In recent years, Georgia has emerged as a dynamic hub for medical innovation. With more than 4,000 life-sciences organizations now located across the state, the growth of this industry has not only benefited the economy of the Peach State, but it also has fostered a spirit of entrepreneurship that promises to help make Americans of all stripes healthier.
Unfortunately, a shadowy undercurrent of the U.S. legal system threatens to jeopardize this medical progress.
Known as third-party litigation funding, the practice has allowed financial backers to anonymously direct and influence what are oftentimes spurious intellectual property lawsuits against companies that support advancements across a number of sectors, including health care, all in a bid to enrich themselves.
It is past time for lawmakers to require more disclosure regarding this practice.
Credit: Handout
Credit: Handout
Such arrangements have become a big business in the United States, with funders controlling roughly $15 billion in assets. Often backed by hedge funds, wealthy individuals or other entities looking for profit-making opportunities, these third-party litigation funding investors put up the money attorneys need to finance the various costs of bringing mass tort litigations in return for a healthy share of any award or out-of-court settlement.
The lack of transparency gives investors the ability to conduct their business in secret, leading to allegations that they are inappropriately influencing key case decisions, such as when to go to trial or the outlines of settlement terms. It has also spurred concerns that such arrangements could expose strategically important U.S. industries to foreign interference or provide actors from abroad with access to sensitive data and trade secrets that are disclosed in the course of legal proceedings, undercutting American competitiveness and innovation.
Although there are a few state courts that have instituted policies to regulate this type of litigation funding, there are no federal laws that require funders to disclose their relationships with litigants or the nature of their involvement in the lawsuits they are financing. Similarly, Georgia state law does not contain the provisions necessary to mandate the disclosure of litigation funding.
Fortunately, efforts to finally shed some light on the practice are increasing.
At the urging of companies, business groups and Republican lawmakers, the U.S. Judicial Conference’s Advisory Committee on Civil Rules has announced plans to form a subcommittee tasked with examining outside litigation financing and to study the advisability of instituting a nationwide third-party litigation funding disclosure rule. The chair of the committee, Florida U.S. District Judge Robin Rosenberg, called outside litigation funding an important issue that is “not going away.”
Additionally, a bill was introduced in the U.S. Senate last year by Sens. Joe Manchin, D-W.Va., and John Kennedy, R-La., to tackle this issue, and two pieces of legislation were previously introduced by Sen. Chuck Grassley, R-Iowa.
Though none of those measures ultimately moved forward, U.S. Rep. Darrell Issa, R-Calif., is proposing a new bill that would require named parties in civil litigations to identify anyone who has the right to receive a payment based on the outcome of civil or group litigation. Parties would also have to hand over copies of agreements regarding third-party litigation financing tied to the outcome of a case, providing further situational awareness to the judges and defendants involved in these cases.
Hopefully, leaders in Washington will come together and finally institute the reforms needed to rein in outside litigation funding.
As a former member of Congress, however, I know that nothing is guaranteed on Capitol Hill. Therefore, it would be wise for Georgia’s lawmakers to take matters into their own hands and follow the lead of states such as Louisiana, where new laws that erected guardrails surrounding litigation funding were recently enacted.
With hedge funds and investment firms now opening funds dedicated to litigation finance, it is clear that without the adoption of common sense regulatory guidelines, we can only expect the negative influence of third-party litigation financingon our legal system to grow. Georgia legislators have a duty to protect our citizens and job creators from the excesses of outside litigation financing and should make litigation reform a top priority during the upcoming legislative session in 2025.
Tom Price served as the 23rd Secretary of Health and Human Services and as a congressman for Georgia’s 6th Congressional District from 2005 to 2017.
About the Author
