In a striking outcome for funded collective actions, the UK's Competition Appeal Tribunal has signed off on the discontinuation of a £480 million claim against Qualcomm that delivers no compensation to the millions of consumers it was meant to benefit.

As reported by CDR News, the Tribunal approved a "drop-hands" settlement on June 10 under which all parties discontinue proceedings and bear their own costs. The claim, brought by the Consumers' Association (Which?) as class representative, had alleged that Qualcomm abused its market dominance to overcharge for smartphone chips, inflating handset prices.

The Tribunal assessed the claim's prospects at just 10% to 15%, concluding that the class representative "no longer had a realistic prospect of success." The result is believed to be the first CAT settlement resolved on a drop-hands basis, with neither the class nor the funder receiving any payment despite the claim's headline valuation.

The action had been backed by litigation funder Augusta Ventures alongside law firm Hausfeld. For the funder, the outcome represents a total loss on its investment in the case—a pointed illustration of the downside risk inherent in the opt-out regime.

The decision lands amid intensifying scrutiny of funded class actions in the UK, where the Tribunal has shown a growing willingness to test the merits, economics, and consumer benefit of collective proceedings before allowing them to advance or settle.

As private equity firms extend their reach into the legal industry, a new commentary argues that the tax code has failed to keep pace with how litigation funders actually earn their returns.

Writing for RealClearMarkets, Michael Toth contends that third-party litigation funders routinely claim favorable capital gains treatment on their returns when that income should be taxed as ordinary income. He notes that the Treasury Department "has never bothered to clarify the proper tax treatment of TPLF returns," leaving a roughly $20 billion industry to structure deals as "derivative contracts" despite funders performing work that closely mirrors that of plaintiffs' attorneys—vetting cases, advising on strategy, and managing litigation budgets.

The piece opens with Fortress's recent $125 million investment in an Arizona personal injury firm, which Toth frames as evidence that funders are shifting from wagering on individual case outcomes toward financing law firms' back-office operations and steadier revenue streams. He argues that the disclosure bills congressional Republicans have introduced since 2019 are "focused on yesterday's market," addressing single-case funding even as investors move toward portfolio and operational models. He also flags that nonresident foreign funders can often avoid federal tax on U.S. litigation gains altogether.

Toth's proposed fix relies on existing authority: he urges Treasury to apply the substance-over-form doctrine and tax funding returns as ordinary business income, while noting that Congress could amend the definition of capital assets to exclude legal claims.