LITIGATION TRENDS 2025 | 93 T O C E M P E S G A N T I I P C A P R O W C S P O R T C O N T A C T I N T A P P P A T C C L S E C Clear Disclosure of Third-Party Litigation Funding Becomes Necessary Patent litigation is no longer a straightforward battle between an innovator and a competitor, or even between a patent owner and an alleged infringer. Now a significant percentage of patents litigation involve unnamed parties providing funding in exchange for a financial interest in the outcome of the case. These parties who expect a significant return on their investment may control or influence the litigation while remaining hidden, raising a number of serious concerns. The issues with unregulated third-party litigation funders are increasingly recognized and courts and state legislatures are requiring more complete disclosure of funding entities to promote transparency, fairness, and accountability. One notable case exposing the control exerted by a litigation funder is Nimitz Technologies LLC v. CNET Media Inc.. In Nimitz, the court examined the relationships between purported patent owners, including Nimitz Technologies, and patent monetization entity IP Edge LLC and its affiliate Mavexar LLC. 2023 WL 8187441 (D. Del., Nov. 27, 2023). The court determined that “the de facto owner of the asserted patents – that is, the party that truly controls and profits from their assertion – [was] IP Edge.” Id. at 35*. The primary issue was the lack of transparency regarding the true parties-in-interest because as the court noted, “cho[osing] to use separate LLCs” can “insulate … IP Edge, and/or Mavexar from the potential liabilities of patent litigation.” Id. The court found that because Nimitz might be acting on behalf of undisclosed stakeholders and using shell LLCs to conceal IP Edge’s involvement, those undisclosed stakeholders “must accept the consequences that flow from that strategy.” Id. This attempt to obscure facts might have been to shield the true beneficiaries from counterclaims or liability, but it could also amount to attempted fraud on the court and violation of legal and professional duties, as demonstrated in Nimitz. In addition, the lack of transparency hid facts and relationships that many courts would find relevant in the administration of justice. The Nimitz court discovered that financial arrangements between IP Edge, Mavexar, and Nimitz (and others), created potential conflicts of interest, with Mavexar receiving significant profits while the named plaintiffs assumed litigation risks. Although Mavexar’s consulting agreement claimed to offer “non-legal” services, evidence revealed that Mavexar and IP Edge engaged in legal activities, potentially constituting unauthorized practice of law in Texas. The court further found that plaintiffs’ attorneys might have violated professional conduct rules by not communicating with clients and by allowing third parties to direct litigation decisions. Consequently, the court referred certain attorneys to disciplinary authorities, including the Texas Supreme Court’s Unauthorized Practice of Law Committee, as well as referring the matter more generally to the Department of Justice and the United States Patent & Trademark Office for further inquiry. The court’s heightened scrutiny highlights the need for clear disclosure requirements for interested parties in any litigation. By ensuring awareness of such parties, courts can better assess the merits of the case, ensure P A T Courts and state legislatures are requiring more complete disclosure of funding entities to promote transparency, fairness, and accountability. Patent Litigation 92 | Weil, Gotshal & Manges LLP
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