The recently-formed Inventors Defense Alliance (IDA) sent a letter yesterday to the Committee on Rules of Practice and Procedure in the Administrative Office of the United States Courts urging it not to heed the call of a letter sent to the Committee last week by 124 large companies to implement a uniform process on disclosure of third-party litigation financing (TPLF) sources.

The letter sent last week was organized by Lawyers for Civil Justice (LCJ) and signed by some of the world’s largest and most well-known corporations, including all of the major internet platforms, pharmaceutical and automotive companies. The letter asked the Committee to “require disclosure of TPLF agreements that provide non-parties a direct interest in the outcome of the case.”

The LCJ said litigation funding is now a $15 billion industry and that courts are responding to requests from litigants asking courts to order the disclosure of funding agreements “with a ‘variety of approaches and inconsistent practices [that] is creating a fragmented and incoherent procedural landscape in the federal courts.’”

It added that “a rule is ‘particularly needed to supersede the misplaced reliance on ex parte conversations; ex parte communications are strongly disfavored by the Code of Conduct for U.S. Judges because they are both ineffective in educating courts and highly unfair to the parties who are excluded.’”

The LCJ and the Institute for Legal Reform (ILR) also submitted a separate comment letter to the Committee on October 2 advocating for a “simple and predictable rule for TPLF disclosure.”

According to an LCJ press release sent today, the Committee met today (October 10) and decided to form “a subcommittee dedicated to examining third-party litigation funding.” LCJ called this “an important step towards a much-needed uniform procedure for disclosure.”

IDA: Don’t Fall for It

However, at the time of the LCJ letter, Kristen Osenga, chief policy counselor at the IDA, said the companies’ concern is disingenuous:

“These massive companies would like the courts to believe that they are only interested in ‘transparency’ and ‘fairness,’” Osenga said in a statement. “But their effort is about solidifying their unfair advantage in the justice system – and driving up the already steep cost of litigation.”

The IDA letter sent yesterday added that the proposed requirements would “exacerbate [the] power imbalance” created by the reality that large corporations can use extensive legal teams to intimidate small startups and inventors into settling for small amounts of money for infringement. The letter explained:

“Small businesses have started to fight back against predatory practices with the help of outside capital. These collaborations provide intellectual property owners with the financial resources necessary to withstand big businesses’ intimidation tactics and defend their rights. Third-party financing agreements help ensure that cases are decided on their merits rather than which party has deeper pockets.”

The IDA was formed in September of this year with the aim of “helping startups, small businesses, and entrepreneurs defend their intellectual property rights and access capital.” It is led by Osenga, professor at the University of Richmond School of Law, and a board comprised of the Hon. Paul R. Michel, former Chief Judge of United States Court of Appeals for the Federal Circuit (CAFC); Russell Slifer, former United States Patent and Trademark Office (USPTO) Deputy Director; Alan Heinrich, attorney and adjunct faculty member at the UCLA School of Law; and Earl “Eb” Bright, president and general counsel of ExploraMed Development.

Osenga told IPWatchdog at the time the IDA was launched that the impetus for focusing on inventors’ right to capital “is about empowering inventors in a landscape that frequently sidelines their rights” and that the organization’s goal is to tell the “other side of the story.”

Yesterday’s letter from IDA concluded with the hope that the Committee “will see big businesses’ calls to restrict litigation finance for what it is: an effort to squash their smaller competitors and maintain market dominance.”

According to the IDA, small businesses and startups support 62 million jobs in the United States.

Congressional Action

Earlier this year, Representative Darrell Issa (R-CA), head of the House IP Subcommittee, introduced a discussion draft of the “Litigation Transparency Act of 2024,” which would require full disclosure of all third party litigation funding sources and to produce any agreements thereto. The legislation was formally introduced earlier this week as H.R. 9922.

Issa held a hearing earlier this year titled “The U.S. Intellectual Property System and the Impact of Litigation Financed by Third-Party Investors and Foreign Entities” and also sent a letter to the United States Judicial Conference in August asking for responses to a series of questions on TPLF issues in the courts and accusing the Conference of “inactivity” on the topic.

In a press release announcing the introduction of the bill this week, Issa said: “Our legislation targets serious and continuing abuses in our litigation system and achieves a level of transparency that people deserve, and our standard of law requires. We believe that if a third-party investor is financing a lawsuit in federal court, it should be disclosed rather than hidden from the world and left absent from the facts of a case.”

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