Panelists at George Mason's IP conference debate litigation funding

By Kristen Osenga

I recently had the pleasure of participating in a panel on third-party litigation funding (TPLF), which was part of the Annual Fall Conference at George Mason University’s Center for Intellectual Property x Innovation Policy.

The panel included experts from both industry and academia, highlighted the growing debate around TPLF, and crystallized why this financing tool is so crucial for America’s innovators and inventors.

At its core, TPLF enables outside investors to fund litigation, and in return receive a portion of any money recovered. While this practice has applications across many areas of law, its impact has been especially notable in patent litigation, where it helps put small startups on a level playing field with much larger companies.

Without outside funds, small companies with unique inventions are at the mercy of big businesses that copy their products.^[1] Large tech companies engage in this so-called “efficient infringement” deliberately, knowing that the smaller competitors can’t afford to pursue them in court. TPLF helps inventors protect their intellectual property rights.

During our panel, opponents of TPLF raised concerns that the practice has national-security implications and leads to frivolous lawsuits. They suggested that foreign adversaries, particularly China, might fund litigation, either to access sensitive information or burden American companies with legal costs driven by frivolous litigation.

However, these arguments don’t withstand scrutiny.

First of all, the notion that foreign entities would fund patent litigation to access confidential information is far-fetched and impractical if not impossible. As we discussed on the panel, courts enforce rigorous protections to make sure information on disputed intellectual property isn’t shared. Violations carry severe consequences.^[2]

It’s true that sovereign wealth funds — which are owned by governments — sometimes invest in litigation funding. But they do so as passive investors, with no control over cases (or the law firms hired) or access to information. They’re simply seeking returns, just like any other institutional investor. If foreign adversaries want to steal American IP, they have far more direct methods at their disposal, including cyber penetration and traditional corporate espionage.^[3]

Second, the argument that TPLF leads to frivolous litigation isn’t supported by the data. Patent litigation has decreased by nearly 50% over the past decade, even as TPLF has grown.^[4] This shouldn’t be surprising, as litigation funders only succeed when their cases have merit. They conduct extensive due diligence and reject the vast majority of potential cases. In fact, a panelist who worked at a major TPLF funder noted that his firm rejected 95.5% of potential cases. Put simply, no one makes money funding frivolous lawsuits.

The most telling moment in our discussion came when we explored the real dynamics at play. Opponents of TPLF, often large corporations, push for mandatory disclosure requirements that would expose funding arrangements, including investors’ identities.^[5] This might sound reasonable on the surface, but it’s actually a tactical move designed to disadvantage patent owners. Such disclosures would allow the infringing companies to gauge their opponents’ resources and adjust litigation strategies accordingly — often by attempting to outspend and outlast smaller inventors. Disclosure of investor identities would enable investor harassment, driving investment away from third party funding. This is what opponents of TPLF really want.

The reality is that TPLF isn’t just about money, but about access to justice. Patents grant the exclusive right to make and profit from one’s invention. But if a startup can’t enforce that right because it can’t afford litigation, the patent is worthless. Without TPLF, we’d be left with a two-tiered system in which large corporations could enforce their rights while smaller inventors could not; and large corporations could misappropriate without consequence.

This would have real consequences for innovation. “Efficient infringement” doesn’t just hurt individual inventors, but undermines the entire patent system. It discourages inventors from starting companies, and small companies from putting time and resources into innovation. TPLF helps maintain the incentives that drive technological progress.

As our panel discussion wrapped up, it became clear that the debate over TPLF isn’t really about national security or frivolous litigation. It’s about whether we want our patent system to work for everyone — or just for those who can afford to participate.

If you’re interested in learning more about these issues, I encourage you to watch the full panel discussion, where we delve deep into the role of TPLF in our intellectual-property landscape.