Transparency Over Third-Party Funding Poses Competition, National Security Risks
Texas is a hub for many things. Our overall economy is booming. The tech industry is flourishing here. Manufacturers are thriving. Patent trolls are trolling. And third-party litigation is growing. It’s those last two that we should be concerned about.
If we want the tech industry, manufacturers, and job creators to continue to thrive in Texas and across the country, then we need to take action to address patent trolls and third-party litigation.
Patent trolls buy up patents only to file lawsuit after lawsuit looking for big payouts, attacking small businesses and larger corporations alike. It is a classic case of greed, not justice. The number of shell companies and foreign entities that file these patent troll lawsuits is troubling, too. Texas’s Western and Eastern District Federal Courtshave long been home to an outsized number of these patent troll lawsuits.
Similar to patent trolls, third party litigation funding is another threat to our economic and national security interests. Third party litigation funding involves hedge funds and other financiers investing in lawsuits. You heard that right, they “invest” in lawsuits. These third parties invest in lawsuits in exchange for a percentage of any settlement or judgment.
Litigation experts, federal lawmakers, business and trade associations and even former military generals are expressing concerns about the lack of transparency in third-party litigation and what these lawsuits could mean in terms of our economic interests as a nation, as well as our national security.
Charles Silver, a professor at The University of Texas School of Law and his co-author Georgetown University Law Center’s David A. Hyman, recently noted, “Because third-party litigation funding allows funders to use litigation to advance their own interests, funders with ties to foreign countries/adversaries may see litigation as a vehicle for acquiring secrets, and harming U.S. national and economic security interests.”
We should all be concerned when our civil justice system is under attack. Anything that threatens fairness and access to our courts deserves our attention, as do the types of lawsuits and lack of transparency surrounding patent trolls and third-party litigation funders. Our courts should always be used for justice for all, not jackpot justice to benefit a few.
But that’s exactly what’s happening far too frequently with these type of lawsuits. According to the Institute for Lawsuit Reform, incidents of litigation funders encouraging low-income citizens to file lawsuits against government entities are also on the rise. In New York City, litigation funders have used indigent citizens to file suits but charge them interest rates as high as 124%, leaving vulnerable citizens holding the bag or pocketing little if they do win their suits.
Litigation funded, generated, and controlled by outside interests – especially those in countries and governments that pose significant national security concerns – can do real harm to our state and nation.
When anonymous litigation funders file questionable lawsuits, they’re bankrolling an opportunity for foreign companies and the governments that control them to access sensitive data and trade secrets that are often disclosed in legal courtroom proceedings. At best, such hidden, foreign funding of lawsuits puts non-U.S. companies at an advantage over U.S. innovators and job creators. At worst, it may also pose considerable national security risks, as Retired Air Force Major General John Barry recently told Stars & Stripes.
Whether it’s to hide their real motives or to make a quick buck, litigants should not be allowed to shroud themselves in secrecy as to who is funding and driving these types of lawsuits in America’s courtrooms.
Requiring greater transparency around who is financing these lawsuits is a critical reform effort that deserves bipartisan support in Austin and in Washington, D.C.
Editor's Note: The above guest column was penned by Roger Borgelt, an Austin attorney and chairman of Citizens Against Lawsuit Abuse of Central Texas. The column appears in The Rio Grande Guardian International News Service with the permission of the author.
