In December 2022, Entangled Media LLC asserted a pair of file sync patents against Dropbox, months after recording a security interest with apparent funder LIT-US Chisum 22-B, LLC—one of six plaintiffs to have done so. Dropbox has since fought to uncover the details of that funding arrangement in a prolonged discovery battle, and it has now partly succeeded: On April 8, Northern District of California Magistrate Judge Virginia K. DeMarchi granted Dropbox’s motion to compel the production of a key funding agreement, albeit just the portions concerning the nature of the security interest Chisum has retained in Entangled Media’s patents.

Entangled Media first sued Dropbox in the Western District of Texas in December 2022 (1:22-cv-01324), the two patents-in-suit (8,296,338; 8,484,260) generally relating to “performing an operation” on a “singular file system” that synchronizes files across multiple devices, with infringement allegations targeting the provision of the Smart Sync tool in various Dropbox file-sharing products. In September 2022, as noted above, Entangled Media and five other entities each recorded security interests in their patent portfolios granted to LIT-US Chisum 22-B, a Delaware entity formed by Gregory S. Rubin in July 2022. Each of those other entities has also filed litigation: eCardless Bancorp Ltd., against PayPal (coverage here); DigitalDoors, Inc., against IBM (here); Mobile Data Technologies LLC, Meta Platforms (here); and Pardalis Technology Licensing, L.L.C., IBM as well (here).

While perhaps just a coincidence, a Gregory S. Rubin serves as General Counsel and Partner of Oak Hill Advisors, “a leading alternative investment firm” reporting $57B of assets under management. Oak Hill was acquired by T.Rowe Price in 2021 for $4.2B; Paul, Weiss, Rifkind, Wharton & Garrison LLP represented Oak Hill in the transaction. Perhaps also a coincidence: That law firm’s address and contact information is provided for LIT-US Chisum 22-B in public records, including USPTO assignment data as well as financing agreements.

In June 2023, District Judge David Ezra granted Dropbox’s motion to transfer the case to the Northern District of California (5:23-cv-03264) on convenience grounds after the plaintiff “failed to timely respond” to that motion. There, the following May, District Judge P. Casey Pitts denied Dropbox’s motion to stay the case pending the outcome of two Dropbox inter partes review petitions against the asserted patents. In August 2024, the parties then notified the court that a discovery dispute had arisen over Dropbox’s attempts to obtain information about the nature of Entangled Media’s funding arrangement with Chisum, the obligations of which were spelled out in two documents: A one-page “Patent Security Agreement” (PSA) memorializing the grant of the security interest, which was the document that Entangled Media recorded publicly with the USPTO; and a “Security Agreement”, incorporated by reference into the PSA but not publicly available, that spelled out Chisum’s “rights and remedies” with respect to the patents offered as collateral. Note, however, that while the Northern District of California requires parties to file a certification identifying any entities known to have “(i) a financial interest of any kind in the subject matter in controversy or in a party to the proceeding; or (ii) any other kind of interest that could be substantially affected by the outcome of the proceeding”, Entangled Media’s certification, filed after the transfer to the Northern District, disclosed just itself and its litigation counsel as having a financial interested in the case.

In the aforementioned notice of a discovery dispute, Dropbox alleged that the Security Agreement was relevant in three key respects: first, with respect to damages, the agreement might contain relevant information on the funder’s valuation and its expected return from the litigation; second, with respect to standing, the extent of the funder’s interest could make it the “de facto” owner of the patents, to an extent not readily ascertained through the redacted copy of the agreement offered by the plaintiff; and third, with respect to “witness credibility and statements regarding” the patents-in-suit.

Entangled Media countered in part that there were no standing issues in this case, and that in any event it was not required to produce more than a redacted agreement under its Rule 26 duty to disclose. It also contended that Chisum had not performed a valuation of the asserted patents, and that even if it had, such a valuation is too far removed from a hypothetical negotiation to be relevant to damages. The plaintiff further asserted that the Security Agreement was protected work product, as “[l]itigation funding documents are inherently tied to future litigation”, subsequently asserting that the documents are also shielded by the common-interest privilege—an exception that establishes that disclosure of protected materials to a third party does not waive that privilege where the disclosing party and third party share a common legal interest. A resulting privilege log listed 64 documents apparently related to litigation funding that Dropbox subsequently argued should be produced as likely responsive. After subsequent corrected logs identified a greater number of allegedly privileged materials, the number of documents sought by Dropbox later grew to 162.

Later in August 2024, Judge DeMarchi reviewed an unredacted version of the Security Agreement in camera at the plaintiff’s request, determining that it did not appear to present any standing issues; that “Chisum does not merely have a passive security interest in the asserted patents”, but rather has “some contractual rights in connection with that interest”; and that “the Security Agreement includes provisions that could be construed as providing some indication of how the parties to the agreement valued this and other potential litigation relating to the asserted patents”, albeit not a “valuation . . . per se”. In November 2024, Dropbox then filed a motion to compel production of the withheld documents.

Judge DeMarchi ruled on that motion on April 8, beginning by addressing the relevance of the requested materials. Here, Judge DeMarchi found that the PSA fully corporates the Security agreement and is likely to contain relevant information pertaining to the “nature of the security agreement”, alongside material unlikely to be relevant such as the “terms of outside counsel’s retention”.

However, the court was “not persuaded” that the other requested materials would be relevant, in particular those related to valuation—Judge DeMarchi remarking that she was “skeptical that the value an interested third party aligned with the patent holder places on the outcome of litigation could inform any of the relevant Georgia-Pacific factors or any other damages considerations”, stating that she agreed with holdings by several other courts that “with respect to damages, litigation funding materials typically are ‘so far removed from the hypothetical negotiation’ that they have little or no relevance”. That said, the court acknowledged that it would be difficult to ascertain based on the record whether any of the documents at issue actually included “relevant valuations of the asserted patents”, instead “providing this guidance”: that to the extent those documents do so, they would be considered relevant—and that nothing in the record suggested that producing those documents would be “burdensome or otherwise disproportionate”.

As to Dropbox’s argument that the evidence bore on witness credibility, the court (in a footnote) stated that it declined to agree for the reasons stated in the Eastern District of New York’s March 2019 opinion in Benitez v. Lopez, though the court did not identify the specific cited rationale. In that case, the court held in apparently relevant part that a person’s receipt of litigation funding “does not assist the factfinder in determining whether or not the witness is telling the truth”, except where the defendants have shown that the plaintiff was untruthful in communications with a funder; and that the motives for the plaintiff’s suit or the litigation funding are not relevant to any claim or defense, or to credibility, as the defendant is generally not entitled to learn about such considerations, which are sometimes privileged.

Judge DeMarchi then turned to whether the documents in question were protected attorney work product. While Judge DeMarchi agreed with Dropbox that Entangled Media’s privilege log entries were “insufficient because they omit important information, such as the date of the document or the names of the people who sent, received, or were shown the document”, she nonetheless declined to find that Entangled Media had waived work product privilege on that basis. Rather, she found that based on the plaintiff’s assertions that the “relevant litigation funding materials were prepared by it and/or its attorneys in anticipation of this (and possibly other) litigations”, along with certain supporting testimony, Entangled Media had made a prima facie showing that the documents are protected work product absent any waiver of that privilege.

Judge DeMarchi then held, as contended by Dropbox, that the common interest privilege did not apply here because Entangled Media had not shown that it had a common legal interest with Chisum, just a financial one. As a result, in the absence of a waiver exception, the court proceeded to address whether waiver had in fact occurred. Here, Judge DeMarchi agreed with Dropbox that incorporating a “that incorporating a first agreement (i.e. the Security Agreement) into a second agreement (i.e. the PSA), and then disclosing the second agreement to the public, is inconsistent with maintaining the first agreement in confidence”. As such, the court found that “[i]f the Security Agreement is work product, then Entangled Media has not treated this agreement in a manner that limits opportunities for potential adversaries to obtain it”.

That said, since Entangled Media had not disclosed the Security Agreement publicly or placed it at issue, except as relevant to the nature of Chisum’s security interest in its patents, Judge DeMarchi concluded that Dropbox had not shown a “substantial need” for the production of the “aspects of the Security Agreement that are unrelated to the security interest”. As a result, Judge DeMarchi ordered the production of the Security Agreement to Dropbox without certain sections and attachments not related to the security interest.

Finally, Judge DeMarchi held that any documents relating to the value of the asserted claims or the merits and defenses in this case would be relevant, but that the plaintiff had not provided sufficient information to ascertain whether such documents had been produced or whether any such documents would be privileged. To that end, the court agreed with Entangled Media that it would be sufficient to produce a certain analysis, the description of which is redacted from the public-facing order, and accepted its condition that such disclosure not constitute a “broader waiver of work product protection”. If that analysis ends up not resolving the parties’ dispute on this point, the court held that Entangled Media must amend its privilege logs to add sufficient information.

Further background on this case can be found here, with more details on the web of plaintiffs backed by the same funder—as well as an apparently related entity, LIT-US Chisum 21-A LLC—can be found at “String of November Complaints Tied to the Same Apparent Funder” (November 2022).