Yesterday, the Australian Federal Court refused to stay proceedings brought by Australian company QSPX against Ericsson. It had been alleged that the proceedings were infected by ‘champerty’.

Champerty is one of those wonderful old words that means, basically, ‘practice of participating in a lawsuit in order to share in the proceeds by a person not naturally a party to the lawsuit, that is, buying into someone else’s lawsuit’ (or ‘trafficking in litigation’). Why is this banned? Because

‘The integrity of the Court’s primary function may be compromised where litigation is conducted in order to serve the interests of a stranger to the controversy before the Court. That is because decisions may be taken, in the name of a party to litigation, for purposes foreign to the proper purposes for which that party may prosecute or defend the proceedings. The question whether there is an unacceptable risk of abuse of the Court’s processes arising out of litigation funding arrangements is to be assessed by reference to functional considerations including the role and powers, if any, assumed by a funder in relation to the conduct of the litigation.’

QSPX is an Australian firm that develops and licences emerging technologies: they are engaged in the business of acquiring valuable intellectual property rights from research institutions and companies across the Asia Pacific and seek to realise their value through the execution of international IP licensing programs and the formation of spin-out companies. QPSX is taking Ericsson to court over communications technology used in many of the Swedish firm’s high-end network switches. The dispute relates to royalties that according to QSPX should have been paid for a technology called segmentation and reassembly (SAR), which is used in ATM-based network switches. There is a dispute over the licensing deal, which QSPX says relates to global sales.

Back in January, QSPX reached an agreement with IMF regarding funding of its litigation against Ericsson. IMF is a publicly listed company which provides funding of legal claims and other related services where the claim size is more than AU$2 million. On 29 March 2005 the Ericsson parties filed a motion seeking an order that the proceeding be stayed on the grounds that it is being impermissibly maintained in an abuse of the process of the Court. The funding arrangements between IMF and QSPX were said to give rise to a potential for abuse of the Court’s processes. It was argued, among other things, that under those arrangements IMF could control or influence the direction of the litigation in ways that would serve its own financial interests in receiving a percentage of any recovery rather than the proper interests of the applicants and the legitimate purposes for which litigation can be conducted.

Yesterday, the court rejected these claims, finding that:

‘the applicant retains effective legal control of the litigation. IMF has no power to direct the conduct of the litigation nor does it have any agreement with the applicants’ solicitors. Moreover the applicants are substantial commercial enterprises experienced in entering into co-funding arrangements around the world. They are unlikely to tolerate any compromise of their interests by IMF in the pursuit of its own.’