Lack of Disclosure on Litigation Funding in Delaware's Court of Chancery

Delaware’s court of corporate power faces a transparency crisis

Delaware’s Court of Chancery, the most influential venue for American business disputes, does not currently track who is actually paying for the lawsuits filed within its walls.

While the state is often criticized for judicial unpredictability, a growing and largely invisible market of third-party litigation finance is creating a different kind of risk. Companies can be hauled into court without knowing if their adversary is a competitor, a foreign state, or a massive investment firm with its own strategic agenda.

According to reporting from Fortune, this lack of disclosure undermines the fundamental promise of the Delaware legal system: that the rules and the players are known before a case begins. As the global litigation finance market—estimated at $20.6 billion in 2025—continues to expand, the absence of mandatory disclosure in the state’s most vital court has become a central concern for corporate boards.

The shifting mechanics of legal funding

Litigation finance was originally envisioned as a tool to expand access to justice for plaintiffs who lacked the capital to pursue legitimate claims. However, the industry has evolved into a complex, often opaque ecosystem of layered ownership and investment structures.

Unlike traditional contingency fees, where a lawyer’s pay is tied to the outcome, modern litigation funders often operate through structures that remain invisible to judges and opposing parties. Because no federal statute requires the disclosure of a funder’s existence, these entities can influence litigation strategy or settlement decisions behind closed doors.

The economic stakes are massive. The December 2024 Government Accountability Office (GAO) report noted that while limited disclosure keeps the full extent of this funding hidden, stakeholders have identified involvement from funders in China, Saudi Arabia, and France.

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The influence of foreign capital is no longer a theoretical worry. One firm has already announced a “strategic capital relationship” with a sovereign wealth fund, and another is majority-owned by a consortium led by Abu Dhabi’s Mubadala.

This lack of transparency creates two primary risks for American companies:

Strategic Distortions: Funders may resist settlements to meet specific investment return thresholds, prolonging disputes and draining judicial resources.
Competitive and National Security Threats: Undisclosed entities can use litigation to impose costs on competitors or use the broad American civil discovery process to extract sensitive strategic data.

In the high-tech sector, where discovery costs can account for 50% to 90% of total litigation expenses, a lawsuit can become a mechanism for a hostile actor to obtain a “document dump” of a company’s most sensitive files under the guise of legal procedure.

Patent litigation reveals the scale of the problem

The impact of undisclosed funding is most visible in patent law. In 2024, patent cases accounted for 32% of new litigation-funding commitments, up from 19% the previous year. Currently, an estimated 30% of all patent suits are funded by third parties.

The rise of non-practicing entities (NPEs)—companies that hold patents but produce no products—has accelerated this trend. In 2025, NPEs filed 55% of all district-court patent cases, a figure that climbed to 90% within the high-tech sector.

Because the Supreme Court’s TC Heartland decision dictates that corporations “reside” for venue purposes in their state of incorporation, Delaware’s federal district court has become a primary target for these suits.

A localized solution in the federal court has already demonstrated the power of transparency. In April 2022, Chief Judge Colm Connolly ordered parties to disclose any litigation funder and their level of control over the case. The results were immediate:

Metric	Following Connolly’s Order	National Trend
Patent filings in the district	41% decrease	15% decrease
Funded patent cases in courtroom	Virtually disappeared	N/A

Connolly’s mandate also helped surface a Shenzhen-based firm, linked to the general counsel of Chinese electronics giant TCL, which was financing patent suits against Samsung. Samsung later alleged the funder misused confidential information to compete unfairly.

The gap in Delaware’s corporate heart

While the federal court and the Delaware Superior Court have made strides toward transparency, the Court of Chancery remains the outlier. As the nation’s premier venue for stockholder litigation, its refusal to adopt a universal disclosure rule leaves a massive gap in corporate oversight.

The court has addressed the issue on a case-by-case basis. In the 2024 case Burkhart v. Genworth, Vice Chancellor Nathan Cook ordered plaintiffs to produce their full funding agreement, warning that such cases are “especially ripe for a third-party funder to exercise improper control over the litigation.”

However, relying on individual judges to catch these issues through motions to compel is an inefficient safeguard. Without a systemic rule, the court cannot effectively police conflicts of interest or determine if a settlement decision was driven by the named plaintiff or an undisclosed financier with ulterior motives.

The movement for reform is gaining momentum outside of Delaware. In 2024, the chairman of the House Oversight Committee urged the Judicial Conference to consider mandatory disclosure due to foreign money in U.S. courts. Meanwhile, states like Ohio and North Carolina have moved to regulate or even prohibit third-party litigation investment entirely.

The argument for reform rests on the idea that capital markets depend on disclosure. Just as shareholders must disclose ownership and political donors must disclose contributions, the legal system requires clarity on who is funding the pursuit of justice.

Delaware’s reputation was built on the predictability of its rules. The question remains whether the Court of Chancery will implement a disclosure requirement modeled on the federal standard, or if the growing shadow of undisclosed capital will continue to erode the trust that defines American corporate law.

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