants in all civil cases, it may have more significant implications in patent cases where the patent-in-suit is owned by a Non-Practicing Entities (NPE) having a complex corporate and/or ownership structure that may have been intentionally designed to insulate the NPE from any potential liability for an adverse attorney fee award under 35 U.S.C. § 285 (“The court in exceptional cases may award reasonable attorney fees to the prevailing party.”).
In accordance with the new “Standing Order Regarding Third-Party Litigation Funding Arrangements,” any party that has made arrangements to receive from any person or entity that is not a party to the litigation “funding for some or all of the party’s attorney fees and/or expenses to litigate [the] action on a non-recourse basis in exchange for (1) a financial interest that is contingent upon the results of the litigation or (2) a non-monetary result that is not in the nature of a personal loan, bank loan, or insurance,” must make certain additional disclosures. In addition to identifying any Third-Party Funder, the funded party must disclose:
- Whether the Third-Party Funder’s approval is necessary for litigation or settlement discussions and, if so, the nature and terms and conditions relating to that approval, and
- A brief description of the nature of the financial interest of the Third-Party Funder.
The Standing Order also explicitly allows other parties to seek additional discovery of the terms of a party’s arrangements with any Third-Party Funder under a wide variety of circumstances. Once again, while the Standing Order applies to funded parties in all types of civil litigation, it is expected to have the greatest impact in contingent fee and third-party funded patent infringement cases filed by NPEs, who often seek to conceal the information that must now be disclosed at the earliest stage of a new case.
This new Standing Order is viewable here.