Tag Archives: third-party funding

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 Funding Regulation in England and Wales

Perhaps nothing demonstrates the growing importance of litigation funding than the fact that government regulators are beginning to pay attention to it. In the United Kingdom, litigation funding has been largely regulated by private and voluntary efforts. But legislators are beginning to consider whether regulation is necessary.

In the United Kingdom, as in the United States, litigation finance is growing. According to publicly available data, the sixteen largest third-party funders in the UK now have over £1.5 billion under management.  This represents an increase of 743% from £180 million in 2009. But those are just the public figures. It is likely that much more than that amount is invested in litigation finance.

Currently, the UK government does not regulate litigation finance. And, as of last year, the government had no plans to put regulatory legislation forward. The government has, however, said that it is ready to investigate what kind of legislation might be warranted if substantial changes occur in the litigation funding marketplace.

In the absence of legislation, the regulation of litigation funding in England and Wales is voluntary. The primary source of this voluntary regulation is a membership organization:  the Association of Litigation Funders (ALF). ALF has established a voluntary code of conduct for its members, which was first published in November 2011. It was developed by a working group from the Ministry of Justice.

Under the code, funders many not attempt to influence the litigation, and they must agree to pay all debts when they become “due and payable.” They must also ensure that they have enough capital to cover all the arrangements on their books for a minimum period of 36 months. In addition, the code prevents funders from terminating a funding agreement “without good reason.” Funders must also assure that, before the funding agreement is signed, the party receiving funding must receive “independent advice” on the terms of the funding agreement. ALF members which fail to meet the requirements of the code may be subject to a fine of up to £500 and/or termination of their membership.

Keywords:  litigation finance, legal reform, third-party funding, law reform, regulation of litigation funding

Works Cited:  Ben Wells, Regulation of Third Party Litigation Funding in England and Wales, Out-Law (July 19, 2018) available at https://www.out-law.com/en/articles/2018/july/third-party-litigation-funding-england-wales/

A New Approach to Litigation Funding

Up until now, almost all third-party litigation funding came from investors who sought to gain directly from the recovery in the litigation. But, as litigation finance grows and expands, new approaches to litigation funding are emerging.  One recent development comes from the home rental platform, Airbnb.

In New York City, officials fined an Airbnb host $30,000 after he appeared at a city council meeting to speak out in support of home rentals.  The host sued the city in federal court, accusing officials of retaliating against him for expressing his opinion. Airbnb then volunteered to pay his legal fees in the case.

The timing of the suit is noteworthy. It was filed just hours before the New York City council was expected to pass a bill requiring Airbnb and other home-rental sites to disclose the names and addresses of hosts. The bill is designed to facilitate New York’s ability to enforce its rules against short-term home rentals. Airbnb opposes the measure, asserting that it would invade the privacy interests of law-abiding hosts.

Not surprisingly, Airbnb’s participation in this suit is not the first time it has had some conflict with New York city government. In 2016, it sued both the city and New York state over their restrictions of short-term sublets. Just before the city’s consideration of a disclosure rule, Airbnb and the city council engaged in a public battle over whether Airbnb’s business was good for the city’s housing rental market.

Airbnb’s support for its host’s lawsuit is a new variation on an established theme in litigation finance. In 2016, billionaire Peter Thiel funded a suit by Hulk Hogan against the gossip website, Gawker. But Thiel sought to keep his involvement secret; Airbnb’s funding is out in the open. And that is what is interesting about this case. Airbnb is using funding as an instrument in its on-going, public dispute with the city. This willingness to be public about litigation finance is another indication of the greater acceptance of litigation finance.

Keywords:  litigation finance, legal reform, third-party funding, Peter Thiel, Airbnb

Works Cited:  Olivia Zaleski, Airbnb Is Financing a User’s Lawsuit Against New York City, Bloomberg (July 18, 2018) available at https://www.bloomberg.com/news/articles/2018-07-18/airbnb-is-financing-a-user-s-lawsuit-against-new-york-city

Growth and Acceptance of Litigation Funding Continues

Notwithstanding widespread criticism, litigation funding continues to grow and gain acceptance in a variety of ways. Recent events show that there are more litigants – and a wider variety of litigants – seeking funding and that, correspondingly, the investment in funding continues to expand and diversify. Finally, courts are starting to show more awareness of the value of litigation funding in the pursuit of justice.

Recent surveys show that the percentage of lawyers in the United States whose firms used litigation finance grew from 7 percent in 2013 to 11 percent in 2014, and then to 28 percent in 2015. At a recent conference for insurance lawyers and defense attorneys, 35 per cent said they had been involved in a case where litigation funding was used.

As more parties seek third-party funding, more investors are making funds available.  Increasingly, hedge funds are providing capital to funding companies, expanding the availability of funds.  To be sure, some major players have left the market, unwilling to accept the risks of the market.  But, on the other hand, new kinds of funders keep entering the market.  For example, crowdfunding is now being used to finance some cases through platforms such as TrialFunder, which uses proprietary computer models to let people invest modest amounts in lawsuits.

Judges are beginning to recognize the public policy benefits of litigation funding. For example, in Lawsuit Funding LLC v. Lessoff, No. 650757/2012, 2013 BL 343470 (N.Y. Sup. Ct. N.Y. Cty. Dec. 4, 2013), the court pointed out that public policy favors litigation financing because it “allows lawsuits to be decided on their merits, and not based on which party has deeper pockets.”  Generally, courts have not concluded that a funder’s security interest violates the ethical prohibition on sharing fees with nonlawyers. In Counsel Fin. Servs., LLC v. Leibowitz, 2013 BL 199584 (Tex. Ct. App. July 25, 2013), the court confirmed that litigation funding does not violate the prohibition on fee-sharing.

All of these developments demonstrate that the momentum in favor of litigation funding is building. Increasing demand for funding promotes an increase in the supply of available capital, and more widespread investment increases the diversity of funding models and makes it ever more clear that litigation funding can solve a variety of problems in modern litigation.

Keywords:  litigation finance, legal reform, third-party funding, ethics, litigation finance best practices

Works Cited:  Joan C. Rogers, Litigation Funding on Rise in Big Cases, Panel Says, Bloomberg (March 23, 2017) available at https://www.bna.com/litigation-funding-rise-n57982085617/

 

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.