Third party litigation funding is a challenge for more than just insurers

The insurance industry apparently didn’t have enough reasons to fear third party litigation financers. For its 2024 convention, APCIA lined up a series of experts detailing how the phenomenon is not just about excessive profiteering, but a threat to national security as foreign actors leverage the system to get an upper hand against the US and its top corporate names. 

Litigation finance is a bounty of “known unknowns” being tossed into every courtroom, Paul Taylor, a visiting fellow at the National Security Institute at George Mason University, told an APCIA seminar titled “Third Party Litigation Funding Reform: Progress Made, Paths Forward” on Monday October 7.

“We have no idea in the vast range of litigation how many entities are out there, where they are from, what their grand strategy is,” Taylor said, to paint a picture of foreign agents leveraging courtrooms for intelligence.

Bad actors in third party-financed courtroom actions may be using the legal process for a deep dive on corporate secrets, including patent details, via the court discovery process, he suggested.

“We face an immense amount of this type of litigation, not competitor to competitor, but litigation finance-funded, coming after a particular interest,” Vishal Amin, head of intellectual property rights policy at Intel, another speaker, told seminar participants. 

“You view these cases almost as a form of economic warfare,” he said. To Taylor’s concerns about China, Amin added that Russian oligarchs and Middle East sovereign funds have joined the litigation financing fray. 

“There is a method to the madness here,” Amin said. “You could look just at the hedge fund guys trying to make a buck, but look more closely and foreigners are funding this. You can see the negative impact they could have on the American economy.”

“It is amazing what has been discovered with just a little disclosure”.

Taylor focused his concern on Chinese IP litigation financer PurpleVine IP and claimed nefarious intent. “China will throw the kitchen sink to disrupt American business, disrupt American strength and gain a competitive advantage.”

More disclosure needed

Disclosure rules around such financing are seen as a solution. Experts invited onstage by APCIA shared the logic of such disclosure. Taylor noted that “it is amazing what has been discovered with just a little disclosure”. Former Congressman and House Judiciary Committee leader Bob Goodlatte cited a rapid decline in caseloads in jurisdictions and courts with rules on disclosure.

“In order to avoid disclosure, some of these third party funders just walk away from their cases,” Goodlatte said. “In one Delaware court that has demanded disclosure, people are not bringing cases to that court because they do not want to reveal who their third party financers are.”

Panellists suggested that many courts are behind the curve in addressing process issues within their own courtrooms. Judge Colm Connolly, of the US District Court for the District of Delaware, was astounded to find that lawyers in his courtroom couldn’t present their stance without calling their financers, Goodlatte claimed.

He called on APCIA delegates to launch nationwide support for two pieces of legislation in the pipeline. “As we move forward on this legislation, we’re going to need all your help.”

One of these is driven by House Judiciary Subcommittee chair Darrell Issa who has submitted legislation, called the Litigation Transparency Act of 2024, which calls for disclosure of third party litigation funding in civil litigation. 

“We are at the end of the beginning; we have a long way to go,” Goodlatte said of the state of play in the fight to require disclosure and possible ban foreign players. 

“We’ve done a good job of spelling out the issue, but there is a long way to go in the process.”

For more news from the American Property Casualty Insurance Association (APCIA) click here.

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