In a recent House judiciary committee hearing on litigation finance in the intellectual property (IP) sector, Representative Darrell Issa (R-Ca.) declared his intention to draft legislation mandating disclosure within the next 10 days. The hearing explored various concerns surrounding the $15.3 billion industry, where investors fund lawsuits in return for a portion of any awarded funds, as detailed in Bloomberg Law’s coverage.
Central to the debate was how litigation finance disclosure should be managed and whether it would address issues related to national security and control over lawsuits by funders. “I believe that we’ve agreed that in fact more transparency at a base level needs to be there,” Issa remarked, emphasizing the need for delineated parameters for such transparency.
Opinions diverged among witnesses. Some advocated for comprehensive disclosure, including the identities of investors and the details of litigation finance agreements. Former US Representative Bob Goodlatte (R-Va.) supported broad disclosure across all civil matters and especially funding from foreign entities, referencing investigations into a sanctioned Russian litigation funder and a Chinese litigation funder involved in patent cases.
Conversely, Victoria Sahani, a law professor at Boston University, proposed a moderate approach, suggesting that only the funder’s name and address should be disclosed, not the full 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,” Sahani noted.
The discussion also touched upon “non-practicing entities” (NPEs), firms formed specifically to acquire patents and enforce them through infringement claims. Delaware federal Judge Colm F. Connolly’s standing order since April 2022, which mandates litigation finance disclosure, was highlighted as a potential model. Connolly’s rule has reportedly led to a reduction in case volume, attributed to parties’ reluctance to face disclosure requirements.
Donald Kochan, a law professor at George Mason University, supported the comprehensive disclosure, asserting it would enable policymakers to determine the appropriate next steps based on revealed data. “We’ll be able to deter a lot of behavior because people just don’t want the sunshine on this,” Kochan said.
Prior to the hearing, the International Legal Finance Association (ILFA) issued a statement labeling national security concerns as a “Trojan horse” for mandating disclosure of all confidential funding arrangements, which they argued would undermine meritorious litigation and restrict access to justice.
This debate builds on previous scrutiny, including a hearing last September where Republicans, led by committee chairman Rep. James Comer, contended that many lawsuits funded by litigation finance come from left-wing activists aiming to manipulate the US legal system. The discussion is likely to evolve as Issa’s proposed disclosure bill moves forward.