Foreign Influence in US Litigation: Striking the Right Balance in Regulatory Approaches

In recent years, concerns about foreign interference in the U.S. legal system have expanded beyond the political arena, reaching into the world of litigation funding. As global investment in legal disputes grows, so does scrutiny surrounding the potential for foreign actors—particularly adversarial nations—to influence outcomes in U.S. courts. This issue has sparked heated debates within the litigation funding industry and among lawmakers, who worry that allowing foreign-controlled entities to finance litigation could pose risks to national security and the integrity of the judicial system. Over the past year, potential foreign interference in the U.S. court system via litigation funding has been a pressing issue in the industry.

In response to these concerns, U.S. legislators have proposed regulations aimed at curbing foreign involvement in litigation funding. One such effort emerged in September 2023, when Senators Joe Manchin (D-WV) and John Kennedy (R-LA) and Speaker Mike Johnson (R-LA) introduced the “Protecting Our Courts from Foreign Manipulation Act of 2023.” This act would require the disclosure of any foreign entity with a right to receive payment contingent on the outcome of a case (along with the production of the underlying funding agreement) and prohibit funding sourced from foreign states or sovereign wealth funds.

Although this federal legislation has not advanced, a narrower bill targeting foreign influence was successful at the state level. In August 2024, a law went into effect in Louisiana that requires a narrow category of foreign third-party litigation funders (specifically those connected with a foreign country of concern under federal regulations, such as China and Russia) to make certain disclosures to the state attorney general and prohibits funding from those countries. Unlike the broader federal proposal, the Louisiana law is more tailored to protect national security by targeting specific sources of funding rather than all foreign entities.

The focus on foreign interests in litigation funding, particularly in the intellectual property space, was highlighted by Professor Victoria Sahani (Boston University School of Law), who participated in a panel at the recent LF Dealmakers conference in New York City addressing the regulatory landscape of litigation funding. In discussing the House Judiciary Subcommittee on Courts, Intellectual Property, and the Internet’s June 2024 hearing on “The U.S. Intellectual Property System and the Impact of Litigation Financed by Third-Party Investors and Foreign Entities,” Professor Sahani noted the paradox that, while there is concern about foreign interests “interfering” in the U.S. legal system, half of U.S. patent applications come from applicants outside of the U.S.

Recognizing that some legislators may be motivated by fears of foreign actors in the U.S. court and patent systems more broadly, Professor Sahani urged caution. Regulators, she suggested, should avoid inadvertently suppressing all foreign interests in the patent system, where a more targeted approach would be appropriate. Using a sledgehammer where only a chisel is required could lead to unintended consequences.

As concerns about foreign influence in U.S. litigation persist, lawmakers face the challenge of balancing national security with the benefits of legitimate foreign investment in the legal system and its role in access to justice. While federal efforts like the “Protecting Our Courts from Foreign Manipulation Act of 2023” have stalled, Louisiana’s more targeted approach highlights the potential for tailored solutions with fewer far-reaching consequences. Experts caution against overly broad regulations that could inadvertently harm sectors like intellectual property. Moving forward, policymakers must carefully navigate this landscape to protect U.S. courts while preserving the positive contributions of foreign investment in legitimate litigation.