A Chinese firm is financing four intellectual property lawsuits in US courts as Congress members scrutinize the role of foreign investment in American litigation and seek to ban the practice in some instances.
Purplevine IP, a Shenzhen, China-based company that touts itself as a provider of one-stop patent solutions, is paying the cost of the lawsuits against Samsung Electronics Co. and a subsidiary, said Daniel Staton, chairman of private equity firm Staton Capital. Boca Raton, Fla.-based Staton Capital is the majority owner of a tech firm, Staton Techiya, bringing the four suits.
The cases, tied to earbud, tablet and smartphone technology, are “the classic David versus Goliath,” Staton said. Staton Techiya is “a little company with some great ideas, for 17 years working hard, and now saying ‘Hey, it’s time that we get paid for our hardware.’”
Litigation finance is estimated to be a $13.5 billion industry in which investors pay up-front costs of lawsuits in return for some of the proceeds if cases are successful. While UK and Australia firms have been investing in US lawsuits for years, the disclosure of a Chinese company paying for American litigation is rare.
House Speaker Mike Johnson (R-La.) and two other lawmakers in September introduced legislation (H.R. 5488, S. 2805) that would require disclosure of foreign entities funding lawsuits in US courts. The proposal would ban sovereign wealth funds and foreign governments from engaging in the practice.
“Leaving our courts unprotected from foreign influence—such as from China—poses a major risk to US national security,” Sen. John Kennedy (R-La.) said in a statement at the time of the bill’s introduction. Sen. Joe Manchin, (D-W.Va.) is also an author of the bill, which is backed by the US Chamber of Commerce and pro-market policy group R Street Institute.
The offices of Johnson and Manchin did not respond to requests for comment. Senator Kennedy’s office declined to comment.
The extent of the role domestic or foreign funders play in US litigation is mostly unknown, as few states and courts require disclosure of the practice. Purplevine’s role was revealed because a Delaware federal judge, Colm F. Connolly, issued a standing order in April 2022 insisting that litigation finance be disclosed for cases in his courtroom.
Daniel Staton voluntarily disclosed Purplevine’s role in three other cases filed in a federal court in Texas after a reporter contacted him about the case in Connolly’s US District Court for the District of Delaware.
Staton Techiya in all four cases is alleging patent infringement by Korea’s
Purplevine has 400 people in 10 offices worldwide, according to its website. The company’s chief executive officer, Victor Yang, is also vice president/group general counsel for Chinese consumer electronics giant TCL Corp., according to his LinkedIn profile and a September TCL news release that quotes him.
When asked about the relationship between TCL and Purplevine in the case in Judge Connolly’s courtroom, Yang responded via a TCL email address that “Purplevine is a management controlled IP firm. It funded the case out of its own decision, which has nothing to do with TCL.”
Yang, Purplevine, and TCL representatives declined to respond to interview requests. PurpleVine has not disclosed litigation funding in any other federal courts, a search of the Bloomberg Law docket database shows.
The disclosure of a litigation funder tied to China “is our worst fears confirmed,” said Joe Matal, former acting director of the US Patent and Trademark Office. “Anything China does is concerning because nothing over there is really independent,” said Matal, who founded intellectual property firm Clear IP.
But Gary Barnett, executive director of the International Legal Finance Association, said national security concerns around litigation finance are “pure speculation.”
The US Chamber, a long-time opponent of the litigation finance industry, is “using the current craze around fears of China and the influence of other foreign adversaries and trying to obtain their long sought after policy of automatic forced disclosure,” said Barnett, whose association is a trade group for litigation funders.
Staton Capital in 2013 gave a loan to a company called Personics Labs, which had around 80 or 90 patents related to earbuds, said John Keady, chief technical officer at Staton. When the company was unable to pay off the loan in 2017, Staton bought about 60% of it and now owns around 250 patents, a mix of the originals from Personics as well as others that are newly developed, he said.
Staton contracted with an agent to handle negotiations with Samsung, which led to litigation, Keady said. That agent chose Purplevine as a litigation funder.
During the litigation, a judge removed the agent from the case because the agent formerly worked for Samsung, Keady said. Staton took over and decided to continue to use Purplevine, he said.
“It’s not somebody that we sought, it was somebody we inherited,” Keady said. “But then we negotiated with them a deal going further.”
Daniel Staton said the firm considered whether sticking with the Chinese funder would raise concerns.
“At first you have a little bit of a pause,” he said. “But once we got into it and dealt with them, they were gentlemen, they were professional, and we have a great working relationship.”
The case is Staton Techiya v. Harman International Industries, D. Del., 23-cv-00802-CFC, 7/25/23
—With reporting by Chris Yasiejko
