Rep. Issa Says He Will Draft Litigation Finance Disclosure Bill

A house judiciary committee hearing on litigation finance in the IP space ended with Representative Darrell Issa (R-Ca.) saying he would draft disclosure legislation in the next 10 days.

The hearing dealt with a variety of concerns posed by detractors of the $15.3 billion industry in which investors fund lawsuits in exchange for a portion of a successful award. The debate surrounded how the presence of litigation finance should be disclosed and whether it would solve concerns witnesses had regarding national security and ceding control of lawsuits to funders.

“I believe that we’ve agreed that in fact more transparency at a base level needs to be there,” said Issa. “I want to make sure that we begin to talk about the parameters of what can be done.”

Witnesses disagreed on the extent of the disclosure that should be required, with some saying that it should include details about investors and production of litigation finance agreements.

Former US representative Bob Goodlatte (R-Va.), who testified, argued that there should be disclosure of litigation finance in all civil matters. He also recommended disclosure of funding from foreign entities and governments, citing a Bloomberg Law investigation into a sanctioned Russian litigation funder and a Bloomberg Law story on a Chinese litigation funder behind four patent cases.

Victoria Sahani, associate provost for community and inclusion and law professor at Boston University, had a more tempered approach and said disclosure of the name and address of the funder was all that was necessary as opposed to disclosure of the entire agreement.

“We should be cautious not to shut down this new industry or reduce opportunities for this industry to improve the administration of justice out of fear ... we should carefully separate our concerns about people and entities with ill intentions from concerns about the system of third-party funding itself,” she said.

Much of the discussion surrounded “non-practicing entities” or NPEs, companies created to acquire patents and assert infringement claims. Delaware federal Judge Colm F. Connolly wrote an opinion in November 2023 referring people associated with NPE IP Edge to state disciplinary bars.

Judge Connolly has also had a standing order since April 2022 that requires disclosure of litigation finance in his courtroom. Witnesses cited his rule as an example of what disclosure can accomplish.

“The one thing we know from the existence of the disclosure requirements ... we see at least some evidence that the overall caseload in Delaware has gone down as a result of this disclosure,” said Donald Kochan, law professor at George Mason University, who also testified. “We’ll be able to deter a lot of behavior because people just don’t want the sunshine on this.”

“If you got that disclosure, then policymakers like yourself or state legislators could use that information to decide what the next step will be,” he added.

Prior to the hearing, the funding industry trade group the International Legal Finance Association sent out a statement calling the national security concerns a “Trojan horse” to mandate disclosure of all confidential funding arrangements.

“This would only serve to derail meritorious litigation and severely reduce access to justice,” said an ILFA spokesperson.

Litigation finance came under a spotlight at a US House committee hearing last September, when Republicans led by the committee’s chairman Rep. James Comer said many lawsuits are funded by left-wing activists aiming to hijack the US legal system.