Paul Taylor, an attorney and fellow at George Mason University’s National Security Institute (NSI), stated that adversaries such as China can engage in third-party litigation funding (TPLF) to influence lawsuits in sensitive industries, which could have national security implications. Taylor shared his statement during a June 12 hearing about the impact of foreign TPLF on the U.S. intellectual property system.
"We know that foreign enemies such as China can use third party litigation financing to disrupt American industries important to our national defense," said Taylor. "We know that foreign enemies such as China have the will to exploit any and all means of disrupting American business and our economy generally. We just don't know the extent of it, because we don't have a uniform rule requiring the disclosure of third party litigation financing contracts when money damages are at issue. But we need to know the extent of it before it's too late."
The U.S. Chamber of Commerce Institute for Legal Reform (ILR) released a December 2022 report warning about the national security implications of foreign TPLF. According to the report, TPLF "is a multibillion-dollar global industry that allows hedge funds to secretly invest in lawsuits in exchange for a cut of any award or settlement." Without disclosure requirements around litigation financing, foreign governments can influence lawsuits against American businesses, including those in sensitive industries such as defense.
According to a May report from the consulting firm Sedgwick, TPLF began growing in popularity in the U.S. in 2010 and has continued to become more prominent due to a lack of regulation. Third-party financiers invested more than $3.2 billion in court cases in 2022, representing a 16% increase from 2021.
In November, U.S. Senators Marco Rubio and Rick Scott sent a letter to the chief judges of Florida’s federal districts highlighting the threat that TPLF poses to the U.S. judicial system, according to a press release. Rubio and Scott asked the judges to consider establishing disclosure requirements in their jurisdictions related to foreign TPLF. "The potential impacts of allowing unfettered and undisclosed foreign TPLF throughout the judiciary could be severe unless properly addressed," said Rubio and Scott. "Foreign actors attempting to capitalize on such influence may seek to, among other things, forward frivolous lawsuits, needlessly and excessively prolong litigation disputes, exacerbate domestic discourse, or seize control of the litigation from the case’s original parties."
A December 2023 legal alert from the law firm Conroy Simberg warned that TPLF constitutes a form of "legal system abuse" and raises ethical concerns for attorneys involved. Conroy Simberg said critics of TPLF have pointed out that the practice can prolong litigation, put profits ahead of justice, lead to inflated damages, and influence the outcome of lawsuits. "Having more fingers in the pie can lead to going after a bigger pie," said Conroy Simberg.
Taylor has previously served as Senior Counsel at the House Committee on Oversight and as Chief Counsel to the House Judiciary Committee’s Subcommittee on the Constitution and Civil Justice, according to NSI’s website. He is an elected member of the American Law Institute.
