[House Hearing, 119 Congress]
[From the U.S. Government Publishing Office]
FOREIGN ABUSE OF U.S. COURTS
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON COURTS, INTELLECTUAL
PROPERTY, ARTIFICIAL INTELLIGENCE, AND
THE INTERNET
OF THE
COMMITTEE ON THE JUDICIARY
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED NINETEENTH CONGRESS
FIRST SESSION
__________
TUESDAY, JULY 22, 2025
__________
Serial No. 119-32
__________
Printed for the use of the Committee on the Judiciary
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available via: http://judiciary.house.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
61-247 WASHINGTON : 2025
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COMMITTEE ON THE JUDICIARY
JIM JORDAN, Ohio, Chair
DARRELL ISSA, California JAMIE RASKIN, Maryland, Ranking
ANDY BIGGS, Arizona Member
TOM McCLINTOCK, California JERROLD NADLER, New York
THOMAS P. TIFFANY, Wisconsin ZOE LOFGREN, California
THOMAS MASSIE, Kentucky STEVE COHEN, Tennessee
CHIP ROY, Texas HENRY C. ``HANK'' JOHNSON, Jr.,
SCOTT FITZGERALD, Wisconsin Georgia
BEN CLINE, Virginia ERIC SWALWELL, California
LANCE GOODEN, Texas TED LIEU, California
JEFFERSON VAN DREW, New Jersey PRAMILA JAYAPAL, Washington
TROY E. NEHLS, Texas J. LUIS CORREA, California
BARRY MOORE, Alabama MARY GAY SCANLON, Pennsylvania
KEVIN KILEY, California JOE NEGUSE, Colorado
HARRIET M. HAGEMAN, Wyoming LUCY McBATH, Georgia
LAUREL M. LEE, Florida DEBORAH K. ROSS, North Carolina
WESLEY HUNT, Texas BECCA BALINT, Vermont
RUSSELL FRY, South Carolina JESUS G. ``CHUY'' GARCIA, Illinois
GLENN GROTHMAN, Wisconsin SYDNEY KAMLAGER-DOVE, California
BRAD KNOTT, North Carolina JARED MOSKOWITZ, Florida
MARK HARRIS, North Carolina DANIEL S. GOLDMAN, New York
ROBERT F. ONDER, Jr., Missouri JASMINE CROCKETT, Texas
DEREK SCHMIDT, Kansas
BRANDON GILL, Texas
MICHAEL BAUMGARTNER, Washington
------
SUBCOMMITTEE ON COURTS, INTELLECTUAL PROPERTY,
ARTIFICIAL INTELLIGENCE, AND THE INTERNET
DARRELL ISSA, California, Chair
THOMAS MASSIE, Kentucky HENRY C. ``HANK'' JOHNSON, Jr.,
SCOTT FITZGERALD, Wisconsin Georgia, Ranking Member
BEN CLINE, Virginia ZOE LOFGREN, California
LANCE GOODEN, Texas TED LIEU, California
KEVIN KILEY, California JOE NEGUSE, Colorado
LAUREL LEE, Florida DEBORAH ROSS, North Carolina
RUSSELL FRY, South Carolina ERIC SWALWELL, California
MICHAEL BAUMGARTNER, Washington SYDNEY KAMLAGER-DOVE, California
CHRISTOPHER HIXON, Majority Staff Director
JULIE TAGEN, Minority Staff Director
C O N T E N T S
----------
Tuesday, July 22, 2025
OPENING STATEMENTS
Page
The Honorable Darrell Issa, Chair of the Subcommittee on Courts,
Intellectual Property, Artificial Intelligence, and the
Internet from the State of California.......................... 1
The Honorable Henry C. ``Hank'' Johnson, Ranking Member of the
Subcommittee on Courts, Intellectual Property, Artificial
Intelligence, and the Internet from the State of Georgia....... 3
The Honorable Jamie Raskin, Ranking Member of the Committee on
the Judiciary from the State of Maryland....................... 4
WITNESSES
Emily de La Bruyere, Senior Fellow, Foundation for Defense of
Democracies
Oral Testimony................................................. 8
Prepared Testimony............................................. 11
Julian G. Ku, Maurice A. Deane Distinguished Professor of
Constitutional Law, Hofstra University
Oral Testimony................................................. 17
Prepared Testimony............................................. 19
Bradford Muller, Senior Vice President, Charlotte Pipe and
Foundry
Oral Testimony................................................. 27
Prepared Testimony............................................. 29
Jacques deLisle, Stephen A. Cozen Professor of Law and Political
Science, Director, Center for the Study of Contemporary China,
University of Pennsylvania
Oral Testimony................................................. 37
Prepared Testimony............................................. 39
LETTERS, STATEMENTS, ETC. SUBMITTED FOR THE HEARING
All materials submitted for the record by the Subcommittee on
Courts, Intellectual Property, Artificial Intelligence, and the
Internet are listed below...................................... 73
Materials submitted by the Honorable Henry C. ``Hank'' Johnson,
Ranking Member of the Subcommittee on Courts, Intellectual
Property, Artificial Intelligence, and the Internet from the
State of Georgia, for the record
An article entitled, ``Litigation Finance Doesn't Pose a
Security Risk: Legal Insight,'' May 3, 2023, Bloomberg
Law
An article entitled, ``A `Boogeyman' National Security Threat
in Litigation Funding,'' Jul. 21, 2023, Law360
Materials submitted by the Honorable Darrell Issa, Chair of the
Subcommittee on Courts, Intellectual Property, Artificial
Intelligence, and the Internet from the State of California,
for the record
A statement from the Alliance for American Manufacturing
(AAM), Jul. 22, 2025
A statement from the American Property Casualty Insurance
Association (APCIA), Jul. 22, 2025
FOREIGN ABUSE OF U.S. COURTS
----------
Tuesday, July 22, 2025
House of Representatives
Subcommittee on Courts, Intellectual Property, and
Artificial Intelligence, and the Internet
Committee on the Judiciary
Washington, DC
The Committee met, pursuant to notice, at 10 a.m., in Room
2141, Rayburn House Office Building, the Hon. Darrell Issa
[Chair of the Subcommittee] presiding.
Members present: Representatives Issa, Jordan, Fitzgerald,
Cline, Kiley, Lee, Fry, Johnson, Raskin, and Ross.
Also present: Representatives Knott and Moore of North
Carolina.
Mr. Issa. [Presiding.] The Committee will come to order.
I want to thank the witnesses today for joining us to deal
with a number of important issues. I apologize, I'm having a
Ronald Reagan teleprompter moment here. Let me get the script.
One page off. The difference between being here too long
and not being too long is that I still recognize when the
opening statement and the script have been reversed--for now.
The Subcommittee will come to order. Without objection, the
Chair is authorized to declare a recess at any time.
We welcome everyone here today on a hearing on foreign
abuse of U.S. courts. I want to include that this is the title,
but not by any means the limitation, and there are a multitude
of bills which have been made available to everyone here that
we believe are open and available for discussion. We have a
distinguished panel, and I recognize that you are able to go
into areas beyond any one piece of legislation.
I will now recognize myself for that opening statement.
Again, I want to thank the witnesses and make it clear that
the Chinese Communist Party is waging what they call ``legal
warfare'' using the U.S. courts. Although this is not new, the
previous administration elevated it by covering repeatedly a
number of the areas in which the CCP has been, in fact, using
our system against us.
This is over and above the 10,000 attacks a day that occur
on the internet. This is over and above their spying. This is
over and above the abuses that occur on companies in China.
This is, in fact, using our patent system, our trademark
system, and our courts to their advantage. We take this
seriously, so that we will not be abused any longer.
Legislation and rule changes by the administration need to
happen and happen now.
Let's make it clear, there are legal actions that Chinese
businessmen and others do, and we want to make sure they are
protected, just as we want to make sure that American
companies, European companies, and individuals all over the
world have access to our courts, to our patent, and trademark
system, and to our economy.
In fact, some of our own laws have made it easier for the
Chinese to take advantage of us. Our courts are the backbone of
our Constitution, and we will protect it. Legislation that
sanctions the PRC alone cannot be enough. We also have to
strengthen the system itself from this type of activity.
One of them is, in fact, an open and transparent disclosure
of who is truly behind a litigant. That includes third-party
funding of litigation. It also includes, and should include a
thorough recognition that often there are a series of shell
companies, even U.S. subsidiaries, that, in fact, have little
to do with anything except covering their true source.
All of that is not new. We see it in criminal operations,
in human trafficking, in drug smuggling, in commercial fraud,
and that is not limited to any one country. The fact that it is
backed by a power country who is using and weaponizing this is
particularly disturbing.
As we all are aware, often we are just a few weeks, a few
months, or maybe a few hours in new technology ahead of China
compromising it and using it. That includes a lookalike of the
F-13. That includes a duplicate of the CERN supercollider new
version. That one will be out before ours is built here in the
United States.
We are not going to be able to fix it here all today and it
is not all within our jurisdiction. What is within our
jurisdiction is to look at and to make available greater
transparency to empower our judges to order that transparency
and, in fact, to make it clear that a case should not go
forward if, as is Constitutional, a person accused of anything
criminally is entitled to be faced by their accusers, their
true accusers, which would include those who have people step
forward. That is our law.
In civil matters, that often is a one-way street.
Defendants, under Rule 26, have to disclose if they are
insured, have to disclose, quite frankly, their own financial
condition, and even the financial condition of their
principals. That is not always the case in the case of the
plaintiff, and we need to have that.
In preparation for this hearing, I have met with a great
many companies and law firms who use third-party litigation
funding or who partner with other companies. None of them
object to, in fact, the transparency of disclosing that. Many
of them have cautioned that the discretion by the judge as to
admissibility to the jury is a different story. I want to make
that clear because it is not the intention of this Chair or of
any legislation I have yet seen to interfere with a judge's
decision on admissibility. When it comes to the right to know,
whether in camera or otherwise, this information is critical in
making the decision about protective orders and the conduct of
the case.
The Subcommittee has broad jurisdiction as to the courts,
but we want to use it wisely. In this case, recognizing that
transparency is one of the most important tools that we have,
we want to make sure that it is brought to the attention of
everyone.
As I said earlier, this hearing does include a number of
other pieces of legislation that I believe our panel is able to
answer, and we appreciate your indulgence when those questions
are asked.
With that, I recognize the Ranking Member for his opening
statement.
Mr. Johnson. Thank you, Mr. Chair. Thank you to the
witnesses for being here today.
This Subcommittee has held a series of bipartisan hearings
over the last few years on the threat from the government of
China. As a strategic competitor, China is seeking to develop
cutting-edge technology to win the so-called AI arms race with
the United States. It also competes for soft power around the
world, competes for economic predominance, and competes for
strategic resources. There is nothing wrong with competition.
There is a problem with breaking the rules to get ahead, and
that is what China has sought to do.
Over our hearings, we have examined cases of economic
espionage, threats to American intellectual property,
cybersecurity risks, and the different ways these actions by
China threaten U.S. national security.
Today, we are here to examine the use of our court system
by Chinese actors. We absolutely agree that China is seeking to
gain ground in our strategic competition by encouraging Chinese
businesses to harm American companies, and that can include
through our court system.
I have enjoyed working with Chair Issa and my colleagues on
these bipartisan hearings, and I sincerely hope we can continue
to examine the threat from the government of China to our
national security, our economy, and our power abroad on a
consensus basis.
There are areas where we have disagreed. Last Congress,
this Committee slated a partisan bill for markup that would
have prevented companies on certain sanctions lists from
obtaining new U.S. patents or enforcing the ones they already
own, devaluing U.S. patents and violating international
agreements. While the Preventing Adversarial Patents Act was
removed before it could be considered by the Committee, the
bill was a reminder that there are significant disagreements
between the two parties on this issue.
I worry that this hearing on China's, quote, ``abuse'' of
the U.S. courts maybe a Trojan horse to disguise a different, a
very different agenda. I fear that, as a so-called solution to
the China threat, I will hear proposals like:
First, you can only file a case if you disclose all the
funders of your cause.
Second, you can file a suit if you are rich enough to pay a
huge bond in case you lose.
Third, let's start limiting discovery rules and make them
more restrictive.
Fourth, we'll flip the presumption of enforcing foreign
judgments wholesale and adopt China's restrictive approach.
The answer to a threat cannot be Republicans' tort reform
wish list. Our constituents deserve better than a system where
only the well-connected and the rich survive. That is exactly
what we would get from that list. This world I just outlined
would mean that the big guys, the oligarchs, get their day in
court, but the little guys, the Davids to those Goliaths, would
be shut out.
America's justice system has for so long been a shining
light of equality in the world, and we must safeguard this
impartial justice system now more than ever. Becoming more like
China won't stop China. It won't work in our court system, and
it won't work in our trade practices.
It is a reasonable concern. Our democracy has been under
fire by want-to-be authoritarian Donald Trump and his White
House cronies--the very big guys who could benefit from all the
proposals I just mentioned, who do not care about justice and
the rule of law.
These folks are the ones who let Democratic Senators get
tackled to the ground at news conferences and who block Members
of Congress from Federal facilities. These are the leaders who
tell the DOJ to investigate Members of Congress who dare
criticize the President and who nominate far-Right MAGA
loyalists like Emil Bove to Federal judgeships, knowing that
these sycophants will put Trump's whims above the Constitution.
If we start chipping away at our impartial justice system
and make it harder to access, Americans will lose their ability
to challenge these assaults on our rights against these rich,
connected oligarchs. We cannot let our system become the
playground for the big guys, the oligarchs like Donald Trump
and his cronies. That's not justice, and we must protect the
system where, no matter their status, anyone can walk into a
U.S. courtroom and be treated as an equal.
Again, I thank the Chair and our witnesses, and I look
forward to exploring this important issue.
With that, I yield back.
Mr. Issa. The gentleman yields back. I now am pleased to
recognize the Ranking Member of the Full Committee for his
opening statement.
Mr. Raskin. Thank you very much, Mr. Chair. Thanks to the
witnesses for joining us today.
Like its ally, the authoritarian government of Russia, the
authoritarian government of China presents a serious threat to
American democracy. Our economy and our national security, and
China's intensifying economic and technological competition
with the United States, has at times led to pitched battles in
courtrooms across America. We have seen cases affecting our
national security, intellectual property, and the safety of
Chinese dissidents living here in the United States.
It would be great if we had a partner in the White House to
help us respond to the threat of these repressive, autocratic
regimes, but Donald Trump has consistently bragged about his
marvelous personal relationships with Vladimir Putin, whom he
has called a genius for invading Ukraine and has consistently
praised, and President Xi, who Trump called a brilliant guy who
controls 1.4 billion people with an iron fist, and whom he has
praised for sending Uyghurs to labor camps, saying this was
exactly the right thing to do.
Trump has been systematically dismantling the programs that
protect America against espionage, propaganda, and malign
political and intellectual interference by Russia and China,
while simultaneously dismantling the domestic programs that
make us strong. His administration has been deleting the
programs designed to combat malign foreign power interference
in our elections, including the Foreign Influence Task Force at
the FBI, the Global Engagement Center at the Department of
State, the Critical Infrastructure Partnership Council at the
Department of Homeland Security, while simultaneously cutting
billions of dollars in critical foreign aid to poor countries
for development and democracy assistance and for humanitarian
programs, which China is now gladly taking up in our place.
They are filling the void left by Donald Trump's abandonment of
the space of foreign assistance.
Trump, in the meantime, has been systematically destroying
Radio Liberty, Radio Free Europe, Radio Free Asia, and other
broadcast vehicles that we use to counter Chinese and Russian
propaganda and disinformation all over the world. Trump has put
Kari Lake in charge of world communications--an election
denier, a January 6th denier, and all-around mindless repeater
of garbage conspiracy theories and lies, totally consistent
with the Chinese and Russian agendas for the destruction of
American democracy.
This hearing is important, but it ignores the structural
shift in our government in favor of the autocracies and
kleptocracies who are Donald Trump's political soul brothers.
It is also, of course, a distraction from the mounting
failures, scandals, and embarrassments of this administration.
Republicans this month passed a bill to throw 17 million
Americans off their Medicaid health insurance. The rescission
package Congress passed last week cuts a billion dollars from
public broadcasting and billions more from foreign aid--all
which is nothing but music to the ears of propagandists and
foreign recruiters for China and Russia.
Meantime, Trump is refusing to release the Epstein files--
more than 100,000 documents which he was demanding for years to
blow the lid off of what he, Pam Bondi, Kash Patel, Dan
Bongino, and the MAGA media were describing as a massive global
child sex abuse and human trafficking ring for the rich and
powerful.
Bondi, acting under the direct supervision of Donald Trump,
ordered more than 1,000 FBI agents to work as part of
continuing 24-hour shifts pouring over more than 100,000
documents in the Epstein file--photographs, videos, emails, and
texts. They were instructed to immediately flag all references
to Donald Trump, all appearances of Donald Trump, all images,
likenesses, pictures, and videos of Donald Trump. At the same
time, Kash Patel has been administering loyalty tests and lie
detector tests to FBI agents.
This is a profoundly troubling and suspicious turn of
events, as Donald Trump seeks to sweep the whole thing under
the rug. Our colleagues in the Majority have now canceled all
bills because they don't want to go before the Rules Committee
to have to face more votes on whether or not to release the
Epstein files.
We are examining the threat from China as though Donald
Trump is not ceding more global power to China every single
day, but he is. During his first term, he received millions of
dollars personally from the Chinese Government and State-owned
companies--to say nothing of the valuable trademarks Chinese
authorities rushed to grant him and Trump family members. In
exchange, he opposed sanctions against Chinese telecom
companies and banks, even when they threatened our national
security. He even tried to cancel military exercises with Japan
and South Korea because Russia and China voiced objections to
it.
His second term has seen more catering and appeasement for
the autocrats. Over the last six months, the administration has
weakened America's soft power abroad by defunding foreign aid
programs systematically and closing embassies. It has hurt
America's economy with illegal and arbitrary tariffs that leave
us isolated and hapless in the world.
In this second administration, Trump appears to be hellbent
on remaking his administration in the image of Xi's regime--
cracking down on media outlets he disapproves of; destroying
academic freedom with attempted hostile takeovers of colleges
and universities, including America's oldest university,
Harvard; attacking attorneys for representing clients or causes
he disfavors; purging libraries and censoring books; sending
masked agents in unmarked vans to arrest foreign students
without arrest warrants for voicing opinions he disagrees with;
shipping people to El Salvador's notorious prison of torture,
and using AI to surveil individuals' social media posts and to
create a mega-database of all Americans' information.
Look, in America, everyone is allowed to petition the court
for relief, regardless of the depth of their pockets or their
country of origin. Making it harder for litigants to access the
courthouse doors, even in the name of strategic competition
with a foreign power, would make us less like America. That's
not acceptable, obviously. Yet, that is exactly what some have
suggested, instead of actually developing government policies
that make us strong versus China and prevent illegal subversion
and interference from China and Russia.
In the context of our competition with China, we should
never forget that,
Those who would give up essential liberty to purchase a little
temporary safety deserve neither liberty nor safety.
That is Ben Franklin.
This has been a matter on which there has been strong
bipartisan agreement in the past. I hope Republicans and
Democrats on this Committee can continue to uphold this basic,
yet vital framework, as difficult as Donald Trump has made it.
I yield back the balance of my time.
Mr. Issa. I thank the gentleman for his opening statement.
I will note that, in September, we have both the FBI
Director and the AG coming. We are not ignoring any of your
concerns, and I thank the Ranking Member.
Without objection, all other opening statements will be
included in the record.
It is now my privilege to introduce our witnesses. If you
don't mind, I would like to go out of order a little bit.
We have the gentleman from North Carolina, Mr. Moore, here
to introduce his witness. You don't get that on this Committee,
but we would like you to introduce your witness.
Mr. Moore of North Carolina. Well, thank you and good
morning.
It is an honor to introduce a constituent of mine, Brad
Muller, who is going to be testifying before the Committee. I
will read briefly about his bio, and then I will just talk like
we do from North Carolina about him.
Brad is the marketing and communication strategist with
more than 35 years of experience, and he works presently for
Charlotte Pipe and Foundry. If you like pipes, if you have ever
drunk water, then you have probably drank out of one of their
pipes. They are the leading producer of pipes in the United
States. They are a fifth-generation company based in Charlotte.
They were founded, I believe, in 1901.
Mr. Muller. Correct.
Mr. Moore of North Carolina. You weren't there, though,
then, I don't think?
Mr. Muller. No.
Mr. Moore of North Carolina. Brad has got a very
distinguished background. He actually was in Washington for 10
years, where he worked for USAID in the Bush Administration
handling the--he was the desk officer and managing foreign aid
programs for Afghanistan, and later, for Central and Eastern
Europe after the 1989 fall of the Berlin Wall.
He later went to work for the late Michael Deaver, who was
the former Deputy Chief of Staff to President Reagan, on a
variety of public affairs, international relations, and trade
issues.
He is extremely active in the community. He is known
internationally really as an expert on trade issues. I can tell
you, I consider it a real honor to have Brad back home to be
one of my constituents. This company has such an amazing
reputation.
If you want to find out information about how trade is
affecting businesses right here, how unfair trade is hurting
businesses and causing job loss, you have an amazing expert to
testify today.
I am proud to have a fellow Tar Heel from the great State
of North Carolina here with you today and appreciate the
Committee hearing from him. Treat him nice, if you don't mind.
Thank you.
[Laughter.]
Mr. Muller. Thank you, Congressman.
Mr. Moore of North Carolina. Thank you, Mr. Chair.
Mr. Issa. Thank you, and I promise to treat him nicely. As
a matter of fact, I consulted with JM Eagle of California and
they believe that you are a superb witness, since you are the
two competing top two.
With that, I would like to introduce Ms. de La Bruyere--
hopefully, I got that close to right--who is a Senior Fellow at
the Foundation for Defense of Democracies, a think tank
focusing on national security and foreign policy. Her work at
FDD focuses on China policy. Ms. de La Bruyere also is the Co-
Founder of Horizon Advisory, a consulting firm focused on the
implications of China's approach to geopolitics. Welcome.
Mr. Julian Ku is the Faculty Director of International
Programs, and the Maurice A. Deane Distinguished Professor of
Constitutional Law, at Hofstra Law. Professor Ku's research is
focused on the relationship of international law, the U.S.
Constitution, and China's relationship with international law.
Mr. Bradford Muller has been well-introduced, and we are
thrilled to have you here today.
Last, we go to Mr. deLisle, who is the Stephen A. Cozen
Professor of Law at the University of Pennsylvania. Professor
DeLisle also holds appointments as a Professor of Political
Science and Director of the Center for the Study of
Contemporary China at Penn. His research focuses on China's
engagement in international order, law, and legal institutions
and their relationships to the politics and policies of China
and the U.S.-China relationship.
We welcome all our distinguished witnesses. Pursuant to
Committee rules, I would ask that you rise to take the oath.
Customarily, raise your right hand.
Do you swear or affirm under penalty of perjury that the
testimony you are about to give is true and correct to the best
of your knowledge, information, and belief, so help you God?
Thank you. Please be seated.
Let the record reflect that all witnesses answered in the
affirmative.
For all the witnesses, please be aware that, although we
ask that you stay within five minutes, your entire opening
statement, along with additional material that you either have
today or that you can supplement, will be made in order and a
permanent part of the record.
I thank you.
Ms. de La Bruyere, it is your five minutes.
STATEMENT OF EMILY de La BRUYERE
Ms. de La Bruyere. Thank you for the opportunity to testify
today. It's an honor to be speaking before you and the
Committee and alongside my distinguished co-witnesses.
Beijing competes with cooption, not confrontation. The
Chinese Communist Party does not directly attack its
adversaries' systems. Instead, Beijing seeks to supplant them,
subvert them from the inside, such that they advance Beijing's
agenda rather than obstructing it.
In the military domain, for example, China positions to
control critical information systems, value chains, even
political stakeholders, such that it can decide where missiles
are positioned and how they're perceived rather than having to
launch them itself.
In trade, China has not sought to supplant the World Trade
Organization, for example. Instead, Beijing has sought to
manipulate it by holding others to its rules without following
them itself, such that China can weaponize international free
trade.
Inside the United States, the Chinese Communist Party uses
the American legal system to advance Beijing's agenda, punish
its opponents, and neutralize U.S. defenses. Benefitting from
the reality that China's centralized, opaque system allows it
to out-resource competitors in courts, to coopt key
stakeholders, and to manipulate information, this poses a
threat to American security and prosperity.
Offensively, Beijing works to shape U.S. laws and
regulations and their implementation--in many cases, via U.S.
entities that have been coopted by dependence on or resources
from the PRC.
Beijing has also proven its willingness to use the U.S.
legal system to punish those who stand in its way. Beijing does
so, for instance, with SLAPP lawsuits that are intended to
censor and intimidate critics by burdening them with costly
legal defenses.
Beijing also does so with IP lawsuits that, through the
discovery process, granted access to valuable technology. On
the flip side, China provides IP litigation funding for its
companies to protect them from facing the consequences for
their tech theft.
Beijing also defensively games U.S. laws and regulations,
circumventing and neutering American efforts to defend against
Chinese bad practices. In response to U.S. tariffs and other
trade restrictions, for instance, China transships through
third-party countries, often obscuring country of origin. China
also localizes in countries that have preferential trade
relationships with the United States, and China localizes in
the United States.
Doing so allows Beijing not only to avoid U.S. trade
restrictions, but it also allows China to benefit from
preferential policies that are intended to support U.S.
domestic and partner industry. Moreover, localization in the
United States allows Beijing to maintain and to expand its
united front--the network of coopted stakeholders through which
it undermines the U.S. system from the inside.
This entire program, offensive and defensive, benefits from
Chinese Government resourcing. Directly and indirectly, the
Chinese State provides the resources necessary for its agents
to outlast and outspend their competitors and their targets in
U.S. courts.
The Chinese State also provides subsidies and guidance for
go-out companies, such that they can expand their presence
abroad.
The Chinese State provides policy insurance mechanisms that
are intended to derisk investments that might be vulnerable to
regulatory hurdles, as well as instructions for navigating U.S.
procurement and policy.
Because Chinese abuse of the U.S. legal system is systemic,
it demands a systemic response. Tactical measures, like anti-
SLAPP legislation and protections to defend American companies
from exposing their IP to China via discovery are important.
The U.S. response cannot end there. Chinese and Chinese-
backed entities should have increased information-sharing and
transparency requirements when bringing cases. Those receiving
direct or indirect funding from the Chinese Government should
face a higher pleading standard in the U.S. Should American
entities that work with them. The U.S.-based actors that engage
with Chinese State-backed and government-linked players
operating in or importing into the U.S. market should have to
disclose as much.
The law firms and lobbyists that work with those entities
should not be eligible for U.S. Federal Government funding or
Defense Industrial Base procurement.
More generally, sovereign immunity should not be extended
to PRC entities. Foreign entity of concern provisions should be
expanded to apply to all government authorities and support
programs and strengthened with presumptions of denial.
Across the board, the definition of a Chinese entity should
be tightened, such that Beijing cannot circumvent through shell
companies, joint ventures, or localization.
China is an adversary. This has been internalized in the
United States, if belatedly, has the strategic imperative of
decoupling from China economically and industrially. To do
that, the United States also has to decouple its legal system.
Thank you.
[The prepared statement of Ms. de La Bruyere follows:]
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Mr. Issa. Thank you. Professor Ku.
STATEMENT OF JULIAN G. KU
Mr. Ku. Thank you, Mr. Chair, Ranking Member Johnson, and
the distinguished Members of this Committee. Thank you for this
opportunity to address what I call China's asymmetric lawfare
challenge to the United States judicial system.
I just want to define lawfare as a term for us to
understand here. Lawfare is the systematic use of judicial
proceedings to accomplish strategic or military goals and
political goals. This involves manipulating legal processes to
undermine, discredit, or impose substantial financial burdens
on adversaries through judicial mechanisms.
The Chinese party-State lawfare demonstrates consistent
patterns. Initiating entities maintain a sensible independence
from the Chinese Government. Chinese plaintiffs often retain
most prestigious, the best U.S. law firms to represent them. If
their litigation is often in the preliminary phase and it
doesn't impose substantial costs on defendants.
I call these tactics asymmetric lawfare because China is
exploiting the weaknesses in its own legal system to gain
advantages in U.S. courts while the U.S. and U.S. plaintiffs
cannot reciprocally use China's legal system for its own
strategic goals. These tactics that we're going to discuss here
can only really be employed by China and never by the United
States.
Obviously, China's lawfare raises particular concern
because China's unique control over its private sector through
its data and banks, Communist Party cells, and united front
partnerships means ostensibly private Chinese companies are
vulnerable to being co-opted to serve the party-State's
political goals.
Now, I want to give two examples of what I call Chinese
party-State lawfare to illustrate the problem: The first case
is from Long Island where I'm from. It involves Ma Ju, a Hui
Muslim activist who has testified before Congress and the U.N.
against China's repression of his ethnic minority within China.
He was served papers in Nassau County Court in New York State
seeking enforcement of a $12.5 million judgment that was issued
in China. Ma claimed that this judgment was fraudulently
obtained and that he couldn't defend himself before fleeing
China. Despite this the court in Nassau County ordered Ma to
pay the full $12.5 million court judgment based on the Chinese
court's ruling.
This is not isolated. The U.S. authorities have identified
at least seven similar lawsuits filed by Chinese entities over
six years with three under FBI investigation that's reported.
More broadly, Chinese companies have increasingly pursued
commercial litigation in U.S. courts as plaintiffs, not as
defendants, and often against Chinese nationals who happen to
also be wanted by the Chinese party-State for either claims of
corruption or maybe for political opposition to the party.
That's one example of the kind of lawfare that we're up
against.
Another case from California: Mao Zedong's former Chair of
the Communist Party--his secretary Li Rui became a prominent
critic of the Communist Party at the end of his life. Mr. Li
agreed with--through his daughter to donate his personal
diaries to Stanford's Hoover Institution. After his death in
2019 though, the widow of Mr. Li in China filed suit in Beijing
claiming ownership of the diaries. The Beijing court ruled in
Ms. Zhang's favor ordering Stanford to return the original
diaries despite Stanford's attempt to defend itself. Stanford
argues that it received inadequate notice in Chinese courts and
was denied an opportunity to contest when it tried to appear.
Ms. Zhang, who has recently passed away but sued in U.S.
court alleging copyright infringement and seeking title based
on the Beijing court judgment. The U.S. trial court allowed
some of her claims to proceed and the case dragged on for over
six years,
5-6 years. It demonstrates even if it doesn't result in a
positive judgment or a successful judgment for Ms. Zhang, it
demonstrates some of the ways the Chinese party-State uses
lawfare for ideological purposes beyond just harassing
opponents.
Furthermore, it raises a different problem, which is Ms.
Zhang was very unclear of the sources of her funding. She was a
widow without any sort of obvious means of wealth, and she
funded a six-year massive lawsuit in California courts which
went on for years where Stanford has the resources to defend
itself, but not all U.S. defendants would necessarily be able
to do so.
I want to close by discussing some possible solutions. One
would be taking on the American Law institute's proposal to
change the rules in the United States for enforcing foreign
court judgments to require reciprocity before enforcing a
foreign judgment or at least change the rules to require the
foreign--someone like defendants to essentially allow
defendants a better chance to defense against Chinese court
judgment enforcement.
Finally, there are things we can do to bolster disclosure
of foreign funding of litigation through third-party litigation
or through amendments to the Foreign Agent Registration Act to
address litigation funding. These enforcements will protect
American courts' integrity from manipulation by the Chinese
party-State while preserving what makes our legal system
exceptional and valuable. Thank you for your attention.
[The prepared statement of Mr. Ku follows:]
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Mr. Issa. Thank you. Mr. Muller?
STATEMENT OF BRADFORD MULLER
Mr. Muller. Chair Issa, Ranking Member Johnson, and the
Members of the Committee, thank you for inviting me to testify
today.
Charlotte Pipe and Foundry is the Nation's leading maker of
cast iron and plastic pipe and fittings for plumbing. We're a
fifth-generation family owned business. We've been in
continuous operation in the United States for 124 years.
We employed 1,800 associates and through our wholly owned
subsidiary Neenah Foundry we have another 1,000 employees
spread across 11 plants across the United States.
In 2017, we filed AD/CVD petitions through our trade
association against imports of cast iron pipe and fittings. The
Department of Commerce determined that Chinese exporters had
undersold and subsidized cast iron pipe in the United States up
to 345 percent less than fair value. For cast iron fittings
Commerce determined the Chinese had undersold those products up
to 494 percent. Duties to counteract these unfair trade
practices have been in place since August 2018.
Over the last seven years unscrupulous foreign entities
have turned to transshipping pipe and fittings through third
countries and deploying other forms of evasion and customs
fraud to obscure the true origin of their products to avoid
paying these duties.
The Enforce and Protect Act, or EPA, grants U.S. Customs
and Border Protection tools to combat customs fraud. In the
seven-years since our orders were issued, we have received 10
positive EPA determinations of transshipping against producers
of our products, primarily in Malaysia and Cambodia. When
Customs investigated the locations of these alleged producers,
they found an empty warehouse, a bus stop, even a massage
parlor, but no foundries.
Despite Customs' good faith efforts, they have been unable
to stop the illegal flow of imports. These entities have no
intention of ever paying the duties. When caught transshipping
these companies simply dissolve and the bad actors reconstitute
under a new shell company and resume their unlawful activity.
Chinese shippers have been so successfully evading U.S.
trade enforcement that they freely advertise their capabilities
to, quote, ``avoid high duties by exporting goods from China to
Southeast Asian countries where we change containers and then
re-export to the best Nation country.''
Multiple news outlets are reporting on the many ways
Chinese companies exploit gaps in domestic enforcement to
bypass tariffs, duties, and other trade restrictions. I was
quoted in the front page story of The New York Times on May
27th, lamenting the whack-a-mole nature of the process of
tracking down these fraudulent shell companies and shutting
them down only to see them right back in business under a new
name. CNBC uncovered a, quote, ``web of illicit activity that's
propping up these shipments from China.'' Reuters wrote about,
quote, ``Chinese exports offering sweet deals to U.S.
businesses that come wrapped in fraud.'' The Financial Times
reported on how, quote, ``Chinese exporters are stepping up
efforts to avoid tariffs by shipping goods via third countries
to conceal their true origin.''
Evasion and transshipment have been so successful that
Customs' effort to collect duties has become futile. Based on
our calculations Chinese producers of our products have
successfully evaded more than $44 million of dumping duties,
money that they have robbed of the U.S. Treasury, and we have
spent $7 million of our own money filing trade cases and EPA
petitions in an unsuccessful attempt to enforce U.S. trade law.
Customs simply does not have the tools to overcome this
determined fraud and current penalties for such behavior are
woefully inadequate. To address this Representative Ross and
Representative Sewell have referred to the House Ways and Means
Committee the Fighting Trade Cheats Act to strengthen
enforcement against trade fraud.
This bill attacks evasion of AD/CVD orders by increasing
penalties, denying a person and their affiliates engaged in
fraud an importer of record number, and allowing private
enforcement action to gain immediate injunctive relief against
illegal trade flows.
To put it bluntly, the AD/CVD process is broken. Without
far stronger remedies industries will be reluctant to undertake
these cases. The cost to file and win these cases is
exceedingly high and the promise of relief has become
nonexistent in the face of lax trade enforcement.
I'd like to thank Chair Issa, Ranking Member Johnson, and
the Committee again for investigating these threats to American
economic security and for allowing me to testify today.
[The prepared statement of Mr. Muller follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Issa. Thank you. Professor DeLisle?
STATEMENT OF JACQUES deLISLE
Mr. deLisle. Thank you. Chair Issa, Ranking Member Johnson,
and the Member of the Committee, thank you for the opportunity
to testify.
I'm going to address two types of concerns that I think
arise in the context of what would be described as problematic
uses of U.S. courts and legal processes more broadly by
entities linked to the PRC or the Chinese Communist Party.
The first category is essentially what one might call
abuse, targeting individuals and entities in lawsuits brought
against in the U.S. and U.S. courts. For example, against
exiled dissidents or U.S. companies that are rivals of favored
Chinese companies, that attempt to deny U.S. parties access to
U.S. courts, to the application or the attempted application of
Chinese law, and enforcement of Chinese judgments in ways that
harm such U.S. parties' interests.
The second kind of problem is what one could call avoidance
of accountability. That is, Chinese parties seek to avoid the
application or challenge the validity of U.S. laws either
through keeping cases or evidence out of U.S. courts, or by
avoiding the application and enforcement of U.S. law.
How to address these problems? Well, it's challenging. The
challenge stems in part from the fact that the problematic
cases; and they do exist, are not facially or easily
distinguishable, certainly not at a wholesale level, from many
ordinary claims that should be allowed to proceed in the U.S.
under principles of applicable U.S. law and fair access to
justice. These are things that should be heard in our courts
and often align with the interests of U.S. parties, indeed of
U.S. nonparties the cases that have similar interests.
The U.S. courts have a number of tools available to deal
with these problems. Some of them might be sharpened; some of
them might be used better, but they exist and they have been
used often quite well and are better than many of the
alternative more broad-brush or wholesale tools that might be
contemplated.
In terms of vexatious litigation targeting dissidents in
exile or disfavored companies for the benefit of Chinese
companies U.S. courts can and have evaluated the claims in
individual cases, sometimes finding them credible; sometimes
finding them not. The U.S. courts can dismiss cases and impose
Rule 11 sanctions, something which perhaps they should do more
often. They can deny abusive or burdensome discovery requests;
easy enough to do under the usual rules of U.S. discovery in
proceedings in the U.S., and requests for production of
evidence for use in Chinese proceedings especially when they
come from parties or individuals rather than courts in China
could be scrutinized more closely, tightening in effect the 28
U.S.C. 1782 process.
The U.S. can and is increasingly going to have to deal--
U.S. courts are going to have to deal with the question of
recognizing or not recognizing antisuit injunctions. China
started to issue these particularly in the FRAND SEP cases for
technology.
Forum nonconveniens motions, which are often attempted by
Chinese parties to get cases out of U.S. courts, can be denied,
and are often denied on the grounds of the public interest in
the U.S. and having U.S. parties bring their cases and applying
U.S. law, or on the basis of the burdensome effect on U.S.-
based parties of litigating in China, or on a judgment in the
particular context, in which case would be litigated in China
given the parties, the courts, and the nature of the claims can
decide that this would not be an adequate or available
alternative forum in a Chinese court.
The U.S. courts can also use choice of law rules to deny
the application of Chinese law, whether it's inappropriate or
where such law would offend U.S. public policy. We see this
going on with respect to blocking statutes where U.S. courts
have been unwilling to allow Chinese parties to plead State
secrets law, data, or cybersecurity laws, or personal
information protections laws as reasons for not to comply with
discovery requirements.
The U.S. courts can decline to enforce problematic Chinese
court judgment rules and can invoke notions of reciprocity and
comity to restrict such enforcement, either retail or
wholesale, given the lack of Chinese enforcement of U.S.
judgments in many cases, and U.S. courts have and do uphold
relevant U.S. regulatory laws and their application against
Chinese parties' challenges. Think of CFIUS decisions, PCAOB
disclosure requirements, Huawei exclusion from markets for
national security reasons, the TikTok ban, and so on.
Here I would note the U.S. sovereign and official immunity
doctrines that limits the extraterritorial reach of U.S.
statutes have taken away some methods that might be available
for dealing with problematic Chinese behavior.
The point here in all this is the problem of abuse and
avoidance of accountability. The tools are there and the legal
tools we have or can readily imagine being available are quite
suited to the kind of granular fact- and case-specific analysis
that courts are suited to do. A more broad-brush approaches
have challenges and problems. They risk embedding in U.S. law
the idea that because abuses by Chinese actors can and
sometimes do occur U.S. law and courts must assume that they
occur. That is at odds with notions of due process and fair
access to justice and harms the interests of U.S. parties.
Disclosure requirements or other measure that would impede
access to U.S. courts would create quite messy mini trials on
collateral issues of the degree of entanglement with the
Chinese State. That is a very complicated issue that could be
over-expansive and chill the bringing of legitimate claims even
by U.S. parties that happen to have some limited connection to
China.
Measures that explicitly are clearly targeting China risk
accelerating a spiral of tit-for-tat moves by China that would
indeed adversely affect the interests of the U.S. and U.S.
parties. Those may be costs worth bearing, but they are costs
that need to be calculated. They also risk making more credible
China's narrative that U.S. law and courts are political tools
wielded to keep China down and serve U.S. geopolitical--
Mr. Issa. I thank the gentleman.
Mr. deLisle. Thank you.
[The prepared statement of Mr. deLisle follows:]
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Mr. Issa. The remainder of your opening statement will be
placed in the record.
Without objection, Mr. Knott will be permitted to
participate in today's hearing for the purpose of questioning
the witnesses if a Member yields him time for that purpose. We
welcome the gentleman.
Mr. Knott. Thank you.
Mr. Issa. I now recognize the Chair of the Full Committee,
Mr. Jordan.
Chair Jordan. Pursuant to the rules, the gentleman is
recognized.
Mr. Knott. Thank you, Mr. Chair. It is my privilege to be
here. I am familiar with one of the witnesses and the company
that he comes from, Charlotte Pipe and Foundry. I have had the
privilege of touring their facilities. I know them well. This
is a company that does it the right way. They put their heads
down. They do great work. They deliver world-class products
that will compete against anybody. What any company cannot
compete against is fraud, manipulation, unfair markets, and
lack of free markets.
Mr. Muller, thank you for coming and testifying today. I
want to be quick and to the point. What legislative proposals
are you familiar with that could protect industries like yours
that benefit not only just North Carolina, but the entire
country and then the world by extension?
Mr. Muller. Thank you, Congressman. In addition to the
Fighting Trade Cheats Act which I mentioned, which would impose
stiffer penalties on these bad actors, take import licenses
away, and allow us a private right of action to enforce U.S.
trade law there is also the Protecting American Industry and
Labor from International Trade Crimes Act. I urge Congress to
pass and fund that would stand up a trade fraud crime unit at
the Department of
Justice.
The bill calls for $20 million in funding. As I mentioned
in my testimony, on our two products alone we believe more than
$40 million has been uncollected in duties by Customs. If they
just had been able to collect on our products we could double
the funding of this trade crime unit to $40 million.
We believe that to stop this behavior we have to start
prosecuting some of these bad actors because they continue to
set up these shell companies. When confronted they dissolve
them and they're right back in business with a new shell
company.
Mr. Knott. In your experience, sir, how do these foreign
entities gain entry into the United States? Do they have
participants in the United States? Are they blind actors? Are
they willing and knowing? What is your experience?
Mr. Muller. There are U.S.-based importers that engage in
this fraud. We know some of those. Glendale Fire in California
is one. Wells in Chicago. Wells Plumbing is another. These are
U.S.-based importers that are engaged in this illicit activity.
Those are the companies that we should be targeting with
something like the PAIL Act.
Mr. Knott. With your experience, sir, given the amount of
fraud and sort of the suppressed pricing that the Chinese
Communist Party engages in how responsive have the United
States authorities been fielding your complaints in this area?
Mr. Muller. Well, we tip our hat to Customs. In fact, we
met with them last week, our trade association, and we have
engaged very cooperatively with Customs. They do their best to
enforce the law. We try to educate them on our products, how to
spot the fraudulent products coming in. We are very pleased
with Customs. They just don't have enough tools to stop this
behavior.
Mr. Knott. Right. Professor Ku, let me transition to you
quickly. What are ways that we can disincentivize the Chinese
Communist Party on a macro level from continuing to engage in
this? Because it is not just Charlotte Pipe and Foundry
obviously. It is everything from biopharma, to engines, and to
computing. The theft and obstruction are real and across every
sector. How do we dissuade them from continuing this?
Mr. Ku. Thanks. There is no easy answers here. I wish there
was a silver bullet. I think passing the legislation could
certainly help.
I do think that making clear that the first and foremost
that we take these things seriously, then that we force bad
actors to disclose the network of funding. The problem in
transshipment is some of the bigger problems we see is the way
the Chinese party-States intertwine with each other.
Mr. Knott. Yes.
Mr. Ku. We have to assume unfortunately that a lot of what
look like normal private companies we want to welcome here to
the United States have to unfortunately play by different rules
because we can't trust them, because they're intertwined with
the party-State at home.
It's just unfortunate. That's the way we have to be
tougher. We have to demand greater disclosure of connections
between Chinese companies and the party sort of work
partnership groups that they're involved with.
Mr. Knott. Is there a way to separate doing business with
Chinese companies from the Chinese Communist Party?
Mr. Ku. I think there is. We should do business with
whoever, but we have to assume that those companies which are
private much of the time can be co-opted very quickly in a way
that we can't in the United States--
Mr. Knott. Right.
Mr. Ku. --force a private company to do something that the
government wants us to do. Once it's due--you have to proceed
cautiously. It's really just--it's not the United States
Government's fault; it's China's government's fault for
creating this weird web of influence and control that makes
unfortunately even honest Chinese companies suspect.
Mr. Knott. Yes. To the witnesses, thank you. Mr. Chair, I
yield back.
Mr. Issa. I thank the gentleman.
I would note for everyone in attendance the reference to
H.R. 1284, which is a bipartisan bill for the private right of
action, just to make sure everyone can look that up. Thank you,
Mr. Muller, for mentioning it.
With that, we go to the Ranking Member, Mr. Johnson, for
five minutes.
Mr. Johnson. Thank you, Mr. Chair. For many years the
American judicial system has been a shining light of fairness
and impartiality to the world, a system independent from undue
influences or of the other branches with checks and balances
that promote accountability.
Professor deLisle, can you please walk me through some of
the specific attributes in the U.S. judicial system that
broadly speaking make it a fairer venue to resolve disputes
compared to the Chinese court system?
Could you turn your mic on, please?
Mr. deLisle. I'm sorry. There are--yes, the contrasts are
quite strong. The U.S. judicial system is of course open to
pretty much anyone who has a cognizable claim, who has a claim
that is covered by U.S. civil law regardless of national
origin, regardless of perhaps the motives behind the lawsuit.
The U.S. courts have historically been quite insulated from
political pressure.
Of course, in every system there is some link between
politics and courts. Courts apply the laws adopted by political
bodies; Congress in our case, and judges of course are selected
even in our system by political processes. The contrasts remain
profound.
One of the unfortunate developments in China in recent
years has been a ratcheting up of the position that courts
should take into account party policy and national interests
and should be accountable to the party; and should be subject
to various forms of toeing the line as it were. There are--
Mr. Johnson. Well, let me stop you right there because now
we are starting to see some blending. Unfortunately, many of
our judges have been under vicious attack from our Executive
Branch and MAGA-loving Members of Congress. When judges make a
ruling Donald Trump doesn't like, our felon-in-chief takes to
social media and he bashes and slanders that judge in a way
that often leads to threats of violence from Trump's base. At
the same time his cronies in Congress race to file articles of
impeachment against that judge without a legitimate shred of
evidence of a crime, a high crime or a misdemeanor.
Professor deLisle, you have spoken about the unique--you
were speaking about the unique qualities of the Justice
Department of the United States that make it among the fairest
systems in the world, but if we keep politicizing our courts
like threatening to punish or fanning the flames of violence
against judges who dare rule against President Trump or his
interests, how could this impact the impartiality and
dependability of our courts in the long term?
Mr. deLisle. That obviously is a concern. I have spent a
great deal of time watching Chinese courts for the last 30 or
40 years and I have seen progress and backward motion on this
issue. The form in which the erosion of the shoots of judicial
independence and fair-mindedness of Chinese courts have been--
here the accomplishments were quite impressive for several
decades--under threat because of the demand that courts take
political concerns more directly into account.
At one point the President's Supreme People's Court in
China several years ago said that party policy was one of the
principles along with law that should decide cases. We've seen
judges face lifetime responsibility for so-called erroneous
decisions. We've also seen populist pressures on courts, how
people in the streets expressing opposition to the way courts
are ruling. Those are the hallmarks of threats to court
independence and judicial independence.
Stepping outside my lane as a Chinese law expert here,
there are things that look to me disturbingly familiar now
going on in the United States.
Mr. Johnson. Thank you. Some proposals I have heard from my
colleagues during my tenure on this Committee would diminish
access to the U.S. court system putting logistical and huge
financial barriers in place for folks for trying to bring a
lawsuit. This would mean effectively that only the wealthy or
the well-connected could fully take advantage of our judicial
system to resolve their disputes and the little guys would be
left behind.
Professor deLisle, you are an expert in the civil judicial
system. Is it a good idea to make this system harder or
exponentially more expensive to access? If we start mandating
that anyone who wants to bring a suit has to pay exorbitant
fees to get in the door how could that impact our impartial
system of justice in this country?
Mr. deLisle. I see my time is expired. May I answer?
Mr. Issa. Of course.
Mr. deLisle. OK. A cornerstone of the U.S. judicial system
is fair access to justice. You should be able to go to court if
you have a legitimate claim. That applies to Chinese parties as
well as U.S. parties. We've talked about how to screen that
out. There are many things either in the form of fees or in the
form of creating barriers where you must prove the legitimacy
of your claim. We talk about some of the disclosure
requirements which could chill and impede access.
One of the things I think that U.S. courts, as I mentioned
earlier, could do to deal with problematic issues from China is
to take measures to dismiss claims before they proceed to a
point of being highly burdensome to parties. I would advocate
that we look at that stage rather than closing off litigants
wherever they're from before they can get through the
courthouse door.
Mr. Johnson. Thank you and I yield back.
Mr. Issa. I thank the gentleman.
If I could ask your indulgence for just one clarification.
Professor, you mentioned political pressures in the nature in
both countries. Briefly can you simply say is there any real
comparison between our lifetime appointment of Federal judges
and their likelihood to rule against the politics that may have
got them the job and the Chinese Government broadly?
Mr. deLisle. I'm not sure there's a simple answer to that
question. These are obviously matters of degree. I don't think
either system exists at a complete pole. As I suggested
earlier, there had been welcome signs of progress in China and
there's been some, but not complete backsliding. I don't think
in my personal opinion, the U.S. is where it has been or should
be. Judges are human beings, and they worry about the way they
are addressed and discussed by the politically powerful. That's
probably something universal. I certainly see it in China.
Mr. Issa. Thank you. We are now go to the gentleman from
Wisconsin, Mr. Fitzgerald, for his questioning.
Mr. Fitzgerald. Thank you, Chair.
Professor Ku, the United States maintains a number of
sanctions, export controls, or other measures to prevent
certain individuals or entities affiliated with an adversarial
nation from gaining access to strategic technologies or to
prevent equipment produced by such persons from being utilized
in sensitive U.S. industries. A lot of times the sanctions
include restrictions on certain property rights and generally,
however, these do not apply to a sanctioned entity's patent
portfolio, meaning a sanctioned entity can continue to license
its patents to U.S.-based companies, or assert them in court.
Some see the circumvention of sanctions and the subsidization
of the activities of a sanctioned entity.
Let me ask you why have IP rights generally been excluded
from other property rights restrictions under U.S. sanctions
and how could adversarial nations like China, which I know we
have been talking about, take advantage of that loophole to the
detriment of U.S. innovation, or obviously the other thing
discussed is our national security?
Mr. Ku. This is a complicated question. I agree that it's a
strange thing. Obviously, it depends on how we design our
sanctions regime which this body Congress has designed, but
also which is implemented by the Commerce Department.
You could have sanctions that are much stricter and that
are completely across the board which in some cases would
prevent even property licensing from occurring. That what's
going on here is that people have--the Commerce Department or
entities essentially try to make compromises to account for
different interests, right? Licensing is very valuable.
It's very valuable for U.S. companies in many companies. To
lose that revenue is a substantial and significant cost.
There's no legal reason why we cannot impose such rules across
the board. It's more of a practical problem of balancing the
different economic and political interest that we have here in
the United States.
Mr. Fitzgerald. Thank you. Ms. de La Bruyere, you've
written extensive on China's military civil fusion, I guess
you'd call it. China has utilized companies like Huawei and DT
to advance its Made in China 2025 initiative or plan I guess
you'd call it.
Huawei held over 3,300 active U.S. past patents in 2024
which is unbelievable to me. It's generated the company
hundreds of millions of dollars in annual licensing revenue.
When we allowed some of these State sponsored companies like
Huawei to profit off the U.S. patent system, either through
licensing agreements or injunctions, obviously we're
subsidizing the continued kind of theft of American
intellectual property and certainly helping to advance China's
industrial agenda.
What should Congress do about this, if anything,
considering eliminating and licensing of asserting the U.S.
patents while uncertain national security related sanctions
list?
Ms. de La Bruyere. One big challenge about fighting back
against China's military-civil fusion strategy and general tech
offensive is that we haven't as a system quite caught up to how
advanced Beijing is. Therefore, the leverage it acquires and
the risks of not only China stealing technology, but also the
U.S. becoming increasingly dependent on Chinese technology. The
way that alongside, say, U.S. investment into the Chinese tech
program and more concrete U.S. tech partnerships with China end
up fueling our adversary.
We haven't recognized that as a system, we haven't imposed
restrictions on things like tech licensing from Chinese
entities that are very real threats. One potential avenue that
the U.S. could take is that where we through fiat restrictions,
for example, impose barriers on U.S. tech partnerships with
China. Those could also cover tech licensing partnerships, and
other IP agreements beyond simply formal drug ventures, formal
export of technology, et cetera.
Mr. Fitzgerald. Thank you. Right now, I'm Chairing the
Subcommittee on antitrust. We've been investigating kind of
this cartel-like behavior at a number of U.S. industries where
there's collusion. However, with foreign companies, you can
have an American corporation working with someone in China, and
it kind of falls into a different category. I was wondering if
you had any thoughts on that.
Ms. de La Bruyere. Well, China's entire industrial and
we'll call it private sector, but it's not a private sector is
a cartel because fundamentally Beijing and the Chinese
Communist Party control that through incentive shaping and
through direct directives for lack of a better word. That means
that we should think of Chinese companies, including their
outpost in the United States, as being arms of the Chinese
system and colluding.
Mr. Fitzgerald. Thank you. Chair, I'm out of time. I yield
back.
Mr. Issa. I thank the gentleman. We now go to the Ranking
Member of the Full Committee, the gentleman from Maryland for
five minutes.
Mr. Raskin. Professor deLisle, you said that in China, the
courts are supposed to decide according to party policy as well
as the law which is kind of amusing. I just finished reading
Alexei Navalny's book Patriot where he said in Russia, they
talk about telephone justice to describe either the literal or
metaphorical coercion that the government plays in the decision
of particular cases. I'm wondering is this the same thing
happening in academia in China where scholars and deans are
intimidated or coerced into deciding things according to
official government edict.
I ask, of course, because we're in a situation now where
Donald Trump is trying to coerce colleges and universities,
including Harvard, to accept his dictates with respect to
student admissions, faculty hiring, and curricular and academic
content. I'm wondering if that's something you find in China
too.
Mr. deLisle. The short answer is yes. Before talking to
that, I want to stress that in many cases in Chinese courts,
many Chinese judges and lawyers admirably apply the law fairly
and play their roles the way one would hope they would play
them and sometimes do so against the kinds of pressures that
have been long present in China and that seem increasingly
present in the United States. I've been dealing with Chinese
counterparts in academia, in law, political science, and other
fields for many years.
There have always been restrictions. The restrictions have
gotten tighter. The ability to publish one's work, to express
one's views, is definitely under pressure. The reach of the
party and State into universities has shrunk, what was once
more capacious academic space.
There have also been restrictions on Chinese scholars
coming to the U.S., which has been a place where they are able
to express ideas more freely and gather information. All those
pressures are there. As with courts, some of this gets a little
closer and more personal. What we're feeling now on American
university campuses resonates in uncomfortable ways with what
I've seen in China. That is the pressure of not only the
concern about whether you will harm your university by saying
certain things, or the concern about the loss of the resources
necessary to do research are real as well as the interventions
in what we hire and what we teach.
Mr. Raskin. Are there attempts to impose government edicts
and dictates on lawyers and on law firms?
Mr. deLisle. In the United States or in China?
Mr. Raskin. In China.
Mr. deLisle. In China. Yes, there are always restrictions
on law firms and lawyers. Those who have represented dissidents
or targets of repressive policies have faced threats to their
law licenses. Chinese courts do have significant discretion not
to take cases that people might bring that are politically
disfavored. While this is not Soviet style justice and many,
many cases are handled in perfectly ordinary ways, the more
politically sensitive the case, the more party and State
officials take interest in the case, the less likely it is to
get to court or to be handled fairly once there.
Mr. Raskin. I see. I had the impression that there was very
little traditional independence. You're saying that in a lot of
cases in China, the courts operate relatively free from direct
governmental coercion or control?
Mr. deLisle. It depends on the type of case, the type of
court, and the type of parties. The kinds of things that your
question points to, the politically sensitive areas, things
which would be deemed adverse to the interest or preferences
are--
[Simultaneous speaking.]
Mr. Raskin. We could very easily in America slide into that
kind of system where the vast majority of contract, tort,
property disputes are handled without any direct political
interference. When it comes to Constitutional cases, the
interpretation of Executive powers or Legislative powers, there
could be much more political interference.
Mr. deLisle. That kind of bifurcation is a hallmark of
systems which have only made limited progress toward rule by
law or that have back slid from robust democratic rule of law.
It's one of the things that can be quite insidious. Ernst
Frankel, a German scholar from many years ago, describe the
idea of a dual system, a dual State where some cases are
channeled through the ordinary legal process with fair process.
Other cases, politically sensitive ones, face a very different
regime wherein the preferences of those in power determine the
outcome.
Mr. Raskin. Can you explain the doctrine of true conflict
where American courts will sometimes not impose U.S. law
against a foreign entity if that entity's country has a law
that's in true conflict with our laws?
Mr. deLisle. A true conflict situation is where a party is
subject to the laws of two countries. That often happens with
entities or individuals who work in China and here, some border
straddling activity. A true conflict is where you cannot comply
with one State's laws without violating another.
To take one example from U.S. litigation, the Vitamin C
Antitrust Litigation where the claim was that Chinese law
required price collusion and U.S. antitrust laws, of course,
prohibited it. We're seeing more of this. One of the areas
where it may become quite serious is in China's antiforeign
sanctions law where they will prohibit companies subject to
Chinese jurisdiction from complying with U.S. sanctions whereas
those companies are obliged to comply with U.S. sanctions.
The courts are going to have to face this and they have to
decide what to do. The ordinary international legal principles
rooted ultimately in comity are to decide which State has the
stronger interest and to apply its law or to refuse to apply
foreign law that is repugnant to the public policy of the host
jurisdiction, the foreign jurisdiction.
Mr. Raskin. Thank you. I yield back, Mr. Chair.
Mr. Issa. I thank the gentleman. We now go to the gentleman
from Virginia, Mr. Cline, for five minutes.
Mr. Cline. I thank the Chair. I want to thank our witnesses
for being here. As was stated, foreign entities invest
substantial sums in litigation financing, potentially
influencing court decisions to align with their interests.
There's no greater actor than China engaged in this
activity. Additionally, adversarial governments or corporations
linked to them, they use this strategy to shape legal outcomes
in Federal courts, advancing their geopolitical agendas. This
practice raises national security concerns, particularly when
it involves sensitive military and commercial technology or
leveraging U.S. disclosure laws for strategic gain.
I introduced the Protecting our Courts from Foreign
Manipulation Act which would require disclosure from any
foreign person or entity participating in civil litigation as a
third-party funder--litigation funder in U.S. Federal courts
and ban sovereign wealth funds in foreign governments from
participating. Litigation finances the third-party litigation
funder either directly or indirectly.
Ms. de La Bruyere, your work has exposed how the CCP uses
nonmilitary and nontraditional tactics to gain advantage. Do
you see a strategic use of U.S. litigation as part of the CCP's
toolkit? Would a bill like the one I explained help address
that risk?
Ms. de La Bruyere. Use of litigation is absolutely a part
of the CCP's toolkit. Beijing uses litigation to censor and
intimidate its opponents and cases of this abound. They not
only harm the direct opponents, but they also create a general
silencing across the U.S. where it's simply too dangerous to
speak about even known risks about Chinese entities because of
litigation concerns.
Beijing also uses targeted litigation to acquire
intellectual property, including through the discovery process.
Importantly, these efforts are in many cases funded by the
Chinese Government, both directly and indirectly, including
through, for example, targeted subsidy programs that support
Chinese companies dragging out these cases in U.S. courts.
Mr. Cline. Now, some would argue that adding transparency
requirements to seal litigation, like identifying foreign State
interest behind a party, might chill access to the courts or
create an administrative burden. From a national security and
economic standpoint, is there a real cost to doing nothing? How
would you respond to critics who say greater transparency in
litigation is unnecessary or even harmful?
Ms. de La Bruyere. I believe there's absolutely an economic
and security cost to doing nothing. I also think that the U.S.
has proven out a system evident, for example, the FARA regime
of having transparency requirements for foreign adversaries and
foreign entities that allow the U.S. to protect its security in
that direction without undermining the integrity of the U.S.
legal system. That's by having a targeted campaign that seeks
just generally information on the activities of foreign agents
and is, again, targeted at foreign adversaries.
Mr. Cline. Professor Ku, I introduced the bill to address
how foreign adversaries, especially the Chinese Community
Party, may be using U.S. courts as a strategic tool. In your
view, how real is the threat of foreign abuse of U.S. courts
and how might Congress strike the right balance between
maintaining judicial openness and protecting national security?
Mr. Ku. Yes, the answer is kind of boring but obvious is
disclosure. Disclosure may create some administrative
obstacles. It doesn't prevent people from bringing cases.
We want to allow foreign companies to feel like the U.S.
judicial system is open to them. There's really no reason why a
foreign government really needs its rights protected in the
same way. So, disclosing or maybe restricting foreign
government involvement in these litigations which they're not
actually directly involved in or through third-party litigation
or at least forcing disclosure would go a long way.
I don't think it would burden people from bringing cases.
One last thing, I'll just note that it was very unclear that
this could happen the other way, U.S. companies could get
involved in third-party litigation within China. It could put
U.S. companies at a disadvantage.
Mr. Cline. According to Westfleet Advisors' most recent
report, third-party financing is behind over 30 percent of U.S.
patent litigation. According to Bloomberg, more than one-half
of the U.S. patents are issued to foreign entities and our
country has no record of when or to whom they are transferred.
Isn't this a national security and economic security risk?
Mr. Ku. For me, anyways, I think it is. As we point out, we
require people to register as foreign agents in other contexts,
if you have a blog or something and you're promoting the views
of the Chinese Communist Part. Actually, if you're filing a
lawsuit, it's not required to be disclosed. It's odd, strange.
We can distinguish between bad actors or at least potentially
bad actors and just the average person who's involved in a
lawsuit. Our system has proven we can do that, and we can do
that here as well.
Mr. Cline. Would we reduce--well, I have five seconds left.
With that, I'll just yield back. Thank you, Mr. Chair.
Mr. Issa. There's a first. We're getting our time back. I
thank the gentleman from Virginia, and I go to the gentlelady
from North Carolina for her five minutes. Ms. Ross.
Ms. Ross. Thank you, Mr. Chair and the Ranking Member for
holding this hearing. Thank you to all our witnesses for
testifying today. I am going to focus most of my questions for
Mr. Muller because we are bipartisan cheerleaders from North
Carolina and our businesses.
I also want to thank Mr. Muller for your testimony, your
ideas about what Congress can do better but also for your
service to this country. In particular, at the beginning of
your service working for USAID, we know how important foreign
relations are.
You told us that Charlotte Pipe has filed multiple claims
against Chinese litigants at the International Trade Commission
and that Chinese companies clearly have been dumping products
at competitive low prices. I participated with our North
Carolina Secretary of State at a North Carolina Chamber event.
It can actually just devaState a small company that doesn't
have the resources that you do. How much time and money has
your company invested in filing these multiple antidumping
suits at the ITC?
Mr. Muller. Well, I mentioned previously in my testimony,
it's almost $7 million of our own money. Another way to answer
your question, I was hired by Charlotte Pipe and Foundry 23
years ago to run the marketing department, to be the Vice
President of Marketing, which I did for a number of years. In
2006, I took on a government affairs role and kind of wore two
hats at Charlotte Pipe.
In the last five years, I've been working exclusively on
government affairs. My time and salary have been dedicated to
try to work through these issues, both at the State level and
at the Federal level. It continues to occupy--I joke that I
shed half my job and I'm twice as busy.
Ms. Ross. Small businesses simply couldn't afford to have
that kind of advocacy?
Mr. Muller. No. In fact, I also have represented the
American Foundry Society. They have 1,000 corporate member
foundries throughout the United States, steel, aluminum, and
cast iron. Eighty percent of those foundries are small
businesses, 100 people or less.
They don't have the resources to fight like we do. Many of
them are going out of business. Twenty years ago, there were
2,000 foundries in America, and we're down to about 1,700.
These are vital for national security. You can't make tanks or
plans or ships without foundries, steel, cast iron, and
aluminum foundries.
Ms. Ross. Well, thank you for representing your company and
also those small businesses by extension. In 2017, Charlotte
Pipe discovered that a Chines manufacturer had stolen your
name, trademark, and logo and was using it to sell unaffiliated
products in East Asia. Since then, you filed trademark
infringement claims in both China and Singapore. Can you tell
us the status of those claims?
Mr. Muller. Yes, thank you for that question. I did testify
on the Senate side before Senator Tillis and his Intellectual
Property Subcommittee on this topic. We only discovered by
accident that China had stolen our brand identity and was going
to market in Southeast Asia as Charlotte Pipe and Foundry.
There's a building in Shanghai with our logo on the side. A
gentleman was passing out Charlotte Pipe business cards at a
trade show in Singapore. That's how we discovered the theft.
We filed to get our IP back in Singapore. We lost but then
won on appeal. We also had to hire a Chinese law firm at great
expense to fight for our IP to get it back in China. That is
stalled in the courts of Beijing.
No decision has been made. The case has basically gone
cold. We can't get any information from the Chinese Government,
from our Chinese law firm as to the status of that case. We
know they're still going to market. On Chinese websites, you
can still see that they're going to market as Charlotte Pipe.
Ms. Ross. Just not to be too repetitive. When I went to
this North Carolina Chamber event, they brought in two small
businesses that have experienced similar kinds of appropriation
of their intellectual property. Those small businesses simply
do not have anybody who can stand up for them.
They either have to move on, or they have to find some
other way. I want to thank you for suggesting some very
concrete bipartisan steps we can take to help right these
wrongs. Thank you for your testimony.
Mr. Muller. Thank you.
Ms. Ross. I yield back.
Mr. Issa. I thank the gentlelady. We now go to the
gentleman from California, Mr. Kiley, for his questions.
Mr. Kiley. Thank you, Mr. Chair. Thank you to our witnesses
for this important discussion which I think really covers two
main areas, one being the CCP's evasion of policy and law and
international rules to press its own advantage. The second
being its manipulation of our legal system in conjunction with
its political control over its own [inaudible] has benefited
itself at the expense of the United States.
I wanted to ask, first, Ms. de La Bruyere--did I get it
right? Close? All right. If you could comment on how this
discussion relates to what's probably the most important issue
when it comes to our competition with China. That is the CCP's
efforts to evade export controls when it comes to leading edge
semiconductors/how they're trying to steal technology to
advance their own foundry.
Ms. de La Bruyere. Absolutely. Generally, this falls within
this first category you listed of China abusing the U.S. legal
system in order to evade and to neuter our defenses. There are
offensive things, though, China also does to this and
including, for instance, using litigation to obtain tech
through discovery.
The other important thing is that as the U.S. has become
increasingly serious about imposing restrictions on China from
tech to trade, Beijing has also become increasingly serious and
adept at first at the point of framing, making sure that there
are loopholes or weaknesses within those restrictions. Then at
the point of enforcement, evading them. Across export controls
and other means to restrict tech access, Beijing consistently
lobbies and influences to make sure that it will continue to
maintain tech access. Then, of course, there's the network of
shell companies, of localization efforts, of backdoor activity
that China engages to directly evade U.S. restrictions that
have already been levied.
Mr. Kiley. Thank you. Professor Ku, there's this issue we
also discussed where U.S. court system recognizes judgments in
Chinese courts, but the opposite is not always true, even
though judgments in our courts follow from a legal system
that's developed over centuries to assure fairness through
things like due process and discovery, access to counsel,
whereas that's far from the case in the Chinese legal system.
Why is it that we continue to allow that lack of reciprocity?
How might we go about changing?
Mr. Ku. Well, this is a big issue. The United States courts
have always been more deferential to foreign courts than
foreign courts have been to the United States' court judgments.
This is not just Chinese courts.
The United States courts tend to enforce foreign judgments.
We just generally--U.S. courts generally do this. The other
complication is that it's often left to State law.
Different States might enforce some slightly different
standards. It often is in State courts, not Federal courts. The
State court judges might not be as attuned or worried about or
concerned about the issues that we're discussing here, which
might've happened in the case I mentioned on Long Island.
That's part of the problem. There have been efforts, and
the American Law Institute years ago did propose that Congress
adopt Federal Legislation to require reciprocity for U.S.
courts before we enforce foreign court judgments. That would
apply to China as well.
China itself does have a reciprocity requirement before
they will enforce the U.S. court judgment. There have been
proposals, but it's been complicated. It creates a lot of
effort. That would be the way that Congress could get involved
here to create a fair system for--especially now that we see
Chinese companies taking advantage of the way U.S. courts give
deference to Chinese courts.
Mr. Kiley. How do you think China would respond if we
passed along those lines?
Mr. Ku. I don't know if this is the top of their agenda.
They'd actually wouldn't worry too much about it because we
would adopt essentially their rule, reciprocity, right? I don't
think they would have any basis to object to that.
Mr. Kiley. Thanks very much. I yield back.
Mr. Issa. Would the gentleman yield?
Mr. Kiley. Happy to.
Mr. Issa. What you're saying is they might not be too
concerned if we actually had our reciprocity match their
reciprocity? They would be outraged as they often are?
Mr. Ku. Well, they could be outraged. They wouldn't have
any reasonable basis to be outraged. The rule would be not just
the United States, but most countries in the world have a
reciprocity requirement.
Mr. Issa. We use Rule 26 for disclosure by the defendants
of their third-party funding, if you will, of their defense
and/or payment. In China, do they have a similar rule? Does it
require the plaintiff to also disclose?
Mr. Ku. I'm not familiar with that specific rule in China.
I do know that there have been disputes. It's uncertain--court
judgments have--some Chinese courts have disallowed third-party
litigation funding for agreements that have been disclosed. I'm
not sure disclosure is required under Chinese court system. I
do know that Chinese courts--some Chinese courts have refused
to allow people to proceed if they had a third-party litigation
agreement.
Mr. Issa. OK. They're just outright prohibited?
Mr. Ku. Well, there's no general rule. I know courts have--
in China have ruled that it is inappropriate or not allowed or
prohibited in this case.
Mr. Issa. Thank you. Seeing no one else on your side for
now, we now go to the gentleman from South Carolina. Hopefully,
you'll deal with your North Carolina friend as well as everyone
has. It's been pretty good so far.
Mr. Fry. Mr. Chair, I couldn't agree more. He's outside the
district, but we're in the footprint of Charlotte. Most of the
United States is actually in the footprint of the Charlotte.
Mr. Issa. The gentleman is recognized then.
Mr. Fry. Thank you, Mr. Chair. Professor, you were talking
earlier with Mr. Kiley about enforcement of judgments. I'm just
curious. What would be the prudent way in which Congress or the
courts could review these judgments in foreign countries to
ensure that substantive and procedural due process were
honored?
Mr. Ku. As Ms. de La Bruyere mentioned, there are already
standards. The courts are already empowered to review. The
problem is that the standard is too deferential.
The courts should be given a different standard where
presumption is reversed. It could be with respect to certain
countries that Congress identifies foreign adversaries.
Congress has identified foreign adversaries. OK. These
standards should not be given to courts in these countries.
That might be one way to do it, right, which I think would be
kind of a scalpel, right? It would focus without creating
problems with other countries.
Mr. Fry. If you took countries of concern, right?
Mr. Ku. Countries of concern.
Mr. Fry. These countries. Would it be a de novo, almost a
de novo review of their procedural and substantive processes to
make sure that the hearing was fair in the foreign country?
Mr. Ku. Right. We do have a standard where they do have to
meet a standard of fundamental fairness. What I'm worried about
is a lot of courts just don't do that. Maybe the way to give
litigants even more is a presumption that the parties seeking
to enforce a foreign judgment has the burden to prove that the
prior judgment was adopted fairly.
One of the problems mentioned is that it's hard to get
access to information on the original court judgment. In China,
for instance, it'd be hard to travel there as Mr. Muller
discovered. He can't travel there because he's worried about
being arrested. Creating a presumption, putting the burden on
the party seeking to enforce the foreign court judgment or the
Chinese court judgment would solve a lot of these problems.
Mr. Fry. In your experience, Professor, do you believe that
when domestic courts are enforcing foreign judgments that is
almost a rubberstamp exercise?
Mr. Ku. I wouldn't go so far as to call it a rubberstamp.
It isn't as--I'll just put it this way. It's not as rigorous as
other countries. Other countries are much more skeptical of
foreign court judgments than on average U.S. courts are,
especially I'll include State courts. Part of it is there's no
Federal standard.
Mr. Fry. Thank you for that. To briefly shift a little bit,
what do you suggest just overall that Congress, the Executive
Branch, or even domestic companies can do to stop China from
evading trade controls as an example?
Mr. Ku. Yes, this is a real problem. The first problem is
identifying--admitting the problem exists. In educating folks
to realize that the party State as they call it is intertwined
with Chinese businesses.
Even if Chinese businesses don't really want to, they are
essentially manipulated often or forced to participate in a
Chinese strategic plan which can be nefarious. That is the
first step in getting everyone to be aware of what you can do.
Then, we have tools which we can do to harden our system. I
like to use the term hard.
We shouldn't change our system. We need to make it tougher
for--make it harder to manipulate the bad foreign actors. I
think disclosure, education, awareness will go a long way to
solving some of our problems.
The transshipment problem might be the solution. It might
be empowering the people who know best. The parties are being
injured by the bad actors to go to court. Bring their evidence
to court because we just don't have necessarily enough
enforcement resources in the United States.
Mr. Fry. Right. In the instance of the piping company,
they're much more equipped to recognize the problems in the
industry as it pertains these shipments into the United States.
Mr. Ku. Right. We've adopted this in other mechanisms as a
way--False Claims Act and other ways to enforce. Giving private
actors who already have the incentives might be a good way to
do that to make it tougher for transshipment and other types of
evasion.
Mr. Fry. Ms. de La Bruyere, what should U.S. companies and
law firms with a presence or operational nexus with China be
doing to insulate themselves from risks associated with
engaging in this space?
Ms. de La Bruyere. First, that they should limit their
engagement with China to the greatest extent possible. That's a
role Washington can play too. If the U.S. Government imposes
costs in the same way that China does to its entities, calls
for a choice to be made between the U.S. and the Chinese
markets, that will create an incentive both for U.S. companies
to invest at home and to protect themselves from the risks of
exposure to the Chinese market because China is adept at
leveraging short-term incentives to which our market entities
are very vulnerable in exchange for long-term strategic
advantage that will destroy our market entities and our system.
There's a role for Washington simply to restrict that exposure,
or to put costs in it, and at the same time to create greater
incentives for investment at home so that it's not just
surrendering things for U.S. entities. It's also gaining a new
opportunity.
Mr. Fry. Mr. Chair, I see my time has expired, and I yield
back.
Mr. Issa. I thank the gentleman. I now recognize the
Ranking Member for unanimous consent.
Mr. Johnson. Yes, two articles, Mr. Chair, I'd like to
offer for the record. First, Bloomberg Law that is entitled,
``Litigation Finance Doesn't Pose Security Risks.'' Second, is
a Law360 article entitled, ``A Boogeyman National Security
Threat and Litigation Funding.''
Mr. Issa. Thank you. I will now--without objection, so
ordered. I now will offer unanimous consent that a statement by
the American Property and Casualty Insurance Association
concerning the same litigation or legislation be placed in the
record. Another one from the Alliance of American
Manufacturing, a statement submitted for this hearing in
support of the hearing. Without objection, all these will be
placed in the record.
I'll now recognize myself for some closing questions. This
has been a very good hearing, and I appreciate all your input.
There were a couple of things that came out during this that
I'd like to touch on.
First, it's a broad question. Rule 11 sanctions which
sanction parties are basically for wrongful actions, that's
currently made at the discretion of the judge. It has no
requirement that it equals the damage.
It can be $10,000 even if it cost you $50,000 just to file
the motion. Do you believe Congress has a role and should
consider legislation that would effectively strengthen and make
it much more of a shall requirement when there had been the
findings normally found in Rule 11 sanctions? Just briefly,
does anyone disagree with that as an area that would help stop
wrongful legislation when it is onerous and deliberately
deceiving?
Good. My next one is Rule 26 which was alluded to. Under
Rule 26, defense has a requirement to make available including
documentation under Rule 34 that you have to produce any
insurance or other third-party defense funding that pays for
the defense and/or could pay all or part of the settlement. If
that is the case, my question to each of you--and I'll start
from left to right with the professor there--has that
requirement in some way diminished the ability of defendants to
protect themselves or to be able to get that protection such as
insurance for defense? Has the requirement to disclose it ever
reduce the availability?
Mr. deLisle. That's beyond my scope of expertise about
what's happened to parties in U.S. courts that have had to
disclose that.
Mr. Issa. Well, wait a second. Wait a second. You came here
as an expert. I want to hold you a little accountable. You
basically--and from the dais, it's been said that if we have to
disclose the plaintiff's funding, that it's going to somehow
diminish their ability to have access to the court. Do you have
any knowledge, and you should have knowledge, I would think, of
whether there's been some sort of adverse effect because of
Rule 26?
Mr. deLisle. As I said, I'm not an expert on what happened
with Rule 26 with U.S. insurance claims. My concern about the
issue of foreign disclosure, particularly what to be the
proposal to require disclosure of foreign government or party
linked funding perhaps, targeting China perhaps more generally,
is that's much messier than asking someone to disclose an
insurance policy. It does--
Mr. Issa. OK. Well, I got your opinion now solidly on one
side, but not the other. Let me go--well, Mr. Muller, you've
been involved in your litigation. If you brought in a partner
to help in that litigation to share in the losses, the profits,
the payments, would that discourage you if you had to disclose
it?
Mr. Muller. No. In fact, through our trade association, we
partnered with our competitor, McWane, out of Birmingham, in
our trade cases.
Mr. Issa. It's an open disclosure. Professor Ku, you're--
both of the next two witnesses. When it's been disclosed either
that you're insured, has that somehow made it unavailable or
hindered, even though it's often something the plaintiff is
prepared to settle for?
If they want damage, they look at how much you have and
that affects it. Even with that, has it actually done any harm?
Because one of the things we're hearing is that somehow if you
disclose, you by definition will take away someone's ability to
get that. Your opinions on that based on the history of those.
Mr. Ku. Right. I'll be a little professory, and say I
haven't studied it very carefully. I don't think that it would
and I'm not aware of any sites that show that it does
discourage plaintiffs or disincentivize these lawsuits.
Mr. Issa. Of course, we're talking to the defendant that's
currently the only one having to--
Mr. Ku. Right, of course. Defendants as well, right, that
they're unwilling to go to court.
Ms. de La Bruyere. I don't know of any cases where that has
disincentivize participation.
Mr. Issa. OK. Now, I just want to try to understand if
there were three parties and they're suing. Mr. Muller, I'm
going to go back to you since you do seem the one that doesn't
have to study. You've lived it.
If when you go and you partner with somebody, you don't
have a problem disclosing. Those are co-plaintiffs. Or even if
they're hidden plaintiffs, you don't have a problem disclosing
them.
Mr. Muller. No, no. We have no hidden plaintiffs in our
trade cases.
Mr. Issa. In that case, they also are subject to being
subpoenaed and deposed, right?
Mr. Muller. Certainly, they would, yes.
Mr. Issa. OK. What I'm trying to understand here in closing
is this whole question of the goose or the gander. If it's fair
for the defendant to have their finances known, to have their
source of funding for possible payment if they lose or the
defense and it doesn't have a chilling effect and it's been in
place for years even though Rule 26 doesn't work both ways, the
question is, why would be bad at all if there had to be an open
recognition?
Professor, I'm going to go back to you briefly. I asked you
if you knew, and you said you hadn't studied. OK. I'm going to
take you to one thing that you said earlier. I don't want to be
personal, but you are at Penn, correct?
Mr. deLisle. Yes.
Mr. Issa. Your university took 105 million between 2018-
2022 from the Chinese Government related business entities
alone. You opined considerably on political, and the influence
and the difference. You were unwilling to differentiate between
Chinese Communist judges who serve at the pleasure of the
Chinese Government and lifetime appointment Federal judges.
Then you even talked about the universities in China. Isn't
there and hasn't there been a concerted effort by the Chinese
Communist government through their proxies to, in fact,
influence universities in America through very generous gifts,
the tip of the iceberg being 105 million to Penn?
Mr. deLisle. I don't think I was unwilling to distinguish
between Chinese judges and U.S. judges.
Mr. Issa. You said they were more similar than not.
Mr. deLisle. I'm not sure that I said that either. What I
said is I don't think either side is at the polar end of the
spectrum. There is many times fair justice, fair judges, and
good lawyering in China.
I have the concerns I expressed about trends in the United
States. There still is a very significant gap. I don't want to
be misunderstood as suggesting that there is not.
Mr. Issa. Would that gap be considered pretty much night
and day, not absolute but considerably different, so much so
that the level of justice is inherently different?
Mr. deLisle. At this point, yes. Although I'd say there are
worrisome signs about the direction in both places. As to your
question about funding, universities and others received
funding from a great many sources.
The degree to which those come with influence and strings
attached varies hugely. The amount you refer to is obviously a
drop in the bucket of an institution the size of Penn, much
smaller than the cuts Penn has suffered from U.S. sources, for
instance. I have never knowingly had any contact with Chinese
money coming into Penn. I know there is a wariness of accepting
it. In some cases for good reason.
Mr. Issa. Thank you. I'd like to allow the Ranking Member
to have some of these minutes I've taken. The gentleman is
recognized.
Mr. Johnson. Well, I think so long as we can adhere to our
rule as much as possible that each of us gets five minutes of
questions, I'm happy with whatever the content of any questions
might be from the Chair. However, I would just take the
opportunity to point, Professor deLisle, that you are the
Stephen A. Cozen Professor of Law and Professor of Political
Science and the Director of the Center for Study of
Contemporary China, correct?
Mr. deLisle. Yes, sir.
Mr. Johnson. You are not the president of the university?
Mr. deLisle. Fortunately, not.
Mr. Johnson. You're not deciding campus-wide policies on
admission, school finances, or speech, correct?
Mr. deLisle. I am not. I try to shake some money loose from
the central administration, but that's a rather different
undertaking.
Mr. Johnson. All right. With that, I will yield back. I
thank the Chair for the time for rebuttal.
Mr. Issa. Thank you. Clarification is always what we seek.
I want to make sure this Committee always stands for that. I
want to thank our witnesses.
Today's hearing is expansive but not complete. For that
reason, I would ask that you be willing to supplement answers
to questions that are given to you in writing in the next few
days? Thank you.
With that, this concludes today's hearing. I want to again
thank our witnesses. Without objection, this Committee stands
adjourned.
[Whereupon, at 11:57 a.m., the Subcommittee was adjourned.]
All materials submitted for the record by Members of the
Subcommittee on Courts, Intellectual Property, and the Internet
can
be found at: https://docs.house.gov/Committee/Calendar/ByEvent
.aspx?EventID=118511.
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