As the 2024 presidential campaign heats up, America’s adversaries are working overtime to interfere with our democratic system. The Department of Justice and Washington think tanks have recently exposed efforts by China, Iran, and Russia to infiltrate and manipulate both political parties and their nominees. These kinds of foreign interference operations should be totally unacceptable to the American public, and our leaders should seek out ways to block them and punish those responsible.
Sadly, though, malignant foreign influence in American government stretches beyond our elections; it is a major problem facing our courts as well. Through a legal mechanism known as third-party litigation funding, antagonistic regimes can invest in lawsuits against American companies and wage a subtle form of economic warfare against them. This poses a clear ongoing national security threat, and Congress should act rapidly to close loopholes that allow our enemies to weaponize our legal system against us.
From the Middle Ages in England, the principles of common law have historically prohibited non-parties from financially backing litigation. Common law doctrines evolved in this way to specifically preclude frivolous lawsuits. But beginning in Australia during the 1990s, many countries passed statutes abolishing these long-standing customs. These innovators were led by a misguided sense that third-party litigation funding could support individuals and entities with limited resources as they pursued justice in the courts.
Third-party litigation funding took off in the United States in 2010, and it has since become a nearly $14 billion industry, causing a host of problems in the courts. The ability to monetize legal claims and transfer risks to third parties can make plaintiffs reckless and deter settlements that would otherwise be in the best interests of both parties in a given case. It can also weaken the attorney-client privilege that Americans have always believed vital to a functioning legal system.
Indeed, this experiment has proven to be an absolute catastrophe, as are most departures from commonsense rules and customs built up over centuries.
Third-party litigation funding has also created a murky underbelly in the legal world. There are no laws requiring investors to disclose their involvement with litigation finance. Funders can pour millions and millions of dollars into cases without having to divulge their involvement at all. This is a clear violation of the principles of openness that are supposed to be at the heart of American law. The ways third-party litigation funding can be exploited for nefarious ends are nearly endless.
Without question, the most dangerous consequence of third-party litigation funding is the loopholes it creates for America’s enemies to wage lawfare against our economy. Operating in the shadows, our adversaries can, and do, funnel money into cases against American companies. By targeting strategic industries, including businesses in the defense sector, our global rivals can tie them up in pricey lawsuits and exact punishing costs.
Take, for instance, the Russian investment firm Alfa Group. After Russian President Vladimir Putin invaded Ukraine in 2022, this financial giant’s billionaire founders sought out ways to dodge sanctions Western governments put on them for supporting the terrible war. Because there are no disclosure requirements for third-party litigation funding, the Alfa Group was able to finance lawsuits to circumvent these sanctions across the West, including in the United States, without disclosing the sanctioned entities’ involvement. They were also able to quietly finance lawsuits advancing Russian interests without revealing their role.
The Chinese Communist Party has also been exploiting third party litigation funding. To name just one example, Purplevine IP, an intellectual property service provider based in China, has been financing lawsuits against American tech companies. There is no free market independent of the Chinese government in the communist country’s economy; this litigation funding is proceeding with the approval of the CCP.
One can easily see how enemy regimes can further weaponize this mechanism to target strategic industries and weaken the United States.
Foreign adversaries are becoming especially adept at using third-party litigation funding to target critical sectors with patent litigation. In 2019, for instance, a firm called VSLI Technology sued the American tech corporation Intel for allegedly stealing superconductor designs. The problem is VSLI does not make any products and appears to be a front for its owners, an Abu Dhabi-based hedge fund called Fortress Investment Group. When a judge ordered VSLI to disclose who was financing its litigation, the company decided to simply have the case dismissed rather than reveal its backers.
We may never know for sure who was supporting the lawsuit against Intel, but foreign adversaries certainly could have been involved. Legal experts believe it is reasonable to suspect overseas interference on some level because of the deeply strategic nature of Intel’s work on manufacturing microprocessors.
Although the company was able to win appeals and receive a certain amount of recuperation, the VSLI lawsuit still distracted Intel’s leaders and sucked up resources that would have been better spent on developing new technologies and helping the American economy compete in global markets. The whole saga has become yet another example of the way the American patent system’s weaknesses can butt up against our national security interests.
The good news is that members of Congress are working on solutions. Sens. John Kennedy (R-LA) and Joe Manchin (I-WV) introduced bipartisan legislation in the Senate called the Protecting Our Courts from Foreign Manipulation Act to increase disclosure requirements and ban sovereign wealth funds and foreign governments from directly or indirectly participating in third-party litigation funding schemes. Rep. Darrell Issa (R-CA) has introduced a similar bill in the House of Representatives, with a focus on protecting American intellectual property from predatory activity from foreign entities.
In an era of partisan rancor, litigation reform is something all our political leaders should agree on. The current status of third-party litigation funding disclosure rules is not operating on behalf of anyone’s best interest. In fact, it has opened a new front in America’s adversaries’ fight to undermine our national security. Even with the divisions currently afflicting our government, this is one policy area in which members of Congress can work together to solve what has become a truly urgent problem.
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Michael Lucchese is the founder of Pipe Creek Consulting, an associate editor of Law & Liberty, and a contributing editor to Providence.
This article was originally published at www.washingtonexaminer.com
