No, Litigation Funders Are Not 'Fleeing' The District Of Del.

Recent articles published on Bloomberg Law¹ and Law360² have suggested that third-party litigation finance providers are “fleeing” the District of Delaware because of Chief Judge Connolly’s standing order regarding third-party litigation funding arrangements.³ 

That Order, which issued April 18, 2022, requires litigants receiving nonrecourse litigation funding to disclose the identity of their funders, note whether the funders exercise control over litigation or settlement decisions, and provide a brief description of the funders’ financial interests in the litigation.⁴ 

The articles draw on a December 2024 paper⁵ by Professor J. Jonas Anderson of the University of Utah's S.J. Quinney College of Law, which studied whether there is a connection between Judge Connolly’s standing order and the recent drop in new case filings in the District of Delaware.  

The implication of the articles seems to be that third-party litigation finance providers do not wish to be disclosed.

To the contrary, responsible funders have no reason to fear disclosure, and have no problem with their identities being disclosed if the claimant chooses to do so.  Such funders generally embrace the District of Delaware — which plaintiffs and defendants have both long regarded as an experienced and reliable patent venue — when claimants and their counsel determine that is the appropriate venue in which to bring their claims.  

Many factors unrelated to third-party funding could explain the recent drop in patent filings in the District of Delaware.  

As Professor Anderson’s paper observes, patent filings have slowed nationally in recent years; the former chief judge of the District of Delaware, Judge Leonard Stark, was elevated to the U.S. Court of Appeals for the Federal Circuit in 2022, and the district has taken measures to alleviate its “overwhelming docket.⁶ 

Indeed, in November 2014, the Administrative Office of the U.S. Courts observed “a worsening shortage of Article III judges to resolve critical copyright, trademark, patent, and contract disputes."⁷ 

The continuation of the long-term decrease in filings of abbreviated new drug application cases — suits that are unlikely to involve third-party funding — in Delaware accounts for a substantial portion of the total decrease in patent cases, especially over the past year. 

In addition, as Aaric Eisenstein, founder of ASE Monetization LLC, observed in the above-referenced Bloomberg Law article, it is possible that the decline in filings is the result of just one large-scale filer slowing down its activities.  

We spoke to Steve Cherny⁸, a partner at Quinn Emanuel Urquhart & Sullivan LLP and prominent trial lawyer with a strong practice in the District of Delaware, about Professor Anderson’s paper and the recent stories covering it.

He does not believe Chief Judge Connolly’s standing order is responsible for the 41% drop in District of Delaware filings that has been observed sine Judge Connolly's Standing order was issued.⁹ He said, “I doubt that there are enough funded cases filed within the year to explain the observed decrease, even if no more funded cases were filed in the District, which I know is not the case.  It is more likely that recent steps to filter out lower-quality claims from [nonpracticing entities] against numerous defendants have proven to be effective.  But I don’t associate such claims with litigation funders who, in my experience, seek to fund claims of sufficient quality to ensure a return on their investment.”   Cherny’s observations are consistent with Anderson’s paper, which found that funded cases are dismissed at approximately half the rate of nonfunded cases.¹⁰ And, according to Professor Anderson, far less than 41% of cases in the District of Delaware appear to be funded.

Although responsible funders have no reason to be afraid of disclosure, they may have reason to be concerned about the costly and irrelevant satellite litigation that arises when defendants seek broad discovery of financial terms, privileged analyses and work product, and other protected information related to funding arrangements. 

Courts around the country — including the District of Delaware — have repeatedly held that litigation funding agreements and funders’ communications with plaintiffs are irrelevant, protected by attorney-client privilege, and/or protected by the work product doctrine.¹¹ 

Yet that has not stopped defendants from seeking this discovery if they suspect that a funder is involved.  Defendants should not be entitled to information in funding agreements any more than plaintiffs should be entitled to defendants’ internal litigation budgets, valuations, and settlement tolerances. 

As attorney Ken Rosen noted in a Dec. 5 Bloomberg Law article,¹² "Disclosure of litigation funding gives an advantage to the defense counsel in knowing how long it can run the meter of its adversary before bringing the adversary to its knees.  Courts should decide cases with third-party litigation funding the same way as those without: on the law and the facts.”

It is hard to imagine how the details of litigation funding arrangements are relevant to the issues to be tried in a patent case, or any other case.  

Mandatory disclosure of funding, as Judge Connolly requires, does not equate to judicial approval of more permissive discovery into irrelevant funding-related documents and communications.  Articles suggesting that funders are fleeing districts that require disclosure appear to be conflating these two distinct issues. 

At the end of the day, it is claimants and their counsel who select venue — not third-party funders, who do not control litigation strategy.