Litigation Finance

3 Questions For A Litigation Finance Chronicler (Part II)

Litigation finance is here to stay and has the potential to be very beneficial for the firms that embrace it in the right situations.

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This week, I continue my written interview with Litigation Finance Insider Editor Henry Louis. Last week, Henry released a very informative summary of some of what transpired at LF Dealmakers, one of the leading industry events for those operating in the litigation finance sector — whether in the U.S. or overseas. (I highly commend reading his summary and hope to release a column of my own soon highlighting key takeaways for IP lawyers, as I have done for several years running.) As you can see, the discussion at LF Dealmakers was wide-ranging, commensurate with the exciting developments in the litigation finance industry across a number of fronts.

Now to the remainder of my interview with Henry. As usual, I have added some brief commentary to Henry’s answers below but have otherwise presented his answers to my questions as he provided them.

Gaston Kroub: Is there a critical misconception you think exists around litigation funding?

Henry Louis: Pricing is something that many lawyers and plaintiffs have trouble with. While pricing may come down as competitive forces come into play, the industry standard still seems to be variations of a funding fee equal to 30% of a judgment or 3x invested capital. While this may seem expensive, there is real risk involved for a funder. No matter how selective a funder is in selecting a case to back or how diligently it vets a case, litigation is inherently risky and not all investments will be successful. In the past few months, we have written on more than one occasion about a funder losing millions of dollars when a case didn’t unfold as anticipated.

GK: Cost of capital remains one of the barriers to further uptake of litigation funding, especially in patent cases, where the chances of reaching an early settlement may be impacted by the need to meet the funder’s financial terms. At the same time, the risk factor in any funded case is substantial, so I agree with Henry that the chances of a funder losing it all on a given case is a big factor in the current litigation funding pricing schemes on offer. Whether that changes with a greater shift to portfolio financing, or the entrance of even more funders to the market, or even because funding risks can be mitigated by insurance involvement is a critical question that the coming years will answer.

GK: How would U.S. law firms benefit from learning more about litigation funding, via your newsletter and other resources?

Litigation finance is here to stay and has the potential to be very beneficial for the firms that embrace it in the right situations. For years, clients have been pushing back on law firm rates and the traditional time-based billing practices. Litigation finance gives firms the ability to offer their clients a means of financing their cases without the need for the firms to take the full risk that comes with traditional contingent fee arrangements.

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The more a legal professional learns about the litigation finance market, the better equipped he or she is to have conversations with clients about it and craft appropriate legal solutions.

Plus, it is a fascinating industry to follow generally. There are not too many areas in the legal world that are evolving and growing at the pace that litigation finance is!

GK: First, I share Henry’s sentiment that litigation finance is a fascinating area of study and very much worthy of our attention. Second, I am on record stating that IP lawyers who refuse to educate themselves on litigation finance are doing themselves, their firms, and their clients a disservice. Third, I continue to anticipate that firms of all sizes will have partners and employees tasked with developing funder relationships for the firm, as well as helping the firm and its clients secure funding for meritorious matters on the best possible terms. But it all starts with education — and I think the quality of the content that Henry and the LFI team put out bodes well for their voice in this industry having staying power.

My thanks to Henry for the insights and cooperation, especially for helping work on this interview at the same time as he was preparing his LF Dealmakers recap. I wish him the best of luck with continuing to lead the charge for greater transparency in the litigation finance industry, as well as for helping keep those of us involved in litigation finance informed about the key goings on in the space. There is no doubt that litigation finance will continue to make news on the IP front — and I have no doubt that Henry’s ongoing contributions will help both IP lawyers and their clients interact with the litigation finance industry in an informed and mutually productive way. (In the interim, you can sign up for LFI’s free weekly emails here.)

I am always open to conducting interviews of this type with other IP thought leaders, so feel free to reach out if you have a compelling perspective to offer…

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Please feel free to send comments or questions to me at gkroub@kskiplaw.com or via Twitter: @gkroub. Any topic suggestions or thoughts are most welcome.

Gaston Kroub lives in Brooklyn and is a founding partner of Kroub, Silbersher & Kolmykov PLLC, an intellectual property litigation boutique, and Markman Advisors LLC, a leading consultancy on patent issues for the investment community. Gaston’s practice focuses on intellectual property litigation and related counseling, with a strong focus on patent matters. You can reach him at gkroub@kskiplaw.com or follow him on Twitter: @gkroub.

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