Tag Archives: alternative litigation finance

Litigation Finance and University IP

In the world of intellectual property, often the way to enact licensing deals is through litigation.  However, litigation comes with significant risks and costs and studies show that there is one group in particular that is more hesitant than others to enforce patents through litigation.  That is, universities.  Since many universities across the United States produce cutting-edge research, intellectual property is very important to them but they often have to consider other issues before pursuing litigation to protect their IP.  Some of those issues include whether a licensing dispute will harm valuable research partnerships between the university and corporate sponsors, if the university will have the support of professors and individual colleges at the university, and will litigation deter future research partners from working with the university.

Litigation financing can be used by universities to help in this type of scenario. If the research is a narrowly focused on a particular topic, single-case financing may be an appropriate option.  For single-case financing the funder would work with the university and its litigation counsel to finance the attorney’s fees and other costs through trial and appeal, including any Patent Trial and Appeal Board (PTAB) proceedings.  This is a great option for the university because like all litigation financing it is no cost unless there is a successful outcome and it shifts the risk from the university to the financier.

However, for universities that have research crossing over far-ranging fields the single-case option may not make sense.  Universities like this may want to purse a multi-faceted licensing approach for the overall licensing program to be successful.  This is even more risk and money and commitment for the university.  But that is where litigation financing can come in and provide significant capital for such a process, which would allow the university to spread its risk and facilitate a broader resolution.

While universities may not at first thought be clients that one would think litigation finance could benefit, this post suggests that they are.  From small claims to much larger diverse group of claims, litigation finance will help shift the risk from the university to an entity with diversified risk across uncorrelated claimants.  This allows the university to focus on their main prerogatives educating students and continuing their extensive research initiatives.

Topics:  litigation finance, alternative litigation finance, third-party funding, universities, intellectual property, patent law

 Works Cited: Katharine Wolanyk & Emily Hostage, Using Legal Finance to Unlock University IP Assets, Burford Capital (July 17, 2018).

Where Do Litigation Costs Come From and How Does Litigation Finance Help

Since the recession in 2008, litigation costs have only spiraled upward with billing rates at top law firms increasing by 3-4% per year.  But attorney-billing rates are not the only costs in litigation.  In fact, as technology continues to grow and change the way we do everything the volume of e-discovery has greatly increased.  Including much more cross-border e-discovery now which adds more costs.  Beyond discovery, there are travel costs, experts’ costs, trial consultants, and even more.  But for many of people who have not previously gone through litigation it is hard to understand where these costs come from and to have a realistic view of what it really will take to fight a suit. That’s where this post serves to break down the stages of litigation and explain a little of what each costs.

From the start there is usually an intake or case assessment.  This requires fact investigation to determine the merits of a potential claim and possibly extensive legal research on the merits of potential claims.  Attorneys may also give a cost estimate at this stage of the case, which by itself requires detailed attention, time and analysis by attorneys.  All of the hours spent researching and analyzing at this point will at up to significant money, especially when consider that top partners billable rates are on average $875/hour or more.

If the claim is thought to be worthwhile the next stage is filing a complaint. This stage requires more time to write sometimes over a hundred page complaints, usually defending off a motion to dismiss, and attending hearings, which not only take time but also can add up travel costs if the case is a cross-border matter.  At this time a plaintiff lacking enough funds may have to withdraw their claim entirely or face a default judgment.

The case then moves onto discovery, which as discussed above has seen some of the biggest increases in cost with technology.  But this is also not an area that a plaintiff can try to save money on and do less of because facts that go un-discovered may adversely affect the result of the case. This stage also includes depositions, or examinations of witnesses under oath, which is likely to include travel costs, hours of preparation, court reporters, possibly video equipment, and possibly translators.

Lastly, there is the actual trial, this is a stage that numerous cases do not even make it to.  More often than not, cases settle because plaintiffs lack the resources to continue or are burnt out from the process.  But sometimes settlements do not allow for true justice to be served, particularly when a defendant knows the plaintiff is out of money and low-balls a settlement just to end the matter. If a trial does go to trial it is very costly with expert witnesses, travel, and time.

This is where a well-capitalized plaintiff using litigation finance can greatly help himself or herself.  To not only level the playing field against multinational corporations that have a multitude of resources to put towards fighting litigation, but also to improve his or her chances of eventual recovery when this is all over.

Topics:  litigation finance, alternative litigation finance, third-party funding

 Works Cited:  Matthew Oxman, Litigation Finance: The Advantages of a Well-Capitalized Plaintiff, LexShares (July 19, 2017).

More on Mandatory Disclosure

As a follow-up to the previous post on the current state of disclosure requirements for litigation finance in the United States, this post considers two major questions in disclosure regulation.  First, is mandatory disclosure of litigation finance inevitable and with that, are the trends in the court and legislatures in favor of full disclosure in every instance? Secondly, is disclosure of litigation finance advisable in every civil matter and should litigants be forced to not only disclose if their legal cost but also the financiers’ identities and the specific arrangements that were made?

Starting with the first question, is mandatory disclosure inevitable? No. The primary reason for disclosure is to ensure that judges deciding the matter do not have a conflict of interest.  Mandatory disclosure in regards to litigation finance would be to provide an advantage to a litigation adversary, which is not the intended purpose of disclosure rules.  This is supported by the fact that Rule 7.1(a) requiring disclosures is intentionally very limited.

To address the second part of question one, do trends favor mandatory disclosure; the lack of current regulation  (as demonstrated in more detail in the previous blog post) suggests that the trends of the court at least do not favor disclosure.  There have been discussions of new legislation and most recently in May, a draft bill introduced by Senator Chuck Grassley but so far there has not been anything definite to show a trend towards mandatory disclosure.

As for the second question, disclosure is not advisable in every civil matter.  But the one area where disclosure may be more helpful than burdensome is in collective litigation.  In collective litigation there is generally no single plaintiff and the cases are often very sophisticated so the court plays a more active role than it does in single-claimant commercial litigation.  However, this does not mean that mandatory disclosure should be automatic in every collective litigation case.

In response to the second part of the second question, if disclosure is mandatory in a collective action case then it should be done in what Christopher Bogart deems a “common sense approach.”  Which is to say that the disclosure should not be overly excessive to disclose every detail of the arrangement and maybe not even the identities of the financiers but rather in a way that affirms to the judge that there is no conflict and that the funder exercises no control over the matter. This can be done by calling for disclosure to be made ex parte and in camera to the judge only, not the defendant, and by stipulation that no discovery will be permitted into litigation finance arrangements as they are protected attorney work product.

Topics:  litigation finance, alternative litigation finance, third-party funding, regulation, disclosure, commercial litigation

 Works Cited:  Christopher P. Bogart, Litigation Finance Disclosure in the US: Common Sense v. False Narratives, Bloomberg Big Law Business (July 11, 2018).

Regulation and Litigation Finance

The topic of regulation in litigation finance has been raised more and more frequently in recent news.  Part of this is likely attributable to the rapid growth and success of the relatively new industry in the United States.  Much of the talk of regulation is based on the topic of disclosure, when (if ever) should disclosure that a party to litigation is being funded by a third-party be mandatory? With the many ideas of regulation circulating but nothing finalized, this post seeks to identify a few key federal and state rules currently in place relating to disclosure in litigation finance to give a background understanding to the issue.

At the federal level, there is no rule that requires automatic disclosure of litigation finance agreements in any case. This is sometimes confused with Rule 29.6 of the Federal Rules of Civil Procedure that requires disclosure of any parent corporation or public shareholder that owns ore than 10% of the party’s stock.  This rule does not encompass litigation funders as they are not parent corporations or public shareholders, and financing litigation is not the same as buying stock in the company.

While there is no general federal rule requiring disclosure, half of the circuit courts of appeal (6 out of 12 courts) have local variations on FRCP 26.1 that requires all outside parties with a financial interest in the outcome to be disclosed.  At the federal district court level only 24 out of 94 district courts have a similar local variation to rule 26.1 to require disclosure of outside parties with a financial interest in the outcome.  However, it is critical to note that these local variations do not specifically call-out litigation financers and could apply equally to any type of funders (ex: banks).  Additionally, as a practical matter, the language in these disclosure provisions is extremely broad to potentially include a large number of commercial relationships and it is often not followed or enforced.

At the state level, almost all states do not require the disclosure of litigation finance in commercial litigation.  The one exception to this is Wisconsin.  In March of 2018, Wisconsin passed a law requiring parties in all civil litigation to disclose funding arrangements.  This seems to be in an effort to regulate consumer litigation funding.  However, Wisconsin is such a small part of commercial litigation, making up only 0.11% of civil matters in all US state courts it is unlikely that this one state’s regulation will have much of an effect.

It should be noted that these regulations are in regards to commercial litigation finance in the United States.

Topics:  litigation finance, alternative litigation finance, third-party funding, regulation, disclosure, commercial litigation

 Works Cited: Christopher P. Bogart, Litigation Finance Disclosure in the US: Common Sense v. False Narratives, Bloomberg Big Law Business (July 11, 2018).

Litigation Finance Regulatory Reform Discussion

Continuing in the discussion of regulation in litigation finance, many people have heard of the proposed monetary caps on funding agreements included in regulation such as the bill being considered in the Senate right now.  However, that is not the only type of proposed regulation for the industry.

Some experts suggest rather that regulation should focus on the contract or agreement made between the funding company and the plaintiff.  This is particularly on the forefront after the first ever large-scale study of consumer litigation funding in the United States was published. This survey was based on review of over 200,000 individual transactions between one of the largest consumer litigation finance companies in the country and individual litigants.

The survey revealed that the litigation finance company complicated all the variables that go into how much the plaintiff will have to repay the company after a favorable result in the written contract between the two. Thus, it was nearly impossible for the consumer to know what her contractual obligation was.  In fact, the hidden terms and costs were so buried that even some legislatures have missed them when considering disclosure.

Additionally, the survey showed that about half the time the plaintiff’s attorney re-negotiated the agreement with the litigation finance company afterward.  Even when the re-negotiations are meant to help the plaintiff get the best deal, it ultimately just added even more confusion for the plaintiff in the entire situation.

This is why ultimately people are calling for litigation finance reform that simplifies the process and clearly outlines the procedure and costs for the plaintiff.  Additionally, it should call for attorneys to keep the best interest of their client in mind from the beginning and thus, not complicate the matters further.

Topics:  litigation finance, alternative litigation finance, third-party funding, regulation, industry reform

 Works Cited:  Ronen Avraham and Anthony Sebok, Americans Should Have the Proper Protections When Bringing Lawsuits, The Hill (March 29, 2018).

How Litigation Finance Can Help People With Disabilities

Did you know one in five Americans have a disability of some kind? This is not a statistic that is quoted all that often and on the outset may not seem related to litigation finance at all.  But recently Tony Coelho, who served as a Representative for California in the United States House of Representatives, connected the two. Mr. Coelho, who suffers from epilepsy after a car accident in his teenage years, has been an avid advocate for rights of all disabled Americans.

Every year there are some Americans who become disabled due to an accident at an unsafe work place.  These Americans have legitimate personal injury claims and deserve compensation for their injury.  However, they likely will not be able to return to work while their case is pending.  So without help, how are these Americans supposed to pay their medical bills or everyday costs of living?

Mr. Coelho suggests that this is where litigation finance can help people with disabilities.  By giving plaintiffs money up front, litigation financiers can help to cover their everyday costs while they await a verdict from their case.

However, there are multiple people and organizations advocating for regulation and changes to be made to the litigation finance industry.  These regulations are not surprising as regulation generally follows extensive growth like what we’ve seen in the litigation funding industry over the past few years.

But it is important to consider the proposed litigation, weighing the costs and benefits.  For example, the New York state legislature is considering a bill from Erik Dilan that includes robust oversight, licensing, and disclosure provisions to regulate legal funders.  While at the same time there is an alternative bill circulating in the Senate that includes far less regulation and oversight, and includes gratuitous rate caps on legal funding advances.

As Americans, we may not be directly sitting in the Senate or in our state legislatures but we do vote for our politicians and we have a right to speak our minds.  Therefore, it is important that as more and more regulation is discussed and suggested, the American people care about this issue.  Not only to protect people with disabilities like Mr. Coelho advocates for but to protect all people so that there can be more justice from our legal system.

Topics:  litigation finance, alternative litigation finance, third-party funding, justice

Works Cited: Tony Coelho, Legal Funding Helps Advance Protections for the Disabled, Timesunion (May 15, 2018).


More Information on Disclosure in Litigation Finance Cases

As there is talk of more and more regulation of the growing multi-billion dollar industry that is third-party litigation finance, courts have continually upheld that litigation funding communications are protected by work product doctrine.

Previously, we shared about proposed legislation that would require disclosure of third-party financing agreements in litigation.  Recently this proposed legislation as well as other discussions regarding potential regulations of litigation finance in the United States, have given rise to questions about whether communications with potential clients and litigation financiers be protected.

Just earlier this year District Judge, Cathy Bissoon of the Western District of Pennsylvania continued the trend of holding that litigation finance is included as part of the work product doctrine.  Work product doctrine concerns the confidentiality of matters that have been prepared in anticipation of litigation.

Judge Bissoon applied the law of the Third Circuit, denying a motion to compel by Seagate and Western Digital Corporation to disclose how Lambeth Magnetic Sturctures is financing the case against them. Thus, holding that the plaintiff’s communications with litigation-funding organizations including the funding agreement were protected by work product doctrine because they took place during a time when the plaintiff actually and reasonable foresaw litigation and they were for the purpose of preparing or litigation.

While this is not a new decision, in fact it is very much in line with precedent from across the United States, this decision is especially important because it was in an intellectual property matter.  For IP cases in particular, confidentiality is of the upmost importance because that is usually what the action is ultimately about.

Therefore, the decision from Lambeth Magnetic Structures, LLC v. Seagate Tech. (US) Holdings, Inc. will help reassure clients in the IP field, a growing field for alternative litigation finance, that using this outside funding is a viable option.

Topics:  litigation finance, alternative litigation finance, third-party funding, law firms, regulation

 Works Cited:  Katharine Wolanyk, Another Favorable Ruling for Legal Finance: Pre-Litigation Funding Communications Protected by Work Product Doctrine, Burford Capital (January 25, 2018).

Lambeth Magnetic Structures, LLC v. Seagate Tech. (US) Holdings, Inc., 2017 U.S. Dist. LEXIS 215773.

The Growth in Litigation Finance Continues

Since its beginnings in the US, litigation finance has mainly been associated with helping the “little guy” in David v. Goliath lawsuits.  While helping to level the playing field is very important, especially to companies like TownCenter Partners who value justice for everyone.  Supporting smaller organizations is not the only use for alternative litigation finance.

Litigation finance can be helpful to even the largest organizations to manage risk and use their resources more strategically.  As larger organizations become involved in litigation financing not only is the market for it growing rapidly but it is also changing how funder’s run their business.

The traditional model was that litigation finance companies gave an advance to individual clients to cover attorney’s fees and legal costs.  But now single-case investments are not the only part of funders’ business.

There is a growing trend toward larger portfolio investments that combine multiple cases and provide something like a credit facility that a client can draw on during its suit. Part of this is because as larger law firms are using litigation finance they are interested in having more flexibility to have alternative fee arrangements but don’t want to have to take on that risk all at once.

For growth, it is helpful for firms to take on multiple cases at once but even if you only pick strong cases there is still a likelihood of at least some loses.  Therefore, a third-party funder can help a law firm to manage its risks as it grows more rapidly.  Additionally, the use of litigation finance for companies and law firms helps to add predictability to their litigation spending from quarter to quarter.

With more and more jurisdictions approving of alternative litigation finance, including recently Hong Kong and Singapore, experts predict that the demand will only increase.  As the market expands there will be continued discussion over regulations as we have already seen here in the United States, however, discussions about disclosures and other methods of regulation do not seem to be deterring the market.

Topics:  litigation finance, alternative litigation finance, third-party funding, law firms, regulation

 Works Cited:  Nathan Hale, Litigation Funding Isn’t Just for the Little Guy Anymore, Law 360 (April 20, 2018).

Intellectual Property Cases and Litigation Finance

Intellectual property is becoming one of the most active areas of litigation finance for a few reasons.  In particular, trade secret misappropriation cases are a good fit for litigation finance.  Many trade secret cases arise from startup companies and are company-endangering situations.  Meaning that these are high stakes situations for small companies that usually do not have extensive legal budgets.  These types of cases often present themselves in the way of an extremely large and wealthy company against a smaller, less wealthy organization.

This is the case with the current court case in the Northern District of California, where Space Data is alleging that Google used confidential information and infringed on three of the company’s patents.  While it recently came out that Space Data is not using third-party litigation financing in this particular case.  This would be the type of trade secret or intellectual property case for third-party financiers to get involved in.

In cases like Space Data where there is a noticeable difference in size and resources between the two companies, the use of alternative litigation funding helps serve a primary purpose of leveling the playing field and allowing the smaller organization to continue the litigation longer than they probably would be able to on their own.  Third-party money would allow the startup or smaller organization to hire the best legal representation and afford expert witness testimony rather than taking an early, low-ball settlement offer.

Beyond just leveling the playing field, litigation financing can be extremely important for technology that is untested or not well known.  A new invention may have great prospects but may not have hit store shelves yet so it would be hard to prove damages for the court.  Litigation funding can assist in this dilemma by providing money to get the best experts to testify to the value of the invention or to use the best predictive software for market sales to provide the court with an appropriate damages amount.

Litigation funding is not only for trade secret cases or intellectual property cases where the two parties are distinctly different in size.  Larger companies can also benefit in the use of alternative litigation finance to transfer risk from their company to a third-party.  As well as transferring the cost of litigation from their books to an outside company’s to preserve the company’s bottom line.

Topics:  litigation finance, alternative litigation finance, third-party funding, antitrust, international, competition

 Works Cited: John Bair, ‘Potential’ Litigation Funding Not Relevant in Google Lawsuit, The Legal Examiner (July 5, 2018).

Matt Harrison, Investment Manager and Legal Counsel, Bentham IMF (June 07, 2017).

Antitrust Law and Litigation Finance

Antitrust or competition is a unique field because in the US it requires proof of harm in civil matters by the claimant even after government prosecution.  This means that expert witnesses need to be involved every time a claim is pursued which adds more than usual financial pressure for the clients, even when their firm is willing to work on a contingent fee basis.  As a result, clients and law firms must be committed to pursuing a claim just to get to where the claim can be filed.  Additionally, the nature of antitrust claims usually means that the claimants have already suffered financial hardships due to some event before this point and may not be able to afford litigation.  This is why antitrust claims can be great candidates for alternative litigation financing.

Antitrust litigation is also a unique field because claims usually have a very long timeframe.  Therefore, it is vital to find a financier that has the resources to support a lengthy claim or to support the functioning of everyday business for the claimant’s company while the suit is ongoing.  However, the duration of antitrust claims can also make them more attractive to litigation finance companies that like to see at least a year or more in litigation before getting involved in a matter.

The past few years have brought an expansion of antitrust actions in Europe and the UK.  These have been high value cases against large organizations such as investigations into Volkswagen, Daimler and Audi.  This action in Europe suggests a trend that may be worldwide, a growing number of antitrust and competition claims.

Along with more claims comes more regulation.  In 2017, the EU Antitrust Damages Directive was implemented across the UK and Europe to make antitrust claims more plaintiff friendly by shifting the burden of proof to the defendants.  This may seem to be not as important to the U.S. considering in American jurisdictions the burden of proof still rests on the plaintiff, however, I suggest that it is particularly important in the realm of antitrust to pay attention to what is happening in Europe and elsewhere for two reasons.

First, newer regulations such as the EU Damages Directive may be indicative of industry changes that may begin to reach across the oceans.  But secondly, because so much of the economy is multinational now it is important to understand regulations in other countries.  For example, the EU Damages Directive contains a provision saying that actions can be brought in the jurisdiction in which the defendant is domiciled or in the jurisdiction where the harmful event occurred.  Therefore, law firms can take a more global approach and bring actions in multiple jurisdictions for their clients rather, than being more limited.

Topics:  litigation finance, alternative litigation finance, third-party funding, antitrust, international, competition

 Works Cited:  Ann Rogers, et al., Emerging Issues in Third-Party Litigation Funding: What Antitrust Lawyers Need to Know, The Antitrust Source (December 2016)

Aviva Will, Trends in Legal Finance: Competition & Antitrust, Burford Capital (February 27, 2018).