Intellectual Property, Litigation Finance

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

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

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(Image via Getty)

This week, I continue my written interview with the Hon. Shira A. Scheindlin (Ret.), now Of Counsel at Stroock & Stroock & Lavan and a leading neutral with AAA, FedArb, and CPR. It is a rare pleasure to share with this readership the perspective of such a distinguished interviewee, especially on the exciting topic of litigation finance.

Now to the remainder of my interview with Judge Scheindlin. As usual, I have added some brief commentary to her answers below but have otherwise presented her answers to my questions as she provided them.

Gaston Kroub: There are more funders than ever targeting IP firms and clients, promising at minimum a free second set of diligence eyes on cases that may be ripe for funding. It seems to me, at least, that the input of a former trial judge would be a great addition to a comprehensive diligence process. Have you been approached by any funders to help diligence a case yet and would that be something you think yourself or other former judges might be interested in doing going forward?

Shira Scheindlin: I have not been asked to participate in due diligence in any case in which a funder is considering an investment. That said, as a member of an investment advisory panel, I have reviewed the entire file compiled by the potential funder (including diligence reports by independent counsel). Based on my review I am only asked to opine as to whether I think the case is likely to end successfully either by settlement or verdict.  I do think a former judge has top-notch experience to provide that opinion. And many former judges (who are now neutrals) are serving on advisory panels for funders. Experienced lawyers, who have spent decades in the trench, are also well equipped to give that opinion. A good advisory panel will have a mix of former judges and experienced counsel who come from both the plaintiffs’ and defendants’ bar. And please note, I never have a vote on whether or not to fund. I only give my opinion and then have no further role.

GK: There is not much to add to the above, other than to reiterate that responsible funders will do well to solicit a range of opinions on a case’s prospects as part of their diligence efforts. In my experience, most funders recognize that the process should include internal diligence resources, coupled with at least one outside opinion — separate from counsel shopping the case — as to the merits and likelihood of generating a return.

GK: Are you anticipating more opportunities to act as a neutral in funded cases due to capital inflows into litigation funding and court delays because of COVID-19?

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SS: I have no doubt that mediators and arbitrators will have more work in the next few years due to court delays resulting from the ongoing pandemic as well as the availability of funding. Many parties and their counsel will not want to wait years for an uncertain and nonfinal outcome. I am obviously a fan of both mediation and arbitration each for their own reasons. With the help of a skilled mediator, the parties — who I always require to attend — often get a fresh and realistic perspective on the merits of the case and the best path to a successful resolution. Arbitration allows the parties the luxury of selecting their own decision-maker after reviewing her qualifications and track record, and then gives them a cost effective, speedy, and final resolution — which is what most parties seek!

GK: In the age of IPR and interminable venue disputes in patent cases, the allure of arbitration or mediation as a way of resolving patent disputes is very compelling. But uptake of such processes remains rare outside of royalty disputes and alternative dispute resolution mechanisms in filed cases, which is a shame. With the right effort, however, both patent owners and frequent targets may come to recognize the value of employing neutrals rather than rushing into litigation, which would be a welcome change in current practice if it came to fruition. Perhaps the presence of litigation funding will help make neutral resolution processes more palatable in the IP space, as Judge Scheindlin astutely notes.

GK: Is there a critical misconception that you think exists around litigation funding, and if so, how would you correct it?

SS: Yes. The critical misconception regarding litigation funding is that funders are greedy and rapacious investors, who are more interested in themselves and their return on investment than they are in the parties they decide to fund. That is simply wrong. I have now met many funders and sincerely believe that at least part of their motivation is to ensure access to justice for those who have meritorious suits but lack the funding to proceed. And the funder’s interest is perfectly aligned with that of the client. The success of the latter is the success of the former. Litigation is a very expensive proposition. It can cost $50,000 just to make or defend a motion for summary judgment. Trial costs another $200,000 or more. Retaining experts is another big expense, as is the inevitable Daubert motion attacking such experts. In the IP world, experts are a must in the Markman hearing and then at trial. Many small companies or inventors simply cannot afford to bring a suit without funding. Large companies and large firms are in a much better position — although many firms also rely on bank loans and lines of credit to sustain the high costs of running a business. Litigation funding, particularly of commercial and IP cases is a good thing. I am less certain of funding in personal injury cases, where there has been some abuse by counsel, and of consumer cases where there is often negative value to the individual plaintiffs.

GK: As Judge Scheindlin points out, there are different flavors of litigation funding available to taste — including some that are designed to enrich the funders at the expense of desperate claimants. But that is not the state of play of litigation funding in the IP space, where funders, IP owners, and counsel are in a constant dialogue about how to properly allocate risk between each other when it comes to funding IP disputes. Moreover, all stakeholders in a funded IP dispute are keenly aware of the need to align interests in order to achieve a profitable result for everyone — a fact that encourages cooperation and a focus on only backing claims with both merit and favorable commercial prospects. At bottom, Judge Scheindlin is right to draw a link between the high cost of litigation and the need for litigation funding — and we all benefit from the input of jurists of her caliber as the litigation finance industry continues to mature.

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My thanks to Judge Scheindlin for her insights and cooperation, especially so quickly after delivering her keynote address at LF Dealmakers Forum. I wish her much good health and continued success going forward and remain very honored that she agreed to share her thoughts with this audience. I am always open to conducting interviews of this type with other IP thought leaders — especially sitting or former federal judges — so feel free to reach out if you have a compelling perspective to offer.

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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