OPINION:
Congress can’t agree on much these days, but one of the rare exceptions is bipartisan support for the regulation of foreign third-party litigation funding. Although the threat is largely unrecognized by the public, this practice could provide unvetted foreign investors free access to our court system and pose a serious threat to the American economy and national security.
An upswing in mass tort litigation in recent years, which can involve thousands of cases brought against defendants that are typically large corporations or other similar entities, has given rise to third-party litigation funding. As more of these cases work their way through the courts, it has become increasingly clear that many of these cases are not particularly concerned if actual damage was done to individual claimants but are being advanced in the profit-driven interest of mass tort litigators and their financial backers.
Attracted by the chance to obtain massive settlements or judgments and by steady returns that are insulated from market fluctuations, significant investments are now made by outside parties in these efforts. As a result, such lawsuits are now swamping the legal system and harming American companies. In fact, multidistrict litigations constitute a significant portion of the lawsuits going through the federal courts, now making up 73% of the pending federal civil caseload in 2022, double the number of just 10 years ago.
Many of these cases are highly technical, making it difficult for courts to adjudicate them fairly. This can also lead to big settlements over barely legitimate claims that don’t reflect the actual value of the intellectual property involved. This harms the American economy by transferring money from productive companies that could otherwise spend it on innovation, reinvestment and job creation to lawyers and their financial backers.
It’s bad enough when domestic investors dive into mass torts. But now, patent infringement suits appear to be an emerging target for foreign investors and companies, both for their own gain and perhaps that of foreign governments. This could result in a new level of damage that not only costs American companies a lot of capital, but also makes them less competitive in the international economy and benefits countries such as China that actively work to steal intellectual property as they battle the United States for market share.
All of this puts America’s national security at risk. Not only could a foreign adversary use such lawsuits as a vehicle to potentially gain access to “highly confidential documents containing proprietary information regarding sensitive technologies,” it could also be used as a tool of industrial sabotage to weaken our defense capabilities.
By diminishing the innovation and production of technologies that have helped the United States maintain a competitive edge against its enemies, such lawsuits could give our adversaries a huge advantage on future battlefields.
Recognizing these threats, the House Committee on Oversight and Accountability held a hearing this past fall delving into the lack of transparency and accountability in the third-party litigation funding system. As a former member of Congress, I was pleased to see lawmakers expose how allowing both domestic and foreign third-party litigation funders to invest in court cases anonymously sets the stage for abuse of the system and subversion of the legal process for financial or political gain.
After the hearing, Democratic Sen. Joe Manchin III of West Virginia and Republican Sen. John Kennedy of Louisiana introduced legislation designed to address this problem.
The Protecting Our Courts From Foreign Manipulation Act, and its companion bill in the House of Representatives, would require disclosure of foreign persons engaged in funding civil litigation, ban foreign governments and sovereign wealth funds from participating in litigation finance, and require the Department of Justice’s National Security Division to report on foreign third-party litigation funding in the federal judiciary.
It is important that these pieces of legislation make their way through the Senate and House and to the president’s desk. If nothing is done, many believe it is just a matter of time before the lack of transparency and regulations controlling third-party litigation funding by foreign nations or companies results in serious damage to U.S. interests.
• Bob McEwen represented Ohio in Congress for six terms and served on the House Select Committee on Intelligence.
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