A Southern California congressman has introduced a measure to require the disclosure of third-party litigation financing agreements in civil litigation, saying it would bring needed transparency to an unregulated practice.
Republican U.S. Rep. Darrell Issa, whose district spans much of San Diego County, introduced the Litigation Transparency Act of 2024 with U.S. Rep. Scott Fitzgerald, R-Wisconsin, on Oct. 7. Since then, the measure has attracted a number of supporters, including Google and other tech companies, according to a report by Bloomberg News.
“The Litigation Transparency Act is a carefully constructed breakthrough measure that targets serious abuses in our litigation system and will lock in long-overdue transparency,” Issa said in a statement emailed to the Southern California Record. “I have consistently believed that if a third-party investor is financing a lawsuit in federal court, that should be disclosed at the onset of the case.”
More transparency about financial agreements made by parties in civil lawsuits would help to deter bad actors from manipulating the courts, according to Issa.
“Looking forward, I believe this will continue to earn bipartisan support and be a part of bipartisan consensus,” he said.
If passed by Congress and signed by the president, the measure would disclose information about third-party litigation funders, such as hedge funds, commercial lenders and sovereign wealth funds, which can operate as shell companies, according to Issa’s office.
Thae nmes of third parties receiving payments that hinge on the outcome of civil lawsuits would have to be disclosed in court if the bill, H.R. 9922, becomes law. Financial agreements would also have to be produced.
Critics have said that these third-party funding agreements have become much more common in recent years and that funders can exert improper influence over civil litigation, such as by blocking a settlement favored by the plaintiff and defendant.
“Intellectual property (IP) litigation is particularly ripe for abuse by third-party funders because of the potential for large damages awards and given the rise of patent-assertions entities (PAEs), typically shell companies that do not develop, manufacture or sell products, but that purchase patents solely to assert them in litigation against defendants,” Issa’s office said in a description of the bill.
The office emphasized that the bill does not restrict such funding agreements but simply requires information about them be disclosed to courts.
“Legal system abuse is a significant factor impacting insurance affordability and availability in states and across the country,” the American Property Casualty Insurance Association said in a statement in support of the bill. “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.”
California-based Google’s endorsement of the measures comes in the wake of the U.S. Department of Justice saying that the department might urge a judge to require the tech company to divest portions of its assets as a result of an ongoing antitrust case.
The bill’s supporters also point to national security concerns, noting that Chinese-backed entities have been financing patent litigation against U.S. companies.