Recently, Bloomberg Law was kind enough to publish my article on litigation fundind. See "More Litigation Funding Rules Would Threaten Access to Justice." Bloomberg Law (April 30, 2024). My article originally was meant to respond to and rebut the attacks on litigation funding by Jonathan Stroud of Unified Patents. See "As Litigation Funders Skirt Sanctions, It’s Time for Disclosure." Bloomberg Law (April 10, 2024). I found Mr. Stroud's article misleading, but also hypocritical in calling for full disclosure of investors when Unified Patents does not disclose its investors and how this affects decisions for the company to file IPRs at the PTAB. Bloomberg understandably made me clean up my article and not even refer to the Stroud article. Over the last few weeks, in casual conversations with colleagues and people in the industry, I was asked if I could send them the earlier version of my article. That is what I am doing here. Enjoy!
Here is the earlier unpublished version in all of its glory (or not):
Contrary to Jonathan Stroud’s recent article, litigation funding is not some dark and mysterious backroom industry, but is instead a mainstream process providing fairness in litigation for individuals and small businesses. Few can afford an attorney, much less one capable of winning against large corporate attorneys billing over $2500/hour. Litigation funding helps equalize the playing field by allowing non-wealthy individuals and businesses to enforce their rights. And a right is not a right without reasonable means to enforce it.
Unlike the cloak-and-dagger fiction painted by Mr. Stroud, litigation funding has existed for more than 20 years in the U.S. and is now a mainstream solution that helps equalize access to the legal system. In addition to individuals who would otherwise have their day in court denied, Fortune 500 companies, major universities, and businesses of all sizes have benefited from litigation funding in recent years. As Judge Eileen Bransten, a New York Supreme Court Justice, stated, “litigation funding allows lawsuits to be decided on their merits, and not based on which party has deeper pockets or stronger appetite for protracted litigation.” Funders provide legal fees and expenses in exchange for a part of any win. Because most funding is non-recourse, it is not a loan, and if the lawsuit is unsuccessful, the plaintiff does not have to pay.
Funding helps provide access to a legal world that continues to grow more complex and costly. I practice patent litigation, and although many types of civil cases can be funded, patent cases are among the most complicated and expensive. Most of the patent cases I litigate cost close to $10 million in fees and costs. Without funding, only the very wealthy could enforce their rights.
What Mr. Stroud cannot say is that the claims supported by funding are in any way illegitimate. Funded cases are generally stronger because no funder will invest millions of dollars without significant diligence. In addition to hiring in-house specialists to vet litigations, they hire outside law firms and regularly spend over $100,000 assessing a potential matter. Because they invest in less than 5% of presented cases, most funders readily welcome disclosing their presence and identity. Most plaintiffs would love to explain to a jury the arduous months-long process of obtaining approval for funding.
Mr. Stroud also ignores that large corporations, including the members of his company, Unified Patents, contribute to politicians, lobbyists, and trade groups to make patents less valuable. Many of these groups keep their membership and contributions in the shadows. For example, because Google has unlimited influence, money, and market power; it does not need patents, as patent rights hinder its dominance. The organizations attacking litigation finance are either large corporations or those representing big companies that want to shut the courthouse down for ordinary people and small businesses. Such companies or their surrogates are upset that a force equalizer can make litigation more fair.
Many courts automatically require various levels of disclosure by funders. In patent cases, any enforceable security interest can be easily found on the U.S. Patent Office’s public website. Mr. Stroud seems to demand public production of every clause of every funding agreement. In addition to being overly burdensome and disclosing confidential information, such a mandate would be very unfair to the funded party. For example, funding agreements include a litigation budget. Disclosing this budget to a litigation adversary – much less the whole world – would allow adverse parties to pontificate and waste resources until the budget cap is reached.
Further, while most funders have no problem being disclosed, funding alarmists seek extreme levels of detail for investors. If someone were to approach Google and seek the name, address, relationships, and specific investment of each of its shareholders – including those outside the U.S. – this would be justifiably denied. The only legitimate concern is to verify that the funder cannot control litigation or settlement to prevent interference with the lawyers’ independent professional judgment. It could also make the funder the client. If such control is in question, the court can ask the lawyers or, if necessary, review the agreement in camera. Further, if anything is untoward, any party can always seek the court’s intervention.
The irony of Mr. Stroud’s demand for extreme disclosure is that his organization has regularly been criticized for lack of disclosure. United Patents’ role in the patent ecosystem is to drive up costs and invalidate patents on behalf of their members. Unified refuses to disclose a complete list of its clients, but the members it does disclose include the largest companies in the world. More importantly, its attacks on patents are not subject to the same timing rules as accused infringers because it takes the position that it is a disinterested third party, even though its members pay for the company to invalidate patents. Importantly, Unified refuses to provide details of its relationships and communications with its members. When the U.S. Patent Office proposed a rule requiring further disclosure, Unified vehemently opposed such requirements. If anyone is basking in a shadowy world of uncertain investors, it is Mr. Stroud’s company.
Unlike home and stock purchases, judges already thoroughly supervise and manage litigation. The last thing we need is more regulation to protect large corporations from having to litigate on a fair playing field.
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