While you can’t blame them for trying, defendants continue to fail in their efforts to force the disclosure of litigation funding arrangements. Recent developments and decisions have reinforced the courts’ position that such arrangements are irrelevant.
In October 2021, the Advisory Committee on Civil Rules declined to recommend an amendment to Federal Rule 26 that would require disclosure of third-party litigation financing agreements. In January 2022, as we reported here, Facebook filed a motion to compel startup Neural Magic to disclose funding documents in relation to the companies’ trade secret litigation. Its motion was denied in Boston federal court.
Most recently, the disclosure question arose again in the case of Kove IO (“Kove”) v. Amazon Web Services (“AWS”). Kove sued AWS for patent infringement, alleging that its Amazon S3 and DynamoDB products infringe Kove’s patents for data-storage technology for large-scale cloud computing. In this case, Kove did not even have a litigation funding arrangement – the company engaged in discussions with funders, but ultimately did not pursue financing the suit. AWS nonetheless sought to include these discussions in its discovery requests. Kove therefore sought a protective order; in response, AWS asked the court to deny the motion and to order Kove to produce documents and witnesses related to third-party litigation funding.
The standard for discovery is that the information sought meet three criteria: it must be nonprivileged, relevant to a claim or defense, and proportional to the needs of the case. Kove argued that any discussions it had with litigation funders were irrelevant. AWS countered that discovery was germane to establishing damages based on a reasonable royalty, as dealings with third-party funders could offer insight into the actual value of the patents at issue.
Kove also argued that negotiations with funders were shielded by the work product doctrine. AWS sought an exception to the doctrine based on “substantial need” for the information, claiming it would offer an unbiased assessment of the patents’ real-world value – as opposed to expert reports provided at trial, which are motivated by litigation and therefore favor the plaintiff.
The court sided with Kove on both arguments. Its opinion stated that a litigation funding agreement is a “step of abstraction removed from any ‘real-world’ indicators” of the patents’ value, and that negotiations with third-party litigation finance providers are not a meaningful path to shedding light on the actual value of the patents in question.
The court thus denied this latest attempt to compel plaintiffs to disclose discussions or formal arrangements related to litigation funding. While it’s safe to say we will continue to see disclosure challenges from defendants, recent developments indicate courts will continue to agree with plaintiffs that litigation funding is irrelevant to litigation itself, and not subject to discovery.