Opinion - China's courtroom espionage strategy demands a federal response

Yahoo

2 days ago

In April, the U.S. Court of Appeals for the Ninth Circuit handed down a decision in a stunning case that should be a wake-up call to lawmakers across the country. In U.S. v. Pangang Group, a Chinese state-owned enterprise admitted in open court that it had engaged in state-sponsored industrial espionage, stealing American trade secrets to achieve strategic goals for China's government. The company even tried to invoke sovereign immunity, claiming that theft for the purpose of national industrial development was a legitimate function of the Chinese state.
This brazen confession didn't just confirm China's role in weaponizing commercial enterprises for geopolitical gain — it also underscored how vulnerable our systems remain to economic sabotage. One of the least understood, but potentially most damaging, tools in this arsenal is third-party litigation funding. It's time that Congress wakes up and takes steps to address this looming threat.
During my time in Congress, I served on the Committee on National Security and learned about many forms of foreign interference, but few are as insidious as third-party funding. Under this system, outside financiers — often anonymous — fund lawsuits in return for a cut of the potential winnings. There is no federal requirement to disclose these arrangements, including whether the backers are foreign nationals, sovereign wealth funds or shell corporations tied to adversarial governments. That must change.
Third-party funding isn't necessarily inherently malicious, but this opacity and the nature of these arrangements opens the door to abuse. Although its backers have historically been hedge funds or other investors in pursuit of healthy returns that are insulated from the broader market — which raises its own set of ethical concerns about subverting the justice system to earn a profit — these actors are generally not seeking to undermine the U.S. more broadly.
Foreign-backed funders, on the other hand, can use litigation to drain resources from U.S. companies through prolonged legal battles. Not only that, but they can also use such proceedings to obtain access to proprietary information such as technical data, trade secrets and supply-chain vulnerabilities through the discovery process. For firms tied to sectors like AI, pharmaceuticals, aerospace or semiconductor design, this is a direct national security risk.
The FBI has called China's economic espionage the 'greatest long-term threat to our nation's information and intellectual property, and to our economic vitality.' Yet right now, we lack even the most basic safeguards to ensure that our courtrooms aren't being used as intelligence-gathering venues for hostile foreign powers. That is unacceptable.
Fortunately, there are solutions that are currently under consideration. Rep. Ben Cline's (R-Va.) Protecting Our Courts from Foreign Manipulation Act of 2025 would be a critical first step. It would prohibit foreign governments and sovereign wealth funds from investing in third-party litigation funding, require transparency about who is funding litigation, and direct the Department of Justice to report annually on foreign activity in this space.
Another promising effort backed by Rep. Darrell Issa (R-Calif.) is the Litigation Funding Transparency Act, which would mandate disclosure of funding sources in all federal civil cases, ensuring that judges, juries and defendants know who's really pulling the strings behind the scenes.
These federal efforts echo a growing movement at the state level. In my home state of Kansas, for example, lawmakers recently enacted Senate Bill 54 — a strong, bipartisan reform that mandates the disclosure of third-party litigation funding agreements within 30 days of execution. It also requires a sworn statement that identifies all parties to the agreement, whether the funder can influence litigation or settlement decisions, and if any foreign entity is involved in the financing. But piecemeal state action can only go so far, and we need Congress to act quickly.
Third-party litigation funding should not be a backdoor for China or any other adversary to undermine American companies, steal our intellectual property, or compromise our national defense base. When state-owned enterprises such as the Pangang Companies can openly admit in court that they steal American innovation for geopolitical gain, we can no longer afford to treat litigation finance as just another investment vehicle. It now has the potential to be a vector of strategic exploitation.
National security isn't bounded by state lines, and neither is foreign influence. The threats are real, the stakes are high, and the time for action is now. Let's not wait for the next courtroom confession to learn what China already knows: that America's legal system is a battlefield, and without reform, we're fighting blindfolded.
Todd Tiahrt previously represented the 4th District of Kansas in the U.S. House of Representatives and served on the House Committee on National Security.
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