The US Capitol by R Boed is licensed under CC BY 2.0 DEED

On Wednesday, lawmakers addressed the issue of third-party litigation funding (TPLF) for intellectual property disputes in a hearing before the House Subcommittee on Courts, Intellectual Property and the Internet. After investigating a slew of concerns ranging from “patent trolling” to national security threats, Subcommittee Chair Darrell Issa (R-Calif.) committed to introducing TPLF identity disclosure legislation within the next 10 days. Americans for Tax Reform applauds House Republicans for exposing the shadowy network of TPLF legal activism and safeguarding transparency within the US judicial system.

In recent years, the TPLF industry has exploded to $15.3 billion in annual revenue, making the prosecution of patent infringement lawsuits an immensely profitable profession. During testimony, lawmakers learned how “non-practicing entities” (NPEs) buy patent rights in bulk with the express purpose of asserting infringement claims. Otherwise known as “patent trolling”, this practice is often targeted at small businesses who would quickly buckle under the weight of costly litigation fees. Staring down the barrel of an indefinite legal battle, many companies simply pay off NPEs rather than taking their chances in court.

To make matters worse, this extortion has been supercharged by the existence of TPLF funding, which allows third-parties to bankroll litigation from the shadows. House Republicans expressed surprise after learning that TPLF funders are permitted to remain completely anonymous during legal proceedings, but defendants are required to disclose sensitive information such as internal business records or insurance policy holdings. In September 2023, House Republicans previously broached the issue of anonymous litigation financing, with House Oversight Chairman James Comer alleging that a vast majority of TPLF lawsuits are funded by left-wing activists seeking to undermine the American legal system.

Subcommittee Chairman Issa (R-Calif.) questioned witnesses on possible thresholds for TPLF disclosure, receiving varying responses. Victoria Sahani, an associate law professor at Boston University, insisted that the name and location of the TPLF funder was necessary to ensure transparency. However, former House Judiciary Chairman Bob Goodlatte argued for additional disclosure requirements, particularly for TPLF funders representing foreign entities or governments.

Rep. Thomas Massie (R-Ky.) and Rep. Russell Fry (R-S.C.) also expressed support for corporate disclosure for TPLF activity, but questioned disclosure for individual, potentially non-compliant investors. These fears were easily quelled by the testimony of witnesses, who assured both lawmakers that investor specific disclosure would not be necessary. Lastly, Rep. Cline (R-Va.) remarked on the potential for foreign adversaries, such as China and Russia, to weaponize the TPLF system to weaken American companies and harvest sensitive business intelligence. According to Paul Taylor, a fellow at the National Security Institute, TPLF exploitation by the Chinese Communist Party (CCP) has grown into a legitimate threat that mandates identity disclosure.

Overall, House Republicans expressed strong support for disclosure mandates that will safeguard American businesses from “patent trolling”, activist corporations and exploitation from foreign adversaries. As Subcommittee Chairman Issa concluded, “I believe that we’ve agreed that in fact more transparency at a base level needs to be there…I want to make sure that we begin to talk about the parameters of what can be done.” For far too long, anonymous TPLF funding has incentivized the exploitation of American businesses. By exposing the subversive agenda of activist corporations and foreign operatives, Americans will no longer view intellectual property disputes as a magnet for anonymous blackmail. Americans for Tax Reforms applauds House Republicans for safeguarding Americans from TPLF exploitation and promoting judicial transparency.