Keep Foreign Interests Out of American Court Decisions

by Lee Parsley

In the ongoing fight to protect American interests from foreign interference, third-party litigation financing (TPLF) has emerged as another tool for foreign powers to pursue their strategic agendas—using our nation’s legal system as the vehicle. And the implications for the security of our country are starting to crystallize.

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. Notably, these investments are not required to be disclosed in the litigation—not to the judge, the defendant, or even the plaintiffs themselves.

This absence of transparency exposes our legal system to serious vulnerabilities.

First, the integrity of the legal process itself is compromised. Financiers may command significant influence over the proceedings, creating a conflict of interest for the attorneys who are effectively being paid by the investors. This may lead an attorney to prioritize the funder’s interests ahead of the plaintiff’s by, for example, choosing to prolong a case to boost the funder’s interest income, even if the claimant prefers a swift settlement.

A study conducted by Swiss Re Institute found civil cases involving third-party funders took 15 months longer to settle than cases where none was present. And, while longer cases might sometimes lead to greater rewards, these rewards are rarely passed on to the claimant, as cases involving third-party funders leave claimants with 12 percent less in take-home settlement funds.

And by prolonging cases and discouraging reasonable settlements, third-party funders are increasing litigation costs for businesses. As a result, defense and insurance costs for businesses have gone up 20 percent, which is passed on to us as consumers in the cost of the goods and services we buy.

Secondly, covert operators may be strategically using these investments to target key American industries and job creators. For example, in 2019, VLSI Technologies—a long-defunct chip manufac-turer—appears to have been used as a front for foreign actors to engage in patent litigation against Intel. It’s been reported that VLSI’s parent company is an Abu Dhabi-based hedge fund, but we’ll never know for sure, because when ordered by a judge to reveal its litigation funders, VLSI opted to dismiss its case against Intel.

In the meantime, however, VLSI was awarded at least $3 billion in damages in U.S. courts, some of which has been reversed. And Intel—a linchpin of American chip manufacturing—has been mired in unnecessary litigation to defend itself against a bogus plaintiff.

Congress is considering measures to protect the integrity of our legal system, including one requir-ing the disclosure of third-party litigation funders. This kind of disclosure makes sense and should be done.

It’s clear the current litigation system leaves American businesses vulnerable to bad actors. In the best-case scenario, they are simply trying to get a piece of those businesses’ profits. In the worst, they are attacking the very industries that underpin our economy and our national security.

Without quick action by Congress, in either scenario, Americans lose.

Lee Parsley is the president and general counsel of Texans for Lawsuit Reform.