Litigation Funding In Limine

A recent decision is in line with a developing consensus that patent cases are crowded enough with issues requiring adjudication so as to make spending time on litigation funding arrangements a hard sell.

One of the funny things about modern patent litigation is that there is, at least on the nonpharma side of things, a pretty narrow stable of “big” defendants that patent owners take aim at. I do not have to name the usual suspects, but they do tend to share a number of characteristics. If they are consumer-facing brands, a dead giveaway of a big defendant is the operation of their own multiunit retail stores or a presence in nationwide mass-market retail (Walmart, Best Buy, etc.), or both. Add in the major suppliers to such brands, as well as the major social media and web search purveyors and you pretty much have the list of major targets, particularly for well-funded NPEs looking for a big payday. In support of those NPEs is a veritable host of litigation funders, ready and able to deploy capital in support of the rare patent case they deem fundable. To counter this threat, most — if not all — of the frequently targeted defendants tend to have a roster of both in-house and outside counsel litigation talent to call on, as well as a willingness to litigate hard in the face of what they deem unreasonable demands by patent plaintiffs. With these capabilities supplemented by the third-party patent defense impresarios, we end up with a pretty even playing field when it comes to funded NPE v. prominent defendant big-ticket patent litigation.

Level playing field aside, cases actually getting to trial against a big defendant are relatively rare. Whether it is because the parties reached a settlement or because the defendant was successful in an IPR or via motion practice, getting to trial is unlikely in the vast majority of patent cases. While I have consistently advanced the idea that a lot can be learned from how those rare trials involving big defendants turn out, there is also a lot we can glean from the pretrial maneuverings of the parties — particularly in a case involving a disclosed litigation funder. (As to the latter, it is becoming easier than ever in certain jurisdictions to find out whether there is a litigation funder involved in some capacity since disclosure of financially interested parties is compelled under certain local rules at time of case filing.)

One such case currently pending in the Central District of California, Pinn v. Apple, fits the bill as one where a litigation funder — styled as an “investor” on the mandated disclosure — was identified early on in the matter. And as the case approaches trial, various and sundry pretrial matters, including disposition of motions in limine, have taken place. Of significant interest, in a July 14 decision by the Hon. David O. Carter, a number of rulings on motions in limine made by a special master were addressed, including with respect to discussion of the presence of litigation funding in the case, among others. While we will discuss the court’s comments on the litigation funding aspect in a bit, it was also interesting to see that the plaintiff’s motion in limine regarding the location and size of the law firms involved were granted — perhaps reflecting a concern by Pinn about having Texas-based trial counsel commented on by Apple in a California matter. In any event, the court found: “Locations and sizes of counsel and their law firms is irrelevant.” Not a surprising holding by the court, considering the wide variety of more important issues for trial in a patent case.

What about the litigation funding piece? There, Pinn had filed a motion in limine seeking to bar evidence or argument on “Attorney compensation, litigation funding, or contingency arrangements.” The special master recommended granting of the motion “regarding: (a) litigation funding (if, however, Defendant believes at trial that Plaintiff has ‘opened the door’ by presenting evidence or argument that is calculated to tell a so-called ‘David vs. Goliath narrative,’ Defendant should raise the issue at trial so that the Court can evaluate the issue at that time); and (b) compensation arrangements for Plaintiff’s trial counsel (including any financial interest Plaintiff’s trial counsel may have in Plaintiff or in the outcome of the present litigation).” Carter affirmed the special master’s conclusion, adding “that litigation funding and compensation arrangements for counsel are collateral matters and would be unduly consumptive of time at trial.” In short, Carter indicated that he has no appetite for discussion of financial interests at trial, irrespective of the local rule in his district compelling disclosure of those interests. At minimum, his ruling suggests that the utility of early financial interest disclosure is most pronounced early in a case, but that by the time trial is imminent, such disclosures are a sideshow.

This latest ruling on admissibility of funding arrangements will be heartening to litigation funders, as it serves as further proof that there is little appetite in many judicial quarters for making funding arrangements a centerpiece of patent cases. Informed perhaps by a recognition that patent trials are often compressed enough for time due to the myriad issues requiring attention, it is clear from Carter’s ruling that carving out additional time at trial to deal with financial interests — whether they be of a litigation funder or contingency counsel or both — is a nonstarter, at least in his court. Considering how the weight of decisions regarding discovery around litigation funding arrangements continues to illustrate just how little interest most courts have around the topic, this decision is in line with a developing consensus that patent cases are crowded enough with issues requiring adjudication so as to make spending time on litigation funding arrangements a hard sell — during both discovery or at trial itself. Put another way, if the case itself is the show you have on your DVR, litigation funding is the commercial you fast forward through.

Ultimately, decisions like the one in Pinn are yet more evidence that big defendants must be strategic about their approach to funded plaintiffs, at least with respect to allocating resources toward discovery regarding litigation funding arrangements. Yes, it is good to know as a big defendant that the case against you is funded; even better when you know who the funder is. But unless there is reason to believe that the funder has settlement control or input, or that a separate deal with the funder that would get them to withdraw funding is advisable or even possible, there is really not much use for spending defense dollars toward pressing the issue, at least under the current legal framework. Better to take that knowledge and see whether you can drive early settlement, before the funder’s expensive capital alters the financial landscape of the dispute too much. At the same time, because of the lack of empirical evidence around the deployment of litigation funding in patent cases, the prevailing wisdom that patent cases are harder to settle if a funder is involved might also find support in the fact that Pinn is headed for trial. For now, however, we know for a fact that at least in one California court, litigation funding is a “collateral matter” and not worth a minute of trial time to pursue.

Please feel free to send comments or questions to me at gkroub@kskiplaw.com or via Twitter: @gkroub. Any topic suggestions or thoughts are most welcome.

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Gaston Kroub lives in Brooklyn and is a founding partner of Kroub, Silbersher & Kolmykov PLLC, an intellectual property litigation boutique, and Markman Advisors LLC, a leading consultancy on patent issues for the investment community. Gaston’s practice focuses on intellectual property litigation and related counseling, with a strong focus on patent matters. You can reach him at gkroub@kskiplaw.com or follow him on Twitter: @gkroub.

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