Hit News (https://www.hitnews.co.kr/news/articleView.html?idxno=71407)
As Korean companies expand overseas, dispute risks are rising — but with third-party funding, even losing a case can mean zero cost exposure.
In Korea, key legal hurdles have effectively been resolved, paving the way for broader use of TPF
#. Medytox announced that when it filed a complaint against Hugel with the U.S. International Trade Commission (ITC) in April 2022, it retained Quinn Emanuel, one of the world’s leading law firms. The industry voiced concerns about the cost of hiring a top-tier global firm. However, Medytox effectively reduced its financial burden to “zero” by using third-party litigation funding — a mechanism still relatively unfamiliar in Korea.
In Korea’s biopharmaceutical sector, third-party funding (TPF) is increasingly emerging as a new tool for risk management. Under this model, an external funder covers the litigation costs in exchange for a share of the recovery if the case succeeds. If the case is lost, the claimant has no obligation to repay the funding. Beyond the financial benefits, companies also see TPF as a way to signal and validate the underlying value of their technology. With most legal uncertainties now effectively resolved, the industry is watching closely to see whether TPF will establish itself as a new strategic option going forward.
Litigation has become an investment — and it’s already a 40-trillion-won market worldwide.
TPF, put simply, is a fund that invests in litigation. When a company has a strong case but lacks the capital to pursue it, an external investor finances the legal costs. If the company wins and recovers damages, a portion is shared with the funder. If it loses, the funder absorbs the loss. Because it is structured as an investment rather than a loan, the company has no repayment obligations — a key advantage.
Of course, funders do not invest in just any case. They assess not only the likelihood of success but also the practical recoverability of damages after a win. As a result, approval rates are relatively low, often only 10–20%. However, once funded, cases show high success rates, reportedly between 75% and 85%. This is why securing TPF is often viewed as a form of external validation of a company’s underlying value.
For these reasons, third-party funding has already become mainstream in the United States and Europe. The global TPF market is estimated to exceed 40 trillion won, and some statistics indicate that TPF is used in roughly 30% of U.S. intellectual property litigation. In the pharmaceutical sector in particular, generic companies often seek to secure TPF even before challenging the patents of originator drugs — a practice that has effectively become standard.
Violation of the Attorney-at-Law Act? The legal framework is now in place in Korea as well.
Some have raised concerns that third-party funding could violate Korea’s Attorney-at-Law Act, which prohibits fee-sharing between lawyers and non-lawyers in connection with litigation. Such concerns stem largely from foreign practices where investors directly invest in cases that law firms are handling.
However, these concerns are based solely on overseas cases. In Korea, as long as the contractual structure between the investor and the company is properly maintained, such concerns can be avoided and third-party funding can be used lawfully. Analysts note that if the investor enters into a funding agreement directly with the company that needs capital, and the law firm represents only the company, this structure should not conflict with the prohibition on profit-sharing under the Attorney-at-Law Act. In addition, with the amended KCAB International Arbitration Rules taking effect in January 2026, the use of third-party funding will not itself pose a problem in KCAB international arbitrations, so long as the disclosure obligations regarding third-party funding are duly satisfied.
Due to these concerns, third-party funding has so far been used primarily in overseas litigation or arbitration proceedings (such as ICC, SIAC, and HKIAC). The Medytox case mentioned earlier is a representative example. Tae Hun Lee, a foreign attorney at LITIG Equity Partners—the only third-party funding advisory firm not only in Korea but in Asia—explained: “If the investor contracts directly with the company and the law firm represents only the company, the issues people worry about should not arise. Without any direct contract between the law firm and the funder, Korean companies have been using this dual-contract structure to obtain funding for their overseas disputes.” He added, “There are still misunderstandings because of the wide range of examples across different jurisdictions, but if the contractual structure is set up differently, there should be no legal issues in Korea either.”
Could TPF help industries facing high dispute costs—from IP litigation to court actions and arbitration?
TPF is gaining attention in the biopharmaceutical industry because it is a sector where numerous disputes arise, particularly in connection with intellectual property. When a patent is invalidated, a company’s revenues—ranging from a few billion won to hundreds of billions of won—can be directly affected. Conversely, protecting a patent requires significant spending on trials before the Intellectual Property Trial and Appeal Board (IPTAB) as well as civil litigation. Large companies may be able to absorb these costs, but for smaller firms or early-stage biotech ventures, the burden can be overwhelming.
In Korea—where companies are strong in generics and biosimilars—legal disputes often take the form of defense rather than offense. There are multiple cases in which Korean companies have faced patent challenges from originator firms following the launch of biosimilars, including the well-known Eylea dispute. In such situations, third-party funding can help companies defend themselves, reduce potential damages, and avoid existential threats.
Beyond patent conflicts, TPF can also be applied to disputes arising from terminated licensing agreements, halted joint development projects, breaches of non-compete obligations due to key personnel moves, and other issues common in this industry. The broad range of dispute types suggests wide applicability for TPF.
The financial benefits are also significant. Large-scale litigation normally requires companies to recognize legal expenses in their accounts, whereas funded litigation does not. This allows firms to preserve cash flow and allocate resources to core areas such as R&D.
Another advantage is the signaling effect: a funder’s decision to invest is perceived by other investors and shareholders as independent validation that the case has merit. It also neutralizes the opposing party’s ability to exert pressure through greater financial resources. For this reason, cases often move to early settlement once the involvement of a funder becomes known.
Still, awareness of TPF within the biopharmaceutical industry remains limited. The sector tends to be conservative and reluctant to share information related to disputes due to the prevalence of trade secrets.
However, TPF is already expanding across various industries, and even government entities—frequent litigants themselves—are closely monitoring the trend. As such, many believe TPF is likely to become a new risk-management tool for pharmaceutical and biotech companies.
Indeed, the Korean Pharmaceutical and Bio-Pharma Manufacturers Association(KPBMA) recently highlighted the topic at a forum, signaling growing interest.
Attorney Tae Hun Lee noted, “As third-party funding—already active in overseas litigation and international arbitration—is now being incorporated into KCAB international arbitration, it is likely that domestic arbitration will soon follow. If it eventually extends to domestic litigation, the market will grow significantly, as mid-sized and small companies that face capital constraints and heightened risk-management needs will be able to use it as a more proactive option for enforcing their legal rights.” He added, “Korea is likely to move toward a model similar to that of other jurisdictions, where third-party funding can be freely used for arbitration and litigation as long as it is transparently disclosed.”
