On November 16, 2022, non-practicing entity, Nimitz Technologies LLC, filed a petition for a writ of mandamus to the U.S. Court of Appeals for the Federal Circuit from the District of Delaware. Nimitz asked the Federal Circuit to reverse an order in four patent-infringement cases filed by Nimitz, in which Chief Judge Connolly required Nimitz to disclose its third-party funding for each of the cases.
Nimitz's petition argues that the district court, under the guise of seeking information as to the real parties-in-interest, is improperly requiring the disclosure of Nimitz's finances, business practices, and litigation decisions, including who controls or benefits from the litigation, as well as the production of privileged communications and confidential litigation-related documents deemed irrelevant by Congress.
The petition raises three primary issues:
1. Did the district court abuse its discretion because third-party funding is not relevant to any issue that the district court may consider?
2. Does the district court's order contradict the Patent Act and the Rules of Civil Procedure by seeking to identify a "real party in interest" that Congress has deemed irrelevant?
3. Does the district court's order violate Nimitz's attorney-client privilege and work-product immunity?
District Court Background
Nimitz filed four cases alleging patent infringement against Bloomberg L.P., BuzzFeed, Inc., CNET Media, Inc. and Imagine Learning, Inc. in the District of Delaware, each of which was assigned to Chief Judge Connolly. Chief Judge Connolly's "Standing Order Regarding Third-Party Litigation Funding Arrangements" requires, as relevant to this petition, that a party must disclose all "arrangements to receive from a person or entity that is not a party (a 'Third-Party Funder') funding for some or all of the party's attorney fees and/or expenses to litigate this action on a non-recourse basis." Nimitz responded to that order, stating that it had no arrangements with such a Third-Party Funder.
Chief Judge Connolly then held a hearing on November 4, 2022, where he requested that the managing member of Nimitz appear to determine whether Nimitz had complied with the standing order. According to Nimitz's petition, its managing member confirmed at the hearing (1) that Nimitz did not have any non-recourse funding arrangements, (2) that Nimitz via its sole member Mark Hall was responsible for all costs and liabilities of the litigation, and (3) that the district court asked questions beyond the scope of litigation funding, including asking about Nimitz's relationship with Mavexar LLC, a consulting agency currently assisting Nimitz in the litigation and licensing of the asserted patent. Although the district court explained that one of its concerns lay with "the integrity of our judicial system, the abuse of our courts, and potential abuse, lack of transparency as to who the real parties before the Court are, about who is making decisions in these types of litigation," Nimitz's petition argues that the district court did not cite any law or rule that had been breached by Nimitz in its response to the standing order.
On November 10, 2022, the district court issued an order, which is the subject of the pending petition, requiring Nimitz to produce information by December 8, 2022, including:
1. "all communications and correspondence, including emails and text messages" between Nimitz and Mavexar (Nimitz' licensing and litigation agent) and between Mavexar and Nimitz' attorneys";
2. "[a]ny and all monthly statements for any and all bank accounts held by Nimitz for the period July 1, 2021 through April 30, 2022";
3. a sworn declaration from [Nimitz's managing member] that identifies any and all assets owned by Nimitz as of (1) August 30, 2021; (2) September 27, 2021; (3) December 31, 2021; and (4) March 30, 2022;
Writ of Mandamus – Petition and Response
Nimitz argues in its petition that the November 10 order requires "production of documents that included those that were manifestly privileged and/or protected by the work-product immunity," "irrelevant confidential financial information," and that "the district court remained unable to articulate any legal basis into inquiring as to what the district court viewed as the 'real parties in interest.'"
On November 29, 2022, the district court defendants filed a response to Nimitz's petition, arguing that mandamus is inappropriate under the circumstances and the court's investigation should not be impeded simply because Nimitz does not want its third-party funding strategy revealed to the public. The response argues that the district court has inherent power to protect itself and the public at large from fraud, and it has legitimate concerns about the integrity of the judicial system and transparency before the court as to who is making decisions in these cases.
The response highlights the misleading nature of the attorney-client relationship that was revealed at the hearing and whether there could be attorney-client relationship issues if the arrangement involves a non-lawyer third party. The response also identifies another entity, IP Edge, who according to the response "has directed the filing of thousands of cases by hundreds of patent-assertion entities in federal courts" but "has never been an actual litigant in any of its cases," and may be behind Mavexar. The response notes that other plaintiffs not named in the Nimitz litigation, including Lamplight Licensing LLC, Mellaconic IP LLC, and Backertop Licensing LLC, have revealed similar "investment opportunities" controlled by Mavexar and IP Edge in other evidentiary hearings before Judge Connolly.
On November 30, 2022, six amici from both the private and public sectors filed briefs opposing Nimitz's petition. And, on the same day, Chief Judge Connolly issued an 80-page order describing in detail the extraordinary circumstances that led to his final order, including what he perceived as potential fraud. As Chief Judge Connolly put it:
"The records sought are all manifestly relevant to addressing the concerns I raised during the November 4 hearing. Lest there be any doubt, those concerns are: Did counsel comply with the Rules of Professional Conduct? Did counsel and Nimitz comply with the orders of this Court? Are there real parties in interest other than Nimitz, such as Mavexar and IP Edge, that have been hidden from the Court and the defendants? Have those real parties in interest perpetrated a fraud on the court by fraudulently conveying to a shell LLC the #328 patent and filing a fictitious patent assignment with the PTO designed to shield those parties from the potential liability they would otherwise face in asserting the #328 patent in litigation?"
Conclusion
This petition is poised to address a district court's inherent authority and discretion to investigate the third-party funding arrangements as well as any potential fraud on the parties or the judicial system. The outcome of this petition may have a significant impact on the disclosure requirements for litigation strategy and funding arrangements in the District of Delaware, which may extend to other districts as well.
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