Foreign Funding of Mass Tort Litigations Raises National Security Concerns and Threatens American Innovation

Washington, D.C. – Innovation is a critical asset for the United States, but it is facing a growing threat. Foreign competitors and adversaries are increasingly engaging in industrial espionage against American companies, posing a significant risk to national security. One emerging avenue through which foreign entities can gain access to sensitive information and manipulate the American economy is the third-party funding of mass tort litigation. To address this issue, a change in the law is necessary.

Mass tort litigations involve lawsuits filed by lawyers who specialize in suing large corporations for damages caused by their products, whether real or imaginary. These lawsuits can yield substantial financial rewards, but they are also expensive to pursue. Attorneys heavily invest in television and other media advertising to attract individual plaintiffs and gather numerous personal injury claims that can be used in court against the defendant company.

In recent years, hedge funds, private equity firms, and other wealthy investors have significantly increased their involvement in providing upfront funding for mass tort litigations. These third-party investors finance advertising, lead generators, and other case preparation costs. They are attracted to the potential share of awards or settlements, which they receive before claimants are paid. As a result, litigation financiers contribute an estimated $5 billion annually to mass tort cases, with the number of advertisements growing by 30 percent from 2017 to 2021.

However, when foreign nationals or entities underwrite these lawsuits, it raises concern from a national security perspective. These third-party funders have significant financial leverage, which allows them to influence critical decisions in mass tort cases. They can access sensitive business and product information of defendant companies in the United States, using the American court system to further their interests.

Foreign governments, such as China, actively engage in espionage targeted at American industry and the economy. Sensitive information obtained through funding lawsuits against American companies could be invaluable. For instance, an expert warned that a Chinese investment firm funding a suit against a U.S. military technology company could potentially gain access to highly confidential documents containing proprietary information about sensitive technologies.

Attacking major U.S. companies with mass tort litigations also allows foreign nations to exert influence over the American economy. Lengthy court battles can delay product offerings and discourage investments, giving foreign countries an opportunity to increase their market share at the expense of American companies. They may even fund cases focused on divisive issues to influence U.S. politics, policy, and elections.

Recognizing the national security risks associated with foreign funding of mass torts, experts, including those at the U.S. Chamber of Commerce, are sounding the alarm. They are concerned that the extent of foreign investments in the U.S. legal system remains unclear due to the lack of disclosure requirements for funding agreements. This obscurity enables other governments and foreign businesses to covertly involve themselves in legal actions.

As the National Counterintelligence and Security Center points out, our adversaries view the cyber environment as a means to penetrate the foundations of our economy. While the cyber environment is not the only avenue for potential access to American intellectual property, trade secrets, and technological advancements, effective regulations regarding third-party funding of mass tort litigations are crucial to mitigate this emerging threat. Until such regulations are enacted, the court system will continue to pose a potential risk to American innovation and national security.

Major General Bob Dees, U.S. Army (Retired), an expert in national security, emphasizes the importance of addressing this issue promptly. With his extensive experience in developing high-technology weapons and communications systems, General Dees brings valuable insights to the discussion.

In conclusion, the United States must take decisive action to safeguard its innovation and national security against the threat posed by foreign-funded mass tort litigations. Implementing effective regulations to govern third-party funding in these cases is essential. Failure to do so will leave the court system vulnerable and compromise American innovation and economic stability.

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