• Here’s what happened: Third-party litigation financing (TPLF) has emerged as a vehicle for foreign powers to use our legal system to advance their strategic goals, posing a threat to national security and the U.S. economy, writes TLR President and General Counsel Lee Parsley.
  • In TPLF arrangements, entities ranging from private equity funds to foreign investors inject capital into cases in return for a share of any recovery. 
  • The litigation in question is often risky for lawyers to take on a contingency basis, either for lack of merit or want of financial viability.
  • An estimated $2.5 to $5 billion is now being funneled into such lawsuits. Importantly, these investments are not required to be disclosed in the litigation—not to the judge, the defendant, or even the plaintiffs themselves.
• For example: In 2019, VLSI Technologies—a long defunct chip manufacturer—was apparently used as a front for foreign entities to engage in patent litigation against Intel, a linchpin of America’s chip industry. 
  • Reports suggest that VLSI’s parent entity is an Abu Dhabi-based hedge fund, but we’ll never know for sure. VLSI chose to drop its case against Intel rather than disclose its litigation financiers when ordered by a judge. 
  • Still, VLSI was granted at least $3 billion in damages by U.S. courts, miring Intel in unnecessary litigation.
• Why it matters: Aside from jeopardizing vital American industries, thousands of jobs and our national security, the lack of transparency in these lawsuits compromises the integrity of the legal process, leading to conflicts of interest for attorneys who prioritize the interests of financiers over plaintiffs.
• Dig deeper: A study conducted by Swiss Re Institute found that cases involving third-party funders take 15 months longer to settle than those without funders, with claimants receiving 12 percent less in settlement funds. 
  • Prolonged cases and discouragement of reasonable settlements by third-party funders result in increased litigation costs for all parties in the lawsuit, which is eventually passed along to all of us as consumers.
• TLR Thoughts: It’s clear that the current legal system leaves American businesses vulnerable to foreign actors. At best, these actors are seeking a portion of businesses’ profits. In the worst case, they threaten industries critical to our economy and national security. Without prompt action by Congress, Americans stand to lose in either scenario.

Read the full article here.