Reaction Looms From Judge Probing 3rd-Party Litigation Funding

Many eyes were trained Thursday on U.S. District Court for Delaware for Chief Judge Colm Connolly’s reaction to Nimitz Technologies’ latest refusal to produce bank records, emails and other materials responsive to his Nov. 10 order for documents that would identify third-party funding of four Nimitz patent lawsuits against Bloomberg, BuzzFeed, Cnet and Imagine Learning.

Connolly’s Dec. 14 order gave Nimitz a week to show cause why he shouldn’t sanction the company for its failure to produce the materials after the U.S. Appeals Court denied its petition for mandamus relief and lifted the stay on the Nov. 10 order (see 2212140067). Nimitz responded to the show cause order Wednesday (docket 1:21-cv-01247) with defiance, saying it can’t produce the materials Connolly ordered until the Federal Circuit issues a mandate “returning the case to the district court.”

The lack of a Federal Circuit mandate means Connolly’s court “has no jurisdiction” to enforce his Nov. 10 order, said Nimitz. It can’t produce the materials responsive to the order because that would “moot its appellate process,” it said. “If Nimitz’ understanding of the law is in error and Nimitz was required to produce the documents before the mandate issued,” it asks that the order “remain stayed pending the completion of the appellate process,” it said. But there exists no current stay on the order since the Federal Circuit lifted it Dec. 8.

Nimitz plans to file a combined petition for panel rehearing or rehearing en banc with the Federal Circuit in which Nimitz “notes at least two lines of Supreme Court authority that should result in reconsideration” of the panel’s unanimous decision denying the company mandamus relief.

Connolly’s Nov. 10 order “requires Nimitz to potentially disclose its privileged documents relating to the investigation that the Court is conducting not for the purpose of determining privilege, but for consideration on the merits,” said Nimitz. That the production would be in camera “does not obviate” the fact that the court is demanding Nimitz’ privilege documents so that it can consider them in its investigation, it said.

Connolly’s ordered document production “is unprecedented and, Nimitz believes, contrary to well-established law,” said the company. The order is akin “to a federal prosecutor or grand jury demanding from the targets being investigated their privileged documents generated in defense of the investigation,” it said: “Nimitz should not be denied its opportunity for appellate review, and, thus, should not be compelled to moot its appeal.” The exchanges between Connolly and Nimitz's lead attorney, George Pazuniak, who wrote the reply to the show cause order, have grown increasingly contentious.

The unsuccessful Nimitz Federal Circuit petition for mandamus relief to spare the company the ordeal of complying with Connolly’s order drew multiple amicus briefs from companies and business and trade groups with no obvious connection to its petition, hoping to seize on the opportunity to expose the secrecy they said has long surrounded third-party funding of patent lawsuits.

The Federal Circuit docketed five such briefs as part of the official record (docket 23-103) when it shut down the Nimitz appeal Dec. 8, all solidly in opposition to mandamus relief. “Transparency is especially important in an era of opaque litigation funding and hedge-fund driven litigation,” said Intel’s brief, typifying the others. “While the nominal party to these cases is a shell corporation with minimal activity, the litigation is driven by investors, such as hedge funds, operating behind the scenes,” it said. “These funders can dictate how the case is litigated, including decisions about whether to settle, and they stand to benefit financially from a favorable decision.”