[House Hearing, 118 Congress]
[From the U.S. Government Publishing Office]


               THE U.S. INTELLECTUAL PROPERTY SYSTEM AND
              THE IMPACT OF LITIGATION FINANCED BY THIRD-
                  PARTY INVESTORS AND FOREIGN ENTITIES

=======================================================================

                                HEARING

                               BEFORE THE

                   SUBCOMMITTEE ON COURTS, INTELLECTUAL 
                         PROPERTY, AND THE INTERNET

                                 OF THE

                       COMMITTEE ON THE JUDICIARY

                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED EIGHTEENTH CONGRESS

                             SECOND SESSION

                               __________

                        WEDNESDAY, JUNE 12, 2024

                               __________

                           Serial No. 118-85

                               __________

         Printed for the use of the Committee on the Judiciary
         
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]         


               Available via: http://judiciary.house.gov
               
                               __________

                   U.S. GOVERNMENT PUBLISHING OFFICE                    
56-096                      WASHINGTON : 2024                    
          
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                       COMMITTEE ON THE JUDICIARY

                        JIM JORDAN, Ohio, Chair

DARRELL ISSA, California             JERROLD NADLER, New York, Ranking 
MATT GAETZ, Florida                      Member
ANDY BIGGS, Arizona                  ZOE LOFGREN, California
TOM McCLINTOCK, California           SHEILA JACKSON LEE, Texas
TOM TIFFANY, Wisconsin               STEVE COHEN, Tennessee
THOMAS MASSIE, Kentucky              HENRY C. ``HANK'' JOHNSON, Jr., 
CHIP ROY, Texas                          Georgia
DAN BISHOP, North Carolina           ADAM SCHIFF, California
VICTORIA SPARTZ, Indiana             J. LUIS CORREA, California
SCOTT FITZGERALD, Wisconsin          ERIC SWALWELL, California
CLIFF BENTZ, Oregon                  TED LIEU, California
BEN CLINE, Virginia                  PRAMILA JAYAPAL, Washington
KELLY ARMSTRONG, North Dakota        MARY GAY SCANLON, Pennsylvania
LANCE GOODEN, Texas                  JOE NEGUSE, Colorado
JEFF VAN DREW, New Jersey            LUCY McBATH, Georgia
TROY NEHLS, Texas                    MADELEINE DEAN, Pennsylvania
BARRY MOORE, Alabama                 VERONICA ESCOBAR, Texas
KEVIN KILEY, California              DEBORAH ROSS, North Carolina
HARRIET HAGEMAN, Wyoming             CORI BUSH, Missouri
NATHANIEL MORAN, Texas               GLENN IVEY, Maryland
LAUREL LEE, Florida                  BECCA BALINT, Vermont
WESLEY HUNT, Texas
RUSSELL FRY, South Carolina
Vacancy

                                 ------                                

           SUBCOMMITTEE ON COURTS, INTELLECTUAL PROPERTY, AND
                              THE INTERNET

                    DARRELL ISSA, California, Chair

THOMAS MASSIE, Kentucky              HENRY C. ``HANK'' JOHNSON, Jr., 
SCOTT FITZGERALD, Wisconsin              Georgia, Ranking Member
CLIFF BENTZ, Oregon                  TED LIEU, California
BEN CLINE, Virginia                  JOE NEGUSE, Colorado
LANCE GOODEN, Texas                  DEBORAH ROSS, North Carolina
KEVIN KILEY, California              ADAM SCHIFF, California
NATHANIEL MORAN, Texas               ZOE LOFGREN, California
LAUREL LEE, Florida                  MADELEINE DEAN, Pennsylvania
RUSSELL FRY, South Carolina          GLENN IVEY, Maryland

               CHRISTOPHER HIXON, Majority Staff Director
         AARON HILLER, Minority Staff Director & Chief of Staff
                            
                            
                            C O N T E N T S

                              ----------                              

                        Wednesday, June 12, 2024

                           OPENING STATEMENTS

                                                                   Page
The Honorable Darrell Issa, Chair of the Subcommittee on Courts, 
  Intellectual Property, and the Internet from the State of 
  California.....................................................     1
The Honorable Henry C. ``Hank'' Johnson, Ranking Member of the 
  Subcommittee on Courts, Intellectual Property, and the Internet 
  from the State of Georgia......................................     2
The Honorable Jerrold Nadler, Ranking Member of the Committee on 
  the Judiciary from the State of New York.......................     4

                               WITNESSES

The Hon. Bob Goodlatte, former U.S. Representative (VA-6); Chair 
  of the House Judiciary Committee; Chair of the Subcommittee on 
  Intellectual Property, Competition, and the Internet
  Oral Testimony.................................................     6
  Prepared Testimony.............................................     9
Paul Taylor, Visiting Fellow, National Security Institute, George 
  Mason University
  Oral Testimony.................................................    15
  Prepared Testimony.............................................    18
Donald Kochan, Professor of Law, Executive Director of the Law 
  and Economics Center, Antonin Scalia Law School, George Mason 
  University
  Oral Testimony.................................................    30
  Prepared Testimony.............................................    32
Victoria Sahani, Associate Provost for Community and Inclusion, 
  Professor of Law, Boston University
  Oral Testimony.................................................    43
  Prepared Testimony.............................................    45

          LETTERS, STATEMENTS, ETC. SUBMITTED FOR THE HEARING

All materials submitted by the Subcommittee on Courts, 
  Intellectual Property, and the Internet, for the record........    80

Materials submitted by the Honorable Glenn Ivey, a Member of the 
  Subcommittee on Courts, Intellectual Property, and the Internet 
  from the State of Maryland, for the record
    An article entitled, ``Breaching a Litigation Funding 
        Agreement--the Sysco/Burford Story,'' Mar. 29, 2023, 
        Bloomberg
    A letter to the Honorable Jim Jordan, of the Committee on the 
        Judiciary from the State of Ohio; the Honorable Jerrold 
        Nadler, Ranking Member of the Committee on the Judiciary 
        from the State of New York; the Honorable Darrell Issa, 
        Chair of the Subcommittee on Courts, Intellectual 
        Property, and the Internet from the State of California; 
        and the Honorable Henry C. ``Hank'' Johnson, Ranking 
        Member of the Subcommittee on Courts, Intellectual 
        Property, and the Internet from the State of Georgia, 
        from the Council for Innovation Promotion (C4IP), Jun. 
        12, 2024
A statement from the International Legal Finance Association 
  (ILFA), Jun. 12, 2024, submitted by the Honorable Henry C. 
  ``Hank'' Johnson, Ranking Member of the Subcommittee on Courts, 
  Intellectual Property, and the Internet from the State of 
  Georgia, for the record
Materials submitted by the Honorable Darrell Issa, Chair of the 
  Subcommittee on Courts, Intellectual Property, and the Internet 
  from the State of California, for the record
    A statement from the American Property Casualty Insurance 
        Association (APCIA), Jun. 12, 2024
    A letter to Honorable Jim Jordan, of the Committee on the 
        Judiciary from the State of Ohio; the Honorable Jerrold 
        Nadler, Ranking Member of the Committee on the Judiciary 
        from the State of New York; the Honorable Darrell Issa, 
        Chair of the Subcommittee on Courts, Intellectual 
        Property, and the Internet from the State of California; 
        and the Honorable Henry C. ``Hank'' Johnson, Ranking 
        Member of the Subcommittee on Courts, Intellectual 
        Property, and the Internet from the State of Georgia, 
        from Jonathan Stroud at Unified Patents, from Jonathan 
        Stroud General Counsel, Unified Patents, Jun. 10, 2024
    An article entitled, ``Some Third-Party Litigation Funders 
        Pose a Threat to US Security,'' Apr. 7, 2023, Howard 
        McKeon, former Chair of the House Armed Services 
        Committee, Bloomberg
    A letter to the Honorable Darrell Issa, Chair of the 
        Subcommittee on Courts, Intellectual Property, and the 
        Internet from the State of California, and the Honorable 
        Henry C. ``Hank'' Johnson, Ranking Member of the 
        Subcommittee on Courts, Intellectual Property, and the 
        Internet from the State of Georgia, from Cisco Systems, 
        Inc., Jun. 11, 2024
    A report entitled, ``Foreign Funded NGO at Center of Anti-
        Fossil Fuel Activism,'' Center for Climate Integrity 
        (CCI)
    A statement from The National Association of Mutual Insurance 
        Companies (NAMIC), Jun. 12, 2024
    A statement from the U.S. Chamber of Commerce Institute for 
        Legal Reform (ILR), Jun. 12, 2024
    A letter to the Honorable Darrell E. Issa, Chair of the 
        Subcommittee on Courts, Intellectual Property, and the 
        Internet from the State of California, and the Honorable 
        Henry C. ``Hank'' Johnson, Jr., Ranking Member of the 
        Subcommittee on Courts, Intellectual Property, and the 
        Internet from the State of Georgia, from The U.S. 
        Manufacturers Association for Development and Enterprise 
        (USMADE), Jun. 12, 2024
    An article entitled, ``Intel is being targeted by patent 
        trolls. We need to know who holds the purse strings,'' 
        Jun. 12, 2024, Patrick Tiberi, former Member of Congress, 
        President and CEO of the Ohio Business Roundtable, The 
        Columbus Dispatch
    A letter to the Hon. Merrick B. Garland, Attorney General, 
        U.S. Department of Justice, the Hon. Lisa O. Monaco, 
        Deputy Attorney General, U.S. Department of Justice, and 
        Mathew G. Olsen Assistant Attorney General, National 
        Security Division, U.S. Department of Justice, from 14 
        State Attorneys, Dec. 22, 2022
    A letter to the Honorable Darrell E. Issa, Chair of the 
        Subcommittee on Courts, Intellectual Property, and the 
        Internet from the State of California, and the Honorable 
        Henry C. ``Hank'' Johnson, Jr., Ranking Member of the 
        Subcommittee on Courts, Intellectual Property, and the 
        Internet from the State of Georgia, from the National 
        Association of Manufacturers (NAM), Jun. 12, 2024

                                APPENDIX

A statement for the record from the High Tech Inventors Alliance 
  (HTIA), Jun. 14, 2024, submitted by the Honorable Darrell E. 
  Issa, Chair of the Subcommittee on Courts, Intellectual 
  Property, and the Internet from the State of California

                 QUESTIONS AND RESPONSES FOR THE RECORD

Questions submitted by the Honorable Darrell E. Issa, Chair of 
  the Subcommittee on Courts, Intellectual Property, and the 
  Internet from the State of California, the Honorable Scott 
  Fitzgerald, a Member of the Subcommittee on Courts, 
  Intellectual Property, and the Internet from the State of 
  Wisconsin, and the Honorable Laurel Lee, a Member of the 
  Subcommittee on Courts, Intellectual Property, and the Internet 
  from the State of Florida, for the record
  Response to questions from Paul Taylor, Visiting Fellow, 
      National Security Institute, George Mason University; 
      Donald Kochan, Professor of Law, Executive Director of the 
      Law and Economics Center, Antonin Scalia Law School, George 
      Mason University
  Response to questions from the Hon. Bob Goodlatte, former U.S. 
      Representative (VA-6); Chair of the House Judiciary 
      Committee; Chair of the Subcommittee on Intellectual 
      Property, Competition, and the Internet
  Response to questions from Donald Kochan, Professor of Law, 
      Executive Director of the Law and Economics Center, Antonin 
      Scalia Law School, George Mason University
  Response to questions from Victoria Sahani, Associate Provost 
      for Community and Inclusion, Professor of Law, Boston 
      University

 
                 THE U.S. INTELLECTUAL PROPERTY SYSTEM
                 AND THE IMPACT OF LITIGATION FINANCED
                      BY THIRD-PARTY INVESTORS AND
                            FOREIGN ENTITIES

                              ----------                              


                        Wednesday, June 12, 2024

                        House of Representatives

           Subcommittee on Courts, Intellectual Property, and

                              the Internet

                       Committee on the Judiciary

                             Washington, DC

    The Subcommittee met, pursuant to notice, at 2:30 p.m., in 
Room 2141, Rayburn House Office Building, the Hon. Darrell Issa 
[Chair of the Subcommittee] presiding.
    Present: Representatives Issa, Massie, Fitzgerald, Cline, 
Lee, Fry, Johnson, Nadler, Ross, Lofgren, and Ivey.
    Mr. Issa. The Subcommittee will come to order.
    Without objection, the Chair is authorized to declare a 
recess at any time.
    We welcome everyone here today to a hearing on third-party 
litigation funding and intellectual property.
    I now recognize myself for an opening statement.
    It's an odd combination of third-party litigation and 
intellectual property, and to say the least, third-party 
litigation, or investing in litigation, is, in fact, not 
limited to intellectual property. However, because of the large 
awards that are possible and the proliferation of troll 
activity, it is, in fact, one of the most lucrative and growing 
areas.
    These groups often do so for good and legitimate reasons. 
It pays well. The law firms do it because it limits their risk. 
There's only an upside, no downside. Whether they win or lose, 
they know that their fees will be paid. When they win a portion 
of the profits will be split. Everyone wins, except, of course, 
the defendants who often find themselves with a settle-rather-
than-go-to-court situation even when innocent.
    However, there are newer forms of third-party litigation 
that present particular concerns, and I say this because we are 
not here to eliminate third-party litigation. We are not here 
to eliminate people who need to have investors to protect their 
intellectual property rights or any other event that has 
happened to them. There are plenty of groups who, in fact, 
specialize in helping people assert their rights.
    However, with the growth of nonpracticing entities known as 
patent trolls engaged in meritless litigation campaigns, we see 
vast settlements by asserting a wide swath of low-quality 
patents.
    More importantly, and most importantly for today, we see 
and have documented instances of foreign funding from China, 
Russia, and other sources who use shell companies to hide where 
they come from and what their meaning may need to be. For 
example, Huawei, a company that cannot sell in the United 
States, in fact, can both invest in the United States and 
assert their patents. That means that they can, in fact, stifle 
the growth of fifth generation, or 5G, advancement in the 
United States, while freely doing whatever they want in their 
home country and around the world.
    We've also seen that foreign control patent trolls like 
VLSI win billions of dollars in damages from American companies 
on weak patent infringement claims. While some States in 
Federal Courts have considered and adopted measures to require 
at least a level of transparency, third party, or TPLF, is not 
regulated by Federal law. This Committee looks to change that.
    Right now, insurance agreements and other financials of 
defendants are discoverable. I want to reemphasize that. If I 
am insured, and a plaintiff comes, one of the first pieces of 
discovery is they want to know how deep my pockets are and how 
deep my insurance coverage is, because that may very well 
dictate what they're willing to settle for. They get 
transparency. However, the courts, with rare exceptions, have 
not asked for any discoverability as to the true plaintiffs, 
meaning the investors.
    That's why it is time for Congress to take a look and, in 
fact, look at what disclosure and transparency is needed to 
stem the tide of TPLF abuse. I hope to gain constructive 
feedback on this topic today, but let there be no doubt, we 
know already there is a growing problem. We know that we have 
to find a reasonable and balanced solution.
    Last, as we will hear from our witnesses, it is extremely 
important that we not stifle the ability of small inventors to 
find partners to help fund the defense of their intellectual 
property. If you're willing to fund a small inventor, why are 
you not willing to be stated as a supporter and funder of that 
small inventor?
    With that, it's my pleasure to recognize the Ranking 
Member, Mr. Johnson, for his opening statement.
    Mr. Johnson. Thank you, Mr. Chair.
    We've all heard this story again and again. A little guy, 
patent owner, small business guy, begins talks with a large 
corporation, a big business, a national corporation, maybe even 
a multinational corporation. They engage in negotiations about 
the little guy's invention. The little guy inventor shares 
documents and all kinds of secret information about the 
product.
    Then, when it seemed like everything was looking so 
positive for the little guy, radio silence from the 
corporation, don't hear anything from them, can't get your 
calls returned, just radio silence. Months later, small 
inventor wakes up, sees an advertisement for product just like 
the one that he showed to that big corporation, and guess what? 
It's that same big corporation that he talked to and shared his 
secrets. Come to find out that this corporation is using 
technology that clearly infringes on the little guy's patent. 
The patent owner, being a little guy, can't do anything to stop 
it because it is far too expensive for that little guy to 
afford a multi-year patent litigation against a large 
corporation.
    In the United States, the only way to enforce your rights 
as a patent owner, in most cases, is to sue in civil court. 
Inventors themselves must monitor the market for violations of 
their property rights, and they must hire lawyers to go after 
infringers. An American patent is only as good as the owner's 
ability to police it, and in the United States today that means 
stealing a patent is easier than ever. After the America 
Invents Act was passed into law, even the worthiest of patent 
claims became procedurally difficult to pursue.
    As a result, patent attorneys largely stopped taking cases 
on contingency basis because of the small likelihood of 
success. Corporations, confident that they could rarely be 
sued, began risking efficient infringement, as it's called, 
where a business infringes on a patent because of the reduced 
likelihood of ever being held accountable for doing so. 
Inventors left without recourse began turning to outside 
investors to fund their cases, so that they could access the 
justice system.
    Third-party litigation funding is increasingly being used 
to manage risks and absorb the astronomical cost of patent 
cases. In these situations, investors uninvolved in the 
litigation provide financing in exchange for a percentage of 
the final award. If the inventor does not win, they have no 
obligation to pay the investor back, because it is difficult 
for infringed parties to overcome the financial hurdles just to 
get to the courtroom. Outside nonrecourse funding has become a 
tool to allow some of these cases to move forward.
    In 2022, for example, inventor Michael Coffman won a 
judgment for Microsoft's infringement on his patent. For five 
years, he knew the infringement was occurring, but he was 
unable to cover the significant cost of pursuing the company in 
court until he received funding from Woodsford, which is an 
Australian litigation funding firm.
    Tort reform advocates often speak as though patent 
litigation is like two giants fighting, but in reality, these 
cases are more like David and Goliath, and many large 
corporations would like to keep it that way. We're here today 
because big business does not want to be brought to court, not 
for the patents they infringe and not for any of the other 
harms against everyday Americans.
    The assault on third-party litigation funding, the tort 
reform movement, is against the practice, third-party 
litigation funding. The scare tactics and fear-mongering 
rhetoric we hear in this debate are designed to compel changes 
to our third-party litigation funding system that would prevent 
individuals from accessing the justice system when they need it 
most.
    One of those scare tactics has been raising the specter of 
the threat of China to our intellectual and national security 
systems. The only solution, they claim, is extensive 
transparency measures that would give defendants clear 
advantages over funded plaintiffs. We've had multiple hearings 
about the threat to our intellectual property from China, and 
we know how the Chinese Government is conducting economic 
espionage. Patent experts agree that funding long term--excuse 
me, the funding long-shot patent litigation cases is not one of 
them.
    I'm committed to protecting our intellectual property from 
foreign governments seeking to steal it, which is why I am an 
advocate for a strong U.S. patent system where Americans can 
pursue their claims. It is also why I supported President 
Biden's CHIPS Act, and his Administration's work to raise 
tariffs on Chinese technological products and prevent China 
from accessing advanced AI chips made from U.S. intellectual 
property.
    With the deck stacked against inventors in the U.S. patent 
system today, nearly every claim has become a long shot, a 
series of Davids going up against Goliaths. While third-party 
funding has become essential to leveling the playing field by 
allowing just a few of the meritorious infringement claims to 
go forward, we should not think of it as a panacea. The only 
way to fix systemic problems in this system is through reforms 
that make the justice system more accessible and ensure that 
meritorious claims have a chance.
    I thank the witnesses for being here today, and I yield 
back the balance of my time.
    Mr. Issa. I thank the gentleman.
    We now recognize the Ranking Member of the Full Committee, 
Mr. Nadler, for five minutes.
    Mr. Nadler. Thank you, Mr. Chair.
    Mr. Chair, access to justice takes many forms. 
Unfortunately, so do efforts by large corporate interests to 
create barriers to justice for individuals in small businesses 
who seek to hold them accountable. Today, we are examining 
proposals to restrict third-party funding of litigation, the 
latest attempt to slam the courthouse doors shut to all but the 
most wealthy and powerful.
    Third-party litigation funding is an arrangement in which 
an entity unrelated to a case agrees to pay some or all the 
litigation fees for a plaintiff or a defendant in exchange for 
a share of the potential award. Unlike a bank loan, in 
nonrecourse litigation funding, the recipient only owes money 
in return if they win their case or otherwise collect an award. 
These third parties can be individual investors, but more 
often, they are larger litigation funders, venture capital 
firms, or hedge funds, to name a few.
    There are also many ways to finance litigation. Investors 
can put their money into a single case, or even invest in a 
firm's portfolio of litigation. Funding from third parties has 
been used increasingly over the last 10 years to pay for the 
astronomical amount of money needed to enforce a patent against 
an infringing corporation. Even then, only a select few 
potential cases are backed by third parties.
    Litigation funders are selective about the lawsuits they 
take because they seek to pursue claims that have the best 
chance of winning, and ultimately, they take only a small 
percentage of those cases presented to them. Concurrent with 
the increase in third-party funding, litigation in the patent 
arena has steadily declined. Studies of all court filings have 
seen a trend of fewer cases each year since 2013 when 6,497 
claims were filed. In 2023, for example, only 3,111 patent 
pleadings were filed, less than half the number from 10 years 
earlier.
    It is harder than it has ever been to take a corporation to 
court. The third-party funding has helped to ensure that some 
of these claims are heard, which is exactly why these corporate 
interests now seek to limit this practice. Today's hearing is 
simply tort reform by another name, and we have all seen the 
show before. Over the years, my colleagues across the aisle 
have repeatedly brought Chamber of Commerce-backed legislation 
for consideration before this Committee, from the so-called 
Lawsuit Abuse Reduction Act to the fairness in class-action 
lawsuits legislation and everything in between.
    Each time we are told the businesses are suffering from the 
scourge of pesky plaintiff litigation; whereas, in reality, 
corporations simply do not want to be held accountable when 
they produce products that make people sick, violate employees' 
Constitutional rights, or steal patents from investors.
    The Chamber's attacks on third-party litigation funding are 
more of the same. Third-party litigation funding levels the 
playing field by helping individuals who cannot afford to bring 
their case when they are injured by a wealthy corporation. The 
odds are stacked against individual plaintiffs when they go up 
against businesses with seemingly endless resources, who can 
litigate until claimants run out of money or are forced to 
settle for pennies of what their claim is worth.
    While this hearing may be specific to patent cases, 
Republicans have introduced legislation that would affect all 
third-party funding arrangements for plaintiffs. Investors--I'm 
sorry, inventors and businesses that own an infringed patent 
should be able to reach the courthouse doors, as should every 
other injured plaintiff. The solutions in search of a problem 
offered by my Republican colleagues today would make it harder 
for them to do. Forcing only victims to comply with overly 
burdensome disclosure requirements, for example, would make it 
harder for prospective plaintiffs to fund and litigate their 
cases.
    In addition to acting as a deterrent for large investment 
firms with many investors, the proposed transparency measures 
would provide a strategic advantage to the defendant. A 
corporate defendant with insight into a victim's financing can 
strategically delay a case, bury the victim in paperwork, or 
pressure settlement of a case for far less than a victim or 
their family is owed.
    Finally, over the last year, I have heard my Republican 
colleagues repeatedly and baselessly allege that we have a two-
tiered system of justice in this country. It is incredibly 
ironic that a two-tiered system of justice is exactly what 
advocates for so-called tort reform are seeking. A two-tiered 
system of justice exists when inventors and businesses cannot 
afford to enforce their property rights, but beamers (ph) can 
still sue one another for infringement.
    It exists when citizens poisoned by their drinking water 
cannot hold companies polluting our waterways accountable, but 
those companies can go to court to challenge our environmental 
regulation. A two-tiered system of justice exists when everyday 
Americans are cheated out of their savings with no affordable 
recourse, but big banks can pay billions to settle with 
regulators. The harder it is for Americans to reach the 
courthouse doors, the closer we are to this reality.
    I appreciate our witnesses for appearing today.
    I particularly want to welcome our former colleague, Chair 
Goodlatte, back to the Judiciary Committee. During his time as 
Chair of this Committee, we did not agree on everything, and I 
am sure we won't today, but we were able to get important work 
done together, including the U.S.A. FREEDOM Act in 2015 and the 
Music Modernization Act in 2018. These landmark pieces of 
legislation were so impactful because they were the product of 
bipartisan cooperation. I hope we can return to doing work like 
that on this Committee going forward, and I yield back the 
balance of my time.
    Mr. Issa. I thank the gentleman. Without objection, all 
opening statements will be included in the record, and I'd like 
to now introduce our distinguished panel of witnesses, 
beginning with the Chair, whose picture is on the wall, Chair 
Bob Goodlatte. Mr. Goodlatte is the former Chair of the 
Judiciary Committee, former Chair of the Ag Committee, and a 
distinguished former Member from Virginia's 6th Congressional 
District, who served for many years, and as the Ranking Member 
said, developed a body of expertise on issues including the 
ones before us today.
    Mr. Paul Taylor, a visiting fellow at the National Security 
Institute at George Mason University, previously served for 
some long 20 years at the side of many of us here on the 
Ccommittee and is, in fact, an expert on the subject. Mr. 
Taylor has published widely on several issues, including on 
third-party litigation.
    Mr. Donald Kochan. Mr. Kochan is a Professor of Law and 
Executive Director of Law and Economic Center at the George 
Mason University Antonin Scalia School of Law. Professor 
Kochan's scholarship focuses on property law, constitutional 
law, administrative law, and law and economics.
    Ms. Victoria Sahani--I knew I'd miss it--I would go 
slowly--Sahani is an Associate Provost of Community and 
Inclusion and a Professor of Law at the Boston University 
School of Law. The Professor's scholarship focuses on 
attribution law and third-party litigation and funding law.
    I want to welcome our witnesses here today. As Chair 
Goodlatte did many times, I would ask that all of you rise to 
take the oath for your statements here today.
    Do you solemnly swear under penalty of perjury that the 
testimony you're about to give is true and correct to the best 
of your knowledge, information, and belief so help you God.
    Please be seated.
    Let the record reflect that all witnesses answered in the 
affirmative.
    Please, all of you note that your testimony in its entirety 
will be included in the record, and so that gives you the 
opportunity perhaps to stay at or below five minutes, 
recognizing that every word that you have in your written 
statement, plus additional material, whether extraneous or not, 
will be included in the record.
    With that, I recognize Chair Goodlatte.

              STATEMENT OF THE HON. BOB GOODLATTE

    Mr. Goodlatte. Chair Issa, Ranking Member Johnson, Ranking 
Member Nadler, and the Members of the Subcommittee, thank you 
for the opportunity to testify today about an urgent and 
growing threat to our intellectual property system. My 
testimony today represents my personal opinions and not those 
of any other organization with which I am affiliated.
    The rise of third-party litigation financing, or TPLF, has 
turned American jurisprudence on its head. Right now, very few 
Federal Courts require plaintiffs to disclose third parties 
that are funding their litigation or ownership interests that 
may have a stake in the outcome of their case. Like all 
investors, these entities are hoping to generate a return, 
specifically a portion of a settlement or verdict award.
    TPLF is now a $15.2 billion industry in the United States. 
Each day, hedge funds, big banks, and foreign sovereign wealth 
funds invest in lawsuits against productive American companies. 
The intricacies of IP litigation present these financiers with 
a ripe opportunity. By operating through shell companies called 
patent trolls, investors face little risk. Inflated patent 
infringement damages verdicts for hundreds of millions or even 
billions of dollars give them a high upside. As much as 30 
percent of all patent lawsuits are now funded by third-party 
entities.
    Twenty percent of all new litigation funding capital is 
directed toward patent cases. In most lawsuits, these entities 
operate in the shadows, ensuring they can engage in abusive 
litigation free from the light of public scrutiny. The entire 
TPLF business model is anticompetitive by nature. The investors 
are not creating jobs, growing our economy, or doing anything 
to further American innovation. Their abusive tactics, however, 
slow down companies that are generating economic growth.
    At times, the interests of investors may also come into 
conflict with the interests of the plaintiffs and prevent 
plaintiffs and defendants from settling. Third-party funders 
claim to not be involved in legal strategy. We have seen 
reporting in publications like The Wall Street Journal 
investigating conflicts between funders and plaintiffs, and 
capturing an industry where investors influence case strategy 
to serve their own objectives.
    What's worse, there is evidence that the lack of disclosure 
is giving America's adversaries a window to target critical 
industries and productive companies. In December 2022, 14 State 
Attorneys General sent a letter to Attorney General Merrick 
Garland requesting information about what the Justice 
Department has done, or is currently doing, to ensure our 
courts are protected from TPLF-driven foreign interference. 
Their letter raised a number of valid concerns, including that 
foreign countries like China and Russia could use TPLF to fuel 
targeted lawsuits designed to weaken U.S. national defense 
companies in the business of protecting our national security 
interests.
    Because of the third-party funding disclosure requirements 
in the District Court of Delaware, one of the few venues that 
does require disclosure, we learned that a Chinese firm, 
Purplevine IP, is bankrolling patent infringement lawsuits 
targeting technology companies in the U.S. Courts.
    In March of this year, another report uncovered that 
sanctioned Russian oligarchs are investigating millions of 
dollars in lawsuits in our courts even though they are supposed 
to be prohibited from doing business in the United States.
    This is what we know. At the core of our predicament, 
however, is that without the disclosure requirements we cannot 
know the full picture, who is funding these efforts, and which 
industries or companies are at risk of finding themselves on 
the receiving end of an abusive lawsuit.
    This must end. The American justice system is the model the 
rest of the world follows. At their very best, courts work to 
resolve disputes with cases decided on the merits of the 
opposing arguments. TPLF undermines that model, treating our 
courts as another investment vehicle.
    Good news is that there are steps we can take to fix the 
problem, such as requiring disclosure of third-party litigation 
funding in civil cases, including Federal class actions in 
multidistrict litigation proceedings where the third-party 
funder has a right to receive any payment that is contingent in 
any respect on the outcome of the civil action by settlement, 
judgment, or otherwise, requiring funders to disclose 
litigation funding from foreign entities and a foreign 
government and that government's role in the litigation to 
other parties, the court, and the U.S. Government.
    Of course, Speaker Johnson and Senators Kennedy and Manchin 
have introduced the Protecting Our Courts from Foreign 
Manipulation Act to end overseas meddling in American 
litigation.
    These steps should all be on the table. Thank you again for 
your invitation to testify today, and I look forward to your 
questions.
    [The prepared statement of the Hon. Goodlatte follows:]
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    Mr. Issa. Thank you, Mr. Chair.
    Mr. Taylor.

                    STATEMENT OF PAUL TAYLOR

    Mr. Taylor. Thanks to the Committee for inviting me here 
today.
    When lawyers fund their own cases, they do so with an 
understanding that they owe their clients a duty of loyalty; 
that is, lawyers are supposed to respect the wishes of their 
clients, including how their client views justice playing out 
in the case. Often, lawyers get paid a percentage of the money 
awarded, but importantly, when lawyers fund their own cases, 
they do so with one eye on their ability to recover their costs 
and make a profit and the other eye on achieving what their 
clients see as a just result.
    Today, lawyers are increasingly entering into agreements 
with third parties who will fund their lawsuits under a duty to 
maximize not justice, but their own in their investors' profits 
from settlements or awards, using contracts that have terms 
that, to some degree, take control away from lawyers and their 
clients and give it to their financial backers.
    Now, some might say that third-party litigation funders are 
just private businesses that should be allowed to operate in a 
free market, but they'd be wrong because third-party litigation 
funders are not private businesses, in the sense that their 
entire business model is based on leveraging the power of 
government through lawsuits.
    Here's how: If a litigation funder wanted to pay me to sue 
any of the Members here for some bogus reason, all I'd have to 
do is pay a small filing fee to a court, so I could hand you a 
piece of paper with a complaint.
    You might read it and think it's absurd, but you couldn't 
toss it away and ignore it, because if you ignored it, I'd win 
my lawsuit by a default judgment that is enforced by the 
government. You don't want that to happen, so you'd have to 
hire a lawyer and spend a lot of time and money to finally win 
your case. At some point, I could say to you, hey, maybe my 
case is bogus, but let's get real. This case would cost you 
$10,000 or whatever to defend yourself and win, but you'd be 
out that money because we don't have a ``loser pays'' rule in 
America. Why don't you just pay me $7,000 now, I'll pay my 
funders their cut, and then I'll go away, and that way you'll 
save $3,000 out of the $10,000, it would've cost you to defeat 
my claim in court.
    It's legal extortion, sure, but it's the way the system 
works. Rule XI of the Federal rules of civil procedure is no 
help because it requires victims of frivolous lawsuits to spend 
even more money to get their case declared frivolous, and even 
then, judges aren't required to make the victims whole.
    No truly private business relying solely on voluntary 
agreements in a free market could rely on government power to 
its advantage in that way, but third-party litigation funders 
can and do in fulfilling a duty that breaches the attorney's 
duty of loyalty and puts profit in the eyes of the funding 
investors in place of justice in the eyes of the client, which 
leads to absurd results.
    A lawsuit brought by food distribution company Sysco 
against food suppliers was funded by third parties. At a 
certain point in the litigation, Sysco wanted to settle, but it 
had signed a litigation financing agreement that stipulated 
Sysco, quote, ``shall not accept a settlement offer without the 
funder's prior written consent,'' and the funder said, ``Sysco 
was settling for too little,'' with the funder's chief 
investment officer even writing an email staying, quote, ``We 
are going to have to sue Sysco, it seems. They are about to 
breach our contract.''
    OK, so that's bad, but why are we talking about this in the 
patent Subcommittee? Well, the American patent litigation 
system includes additional dysfunctions that third-party 
financiers can leverage to maximize their profits at the 
expense of innocent parties, and here's how that works: In 
patent litigation funders work with so-called patent trolls, 
companies that don't make any products themselves but instead 
buy from others' old, low-quality patents that likely shouldn't 
have been granted in the first place, and they use them to 
threaten productive companies with infringement suits.
    Patent trolls have an unfair advantage. Once granted, even 
patents that were not properly granted by the Patent and 
Trademark Office are legally deemed to have a presumption of 
validity. That means that a party defending against an 
infringement claim has to show the patent at issue is invalid 
by clear and convincing evidence, which is a much higher 
standard than the usual preponderance of the evidence, which is 
all the patent troll needs to meet and win the infringement 
claim.
    Think about what that means in a real-world jury room in a 
case involving some very complex technology. If any one of us 
were on that jury, we would likely be very confused. If jurors 
are confused about a technical issue, they'll find it difficult 
to reach any decision. Since they would've to reach much 
further to get to clear and convincing evidence and invalidate 
an improperly granted patent, they'll have the incentive to tap 
out at the much lower standard of preponderance of the evidence 
and decide in favor of the patent troll in their funder's 
infringement claims. So, even innocent innovators knowing this 
are incentivized to settle lawsuits involving complex 
technologies. The third-party funders turn patent courts into 
casinos where the rules are rigged in their favor.
    Now, as former Secretary of Defense Donald Rumsfeld said,

        There are known/unknowns; that is to say, we know there are 
        some things that we do not know. And the issue of third-party 
        litigation financing by foreign enemies is a known/unknown of a 
        dangerous kind.

    Before the terrorist attacks of 9/11, Federal agencies knew 
of al-Qaeda's existence and its intent to harm America, but not 
the specifics of its operation and capabilities. Today, patent 
trolls and their funders can be foreign enemies who extort 
money through our legal system as a means of syphoning 
resources away from American industries, including defense 
industries.
    We know foreign enemies like China have the will and the 
way to use third-party litigation financing to hurt America; we 
just don't know the extent of it.
    To conclude, a couple years ago, Chief Judge Connolly of 
the district of Delaware issued standing orders mandating the 
disclosure of third-party litigation financing in his 
courtroom. That simple disclosure requirement had dramatic 
results. Third-party litigation financing companies dismissed 
their own funded patent cases in the court simply because they 
didn't want to reveal their financing arrangements. Let that 
sink in for a moment.
    Judge Connolly simply cast a light in the direction of the 
litigation funders, and the litigation vanished just like that. 
Congress, too, could dramatically improve the justice system by 
simply exposing third-party litigation agreements.
    [The prepared statement of Mr. Taylor follows:]
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    Mr. Issa. Thank you.
    Mr. Kochan.

                   STATEMENT OF DONALD KOCHAN

    Mr. Kochan. Chair Issa, the Ranking Member Johnson, the 
Ranking Member Nadler, and distinguished Members of the 
Subcommittee, thank you for this opportunity to provide 
testimony today on the U.S. intellectual property system and 
the impact of litigation financed by third-party investors and 
foreign entities, and the chance to submit my written 
testimony, which I incorporate here by reference.
    My name is Donald Kochan. I am a Professor of Law and 
Executive Director of the Law & Economics Center at George 
Mason University's Antonin Scalia Law School. Across my now 22 
years in academia, I have extensively researched, studied, and 
written scholarly analysis of our civil justice system. I've 
also taught courses on Federal civil procedure, Federal Courts, 
and State Constitutional law, among others.
    My research in law and economics also contributes to my 
understanding of the incentive's problems involved in third-
party litigation financing, TPLF for short, ongoing. My 
testimony today represents my personal expert opinions and not 
those of the George Mason University, the Law & Economics 
Center, the Antonin Scalia Law School, or any other 
organization with which I am affiliated.
    Our Founders designed the finest court system in the world. 
Individuals can invest and innovate because they know and trust 
that the court system will be there as a forum for the neutral, 
predictable resolution of true cases and controversies between 
actual litigants. Only individuals who need the courts are 
supposed to be involved in cases. Courts should not be the--or 
should be the guarantors of the rule of law and accessed only 
by those seeking justice for personal wrongs or to clarify 
personal rights.
    The courts are successful at fulfilling their purpose when 
they can promise to be uncorrupted by private incentives in 
their management and uncorrupted functionally by nonlitigant 
speculators wishing to exploit the courts for private gain. 
Court systems do not work well if we create incentives to flood 
the courts, draining resources available for traditional 
consumers of courts.
    Yet, the new TPLF infects the court system with precisely 
those kinds of features, threatening to convert the civil 
justice system into a speculative market, flooding the courts 
with cases gambling on potential payouts. Courts should be 
insulated from normal market forces such that courts will be 
available to the traditional market to use in a reliable way. 
This is why traditional defenses of markets, from free market-
oriented individuals who favor innovations in finance, and 
discourage limitations on vehicles for investment, do not hold 
true in the ``courts as a market'' narrative that TPLF 
encourages.
    Facing this, legislation should be guided by a principle 
that preserves the integrity of courts. We need to maintain the 
civil justice system outside the market if we are to preserve 
the civil justice system as a predictable, neutral, reliable, 
and accessible system that serves the market. Putting this 
another way, to preserve the effectiveness of our Nation's 
courts to serve as the necessary and neutral forums that 
facilitate the market, the court system must be insulated from 
market forces.
    The third-party litigation funding is used as a vehicle for 
investment, or as a means of achieving other strategic goals of 
the funder, including harming strategic or geopolitical 
competitors or using the courts and the litigation discovery 
process as a conduit to gain access to sensitive trade secrets 
and confidential intellectual property that otherwise would be 
shielded from view.
    When the courts are open to TPLF, funders logically include 
foreign influencers who will use the opening to weaken the 
strength of our civil justice system for their own geostrategic 
gain, or see it as a way to cut America's innovative spirit by 
investing in litigation that destabilizes our protections for 
intellectual property or litigation that simply imposes costs 
on innovators in a manner that gives a competitive advantage to 
the investors behind the funders.
    Despite these clearly distinct incentives, TPLF funders 
regularly propagandize TPLF as an access to justice issue to 
try to gain supporters, obfuscating TPLF's true contemporary 
features by attempting to place a public interest mask on a 
massive private profit activity, a type of phenomenon regularly 
analyzed in law and economics. It's important not to be 
deceived by that mask.
    The investment mark of a TPLF is still a pretty dark black 
box. The default rule operating in our system is that 
disclosure is not required. There are only a handful of judges 
and a few States that now require it. Mostly parties and judges 
themselves have no idea whether or who is bankrolling the 
litigation.
    Consequently, there are many known/unknowns, as my 
colleague mentioned, things we know or do not know about the 
market, like the location, scope, frequency, purposes, and 
backer identity of such funding. Because of the lack of 
transparency, there are also, many unknown/unknowns, things 
that we do not know, and that should scare us given the 
potential influence these external forces can have on the 
courts.
    On one last note, lessons from the study of law and 
economics predict that funders will not just have an interest 
in increasingly funding specific cases for immediate return. 
They also have an independent incentive to fund cases solely to 
transform precedent to their advantage or to impose costs 
through the change in law. This can include weakening 
intellectual property rights that favor their competitors or 
that are important to the United States economic advantages of 
a foreign nation.
    Similarly, those TPLF long-view holders will understand 
that it is beneficial to expand the size, scope, and frequency 
of tort liability because they can increase their payouts if 
there are more payors, i.e., more legally liable parties. They 
will invest in loosening constraints on the supply of favorable 
judgments, irrespective of the legal or policy merits of such 
an expansion.
    Thank you for examining this issue. Thank you for the time 
to speak. Thank you again for the opportunity to provide this 
testimony. I look forward to your questions.
    [The prepared statement of Mr. Kochan follows:]
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    Mr. Issa. Thank you.
    Ms. Sahani.

                  STATEMENT OF VICTORIA SAHANI

    Ms. Sahani. Good afternoon, Chair Issa, the Ranking Member 
Johnson, the Ranking Member Nadler, and the Members of the 
Subcommittee. Thank you for this opportunity to testify today.
    My name is Victoria Shannon Sahani. I serve as Associate 
Provost for Community and Inclusion at Boston University, and 
as Professor of Law at Boston University School of Law. I am 
honored to have the opportunity to share more than 12 years of 
expertise in third-party funding, and more than 15 years of 
experience in international arbitration involving global 
entities and cross-border disputes.
    In addition to publishing numerous law review articles, 
book chapters, and essays on third-party funding, I coauthored 
the first book in the world on third-party funding, titled, 
``Third-Party Funding in International Arbitration.'' I also 
served on the global Third-Party Funding Task Force from 2013-
2018, and contributed to drafting the task force's 2018 final 
report.
    I am honored to be invited to contribute my expertise to 
this critically important dialog. My testimony reflects my 
personal research and views, not the views of Boston University 
or any other organization.
    I will assert three main points: First, the third-party 
litigation funding industry serves three separate populations: 
Consumer third-party funding primarily for individual parties; 
commercial third-party funding primarily for business parties; 
and law firm financing. There is some overlap between these 
three populations, and all three populations can benefit from 
third-party funding.
    A litigant's inability to afford access to the Federal 
Courts, or access to experienced legal counsel due to financial 
constraints represents a fundamental flaw in our justice 
system. Third-party funding provides funding for both consumer 
and commercial litigants to adjudicate their rights and to law 
firms, seeking working capital for their case portfolios. This 
is also true in patent litigation where patent holders and 
their legal counsel can benefit from the third-party funders' 
resources to vindicate patent rights.
    Second, third-party funding is one tool that can assist 
with expanding access to justice, but it is not a panacea. 
Third-party funding illuminates but does not fix the cracks in 
our justice system that we as a society must repair. 
Nevertheless, the potential for third-party funding to deliver 
access to justice more broadly is even greater than we 
currently realize.
    As I have described in my research, the next frontier for 
increasing access to civil justice involves a multifaceted 
approach, including encouraging pro bono or lower cost funding 
as a subset of each for-profit funder's portfolio, providing 
access to justice for plaintiffs with nondamages claims or 
defenses, including patent holders seeking nonmonetary 
declaratory determinations of patent validity or infringement, 
and providing access to justice for parties with legitimate 
claims that are exceedingly expensive or might be difficult to 
prove.
    Third-party funding can and should be on the menu of 
options available to legitimate parties while we work 
simultaneously to make justice more affordable and accessible 
to all.
    Finally, although national security is outside my area of 
expertise, I understand that concerns about national security 
primarily stem from the fear that adversaries may use third-
party litigation funding for nefarious purposes, rather than 
fear about the existence of third-party litigation funding 
itself. We should be cautious not to shut down this new 
industry or reduce opportunities for this industry to improve 
the administration from justice out of fear.
    Third-party litigation funding is a global industry with 
legitimate, ordinary business relationships between third-party 
funders, funded clients, investors, patent holders, law firms, 
and case filings that routinely cross multiple national 
boundaries without cause for concern.
    Regulation of third-party funding in the national security 
context should be tailored to achieve clear goals and not be 
overly broad in ways that may inadvertently curtail the entire 
third-party litigation funding industry.
    Thank you again, and I welcome your questions.
    [The prepared statement of Ms. Sahani follows:]
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    Mr. Issa. I thank you.
    We now recognize the gentlelady from Florida, Ms. Lee, for 
five minutes.
    Ms. Lee. Thank you, Mr. Chair.
    I yield my time to the gentleman from California, Mr. Issa.
    Mr. Issa. I thank the gentlelady.
    I'm going to go last witness first, if you will. Ms. 
Sahani, you perhaps share with the Ranking Member some concerns 
about anything that would cause further disclosure of third-
party investors. Is that correct?
    Ms. Sahani. Thank you for the question, Mr. Chair. I think 
that disclosure is a complicated topic. There are different 
types of disclosure, different amounts of disclosure, different 
types of information--
    Mr. Issa. Would--
    Ms. Sahani. Yes.
    Mr. Issa. Would you give us the minimum disclosure you 
would support?
    Ms. Sahani. Sure. Thank you. I would support disclosure of 
the name or identity of the funder, and any relevant 
information regarding its business address or location. I think 
that is reasonable, and given my research globally, that seems 
to be the trend.
    Mr. Issa. If I could ask, if the plaintiff is allowed to 
ask for and receive, in all jurisdictions around--or all venues 
around the United States, able to receive information as to 
whether the defendant is insured, and how much that insurance 
is for. Would a similar reciprocal as to the funder's 
investment and/or return, or something along that line be 
equally the other side of the same coin?
    Ms. Sahani. Thank you for the question, Mr. Chair. My 
understanding of the rule regarding the disclosure of the 
limits on liability insurance is with respect to the merits of 
the case, and any potential damages award, which may be paid by 
the insurance policy. Third-party funders do not pay the actual 
claim awarded amount. They only pay costs. So, the disclosure 
for the purpose of insurance is for a different purpose than 
the disclosure for third-party funding agreements.
    Mr. Issa. Mr. Goodlatte, how would you feel about this 
balancing question? Because we know that there will be people 
who perhaps disagree with any transparency, and there will be 
those looking for common ground, and I'd like to seek as much 
understanding of that today as we could.
    Mr. Goodlatte. Well, I think the insurance analogy is 
actually a good one, because the parties in most jurisdictions 
are able to not only get the information that Professor Sahani 
referred to, but can also get an actual copy of the insurance 
policy. That contains a lot of useful information regarding how 
the strategy of a lawsuit will be pursued, whether you're going 
to settle the case and whether the insurance company is going 
to deduct the amount of the cost of the litigation from the 
overall coverage limit in the case.
    Mr. Issa. This is an important question. Would you repeat 
that for everyone to understand that they normally do not pay 
just for the damages, and in some cases don't pay for the 
damages at all, but they actually are paying for the defense?
    Mr. Goodlatte. Definitely. That is a very, very common 
standard for the insurance company to pay for the cost of the 
litigation, which is exactly what the third-party funder is 
doing.
    Mr. Issa. So, we are dealing with the equivalent, in your 
opinion, of the third-party litigant investor who's paying for 
the legal fees, and the insurance company who's paying for the 
legal fees, at least those two are identical?
    Mr. Goodlatte. That's right. I think for a judge, whose 
duty is to make sure there's fair and impartial administration 
of justice, and given the volume, the efficient need for that 
justice to be administered, the judge needs to know what the 
terms of that are to be able to facilitate a discussion process 
to settle the cases.
    If you don't have that information, you wind up with a 
situation like the one Mr. Taylor referred to in which the 
plaintiff in the Sysco case had a very different objective than 
the third-party funder had, and not only did that not result in 
settlement of the case, when Sysco attempted to settle the 
case, Burford stepped in and said you're violating the terms of 
our agreement.
    I think the judge and all the parties of the case, not the 
jury, not the general public, but the parties of the case need 
to know that information for the efficient and fair 
administration of justice.
    Mr. Issa. Mr. Taylor, the Chair brought up a very 
interesting point. Would you agree that even if the jury never 
hears or sees any of this, that, in fact, at a minimum the 
judge needs to know or has a right to know, and a magistrate 
who is doing the early neutral attempt at settlement would 
certainly have a right to know this or should?
    Mr. Taylor. Absolutely. In fact, the judge that's the 
leading reformer on this, Judge Connolly in the District of 
Delaware, originally decided he had to come up with a standing 
rule to disclose this sort of thing because he was having 
lawyers come up to him during cases. He was trying to discuss 
in a sidebar some potential resolution and some of the lawyers 
were not able to give him a definitive answer there, indicating 
to him that there was someone else not in the courtroom who was 
directing what was decisions that were going to be made. Now, 
that is not a good system. We need to know who is making the 
calls to negotiate fair settlements with the interests of all 
concerns represented.
    Mr. Issa. Thank you. My time is expired.
    The Ranking Member is recognized.
    Mr. Johnson. Thank you.
    I want to recognize the appearance of our good friend Bob 
Goodlatte. Always good to see you, sir.
    I want to address a question to Ms. Sahani. You stated that 
there are some disclosure requirements that you would be 
comfortable with. Those seem to be insufficient to suit the 
other witnesses. What other disclosures would they be asking 
for, and what would be your opinion of going further than just 
simply name, address, and the identifying information?
    Ms. Sahani. Thank you for the question, Ranking Member 
Johnson. This is a debate that has been going on worldwide for 
many years, actually. So, disclosure is one of the key features 
of the third-party litigation funding regulation movement 
around the world, and there's a wide variety of different types 
of disclosure that have been requested and different rules that 
exist in the international arbitration as well as the 
litigation space.
    The reasons why further information beyond the identity or 
name of the funder and, say, the address or location of the 
funder, the reasons why that other information would be 
requested would have more to do with whether or not the funder 
is, say, for instance, engaged in controlling the litigation, 
or whether the funder is trying to participate in the 
proceedings in some way, which is unusual. Most funders don't 
do this.
    In those circumstances, the judge or arbitrator in 
international arbitration that has observed such behavior 
already has power inherent in their role as judge, or inherent 
in their role as arbitrator to request further disclosure of 
the funding arrangement, and that has occurred.
    So, under the existing rules, judges or arbitrators can ask 
for more if they feel more is warranted based on the facts and 
circumstances of the case.
    Mr. Johnson. So, how would a requirement that more 
information than just simply identifying information be 
produced? Why is that harmful?
    Ms. Sahani. Thank you, Ranking Member Johnson. One of the 
reasons why it's harmful is much of the information in a 
funding agreement relates to the relationship between the 
funded party and the funder, or if it's a law firm, the law 
firm and the funder, and that can often involve limitations on 
the amount of money that the funder might invest.
    So, for example, if the opposing party were to know that 
the funder has capped the cost or expenses that they're willing 
to pay at a certain amount, then as Mr. Goodlatte, Chair 
Goodlatte mentioned earlier, that is litigation strategy to say 
they can only spend this much money of the funder's money. So, 
to know that in advance gives the opposing side a huge 
advantage, a tactical advantage that they wouldn't ordinarily 
have if the funded party just had a bank loan or was self-
funding. They wouldn't have that information. So, to require 
full disclosure of the funding agreement basically is like 
pulling back the curtain on the litigation strategy of the 
funded party.
    Mr. Johnson. The funded party is typically the smaller guy 
in the equation. Is that correct?
    Ms. Sahani. Yes. It can be--not always, but often it's the 
smaller party, the party that is viewed as either a small 
business or individual owner of a patent.
    Mr. Johnson. Now, in terms of disclosing the amount of 
insurance coverage versus the details of the funding agreement 
that the funder has with the little guy, can you talk about the 
differences between those two disclosure requirements?
    Ms. Sahani. Yes. So, the funding agreement, the disclosure 
of the funding agreement to the court is one measure of 
disclosure. There's also disclosure to the opposing side, and 
both of those disclosure provisions are common. You can see 
disclosures to the court on camera, or disclosure to the court 
and the opposing side of either, of course, the identity and 
the location of the funder. Certain jurisdictions require 
disclosure of a few provisions within the funding arrangement 
if the funding arrangement is at issue in the case, but 
otherwise, that's not requested, and that's different from the 
disclosure in the rule that Chair Issa raised with respect to 
insurance.
    Mr. Johnson. OK. Thank you.
    Unlike the Chair of the Committee, I'm going to resist the 
urge to move further than my five minutes, so I'll yield back 
the balance of my time, and I hope that I will set the example 
for the--
    Mr. Issa. Mr. Chair--or Mr. Ranking Member, you always set 
a fine example.
    With that, we go to the gentleman from Kentucky, Mr. 
Massie.
    Mr. Massie. Thank you, Chair Issa.
    Professor Sahani, so we've discussed insurance arrangements 
and bank loans, but what about venture capital? Like not 
specifically for the purposes of the lawsuit, but let's say 
they're investors, angel investors, and they're venture capital 
investors in a small company that brings a lawsuit. Is what 
we're talking about, would it encompass disclosing all those 
investments if somebody gets into a lawsuit, or is it just the 
specific financing of lawsuits?
    Ms. Sahani. Thank you so much for the question, Mr. Massie. 
I presume you mean investors in the fund as opposed to 
investors in the party, but please clarify.
    Mr. Massie. Investors--let's say a company, just a small 
startup brings a lawsuit, and they've got some investors in 
their company. I think what we're discussing today is this--I 
don't know if it's novel, but it's certainly not what a lot of 
people think of when they think of lawsuits, but what we're 
discussing today is when you have somebody who finances a 
specific lawsuit, right, and putting transparency on that. My 
question is, those transparency requirements, would they peel 
back the curtain on just investors who hold stock in the 
company, for instance?
    Ms. Sahani. Thank you for clarifying, Mr. Massie. No, the 
current disclosure rules and provisions that we've been 
discussing would not necessarily reveal investors in the 
company unless one of those investors was a third-party funder 
meeting the definition in the disclosure rule. Standard 
investors and shareholders that would not be third-party 
funders would not be covered by the disclosure rule we have 
discussed.
    Mr. Massie. Thank you very much. I'm going to yield the 
balance of my time to Chair Issa.
    Mr. Issa. I thank the gentleman.
    Mr. Kochan, you've certainly looked at the agreements we're 
alluding to in many cases. Is that correct?
    Mr. Kochan. The few that are available, yes. I would--it's 
very--
    Mr. Issa. What you're saying is, they're not often gotten 
even when they're sought?
    Mr. Kochan. Correct, because there is no requirement to 
turn them over to the court or to--unless the court decides to 
create a rule.
    Mr. Issa. So, on those that were available to you, similar 
to what the gentlelady said, were they--did they have 
limitations in what you looked at and how much they were 
willing to invest?
    Mr. Kochan. I've not seen the limitations of the 
willingness to invest. The things that have been exposed are 
the control provisions, for example, in the Sysco litigation 
that was alluded to earlier, and that is despite the fact that 
the funders regularly claim that they do not exercise control. 
As we stated, because we don't have access to the contracts, 
because there's been high resistance to providing access to 
those contracts, there cannot be any generalization as the 
funders do not exercise control, and, in fact, the few times 
we've seen them they are taking control of the litigation.
    Mr. Issa. So, let me give you a hypothetical but I think a 
fairly narrow one. If you have a contract between a law firm, 
let's say the patent holder, and the investment company, even 
if it limits the amount of money it has in it, isn't that 
simply a deal that could be renegotiated if more money was 
needed?
    Mr. Kochan. Absolutely.
    Mr. Issa. So, the fact that it might have a limitation 
doesn't mean that there is a limitation particularly if the 
investor is a Sovereign Wealth Fund, BlackRock, or some other 
large--CalPERS, some other large entity?
    Mr. Kochan. Correct. As litigation is ongoing, the calculus 
may change as to the level of expected costs or other changes 
that would lead to renegotiating of that--
    Mr. Issa. I've never had negotiation I've been in as a 
plaintiff or defendant end up with what we originally estimated 
or less. It is only the other way.
    Well, isn't it also a question of, if they put a limitation 
on it, isn't that, in fact, by definition, a form of control, 
because when that money is used up the plaintiff's investor, in 
fact, is in a position to then renegotiate the deal, or in some 
other way, control whether you settle or not?
    Mr. Kochan. Certainly. Anytime you have an opportunity to 
renegotiate or any time that the person relying on that 
contract has a need to come and ask for permission to do 
something more, that you're going to have leverage.
    Mr. Issa. Now, for both of you, sort of put your 
professor's hats on for a moment, isn't one of the basic 
principles of American law, mostly taken from the British, that 
you have a right to face your accuser? Is that pretty much what 
we all think is normal?
    Mr. Kochan. Correct.
    Ms. Sahani. Yes.
    Mr. Issa. So, if an investor, in fact, is the actual 
accuser, in other words, if it's a competitor of yours seeking 
to get information through discovery, if, in fact, it's an 
entity that you may have disagreements with, or be in direct 
competition with, and you don't know who they are, then, in 
fact, you're not being faced by your true adversary in this 
case, whether they have overt or implied control? Would that be 
fair?
    Ms. Sahani. Thank you. I think that the question is whether 
or not the entity or person financing the case is a real-party 
interest. There is arm's-length financing, there is bank 
financing through loans, there are parent corporations that 
finance the litigation of their subsidiaries all the time.
    So, the question of whether or not there is an interested 
entity that's funding versus just a financier of some sort 
would need to be answered for me to answer your question.
    Mr. Issa. Thank you. To be continued.
    We'll go to the gentlelady from North Carolina.
    Ms. Ross. Thank you, Mr. Chair.
    Thank you so much to our panel. This is a really 
fascinating subject and I think a very important one.
    We've heard quite a bit today about issues patent holders 
face in disputes over their intellectual property, on both 
sides.
    However, third-party litigation funding is not the root of 
these problems. These problems have come just from how patents 
are enforced.
    This Subcommittee, I believe, should be instead focusing on 
ways to make the PTAB a fairer venue for patent holders, and 
doing so would mean that patent holders with solid claims may 
not have to rely on third-party litigation funding.
    I introduced a bipartisan, bicameral bill with former 
Representative Buck called the PREVAIL Act. That bill would 
reform PTAB to address the high rate of patent invalidation. 
The bill would require standing for PTAB challengers and limit 
repeat petition. It would harmonize burdens of proof at PTAB 
and the Federal District Court. It would also end duplicative 
patent challenges by requiring a party to choose to sue either 
in PTAB or the District Court, because some people do both 
venues at the same time and roll the dice.
    These measures would be more narrowly tailored to address 
the high invalidation rates at PTAB, and these are the first 
measures we should take to make our patent system fairer, 
rather than measures that might overhaul our entire tort 
system.
    A broad overhaul would impact not only patent disputes, but 
a wide swath of civil claims, which often rely on third-party 
litigation funding to move forward at all.
    We've heard from our professor that third-party litigation 
funding is used in a variety of different ways and sometimes to 
give litigants their only method of bringing their claims 
forward.
    So, pursuing justice in court or at the PTAB is 
staggeringly expensive, and that's been established. Without a 
policy of reforms to address the root causes of the disparate 
access to justice, broadly limiting third-party litigation 
funding could threaten our already uneven justice system.
    Now, my first question I'll pose to the professors first 
and then to the practitioners.
    A GAO report found that third-party litigation funders only 
accepted about five percent of cases brought to them.
    Does this mean that there are some good cases that are 
still left on the table even with third-party litigation 
funding available?
    Ms. Sahani?
    Ms. Sahani. Thank you so much, Ms. Ross, for the question.
    Yes, absolutely. Third-party litigation funders, in my 
understanding from talking with many of them, are very 
selective in terms of which cases they choose to fund.
    There are a variety of factors that are financial and 
nonfinancial that go into that decision, and many cases end up 
on the cutting room floor, so to speak, meaning that they don't 
receive funding.
    This is one of the challenges of the access to justice 
piece that I write about in my research, where I say that 
funders should fund more cases than the ones that they already 
do.
    Ms. Ross. Mr. Kochan?
    Mr. Kochan. So, the GAO Report is, I believe, a few years 
old, correct? So, I'm not sure what that number would be today. 
I also think there's a presumption in there that the five 
percent that is claimed there are actually meritorious cases.
    As mentioned, the funders consider a variety of factors 
which may not, in fact, be about merit. Many of them are about 
the ease of settlements, the ease of leverage that can be 
gained in these cases. So, they're being assessed for their 
financial return, rather than necessarily for their legal 
claims.
    Ms. Ross. Just as they would be with the private bar.
    I'm going to move on to my next question.
    Does third-party litigation funding replace the need for 
equal access to justice reform that gets to the heart of the 
issue in our justice system, Ms. Sahani?
    Ms. Sahani. Thank you so much, Ms. Ross.
    No, it does not replace. Third-party funding is a bit of a 
Band-Aid. Again, as I just mentioned, since they don't fund 
very many cases, it's not a big enough Band-Aid to help stop 
the issue that we have in our legal system with many, many 
litigants that don't have access to sophisticated counsel to be 
able to pursue their claim or defend against their claim.
    Ms. Ross. Thank you.
    Mr. Chair, I yield back.
    Mr. Issa. I thank the gentlelady.
    We now go to the gentleman from South Carolina, Mr. Fry.
    Mr. Fry. Thank you, Mr. Chair.
    Former Mr. Chair, good to see. It's always a pleasure to 
have you in front of this Committee.
    Mr. Chair, what do you think, what would you say, for an 
average law firm, your run-of-the-mill country lawyer, what 
does a contingency percentage usually look like?
    Mr. Goodlatte. That's a great question, Congressman.
    Generally, I think you're talking about between 25-40 
percent.
    Mr. Fry. That's usually the standard. That's pretty 
standard across, in your experience, across the profession. Is 
that correct?
    Mr. Goodlatte. Well, in my rural part of the world, maybe 
the same as yours.
    Mr. Fry. Yes, sir.
    Mr. Goodlatte. Of course, so the third-party funder is 
going to take something on top of that.
    Mr. Fry. Well, and who usually sets that, right? Who 
usually sets that percentage? I know it's a contract issue. 
Aren't there usually rules in Federal Court or in State Courts 
that kind of cap the percentage that a plaintiff's lawyer could 
get?
    Mr. Goodlatte. There are in some jurisdictions, yes.
    Mr. Fry. What do you see the difference in something like 
that from a plaintiff's side and something in what the industry 
is having with third-party litigation funding?
    Mr. Goodlatte. Well, I think the biggest difference is that 
that lawyer has a fiduciary responsibility to the court. They 
have all kinds of obligations in terms of disclosure, in terms 
of how they treat their client, in terms of making sure there 
are no conflicts of interest, and so on.
    When that attorney or the client decides to bring in a 
third-party funder--and these are generally in larger cases--
you develop another potential major conflict that is not 
disclosed to the court.
    Mr. Fry. Right.
    Mr. Goodlatte. Which you have two bosses. You have two 
bosses. As we've talked about with this Sysco case, which is 
sort of an open look into something that we usually don't get 
an open look into because there's no transparency, in those 
circumstances, that third-party funder--I saw the one that was 
involved in the Sysco case on ``60 Minutes'' last year say, 
``We don't have any control over the course of the 
litigation.'' Then, we found out that in that case they had a 
very nice clause that said, ``You can't settle this case 
without our approval.''
    Mr. Fry. So, they need the bar license to file the 
pleadings with the court, right? They need that. They need the 
straw man in the chair to ask the questions. The lawyer is not 
actually advising the client. They're just kind of propped up 
by the third-party litigation funding component. Is that fair 
to say?
    Mr. Goodlatte. That's fair to say. There's another danger, 
and that is, the lawyer may find themselves with their own 
conflict of interest, as they found in the Sysco case, because 
Sysco eventually fired their attorneys because they felt they 
were representing the third-party funder more than they were 
representing their interests when they wanted to settle the 
case and the third-party funder--
    Mr. Fry. Chair, I looked at the Delaware court. So, 
Professor Sahani talked about the disclosure. Her threshold was 
disclosure of the name or the entity and the address, right? 
That's what she would be comfortable with.
    Delaware says that you need to give the identity of the 
funders. You also need to describe the financial benefit the 
funder stands to gain, so the contingency fee in that 
particular case maybe, and then whether or not the funder's 
approval is required before settlement.
    In addition--is that a good model, would you say, that 
Congress should look at or policymakers should look at?
    Mr. Goodlatte. I think it's a very good model. That's why I 
say, and as the Chair has indicated as well, actually getting a 
look at the agreement, which is very similar to getting a look 
at the agreement that an insurance company has with a 
defendant, would reveal some of these facts as well. You could 
avoid that by asking enough of the kind of questions you just 
described.
    Mr. Fry. Last question, and I'm going to yield the 
remaining portion of my time to the Chair. What would you do in 
the case of an identity where you have a corporate entity that 
has multiple people that are funding the lawsuits? Would that 
also be disclosed, or would there just be the corporate entity?
    Mr. Goodlatte. Well, I think that it would depend on, 
obviously, what the Congress decided to do. I would recommend 
that you go deeper than that, particularly when it relates to, 
for example, third-party litigation funders who are major 
investors in the vehicle that's being used. For example--
    Mr. Fry. So, you couldn't hide behind a corporate shell, is 
what I'm getting at.
    Mr. Goodlatte. Right. What if you had in your hedge fund a 
sovereign wealth fund investor, a foreign government-owned 
entity?
    Mr. Fry. That's what I'm getting at.
    Mr. Goodlatte. I think that should be disclosed.
    Mr. Fry. Thank you for that.
    With the remainder of my time, I yield to you, Mr. Chair.
    Mr. Issa. Ms. Sahani, I'll followup on just exactly that.
    Do you believe that implied or possible conflicts of 
interest as to, quite frankly, the settlement of the case, the 
process, anything of that sort, should, in fact, have some 
level of transparency that currently it could have under the 
orders of a judge, but doesn't have uniformly?
    Ms. Sahani. Thank you so much for the question, Chair Issa.
    I do believe that if a judge finds in a case that they 
think there is behavior taking place--
    Mr. Issa. No. I asked about should there be discovery based 
on whether those conflicts exist, separate from the judge 
having an inkling and doing it. Because, obviously, the judges 
can do it now, but normally do not and don't feel obligated to 
know whether that happens or not.
    Ms. Sahani. Thank you so much, Mr. Chair.
    As a matter of course, I think that if the funding 
arrangement states that the funder has control of the 
litigation or if the funder is a part owner, say an equity 
stake in the funded party, then the funder is part of the party 
and, therefore, should have more extensive information 
disclosed.
    In most circumstances the funder is at an arm's length and 
is not directing the litigation, in which case I would think 
that disclosure is not necessary unless a judge decides so.
    Mr. Issa. We now go to the Ranking Member of the Full 
Committee, Mr. Nadler, for five minutes.
    Mr. Nadler. Thank you, Mr. Chair.
    Professor Sahani, could you walk us through why 
corporations seeking to avoid being sued by individuals and 
businesses who have had their patents stolen might advocate for 
burdensome tort reform measures--so-called tort reform 
measures--for third-party litigation funding?
    Ms. Sahani. Thank you so much, Mr. Nadler.
    There are many reasons why corporations might oppose other 
corporations suing them with respect to patents. One of those 
might be that there's a chilling effect if the litigation is 
overly expensive.
    Then, the much larger corporation can often avoid having to 
answer for its actions if the smaller entity does not have the 
financial resources to engage.
    So, that's one example.
    There may be other possibilities. I am not an expert on 
patent law, but I can say, in general, large corporations do 
prefer not to be sued by anybody, definitely, but certainly not 
their smaller competitors.
    So, finding ways to reduce the opportunities for those 
smaller competitors to bring cases or for patent holders who 
are smaller to bring cases would be beneficial to the business 
of a larger entity.
    Mr. Nadler. Professor Sahani, advocates for mandated 
disclosure suggested that litigation is burdensome or 
distracting.
    Are burdensome or distracting lawsuits inappropriate for 
plaintiffs to bring? Why or why not?
    Ms. Sahani. Thank you so much for the question, Mr. Nadler.
    Burdensome and distracting are interesting terms in this 
context. I would say there's a lot of litigation that we have 
that is very valid, that is burdensome. It may be expensive 
because it takes a lot of resources to get at the truth. 
Antitrust litigation, for one, is very expensive, but it is 
important.
    So, I think burden, in and of itself, isn't necessarily the 
right yardstick by which to measure whether a case should be 
brought.
    Distracting is an interesting one. I think that a valid 
claim in any circumstance is important to bring, and whether or 
not it's distracting--I guess the question would be, 
distracting from what? The business line of the defendant? 
Well, of course it's taking you away from that.
    At the same time, many of these large corporations have 
many lawsuits and very busy litigation teams. So, it isn't 
distracting them any more than any other lawsuit that they may 
have, in my view.
    Mr. Nadler. If the patents are valid and infringed, are 
they still burdensome and distracting?
    Ms. Sahani. Well, that--Mr. Nadler, thank you.
    That's a valid claim. If the patent is infringed, that's a 
valid claim, and burdensome and distracting are adjectives that 
I think don't apply to a valid claim that should be heard.
    Mr. Nadler. Professor Sahani, why would a plaintiff seek 
out funding from a third party?
    Ms. Sahani. There are a wide variety of reasons why a party 
might seek out funding. One of course is, as we've been 
discussing, the access to justice piece, which is where the 
party may not be able to afford to bring the claim.
    There are also well-resourced entities that actually prefer 
to engage with third-party funders as a way to have someone 
else deal with the fluctuations and the costs of litigation 
rather than have that be on the company's balance sheet.
    So, it's not just indigent litigants or litigants that 
don't have the resources. It's also well-resourced litigants, 
many of which are household names, also use third-party 
funding.
    So, those are a couple of reasons. I could certainly give 
more if you'd like.
    Mr. Nadler. So, the lack of funding, obviously, doesn't 
indicate a case that shouldn't be brought in the first place?
    Ms. Sahani. Yes, that's correct, Mr. Nadler.
    Mr. Nadler. On the other hand, why would a third party seek 
to place a bet essentially on someone else's court case?
    Ms. Sahani. Thank you for the question, Mr. Nadler.
    There's also a wide variety of reasons why another entity 
might invest in someone else's lawsuit.
    Third-party litigation funding as an industry is relatively 
new in the United States, but individuals funding the lawsuits 
of others is a very old practice.
    That's why we had at common law the torts of champerty and 
maintenance, because it used to be a very, very long time ago 
something that was illegal. We removed that provision in the 
United States when we instituted contingency fees.
    So right now, we already allow lawyers to finance the 
litigation of their clients through contingency fees, and 
that's something that's allowed in all 50 States. In some 
respects, that is kind of the oldest form of, quote, ``third-
party funding we have in the U.S.''
    Now, we've moved to a situation in which we have nonlawyer, 
nonpracticing lawyer entities that are funding litigation. They 
can do so for profit, they can do so for other motives relating 
to the impact that the case might have, as well as to ensure 
that certain businesses have their day in court.
    So, there's a wide variety of reasons. I'll stop there.
    Mr. Nadler. Thank you.
    My time has expired. I yield back.
    Mr. Issa. I thank the gentleman.
    We now go to the gentleman from Virginia, Mr. Cline.
    Mr. Cline. Thank you, Mr. Chair.
    Welcome to our witnesses. Good to see the former Chair.
    I want to ask Mr. Taylor, U.S. companies during the 
discovery process are required to share sensitive and 
proprietary intellectual property with their opponents. When 
undisclosed third-party litigation financing is involved in a 
suit, some funders also become aware of information shared 
during the discovery process.
    As a new Member of the Select Committee on the Chinese 
Communist Party, I'm concerned about the potential for our 
Nation's intellectual property, that it could fall into the 
hands of adversarial competitors.
    I was pleased that the Select Committee recommended the 
following in the Committee's December 12th report, to:

          Determine, and then establish, what guardrails are needed to 
        address the possibility of foreign adversary entities obtaining 
        sensitive IP through funding third-party litigation in the U.S.

          For litigation in Federal court, require enhanced disclosures 
        for foreign adversary entities and provide judges with the 
        authority to require enhanced disclosures for certain entities 
        under foreign adversary entity control regarding their funding, 
        and, when appropriate, ownership and connection with the 
        foreign adversary government and dominant political party.

Some have argued that adversaries like the Chinese Communist 
Party would view TPLF as an inefficient way to conduct 
espionage.
    Do you believe the Chinese Government would undertake such 
an effort to obtain critical information from U.S. companies?
    Mr. Taylor. Sure. The opportunity is there. No matter how 
tightly worded a judge's rules regarding the disclosure of 
information is, within a lawsuit, lots of entities, 
contractors, people who work for the contractors, end up 
getting this material, exponentially enlarging the pool of 
potential leakers of this stuff.
    We know the Chinese Government is going to do anything it 
can, exploit any opportunity it can. So, why not, if you're the 
Chinese Government, try, fund as many lawsuits as you think are 
strategically in your interest and see what sticks?
    Not only see what sticks, see what comes through the sieve, 
see what gets leaked. The more cases you file, the more 
opportunities you're going to have for there to be a chink in 
the system, the judge's order, the rules that otherwise govern. 
You're just maximizing your opportunity to get something that 
you are not supposed to have.
    Mr. Cline. Do you share the Select Committee's concern 
about our adversaries accessing sensitive IP through third-
party litigation? Do you support the Committee's 
recommendations related to enhanced disclosures?
    Mr. Taylor. Yes.
    Mr. Cline. Thank you.
    Is China the only foreign adversary of the U.S. attempting 
to capitalize on third-party litigation funding?
    Mr. Taylor. No. We have adversaries all over the world. 
There's a case that just came to light recently where Russian 
oligarchs who are buddies of Putin were hit with sanctions. 
They weren't supposed to have any business dealings in the 
United States. Turns out they were funding litigation here, and 
that was unraveled by reporters.
    So, you have, of course, many opportunities for this to be 
exploited. We know they exist. We know they've occurred.
    Unfortunately, now we only know they occur in places where 
circumstance or the initiative of an individual judge, like 
Judge Connolly in Delaware, who is only one of 700 district 
judges, has taken the steps to bring some of this stuff to 
light.
    You can only imagine what else is out there in the 
jurisdictions that don't have these disclosure rules in place.
    Mr. Cline. Absolutely. Thank you all.
    I would yield the remainder of my time to the Chair.
    Mr. Issa. I thank the gentleman.
    I'm going to followup on the national security question.
    Ms. Sahani, I have been choosing to go to you because the 
others already agree that we should have more disclosure, and I 
want to find the middle ground here if we can.
    From a national security standpoint, would it be correct 
basically to say that if an investor has a right to see any of 
the information related to the case, but is not disclosed, 
that, in fact, any and all protective orders and other 
information of that sort could, in fact, be negated by that?
    In other words, if you're worried about Huawei getting 
information and they're the investor but you don't know who 
they are, do we have a real risk and should we mitigate that 
risk by at least having rules that would govern the disclosure 
of these individuals based on the fact that they may, as the 
gentleman from Virginia cited, receive confidential information 
as a result of their being investors?
    Ms. Sahani. Thank you so much for the question, Chair Issa.
    I think that one clarification I'd like to make regarding 
the role of investors--
    Mr. Issa. No, no, no. I'm sorry. I'm going to cut you off 
because we're very short on time here. They've called a vote.
    Ms. Sahani. Sure.
    Mr. Issa. The only question is, is there a risk? I'm 
assuming that your answer is there's a risk that should be 
considered for mitigation, not do most investors do not 
participate in that way. There is a risk. Is that correct?
    Ms. Sahani. There is a risk if the investors are receiving 
confidential information, which most are not.
    Mr. Issa. OK.
    Mr. Kochan, briefly, you've researched a lot of this. Is it 
true in most cases investors want to know about the case 
they've invested in and that that is typically shared.
    Mr. Kochan. (a) It certainly can be. (b) The judge has no 
ability to even know whether or not they should be issuing a 
protective order that even can cabin that disclosure outside of 
the parties themselves if they don't know what kind of 
financing arrangement is there in the first place.
    Mr. Issa. You don't know what you don't know.
    The gentleman from Maryland.
    We do have a vote, but hopefully we can get it done.
    Mr. Ivey. Thank you, Mr. Chair.
    Just to followup on that point, if a protective order is 
put in place by the lawyers on both sides, wouldn't it normally 
restrict the distribution of the information to a very tight 
circle on the plaintiff's sides, like counsel, maybe some of 
the experts, but certainly not arm's length investors, right?
    Mr. Kochan. Well, part--I assume that was to me?
    Mr. Ivey. Yes. Well, to whoever.
    Mr. Kochan. So, part of the problem is that if you don't 
have mandatory disclosure at the outset, then the judge does 
not have enough information to know whether or not to issue any 
kind of protective order.
    Mr. Ivey. Not the judge, but the agreement between the 
parties as part of the discovery process.
    Mr. Kochan. The opponent doesn't. I'm sorry. I cut you off.
    Mr. Ivey. The agreement among the parties is part of the 
discovery.
    My understanding is that when the lawyers enter into this 
litigation, they start off with protective orders that don't 
even necessarily include the judge unless some kind of 
enforcement is required. Isn't that right?
    Mr. Kochan. So, the opponent does not necessarily know and, 
in fact, oftentimes doesn't.
    They also don't have a right to an accurate answer from the 
plaintiff. So, if the opponent asks the plaintiff's counsel, 
the plaintiff's counsel is not required to disclose to the 
Defense Counsel the existence of the third-party financing.
    So, you don't know how to protect yourself if you don't 
know the environment in which you're--
    Mr. Ivey. If you had an agreement that said--you could 
draft an agreement that excluded third parties who are not 
party to the litigation. Even within the entity that's on the 
plaintiff's team, you could restrict who gets access to the 
information, right? That happens all the time, doesn't it?
    Mr. Kochan. I don't think you could tailor that without 
knowing enough about what the agreement is and the contract is 
with the other side.
    Mr. Ivey. Well, I've got to cut you off, because I think 
that's routine, actually, in litigation, to limit those sorts 
of disclosures using protective orders.
    Let me ask this, because I do share the concern about the 
essentially economic espionage if international information 
gets to China that could be used in this inappropriate way, 
assuming there's no protective orders put in place that would 
limit a disclosure, but just for that purpose.
    Let me ask you this, because it sounds like what you're 
saying is that notice might not be enough. In other words, so 
let's say your scenario, you've got Chinese shell companies 
that are third party investing in a plaintiff, and then 
disclosure is made.
    I don't know that would necessarily derail the litigation. 
We had the case in Delaware--I think there's two--where they 
dropped it rather than disclose.
    Isn't it possible that the litigation could continue anyway 
after the disclosure is made?
    Mr. Kochan. It certainly could continue if no other 
regulation were in place.
    Mr. Ivey. OK. So, wouldn't you--I'm not trying to put words 
in your mouth--but wouldn't a ban on that make sense?
    If we're saying that we don't want information--well, I 
don't know, let's say it's Apple or some key information from 
Microsoft--we're saying we don't want the CCP to get this 
information through litigation, right? Why would notice be 
enough? Don't we want to try and find ways to actually restrict 
the disclosure of that information to those parties?
    Mr. Kochan. I don't follow. Restrict what disclosure to 
which parties?
    Mr. Ivey. The confidential information you're worried 
about.
    Mr. Kochan. If something is needed beyond disclosure, I 
suppose that's something to consider. The one thing that we 
know from the existence of the disclosure requirements, you 
mentioned cases have been dropped. We see at least some 
evidence that the overall caseload in Delaware has gone down as 
a result of this disclosure as well.
    So, we will be able to deter a lot of this behavior because 
people just don't want sunshine on this. To the extent that it 
does provide information, there's different audiences for that 
disclosure, which means that if you've got the disclosure, then 
policymakers like yourself or State legislatures could use that 
information to decide what the next step would be.
    Right now, there's not any information to actually make 
even some of the generalizations that have been made today 
about what this environment looks like because we just can't 
see it. So that--
    Mr. Ivey. All right.
    Mr. Kochan. Those generalizations are dangerous on any side 
without knowing more about what's behind the curtain.
    Mr. Ivey. Fair enough. I mean--OK. I'll leave it there for 
that issue.
    My experience with third-party funding was that they 
weren't just putting up the money. Maybe China does that 
because they don't care about losing the money, but entities 
that are actually trying to demonstrate a return or make a 
profit off it as an investment are very careful about it. I 
think that's consistent with the five-percent number that Ms. 
Ross mentioned.
    My experience was that many of them wouldn't even--they 
didn't want to talk to you until after you had gotten past the 
motion to dismiss or some other big landmark in the litigation 
so they were sure that they had a reasonable chance of getting 
a return on their funds.
    Is that something you all have looked at or how--what sort 
of limits--how often are companies willing to just come in up 
front and fully fund or provide large amounts of funding?
    I guess, Professor Sahani, maybe I'll ask you about that.
    Ms. Sahani. Thank you for the question, Mr. Ivey.
    Funders can come in at any point in a case. So, there's 
pre-filing third-party funding. There's also post-filing, as 
you just mentioned, after the motion to dismiss or after 
they've survived a motion for summary judgment, for example.
    There's also post-case filing, which basically means 
there's an award or judgment and a party thinks it might be 
challenging to enforce, so they may sell the right to receive 
the proceeds to a funder who would then--
    Mr. Issa. The gentleman's time has expired, so he did have 
a question that I think you're not quite getting to, which was, 
how often?
    Ms. Sahani. I do not have that information in terms of the 
statistics. We would--
    Mr. Issa. OK. The gentleman I believe has an unanimous 
consent he'd like to ask for now.
    Mr. Ivey. I do?
    Mr. Issa. You do.
    Mr. Ivey. I would like to yield back to the Chair.
    Mr. Issa. Yield back?
    Mr. Ivey. Yes. Oh, I'm sorry.
    I ask unanimous consent to enter into the record a letter 
by the Council for Innovation Promotion. A letter by inventor 
Chris Jones. A letter by the International Legal Finance 
Association.
    Mr. Issa. Without objection.
    Mr. Ivey. Thank you, Mr. Chair.
    I yield back.
    Mr. Issa. I thank the gentleman.
    I now would ask unanimous consent to place in the record a 
statement in support of third-party litigation reform funding 
and disclosure by the American Property Casualty Insurance 
Association; another one, a letter from Jonathan Stroud at 
Unified Patents; an article by former Chair McKeon, former 
Chair of the Armed Services Committee; a letter from Sysco 
Systems, the previously named defendant who made great 
discoveries--or plaintiff, I guess it was; a study by the 
Center for Climate Integrity; a statement from the National 
Association of Mutual Insurance Companies; a letter by the 
Institute of Legal Reform; a statement of support by US MADE; 
an article by Patrick Tiberi, former Member of Congress; and, 
tenth and last, a letter from 14 State Aattorney Generals 
regarding third-party litigation funding by foreign 
adversaries.
    Without objection, all will be placed in the record.
    I'm going to be brief, because I'm going to miss the first 
vote at this point most likely.
    This has been good, but it hasn't been sufficient for many 
reasons, and one of them is we haven't had enough time.
    So, I would ask all of you if you would take additional 
questions. I'm going to ask that it goes on through the next 
week break, so you might get them as much as 10 or 12 days from 
now, which is an exception to the normal policy, but I believe 
we need that. There were Members who weren't able to get there.
    I'm going to close by asking a couple of narrow questions.
    Ms. Sahani, you've been very helpful, not necessarily in 
agreement, but very helpful.
    We never talked about in camera review by judges. Would you 
support, notwithstanding all of the legislation we might 
propose, that, in fact, the right of a defendant who suspects 
that, in fact, a third-party investor--for example, outside the 
United States, and even somebody who could be very threatening 
may exist--that at least the judge should be able to have in 
camera review of that with no further harm done?
    As a practitioner, each of you, would you say that this is 
one of those things that's a no-brainer to say yes?
    Ms. Sahani. Thank you for the question, Chair Issa.
    Yes, I would agree with in camera review by the judge.
    Mr. Issa. OK. Then, obviously, a judge's decision about 
whether that goes further is often the case after in camera 
review.
    Mr. Kochan?
    Mr. Kochan. Yes. Because the judge, to fulfill its duties, 
must determine who is in control, for example, of settlement 
under the Federal Rules of Civil Procedure.
    They need to do proportionality review under the Rules of 
Civil Procedure. They need to assure themselves of their own 
nonethical--nonconflicts for ethical purposes.
    There are all kinds of reasons why the judge at the very 
least should have this information.
    Mr. Issa. Mr. Taylor?
    Mr. Taylor. Yes, because the judge has to know the 
parameters of the legal ethical obligations of the lawyers. 
That includes zealous advocacy, no conflicts, and providing 
competent representation. The judge has to be aware of any 
limits on that imposed by a funding contract.
    Mr. Issa. Chair?
    Mr. Goodlatte. For all the reasons cited by my 
distinguished colleagues, yes.
    Mr. Issa. So as we get to a recognition, I think at the 
close that there are potential national security implications, 
including the 14 Attorneys Generasl who were placed in the 
record, as we recognize that, notwithstanding what often 
happens in the case of Sysco and others, there can be conflicts 
which need to be understood to be fleshed out for the 
possibility of a settlement, and because judges, in fact, 
cannot make decisions if they have no information.
    For all those reasons, it is fair to say, I believe, that 
we've agreed that, in fact, more transparency at a base level 
needs to be there.
    Now the question is, can we get to a level low enough for 
the gentlelady and high enough for some of the other Members of 
the panel? That is a challenge for Members on both sides of 
this dais. As you could see, we're a way off. This a bipartisan 
Subcommittee. We have worked well so far.
    Mr. Chair, when you did some of this work at the Full 
Committee, you pulled an entire and very diverse Committee 
together.
    So, I want to thank all of you for your comments. We will 
followup with questions. I intend to be producing some draft 
legislation in the next 10 days, which I will be happy to send 
to you. It is a discussion draft, but I want to make sure that 
we begin to talk about the parameters of what can be done. My 
goal, obviously, in this Congress is to get it done on a 
bipartisan basis.
    So, I thank all of you. For now, we stand adjourned.
    [Whereupon, at 4:01 p.m., the Subcommittee was adjourned.]

    All materials submitted for the record by Members of the 
Subcommittee on Courts, Intellectual Property, and the Internet 
can
be found at: https://docs.house.gov/Committee/Calendar/ByEvent 
.aspx?EventID=117421.

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