A bill introduced by California Republican Representative Darrell Issa, aimed at enhancing transparency over funding and third-party beneficiaries in civil lawsuits, has garnered support from Google.
The federal legislation mandates plaintiffs to disclose any investors who stand to profit from the outcome of a civil lawsuit and requires parties to reveal the details of financing agreements with investors.
The legislation introduced by Issa, Chairman of the House Judiciary Subcommittee on Courts, Intellectual Property, and the Internet, and Congressman Scott Fitzgerald under the name the Litigation Transparency Act of 2024 requires the disclosure of parties receiving payment in civil lawsuits.
The legislation states hundreds of civil lawsuits are financed each year by undisclosed third-party interests, such as hedge funds, commercial lenders, and sovereign wealth funds operating through shell companies. This third-party litigation funding presents particular challenges in patent cases, where investor-backed entities often pursue large settlements from American companies.
The practice has raised concerns with companies arguing that it encourages frivolous litigation. Private investors often target large companies like Alphabet's Google, especially in areas like patents and copyrights.
Google's endorsement of the legislation adds significant weight to the issue, driving greater transparency in the hundreds of these civil lawsuits filed each year.
"Excessive litigation driven by third-party investors is going to inherently raise costs for American companies as well as consumers," said Google's general counsel, Halimah DeLaine Prado, in an interview with Bloomberg.
American corporates have been increasingly pushing for greater transparency in "litigation financing," a rapidly growing industry now valued at approximately $15.2 billion. In this system, investors fund lawsuits in exchange for a share of any financial settlement or award profiting from the outcomes of the lawsuit.
Earlier this month, 100 companies including Google and Amazon, signed a letter urging the Administrative Office of the U.S. Courts to implement mandatory disclosure of litigation financing in federal civil cases, Bloomberg reported.
"Investor-backed entities, including those that are backed by sovereign wealth funds, can actually use the courts to go after key technologies developed by American companies," DeLaine Prado said.
Additionally, third-party litigation financing has raised national security concerns, as recent cases revealed China-backed investors funding intellectual property lawsuits against U.S. companies.
Security concerns received support with 14 state attorneys general joining the call for action, and high-profile figures such as Vice Chairman of the Senate Intelligence Committee Senator Marco Rubio, and Ranking Member of the Subcommittee on Federal Courts, Senator John Kennedy have also highlighted the potential risks from these foreign-backed investments.
"Our legislation targets serious and continuing abuses in our litigation system and achieves a level of transparency that people deserve, and our standard of law requires," Rep. Issa stated while presenting the bill."
"We believe that if a third-party investor is financing a lawsuit in federal court, it should be disclosed rather than hidden from the world and left absent from the facts of a case. When we achieve a lasting measure of awareness by all parties, it will advance fair and equal treatment by the justice system and deter bad actors from exploiting our courts."
U.S. industry groups, including the Chamber of Commerce, have opposed investor-backed litigation funding.
