Intellectual Property, Litigation Finance

6 Questions For A Legendary Former SDNY Judge (Part I)

Judge Shira Scheindlin's thoughts on the topic of litigation finance.

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In my preview column on last week’s LF Dealmakers Forum, I touted “the chance to hear from a distinguished former jurist like Judge Shira Scheindlin as a keynote speaker” as a highlight of the conference’s agenda. I also referenced my personal excitement at the opportunity “to get her take on the litigation finance industry” in light of her well-noted contributions to the development of e-discovery standards in federal civil disputes. Moreover, I have long believed that the input of former and current trial judges on the questions raised by the increased availability and use of litigation funding can be of much value to the continued development of responsible litigation funding practices by funders, litigants, and their counsel. Accordingly, I consider it both humbling and a great honor to present to this readership Scheindlin’s responses to a series of questions I posed to her on the topic of litigation finance. While my normal practice in these interviews is to present a short biographical note on the interviewee, I decline to do so in this instance — and instead commend readers to reviewing Scheindlin’s current Stroock bio, chronicling as it does her illustrious career, a career that continues with her current role as a leading neutral in a wide array of high-value disputes.

For me, conducting a written interview with a legendary former jurist and the 2019 American Lawyer’s Lifetime Achievement Award winner is an unprecedented treat. Having that interview focus on an issue that I think is of prime importance to IP litigants and their counsel will hopefully provide this readership with plenty to consider in terms of their own thinking on the challenges and opportunities presented by litigation finance. Considering the vital need for practicing IP lawyers to educate themselves on litigation finance, it is my sincere hope that Scheindlin’s gracious sharing of her time and thoughts on the topic will motivate us all to learn as much as we can about this vital, dynamic area that promises to impact on our practices for a long time to come.

Now to the interview. As usual, I have added some brief commentary to Scheindlin’s answers below but have otherwise presented her answers to my first three questions as she provided them.

Gaston Kroub: Your thought leadership on the issue of e-discovery bodes well for those of us interested to hear your thoughts on litigation finance at the upcoming LF Dealmakers Forum. What attracted you to participating in the conference?

Shira Scheindlin: I was invited to participate because I have now spent several years as a member of the Investment Advisory Panel for Woodsford Litigation Funding.  I accepted for two reasons. First, every time I give a keynote address at a conference I learn more about the topic than I already know. It is a great way to learn! Also, I looked forward to attending the full conference in order to meet people who are interested in issues surrounding litigation funding. I believe that litigation funding provides more access to justice and helps to level the playing field many types of cases, including IP.

GK: I echo Judge Scheindlin’s sentiments about litigation funding providing more access to justice, which in my view is especially true in the IP context, where there is often a significant resource imbalance between IP-owner claimants and defendants. I also think that having former jurists on board in an advisory capacity is good form for litigation funders, especially when those jurists have the experience handling high-profile and high-value cases of the type that would nowadays be prime targets for funding.

One of the challenges IP litigants, particularly defendants, have raised with respect to litigation funding is that the presence of funding can make cases more difficult to resolve. Do you agree, in light of your experiences as a former trial judge and current neutral?

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SS: You ask whether based on my experience as a trial judge and now a mediator and arbitrator, I agree that the presence of funding in IP cases in particular, makes those cases more difficult to settle. I don’t agree. Traditionally, when conducting settlement conferences, which I did for many years as a judge, plaintiffs often had an unrealistic view of the value of their case, often based on heightened expectations expressed by their own lawyer. In fact, I think the presence of a funder, who can provide an independent opinion, may be helpful to the plaintiff in being realistic as to the benefits of settlement versus the risks of litigation.

GK: I have long stated that the value of a funder’s independent opinion on the merits of a case can be of great value to a plaintiff, especially one that lacks a frame of reference for what it takes to successfully navigate the litigation process or even what a realistic settlement value might be in a particular dispute. An area of concern, however, is where the expensive nature of litigation finance — pricing that is nearly always justified, in light of the risks borne by funders — makes settlement harder, such as when a settlement amount that would reward the funder and counsel while leaving the claimant with the scraps is all that is on offer. At the same time, the need to pay back a funder at a premium can sometimes spur counsel and their clients to adopt a more pragmatic settlement approach early on, so that a reasonable settlement can be reached before too much of the funder’s expensive money is “borrowed” by the claimant. Put another way, the presence of litigation funding can sometimes help drive settlement, rather than serve as a hindrance.

GK: Federal judges are increasingly being asked to grapple with discovery questions around the presence of funding. How important is disclosure of the existence of a funder to the presiding judge on a case in your view?

SS: The short answer is that I do not think disclosure of funding is important in most cases, including IP or general commercial cases. I do think, however, that it may be important in class actions and in MDLs (multidistrict litigation) where the judge must assess the ability of class counsel and the adequacy of class representatives to represent the class. In that context, it may be important to the court to be assured that there is sufficient financial wherewithal for counsel and class reps to adequately represent the class. I also think the presence of funding tends to weed out frivolous lawsuits in commercial and complex cases, and this gives the judge some assurance that the pending matters are not strike suits or some other type of frivolous action.

GK: Scheindlin’s take on disclosure of funding in IP cases will be well-received by IP-owning claimants, who do not particularly enjoy discovery dalliances into the issue of funding. Moreover, her sentiment on funding operating as a weed whacker helping to stop the filing of frivolous suits is surely true on the IP, particularly patent, side of things, where the existence of funding has arguably already helped raise the bar on the quality of patent case filings. Quick-strike, nuisance settlement targeting patent lawsuits, excepted of course. That said, it is getting harder and harder to imagine a big-ticket modern patent dispute involving high-quality patents that will get filed without at least some input from an actual or potential funder — with overall case quality continuing to improve on the IP side as a result.

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Next week, we will hear from Judge Scheindlin on my final three questions.

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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