U.S. Rep. Darrell Issa (CA-District 48) has introduced a bill that would mandate disclosure of third-party litigation financing agreements in civil lawsuits.

Issa, who is the chairman of the House Judiciary Subcommittee on Courts, Intellectual Property, and the Internet, introduced the Litigation Transparency Act of 2024 on July 11.

In June, Issa said third parties investing in litigation has become a lucrative and growing practice that benefits everyone except the defendants who often settle rather than go to court.

He noted that third-party-funded litigation isn’t federally regulated and that the subcommittee isn’t seeking to eliminate the option for people who need it to protect and assert their rights. The subcommittee wants to consider how it could be regulated, Issa said.

Currently, civil litigation is funded by undisclosed third parties including hedge funds, commercial lenders, and sovereign wealth funds operating through shell companies, a news release about the bill states.

“This practice is particularly challenging in Intellectual Property (IP) litigation due to the proclivity for large settlements and the rise of patent-assertion entities (PAEs),” the release states.

Issa added, “This legislation is a breakthrough measure that will target serious abuses in our litigation system and achieve long-overdue transparency. If a third-party investor is financing a lawsuit in federal court, it should be disclosed at the onset of the case. Awareness by all parties will help ensure fair and equal treatment by the justice system and deter bad actors from exploiting our courts.”

Third-party litigation financing has also raised national security concerns among Congress members — a topic brought up during a June hearing held by the House Judiciary Subcommittee on Courts, Intellectual Property, and the Internet

Recent cases have been backed by Chinese funders fueling IP litigation against U.S. companies, according to the release.

Fourteen state attorneys general have raised similar concerns; John Ratcliffe, former director of national intelligence John Ratcliffe; Sen. Marco Rubio, who is vice chairman of the Senate Intelligence Committee, and Sen. John Kennedy, who is a ranking member of the Subcommittee on Federal Courts.

“To address these threats and abuses, the bill would require disclosure — at the onset of a civil action — of investors who have a right to receive payment based on the outcome of a case,” the release says.

According to Issa, the following organizations support his bill:

• • American Property Casualty Insurance Association (APCIA)
  • Unified Patents
  • Cisco Systems
  • Center for Climate Integrity
  • National Association of Mutual Insurance Companies
  • U.S. Made
  • National Association of Manufacturers
  • Institute for Legal Reform
  • Lawyers for Civil Justice

APCIA claims “legal system abuse” including third-party litigation funding is “a significant factor impacting insurance affordability and availability in states and across the country.”

“By its very nature, third-party litigation funding contributes to the growth in lawsuits and increases litigation costs, both of which increase the cost of insurance over time for every American family, individual, and business who purchases it,” APCIA wrote. “Chairman Issa’s draft legislation is a significant step forward to address the negative impacts of litigation funded by third-party investors by requiring disclosure of third-party litigation financing to the parties and the court in all federal civil actions.”

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