An article in Fortune, May 11, 2009 at 20, adds some details to what I wrote about previously on funding of litigation by third parties (See my post of April 11, 2009: litigation financing; Jan. 6, 2009: law suit financing offshore; March 20, 2009: a firm in hedge-fund financed litigation; and March 27, 2009: hedge funds and the secondary market for patents.)Juridica was launched in December 2007 by two lawyers, Richard Fields and Timothy Scramtom. It has raised money by selling shares on the London Stock Exchange’s small-companies market. According to the Fortune article, "insurance companies like Allianz in Germany and several independent investors have launched funds to invest in suits.” Credit Suisse likewise has a litigation finance unit. The business model of these groups doesn’t sound complicated: "Like Juridica, these funds invest amounts typically between $1 million and $5 million in cases where companies sue each other for anticompetitive behavior, contract breaches, and so on."Other people also invest in lawsuits, most notoriously so-called patent trolls (See my post of Jan. 20, 2006: trolls and litigation costs; Oct. 29, 2006: Qualcomm’s business model; May 13, 2007: Microsoft’s litigation against trolls; and June 25, 2008: advice against troll litigation.).
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In some cases, but not all, this new phenomenon of third-party funding could lead to cases being decided or settled on the basis of merit. In other cases, it conceivably could have the opposite effect, giving artificial "legs" to bogus claims that would otherwise fall flat. But I wonder whether sophisticated investors would bet on bogus claims, when they can fund meritorious ones instead. In any event, another effect of this trend probably will be a further acceleration of the shift to offshore legal outsourcing. Corporate legal departments, already under cost pressure, will see that pressure increase, with the rise of well-funded plaintiffs' suits. And litigation investors, eager to get the best possible return, and treating litigation as a business, naturally will want to increase efficiencies through legal process outsourcing. So one of the big winners in the lawsuit funding area is likely to be the LPO industry.
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