Third-party litigation financing (TPLF) of lawsuits filed in the U.S against companies and innovators has become a booming industry that views the nation’s courts as a marketplace for high-return investments instead of a way to deliver justice.
Few Americans realize that here in the U.S., outside investors are routinely allowed to fund mass litigation, sharing in the resulting settlements despite having nothing to do with the disputes. And just as surprisingly, there is almost no transparency for the defendant, the judge, jury and sometimes the plaintiffs themselves. Increasingly, policy and business leaders are highlighting that this is an abuse of the judicial system. As a result, individual states are taking measures to address it, and the possibility exists for a more comprehensive response from the federal government.
Let’s dig into the problem: outside investors engaging in TPLF will begin by targeting a large, profitable company such as a medical technology or biopharmaceutical manufacturer. A life-sciences innovation such as an IVC filter, or a knee/hip implant, or a biopharmaceutical, will be labeled a potential threat putting millions of people in danger. Plaintiffs will be recruited by well-funded lawyers without being told that the class-action lawsuit is being funded by an investment firm, often a hedge fund or private equity investor. There are even dedicated litigation funding firms that specialize in TPLF.
Whatever its nature, the litigation investor will reap a lion’s share if the plaintiff lawyer with either wins the lawsuit or the company settles on the courthouse steps. The particulars of the case, and the interests of the plaintiffs, will fall by the wayside, because the financier will only advance its own interests. Along the way, money will be diverted from the creation of life-saving drugs and products, and defense costs will be passed on to consumers: a lose/lose scenario for everyone other that the outside investor.
But efforts in the past years are multiplying to bring this to light and find solutions. According to an article published by the US Chamber of Commerce on March 23, “Courts and litigants need to know who is driving a lawsuit. TPLF contracts can give outside funders significant control over litigation strategy and settlement decisions—sometimes including the right to accept or reject settlement offers, replace counsel, or even prohibit the plaintiff from communicating with the opposing party.”
TPLF has also become a danger to national security. Foreign investors are increasingly engaging in the practice, manipulating U.S. litigation to their advantage. Adversaries such as China and Russia are secretly gaming the system, harassing U.S. companies while gaining access to sensitive intellectual property, trade secrets, and other intelligence. There are even loopholes in the law that give foreign investors a perverse tax incentive.
Traditionally, courts have treated TPLF agreements as protected from disclosure, yet the consensus is rapidly changing. The status quo is unfair and dangerous, and with so much money at stake it will be difficult to rectify, yet momentum is with the reformers, and in the past few years many state and federal policymakers have focused on creating fairness through common-sense measures that would impose transparency.
States are often seen as the laboratories of democracy where reform takes hold and spreads. In 2025 alone, six states took decisive action against TPLF. Georgia led the way by enacting the most comprehensive reforms, codifying the Georgia Courts Access and Consumer Protection Act, which requires outside financiers to register with the Georgia Department of Banking and Finance. In addition, the Act prevents funders from influencing strategies and decisions, while requiring proof that the money does not come from overseas. These reforms represent common threads in other measures that have been taken by Arizona, Colorado, Kansas, Montana, and Oklahoma. Meanwhile, dozens of states are considering action, even in the face of hurdles; Michigan, Tennessee, Maryland, Florida, California, New Jersey, Indiana, Louisiana, and West Virginia all have measures currently pending.
As promising as these developments are, they represent a patchwork approach. The problem of TPLF is growing, and the status quo is proving costly to businesses and consumers. The Federal Government must step in to take more effective action.
The primary federal effort is the Litigation Funding Transparency Act of 2026, introduced this past February by Senators Chuck Grassley (R-IA), Thom Tillis (R-NC), John Kennedy (R-LA), and John Cornyn (R-TX). The bill would create transparency in federal class actions and federal multi-district litigation proceedings, and while it would not ban third-party funding, it would bring the process out into the open where it belongs.
In the words of Senator Grassley: “Transparency brings accountability. For too long, obscure third-party litigation funding agreements have secretly funneled money into our civil justice system without any meaningful oversight. Americans should know if there are undue pressures at play that could needlessly prolong litigation, harm claimants’ interests or benefit foreign adversaries. The Litigation Funding Transparency Act strikes the right balance of sunshine, while protecting Americans’ access to justice.”
This federal proposal would fill a gap in the Federal Rules of Civil Procedure (FRCP), which contains no uniform national rule that requires parties in a lawsuit to reveal the sources of their funding, or the details of their funding agreements. Meanwhile, as recently as March 10, the U.S. Chamber Institute for Legal Reform (ILR) and Lawyers for Civil Justice (LCJ) submitted a joint filing to amend the rule in question. In a testament to the work being done by the states, the proposed rule is modeled after the Northern District of California’s Local Rule 3-15.
Positive momentum is building around this cause. Everyday Americans, innovators, their legal representatives, and advocates for transparency and fairness are all responsible for the growing movement. The time has come to do the right thing and address this mushrooming threat to justice and national security. Now that Congress has taken notice, swift and decisive action needs to follow. If we all work together, we can restore integrity to our courts.
Pat Fogarty is the deputy general counsel and Senior Vice President of Legal at the Advanced Medical Technology Association (AdvaMed).
Reprinted with Permission from DC Journal - By Pat Fogarty
The opinions expressed by columnists are their own and do not necessarily represent the views of AMAC or AMAC Action.
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