[1]https://news.bloomberglaw.com/us-law-week/some-third-party-litigatio
   n-funders-pose-a-threat-to-us-security
   Former House Armed Services Committee chairman Howard McKeon analyzes
   the risk foreign-based litigation investment entities pose to national
   security by asserting litigation against innovative companies in US
   courts.
   Intellectual property is now a bedrock for national and economic
   security. Every strategically important industry, whether it is
   defense, high-tech, energy, or health care, relies on a vast network of
   interrelated technologies and patent property rights.
   Stories about espionage and IP theft are flashy, and rightfully draw
   attention and concern from lawmakers. But, what if in addition to
   stealing US IP, foreign adversaries could also accomplish many of the
   same goals by using well-established, and legal, channels? This is
   exactly the current situation, as litigation investment entities and
   third-party litigation funders leverage US courts and patents without
   oversight or transparency.
   Third-party litigation funding and, more broadly, litigation investment
   entities, have become prominent fixtures in the US legal landscape.
   These funders—including hedge funds, private equity funds, and even
   sovereign wealth funds—either pay for plaintiffs’ litigation costs with
   an agreement that they will receive a large portion of any eventual
   payment, or own shell companies that exist only to profit through
   litigation.
   Recent estimates put the US litigation funding market size at $13.5
   billion with an additional $3.2 billion in new investments last year
   alone. Litigation investments disproportionately affect IP. Last year
   more than 20% of all new litigation financing capital commitments were
   directed toward patent litigation, following nearly 30% the prior year.
   Even more troubling than the growth of an industry that monetizes IP
   litigation and the courts is that the vast majority of investments go
   undetected. A few courts have introduced funding transparency
   requirements, but by and large, investment entities are able to direct
   lawsuits from behind the curtain, without ever revealing themselves.
   A November 2022 report from the US Chamber of Commerce Institute for
   Legal Reform captured the danger of this arrangement, pointing to the
   “clear path for foreign adversaries to undermine U.S. national economic
   and security interests through the infiltration of the American
   litigation system.”
   More specifically, by controlling litigation from overseas, foreign
   entities could damage the reputation of and drain resources from US
   competitors, while getting access to sensitive information during legal
   proceedings. The ILR report highlights TPLF in patent litigation as
   indicative of the litigation investment model’s risks, in general.
   Lawmakers are only just beginning to prioritize addressing the threat
   that litigation investment entities pose. A group of state attorneys
   general raised concerns in a letter to the Department of Justice “that
   TPLF is being used to harm our States and threaten our country’s
   economic and national security,” and “through strategic lending,
   foreign adversaries could threaten our economic and national security
   by weaponizing the U.S. judicial system.”
   Sen. John Kennedy (R-LA) echoed this sentiment in a letter to Attorney
   General Merrick Garland and Chief Justice John Roberts where he stated,
   “Merely by financing litigation in the United States against
   influential individuals, corporations, or highly sensitive sectors, a
   foreign actor can advance its strategic interests in the shadows since
   few disclosure requirements exist in jurisdictions across our country.”
   If groups in the US recognize the vulnerability in our IP and legal
   systems, our adversaries certainly do as well. And foreign competitors,
   like China, have sent strong signals in recent weeks that they are
   ramping their focus on intellectual property.
   The Chinese National People’s Congress elevated the China National
   Intellectual Property Administration to a top-level agency as part of a
   plan to accelerate “the building of a powerful intellectual priority
   nation.” As China and others make greater investments in promoting and
   protecting their intellectual property, the US must do the same, or
   suffer the consequences.
   We need to assess the true scope of the problem if we are going to
   protect ourselves from ill-intentioned investment entities. Addressing
   this massive blind spot in our legal system will prevent litigation
   funders from manipulating US innovators and our IP system.
   A few courts proactively implementing transparency requirements for
   plaintiffs to disclose TPLF and ownership information is positive. But
   to be effective, transparency must be mandated across jurisdictions.
   Whether it is through congressional action or amending the Federal
   Rules of Civil Procedure, defendants, judges, juries, and lawmakers,
   need to know who is using our courts and IP, and for what purpose.
   The longer we wait to put a spotlight on litigation investment
   entities, the larger the threat grows, and the farther away we are from
   finding solutions. Greater transparency measures in our courts are a
   necessary first step to meet head-on the new dangers litigation
   investment entities pose to our security.
   This article does not necessarily reflect the opinion of Bloomberg
   Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax,
   or its owners.
   Author Information
   Howard “Buck” McKeon is the former chairman of the House Armed Services
   Committee. He served as a U.S. Representative from California from 1993
   to 2015.

References

   1. https://news.bloomberglaw.com/us-law-week/some-third-party-litigation-funders-pose-a-threat-to-us-security