On June 12, 2024, California Congressman Darrell Issa, who chairs the House Judiciary Subcommittee on Courts, Intellectual Property, and the Internet, made several key statements during a hearing on third-party litigation funding in the U.S. intellectual property system:
Issa expressed concern about the impact of secretive, profit-motivated third-party litigation funding on the legal system, particularly concerning patent lawsuits.
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He highlighted the potential national security risks posed by funding from foreign adversaries, explicitly mentioning China and Russia.
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Issa stated, "Unlike traditional funding aimed at making victims whole, third-party litigation funding prioritizes investor profits over litigant need and often involves foreign interests from China and Russia."
He announced his intention to draft disclosure legislation within the next 10 days.
On October 4, 2024, Issa and Rep. Scott Fitzgerald (WI-05) introduced H.R. 9922, the Litigation Transparency Act of 2024.
H.R. 9922 is not restricted to foreign players in any way, much less "China and Russia."
Background of the Bill
The introduction of H.R. 9922, known as the Litigation Transparency Act of 2024, has sparked lively discussions among patent litigation attorneys. The legislation aims to improve clarity and transparency in patent litigation funding. While this move seems positive at first glance, a closer look reveals significant flaws that may complicate its implementation and impact those involved.
This post explores the key components of H.R. 9922, highlighting its potential shortcomings beyond not being addressed to what Mr. Issa stated is the biggest threat: foreign parties. Unfortunately, Mr. Issa and his allies are attempting to fearmonger on behalf of BigTech by making China and Russia the boogyman.
The bill is only three pages long. In fact, the bill is so broad it is likely unconstitutional on its face. But this may be by intention, as Mr. Issa needs to pay lip service to BigTech, at the same time knowing that such a bill would kill innovation in the United States. Either way, it is a poor -- not to mention dishonest -- first effort.
Understanding H.R. 9922: Overview of the Act
H.R. 9922 is said to be designed to increase transparency in litigation funding, especially in patent cases. It requires parties to disclose funding agreements, detailing the financial backers behind their legal strategies. This act primarily targets patent litigation, which often sees significant investments from third-party funders.
According to recent studies, an estimated 75% of patent cases involve some form of third-party funding. However, while the aims of H.R. 9922 may have some legitimacy, the implementation does not effectively address the complexities inherent in patent litigation finance and would hurt innovation in the U.S., as well as inventors.
Key Provisions of the Act
Enhanced Disclosure Requirements
One of the key features of H.R. 9922 is its enhanced disclosure requirements. The act mandates that litigants reveal any third-party funders related to their cases, including details of the funding arrangements.
Although transparency sounds appealing, it raises critical questions: How much information is truly necessary? For instance, is knowing the identity of a funder crucial for every patent case? Such uncertainties may lead to inconsistencies in compliance. Further, and most importantly, the bill goes well beyond requiring disclosure of any funder or funding. In fact, the bill requires disclosure of the complete contents of any funding agreement.
There are several significant drawbacks to requiring full disclosure of litigation funding agreements in patent litigation:
Potential Biasing of Litigation
Disclosing the full contents of litigation funding agreements could unfairly advantage defendants by revealing the extent of the plaintiff's financial resources
This information could be used strategically by defendants, potentially influencing settlement negotiations or litigation strategies based on the plaintiff's funding situation rather than the merits of the case.
Relevance to Litigation
Many stakeholders, including funders, argue that the disclosure of third-party funding is not relevant to the patent litigation itself and could distract from the merits of the case.Â
Most courts take this view.
The focus should be on the legal issues at hand rather than the financial arrangements behind the litigation.
Increased Burden on the Court System
Implementing disclosure requirements could increase the cost and length of litigation.Â
Courts would need to allocate resources to collect and review the disclosures, potentially creating additional administrative burdens and delays in the legal process.
Compromising Legal Strategy
Full disclosure of funding agreements could reveal sensitive information about a patentee's legal strategy.Â
This might include details about case valuation, risk assessment, and litigation plans, which could give opponents an unfair advantage in developing their own strategies.
Confidentiality Concerns
Litigation funding agreements often contain confidential business information and trade secrets.Â
Mandatory disclosure could infringe on the privacy rights of the parties involved and potentially expose sensitive financial arrangements to public scrutiny.
Chilling Effect on Access to Justice
The requirement to disclose full funding agreements might discourage some patent holders from seeking litigation funding altogether.
This could limit access to justice for parties with valid claims but insufficient resources to pursue litigation independently.
Potential for Misuse
Disclosure requirements could be used as a tactical tool by defendants to create additional obstacles for plaintiffs, potentially leading to unnecessary disputes over the funding arrangements rather than focusing on the core patent issues.
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Ethical Concerns
Existing ethical rules and professional conduct standards are sufficient to address potential conflicts of interest, making additional disclosure requirements unnecessary.Â
Overly broad disclosure rules could interfere with attorney-client relationships and work product protections.
Court's Discretion and Oversight
The act proposes that courts have the authority to review funding agreements to judge their relevance to the case. This could lead to increased scrutiny of litigation funding. However, the criteria by which courts determine relevance can vary widely, potentially resulting in uneven application across jurisdictions.
Concerns about these differences highlight the risk of prolonged litigation processes and increased costs for litigants.
Limitations on Non-Disclosure Agreements (NDAs)
H.R. 9922 limits the use of NDAs concerning funding arrangements, requiring that such agreements be disclosed. This provision aims to prevent the concealment of funder information that might sway case outcomes.
However, this approach could deter some parties, particularly in sensitive cases, from engaging in legitimate claims. A survey of patent attorneys revealed that 65% believe this transparency requirement might chill client willingness to litigate.
Other Potential Flaws in H.R. 9922
Burdensome Compliance and Administrative Costs
One major issue with H.R. 9922 is the administrative burden it places on litigants, particularly smaller firms. Complying with the new requirements may demand resources many plaintiffs cannot afford, effectively raising barriers to patent litigation.
For example, smaller firms may find it challenging to allocate time and funds to meet these disclosures, while larger firms could more easily navigate the process. This discrepancy may further widen the gap in legal representation.
Ambiguity in Definitions
The ambiguous definitions included in H.R. 9922 can foster confusion and misinterpretations. For instance, without clearly defined criteria for what constitutes relevant funding, divergent interpretations may arise among parties.
This can lead to disputes not just over legal matters but also over procedural ones, complicating the litigation landscape.
Impact on Litigation Dynamics
Introducing H.R. 9922 may unexpectedly shift the dynamics of litigation funding. Funders might become more cautious with their investments if they know their identities will be disclosed. As a result, plaintiffs may struggle to secure funding, particularly in high-stakes patent cases.
This could reduce access to justice for inventors and small companies that lack the resources to challenge larger competitors effectively.
The Effect on Patent Litigation Attorneys
The implications of H.R. 9922 for patent litigation attorneys could be significant it it were to pass. Although the act aims to boost transparency in funding, it may change how legal professionals manage their cases.
Shifting Strategies in Case Management
With the heightened scrutiny surrounding funding agreements, attorneys might need to adapt their case management strategies. This could involve dedicating more time to understanding the complexities of funding arrangements while preparing their disclosures.
To navigate these changes, attorneys may require additional training or resources to ensure compliance without harming their clients' positions.
Potential for Client Reluctance
As the landscape shifts due to H.R. 9922, attorneys may encounter increased client hesitance toward litigation. Clients might be worried that revealing their financial backers could harm their standing in their industry.
This situation could lead to a chilling effect on genuine patent claims and ultimately undermine the law's goal of fostering justice.
The Future of H.R. 9922
H.R. 9922, the Litigation Transparency Act of 2024, represents an attempt to boost integrity and transparency in patent litigation. However, it is critical to examine its potential flaws closely. The act's disclosure provisions could lead to administrative burdens, ambiguities in definitions, and shifts in litigation dynamics.
Ultimately, finding a balance between transparency for funders and the operational needs of litigation finance is necessary for this legislation to fulfill its purpose. Patent litigation attorneys must stay alert and adaptable as they navigate the evolving landscape and advocate for their clients.
Despite the large amounts of money flowing into Washington D.C. from companies like Meta, Apple, Google, and other BigTech companies, the likelihood of H.R. 9922, the Litigation Transparency Act of 2024 becoming law in the near future appears to be low. However, patentholders, inventors, and pro-innovation Americans should remain vigilant as this issue will not be leaving Congress any time soon.
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