The pages of Above the Law serve as a bellwether for hot issues in the legal industry. Yes, EliteLaw’s (Biglaw and elite boutique firms) salary raises may get the most attention and engender the most celebration in the current and aspiring associate ranks. That is definitely the topic du jour, though partners may feel differently since to them, these raises can mean deductions in their own take-home pay. What partners prefer talking about are ways to get more money into their own pockets. Associate raises are not helpful in that regard. Litigation finance, however, definitely can help, and is thus high on many a partner’s list of current interests. It is also a topic that meets the Above the Law relevancy test as well, as any regular reader of the site knows.
Some background for those new to the topic, who may still doubt that litigation finance is a big deal. The idea is simple. Start a litigation finance shop. Raise money from investors interested in potential returns uncorrelated with the stock or bond market. After careful due diligence, loan that money at high (usurious?) rates to hungry law firms interested in offloading risk from their portfolio of contingency or reduced-fee cases. Wait for settlements or trial results to generate a return. Rinse and repeat.
By now, there is no lack of funders interested in cases of all types, with different target investment amounts and appetites for risk. Likewise, there is no shortage of law firm partners interested in offloading some of the risk from their cases in exchange for guaranteed payment of fees or case expenses. The early success of some litigation funders has only served to accelerate demand from investors. For law firms, decreased client willingness to fund litigation has also made litigation finance a compelling option in many situations.
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Any litigation team fortunate enough to land a potentially lucrative case is likely to have at least considered litigation funding. Our firm has developed relationships with a number of the leading litigation funders, an important aspect of vetting cases nowadays. We respect the opinions of the funders we have discussed potential cases with, even as we understand that negotiation is necessary if we want to get the best potential terms for a funding deal. I have no doubt that our experiences are not unique. Further, I believe that any sophisticated litigation practice today at least considers funding for their more valuable patent cases. In fact, a healthy approach to considering funding can actually improve the firm’s due diligence and decisions on which cases to take on riskier financial terms for the firm.
Because litigation funding in patent cases is still considered rare, there is a dearth of decisions that can offer guidance as to the legal ramifications of accepting — or in some cases, declining — litigation funding in a particular case. Most of the decisions I have seen to date have dealt with privilege issues, usually centering on whether a client or law firm’s communications with funders can be protected under some work product or common interest privilege theory. In practice, most funder discussions are preceded by an NDA of some form, with care taken to limit written communications that could form the basis for later privilege-based discovery disputes.
At the same time, there is no doubt that patent defendants are interested in knowing whether or not their opponent is funded. For example, if I were representing a defendant against a funded plaintiff, I might consider a motion in limine to prevent my opponent from making a David v. Goliath argument against my client, unless they also disclose that they are funded and by whom. Otherwise, it would be prejudicial for the plaintiff to paint itself as a minnow, when they conceivably could have a larger litigation budget than my own client. I would also want to know whether or not any funders passed on the case, and if so why. Perhaps the plaintiff got a negative opinion on the merits from a funder — which could impact cases where funding was obtained (from someone else) or where funding was applied for but never received. Likewise, I would want to probe for any discovery I could get on the funding agreement, to get a better sense of my opponent’s settlement posture and willingness to litigate until all appeals are exhausted.
The interplay between discovery and funding came to a head in a recent decision in a patent case involving Google. Even though the case is pending in Google’s home forum (the Northern District of California), Magistrate Judge Cousins declined to grant a motion to compel discovery into litigation funding in Space Data Board v. Alphabet (Case No. 16-cv-03260 BLF (NC),) rejecting Google’s argument that discussions with third-party funders are not privileged, or that Board minutes reflecting those discussions should be produced. While not addressing the privilege issues, the court found that the requested information was not relevant and burdensome for the plaintiff to produce. Especially where Space Data had already represented that it had not procured litigation funding. Furthermore, the rules of the Northern District only call for disclosing funding relationships in class action cases. On these facts, Google’s attempt to probe deeper into the funding contemplated by its opponent was rejected.
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Ultimately, we can expect defendants like Google to continue to press for discovery into funding relationships. The case law around this hot-button issue will continue to develop as a result. At the same time, we can also anticipate that particular federal districts will continue to consider whether or not litigation funding must be disclosed, in class-action cases or other civil actions. In short, the question of who’s paying will be a litigated one for the foreseeable future. Especially if someone figures out a way to make the answer useful in helping win their case.
Please feel free to send comments or questions to me at [email protected] 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 [email protected] or follow him on Twitter: @gkroub.