Foreign Funded Lawfare Threatens American National Security

Foreign Funded Lawfare Threatens American National Security

Effective regulations regarding the third-party funding of mass tort litigations must be implemented to combat the emerging threat of industrial espionage.

Innovation is the United States’ foremost strategic asset. However, our ability to create revolutionary new technologies and products is under assault. Industrial espionage is increasingly conducted against American companies by foreign competitors and adversaries, posing a severe national security threat. While there are many fronts to this war, third-party funding of mass tort litigation has emerged as a new avenue through which foreign entities can gain direct, clandestine access to sensitive information and manipulate the American economy. To prevent this, a change in the law is necessary.

Mass tort litigations are lawsuits promoted by attorneys specializing in suing large corporations for real, and sometimes imaginary, damages caused by their products. While these lawsuits can bring in vast sums of money, they are expensive. Attorneys invest heavily in television and other media advertising to find individual plaintiffs. They then use the hundreds or even thousands of personal injury claims they attract to take the defendant company to court.

As a result, hedge funds, private equity companies, and other wealthy investors have dramatically increased their involvement in up-front funding of mass tort litigations. These third-party investors increasingly provide the money necessary for advertising, lead generators, and other case preparation costs. Attracted by the significant share of awards or settlements that are taken before claimants are paid, along with an investment vehicle not tied to the general economy or stock market, litigation financiers put as much as an estimated $5 billion a year into mass torts, with the number of advertisements growing by 30 percent from 2017 to 2021.

However, the litigations become a national security concern when the third-party funders are foreign nationals or entities underwriting such lawsuits for more than a profit. Because these backers have the financial leverage to influence critical decisions in mass tort cases, including when to settle and how much to demand, they become fully involved players. As a result, they can access sensitive information about the businesses and products of defendant companies in the United States and use the American court system to further their interests.

It’s no secret that other countries envy the United States and actively engage in espionage aimed at American industry and the economy. For a foreign government such as China, which is openly tied to major Chinese firms that compete with American businesses, such inside information could be worth much more than a court settlement. For example, if a Chinese investment firm funded a suit against an American company in the military technology industry, one expert warned they could potentially gain access to “highly confidential documents containing proprietary information regarding sensitive technologies.”

Attacking major U.S. companies with mass tort litigations also allows other nations to influence our economy. Tying big companies up in court can delay product offerings and diminish investment, something foreign countries would love as it would increase their market share at the expense of American companies, even funding cases focused on divisive issues to influence U.S. politics, policy, and elections.

The good news is that experts across the country, including in the U.S. Chamber of Commerce, are starting to sound the alarm on the national security risks associated with foreign funding of mass torts. They are concerned that the full extent of foreign investments in the U.S. legal system is unclear because current laws do not demand disclosure of funding agreements, making it possible for other governments and foreign businesses to involve themselves in legal actions covertly.

As the National Counterintelligence and Security Center points out, our adversaries “increasingly view the cyber environment—where nearly all important business and technology information now resides—as a fast, efficient, and safe way to penetrate the foundations of our economy.” Now, it’s not the only way for them to potentially gain access to American intellectual property, trade secrets, and technological developments.

Effective regulations regarding the third-party funding of mass tort litigations must be implemented to combat the emerging threat. Until then, our court system will continue to be a potential risk to American innovation and national security.

Major General Bob Dees, U.S. Army, Retired, has a breadth of national security expertise, including developing high-technology weapons and communications systems. He also served as a consultant to the President’s Commission on Critical Infrastructure Protection. Follow him on X @MGBobDees.

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