In an article slated for publication in the Federal Circuit Bar Journal, Sean Keller, J.D. Candidate at Texas A&M University School of Law, and Jonathan Stroud, GC at Unified Patents, have written about the growing policy debate surrounding litigation financing disclosures.
Litigation financing is one of the most significant developments in modern litigation. Since at least the 1990s, litigation financing steadily expanded in the United States and has grown into a multibillion-dollar industry. Litigation funding—providing third-party non-recourse funding contingent upon litigation recovery and outcomes—is a modern phenomenon of relatively recent vintage that nonetheless undergirds huge swaths of U.S. civil litigation today. And one of the biggest recent beneficiaries of litigation financing has been patent litigation.
Modern patent litigation, being high-stakes, arm’s-length, and Federal in nature, is both a high-risk, high-reward prospect for litigation funding. Studies show that up to a third of all modern patent litigation is now funded, making it the highest-growth area in litigation funding; the prevalence of litigation shell companies and other procedural quirks in patent litigation present potential advantages and challenges in employing funding. As it grows into a major feature of the U.S. litigation landscape, several academics, advocacy groups, policymakers, and practitioners have raised concerns about the lack of transparency in litigation financing, given there are comprehensive rules or practices surrounding disclosure of the existence and terms of such arrangements.
Historically, litigation funding regulation in the U.S. had been barred at common law and thereafter has been largely left to the states and their legislatures, resulting in a messy patchwork of disclosure requirements. State courts, legislatures, and judges have offered piecemeal approaches that often conflict. To remedy this in other contexts, the Judicial Conference Advisory Committee on Civil Rules has debated adding disclosure requirements to the Federal Rules of Civil Procedures, resulting years ago in Rule 7.1 and its minimal upfront corporate disclosures, as well as an insurance disclosure requirement into the FRCP. Both debates at the time were akin to the current debate about litigation financing disclosure requirements. Nevertheless, advocates have resisted comparisons between insurance and litigation financing disclosures. We tackle this comparison head-on by deconstructing some of the arguments disclosure opponents have cited to undermine the comparison. We conclude that arguments for enhanced disclosure are sensible, overdue, and inevitable; indeed, in many courts and some agencies, they are already here. Clear, focused Federal disclosure requirements would go a long way to preventing an unenforceable patchwork of state regulations, and would prevent enforcement that is under- or over-inclusive.