Community Spotlight: Viren Mascarenhas, Partner, Milbank

Discussion of the litigation funding market often focuses on established funders who have become household names in the business of investing in high-value commercial litigation. However, outside of these traditional funders, there are global institutional investors whose involvement in the legal funding market has often remained out of the spotlight.

An article in Bloomberg Law provides an in-depth look at the involvement of Fortress Investment Group in the litigation finance market, providing a new window into their strategy and featuring insights from key leadership figures. 

The breadth of Fortress’ involvement in the legal market is demonstrated in the sheer scale of the numbers involved, with the firm having committed $6.6 billion in legal assets and another $2.9 billion to intellectual property assets. Fortress differentiates itself from a traditional funder like Burford Capital, whose approach to investing often centres around commercial litigation, whilst Fortress is mainly focusing on a ‘credit-like approach’ via its lending to law firms. 

Fortress has particularly targeted the mass tort market with loans exceeding $100 million, and the list of law firms invested in including Onder Law, Johnson Law Group, The Smith Law Firm, Weitz & Luxenberg and Napoli Shkolnik. Fortress managing partner and co-CIO, Jack Neumark explains how the firm’s size and resources allow it to succeed with mass torts, explaining that “one of the major traps that people get sucked into is not having the resources internally to do a thorough review of the files.” Burford Capital’s vice chair, David Perla describes Fortress’ dominance in this space and recounted that when Burford approaches mass tort firms “the name we hear frequently as to where they have financed their portfolios today or historically, you’ll hear Fortress more often than any other”.

In the world of patent monetization, Fortess’ head of intellectual property, Eran Zur argues that the firm “pioneered the patent lending business”, which had only existed conceptually before Fortress’ put its capital and resources behind it. Fortress’ patent-assertion entities include VLSI Technology LLC, owner of a portfolio of patents formerly belonging to NXP Semiconductors NV, notable for cases brought against Intel with billions sought in damages. In a case brought in Delaware before District Judge Colm F. Connolly, VLSI dropped the case against Intel following Connolly’s order to disclose the identity of VLSI’s investors. In response to being asked by Bloomberg whether the disclosure order caused Fortress to drop the Delaware case, Zur questioned whether “the identity of the plaintiff or the characteristics of the plaintiff matter in a patent claim?”

When looking to place Fortress in the litigation funding space alongside other market-leading names, Zur seemed to differentiate their own practice, saying: “We do not invest passively as opposed to litigation funders. It’s private equity. We sit on the board, we advise”. However, Jonathan Stroud, general counsel at Unified Patents argues against this delineation, arguing: “Because you have more control of the entities, it doesn’t mean you’re not a funder, you’re a super funder. […] You’re funding the case and you’re a client.”

Bloomberg’s article also makes clear that whether it considers itself to be a funder or not, Fortress has been actively involved by investing in and even acquiring other funders such as Vannin Capital and Affiniti Capital Management. In describing Fortress’ engagement with the market, one former employee at an unnamed litigation funder said they didn’t accept money from Fortress because “they choke you to death and then put you out of business”, referencing the fact that Fortress takes a very active role in its investments from regular monitoring of cases to tracking bank accounts. However, Neumark pushed back on the suggestion that Fortress operate as ‘pirates’ in the industry, instead explaining their business practice by saying: “We’re a tough counterparty if you don’t do what you say you’re gonna do […]We see where funds go. If you do something you’re not supposed to do, we’re gonna be upset.”

Looking towards the future of the funding market, Neumark believes that “the asset class is going to grow for sure over time.” However, he also pushed back against the common criticism that funders are “ambulance chasers” and argued that when investing in large-scale and complex antitrust or product liability cases, “there’s really no margin for doing stuff that’s frivolous.” Neumark was also quick to dismiss the idea of third-party funding as a vehicle for malign foreign actors, and said that litigation funding “might be the most inefficient way possible for a foreign entity to try to gain access to confidential information.”