I. The Global Expansion of Third-Party Litigation Funding
Over the last two decades, third-party litigation funding (TPLF) has grown substantially across major jurisdictions globally, especially in patent litigation.1 Although data on funding agreements and the number of funded cases remains limited—largely due to minimal regulation and disclosure requirements—TPLF has clearly become a driver of litigation in major jurisdictions around the world. Government reports have estimated that litigation funders manage billions of dollars in assets.2 These reports suggest approximately 20% of litigation funding capital was committed to patent litigation, making it the most common form of commercial TPLF.3 While the U.S. is a leader in TPLF, it is not an outlier. For example, the U.K. and Germany have well-established TPLF industries backed by significant capital.4 Litigation funding has likely been deployed in Unified Patent Court (UPC) cases in recent years and, at a minimum, funders have highlighted that the ability to obtain pan-EU injunctions in the UPC “redefines how patents are valued and financed.”5 Even China—where regulatory constraints limit the participation of international funders—has experienced rapid growth in its nascent TPLF market.6
Although TPLF is a significant force shaping litigation economics and strategy across jurisdictions, its regulation remains limited. In most jurisdictions, parties are not required to disclose litigation funding or the terms of funding agreements. Prominent government reports have identified concerns regarding this lack of disclosure, including that judges and lawyers cannot reliably assess conflicts of interest; the public cannot identify interested parties litigating in their courts; foreign interests may fund litigation to entangle domestic companies in costly legal battles to slow innovation; and litigants may not know who is directing the litigation and controlling settlement decisions.7
II. Jurisdictional Market Dynamics: Regulatory Landscape and Mounting Concerns Over Conflicts, Control, and Foreign Funding
The U.S. has developed a range of TPLF regulations in recent years. China, the U.K., Germany, and the UPC have not adopted similar TPLF regulations. This divergence in regulatory approaches is surprising because each jurisdiction recognizes the same concerns about TPLF.
While these jurisdictions represent different legal systems and historical approaches to TPLF regulation, these differences do not explain the modern landscape. Germany and China, both civil law jurisdictions, have never adopted generally applicable laws regulating TPLF.8 In contrast, while the U.S. and U.K. common law systems historically prohibited TPLF, those broad bans have since been lifted.9
In the U.S., although no uniform federal regulation of TPLF exists, a patchwork of state- and federal-level regulation has emerged. A minority of U.S. states have adopted TPLF regulation in the form of disclosure requirements, limitations on foreign funding, and control over litigation decisions.10 Federal regulation largely consists of disclosure requirements imposed by individual courts and agencies. In federal courts, for example, TPLF disclosure requirements have been enacted via local rules11 and standing orders12 seeking to identify and avoid conflicts of interest; assess real parties in interest; and protect the interests of funded parties and the public.13 Parties in federal court may also seek TPLF-related information through discovery; however, where permitted, such discovery is typically limited in scope.14 At the USPTO, where discovery is minimal, PTAB trial rules require petitioners to identify all real parties in interest (RPIs)—which may include litigation funders—to establish standing, ensure all RPIs are bound by PTAB estoppel provisions, and enable conflict-of-interest assessments.15 The U.S. International Trade Commission does not currently have similar requirements.
While U.S. courts often deny motions to compel discovery related to TPLF,16 TPLF disclosure requirements have in some instances enabled closer scrutiny of TPLF arrangements. For example, in Nimitz Technologies LLC v. CNET Media, Inc., Chief Judge Connolly identified related, funded parties in eleven patent cases that failed to comply with his Standing Order Regarding Third Party Litigation Funding Arrangements.17 After Judge Connolly compelled disclosure of TPLF-related agreements and communications under authority that the Federal Circuit confirmed district courts possess,18 he found the attorneys involved had violated “numerous rules of professional conduct” and that the parties failed to disclose “real parties in interest in the patents in these cases, including a foreign government,” which had a right to receive a portion of the proceeds from enforcement and preclude assignments or transfers of an asserted patent.19
China also recognizes the lack of transparency surrounding TPLF creates concerns related to real parties in interest and conflicts of interest. For example, Chinese courts have recognized that TPLF agreements can give undisclosed funders control over litigation that render them unnamed real parties in interest in violation of public policy.20 And concerns over conflicts of interest related to TPLF have led most private Chinese arbitrators to adopt TPLF disclosure requirements to facilitate robust conflicts checks.21 However, Chinese law does not require disclosure of TPLF in litigation or otherwise regulate TPLF directly, and courts rarely compel production of TPLF information to assess conflicts or real parties in interest.22
Undue litigation control and conflicts of interest are also recognized problems associated with TPLF in Europe.23 For example, in Germany and the U.K., contract law generally prohibits non-parties such as funders from exercising undue control over litigation or settlement, but neither jurisdiction has generally applicable TPLF disclosure requirements to enable assessments of funder control.24 And outside of other highly specific contexts (e.g., class actions, security-for-costs requirements), none of these jurisdictions imposes regulations applicable to TPLF.25
III. Future Outlook: Reform Proposals and Regulatory Momentum
Interest in regulating TPLF has intensified in recent years. In the U.S., momentum behind proposals is rising, likely influenced by rising concerns that foreign governments are funding patent litigation to undermine U.S. companies26 and the improprieties discovered by Judge Connolly in the Nimitz case. At least five bills are currently pending in Congress to address issues including TPLF transparency and national security concerns,27 and there are ongoing discussions regarding amendments to the Federal Rules of Civil Procedure to address TPLF.28 The amendments currently being considered include adding a provision to Rule 26(a)(1)(A) to require disclosure of “any agreement under which any person . . . has a right to receive compensation that is contingent on, and sourced from, any proceeds of the civil action, by settlement, judgment, or otherwise”; modifying Rule 16 to require consideration of funding arrangements as part of the court’s case management responsibility; and creating a disclosure requirement in Rule 7 similar to the District of New Jersey’s Local Rule 7.1.1.29 The Advisory Committee also identified a set of drafting issues moving forward. These include the focus and exceptions for any rules (e.g., how to address litigation seeking non-monetary relief, exceptions to disclosure requirements for certain groups like “social justice” funds and “crowd-funding,” addressing portfolio funding), the scope of disclosure (e.g., funder identity, agreements), the parties entitled to receive disclosures (e.g., parties, court), and whether to explicitly authorize further discovery.30 In addition to the pending legislation and potential rule amendments, the International Trade Commission (ITC) recently proposed new TPLF disclosure rules for Section 337 investigations.31 These proposals seek to introduce disclosure requirements (e.g., funder identity, funding agreements) and/or limitations on foreign funding, driven by concerns related to conflicts of interest, standing, litigation control, and improper use of U.S. courts by foreign adversaries.32
In the U.K., recent interest in regulating TPLF stems from the aftermath of a controversial 2023 U.K. Supreme Court decision. In R (on the application of PACCAR Inc and others) v Competition Appeal Tribunal and others, the court effectively rendered many litigation funding agreements unenforceable by holding that funding agreements where funder fees are based on a share of damages are “damages-based agreements” (DBA), which have a defined meaning in U.K. law and must comply with strict regulations.33 Following this decision, funders slowed new TPLF investment in the U.K. and moved quickly to revise existing agreements to provide funder fees based on a multiple of investment to avoid enforceability challenges.34 The previous Conservative U.K. Government also swiftly introduced legislation to overturn PACCAR and commissioned the Civil Justice Council (CJC) to review litigation funding and the effects of PACCAR.35 While Parliament was dissolved prior to enacting that legislation following the 2024 General Election, the CJC in June 2025 issued a Final Report recommending reversal of PACCAR and the introduction of a “light touch” statutory regime including disclosure requirements and prohibitions on funder control of litigation.36 Shortly after the Final Report was issued, the Court of Appeal upheld the enforceability of the revised form of litigation funding agreements, warning that a contrary ruling would render TPLF “practically impossible” except where DBA compliance is feasible.37 While the new Labour Government announced its intention to introduce legislation implementing the CJC Report on December 17, 2025, the timing is uncertain.38
In Europe, there has been recent interest in TPLF regulation. In 2022, the European Parliament introduced and voted in favor of a TPLF regulation including, among other things, disclosure requirements and prohibitions on funder control of litigation. The European Commission then issued a March 2025 Report assessing the proposed TPLF regulation and highlighting TPLF-related concerns across both EU Member States and other jurisdictions (e.g., undue control of funders over legal proceedings and settlement, excessive funder fees, and possible conflicts of interest due to a lack of transparency).39 Despite the concerns raised in the Report, the European Commission declined to adopt the proposed TPLF regulation in November 2025.40 No proposals have since been presented in Germany or the UPC to address TPLF-related concerns. Accordingly, at least in the near term, patent enforcement by funded entities before the UPC—particularly actions seeking pan-EU injunctions—is likely to expand without robust conflict-of-interest checks, transparency regarding interested parties, or effective constraints on funder control of litigation.
