The recent legislative push—then retreat—to impose a tax on litigation funding returns didn’t change the law, but it clarified what’s at stake. It shined a spotlight on the solution that litigation funding provides for the legal industry and to intellectual property owners. Litigation finance doesn’t present a taxation loophole to close. It’s a process that allows plaintiffs with strong claims—and limited resources—to make it to the courthouse steps. In the IP world, where the costs of litigation can eclipse the means of most inventors, startups, and universities, non-recourse litigation funding often is the only way to level the playing field. The investment risks for funders are high; the returns shouldn’t be penalized. The right policy response isn’t punitive taxation or blanket disclosure of sensitive funding terms, but acceptance of funding as a necessary tool and tailored transparency under the court’s supervision, so that financial disparity doesn’t become a tactical weapon. The goal is simple: Keep the courthouse doors open while maintaining fairness and integrity in the adversarial system.
It feels like every couple of weeks an article appears lamenting the rise of litigation finance as the death of capitalism and the birth of something monstrous. The most recent chorus began over the summer when the CEO of Chubb called litigation finance “ a hidden tax on society ” in the editorial pages of the Wall Street Journal. A month later, the CEO of The Hartford grieved on an investor call that litigation finance has “turned our judicial system into a gambling system.” And just last month, the American Property Casualty Insurance Association ’s Senior Vice President of Federal Government Relations exclaimed: “Too many baseless claims, filed by lawyers motivated by profit are clogging our legal system with unnecessary lawsuits, increasing costs and delaying swift resolution of genuine legal claims.” As someone who has been a big firm defense lawyer, a small firm plaintiff lawyer, and now a litigation funder, I can confidently say that these arguments fundamentally misunderstand litigation finance and its incentives, while simultaneously conflating the interests of large repeat defendants with those of society writ large.
The International Legal Finance Association (ILFA) submitted a letter last week to the Judicial Conference of the United States, highlighting the benefits of third-party litigation funding, and arguing that mandatory disclosure rules would have a disproportionately negative impact on small businesses and vulnerable Americans. Drawing on arguments made by Certum’s William Marra in a forthcoming Southern […]
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