The end of 2022 saw many industry headlines dominated by the ongoing stories of fights in patent infringement lawsuits between plaintiffs and a District Court judge in Delaware, primarily focused on orders requiring increased disclosure of third-party litigation funding. However, a new opinion piece by a former federal court judge argues that this campaign to increase funding disclosure in patent disputes is part of a wider effort to tip the scales in Big Tech defendants’ favor, and to disadvantage tech startups. Writing for RealClear Policy, Paul Michel, the former Chief Judge for the United States Court of Appeals for the Federal Circuit, argues that if Judge Connolly’s disclosure requirements are upheld, then large technology corporations will gain ‘a huge tactical advantage’ in these cases. Michel points out that these orders seem to have gone in the opposite direction to the conventional position that ‘the funders of a lawsuit are irrelevant to the merits of the lawsuit itself’. Responding to critics of third-party funding who say the practice encourages frivolous lawsuits, Michel states that this is ‘absurd’ and that it is in these funders’ interests not to back cases that will fail and therefore deny any return on investment. He closes by suggesting that if these requirements become the standard for patent infringement cases, then defendants will be able to ‘tie up small patent holders in expensive legal knots over issues irrelevant to the merits and only rarely relevant to case management.’

It would be impossible to recognize every single participant who is providing important contributions to the litigation finance sector, however, Lawdragon has honored many of the industry’s key individuals in its 100 Global Leaders in Litigation Finance for 2023. The latest edition of Lawdragon’s annual listing recognizes funders from across the world, with individuals on this year’s list hailing from countries including Australia, Germany, Singapore, the United Kingdom and United States. Lawdragon stated in its announcement that as an ‘advocate of inclusion in the legal profession’, the 2023 guide is 32% female, and 17% inclusive.  Whilst there are many familiar funder names from the 2022 list, there are plenty of new entrants this year including: Rob Ryan, CEO of Aristata; Ian Garrard, Managing Director at Innsworth Advisors; and Brandon Baer, Founding Partner of Contingency Capital. Three members of the 2023 list are also featured in Lawdragon’s Hall of Fame: Louis Young, Co-Founder of Augusta; Stuart Grant, Managing Director at Bench Walk Advisors; and Andy Lundberg, Managing Director at Burford Capital

The prolonged timescale of litigation is regularly cited as a barrier to entry for some investors, with the uncertain duration of any case making it difficult to predict when those returns will be realized. However, as a recent decision demonstrates, there will always be opportunities available for funders and investors willing to take a pragmatic approach. An article by Bloomberg Law provides an update on Burford Capital’s financing of a long-running lawsuit brought by shareholders of YPF SA, a re-nationalized oil company, against Argentina. The case of Petersen Energia Inversora, S.A.U. v. Argentine Republic dates back to 2015 and has stretched on for long enough that Burford ‘began posting financial results and projections that excluded any returns’ from the case. However, the U.S. District Court for the Southern District of New York (SDNY) released an important ruling last Friday, with District Judge Loretta A. Preska finding that the Argentine Republic is liable for the YPF shareholders’ losses following the company’s re-nationalization in 2012. The ruling from SDNY granted summary judgement to the investors without specifying damages, as Judge Preska stated that further details on the exact ‘timing of the nationalization’ needed to be clarified before damages could be calculated.  According to Bloomberg’s reporting, Burford ‘has already made more than three times its initial investment in the case, after previously selling claims worth more than $230 million.’ Burford had suggested that the shareholders’ claims could be worth more than $7.5 billion.

Class actions continue to be a top choice for funders looking to pursue meritorious claims with the potential for strong financial returns, buoyed by favourable regulatory regimes in many jurisdictions. In another example of this trend, Omni Bridgeway announced that it is funding a class action against Downer EDI, an integrated services provider operating in Australia and New Zealand.  Omni Bridgeway’s shareholder class action alleges that Downer EDI failed to disclose accounting irregularities to the market, misrepresented the truth about its financial position, and that its shares were trading at an artificially inflated price until December 8th, 2022. Omni Bridgeway has stated that the class action will be run by Piper Alderman. The claim has its origins in two events: a December 8th announcement by Downer EDI that disclosed these ‘accounting irregularities’, and the publishing of restated half-year accounts and the provision of updated FY23 guidance on February 27th, 2023. Downer EDI’s share price fell by 20% following the December announcement and then fell by 24% following the February release. Omni Bridgeway is encouraging any shareholders who acquired Downer EDI shares or an interest in Downer EDI shares between April 1st, 2020 and February 27th, 2023, to register their interest.

The ongoing dispute between Burford Capital and Sysco Corporation continues to develop, with lawsuits on each side accusing the other party of wrongdoing. Last week saw Burford’s leadership make an emphatic defense of its position and track record in a letter to the Wall Street Journal, in which it categorically stated that ‘the facts of this litigation are on Burford’s side’. The letter from Burford’s CEO and CIO, which was originally published in the WSJ last Thursday, saw Christopher Bogart and Jonathan Molot make the case that this dispute was not ‘exemplary of litigation finance […] but rather of an admitted breach of contract.’ In this letter, Bogart and Molot re-emphasise that the origin of this dispute came from Sysco breaching the original terms of its contract with Burford, which resulted in a negotiated settlement that included a ‘limited consent right’ for Burford. Burford’s letter also reframes Sysco as the party which has ‘already lost twice’ in court, with Burford having been granted both ‘a temporary restraining order and preliminary injunction’. The letter ends by reinforcing Burford’s principle that their ‘standard contract makes client control of their litigation clear’, and that this would have also been the case with Sysco had the client not breached the original terms of the contract.

The dispute between Burford Capital and Sysco Corporation has continued to dominate headlines over recent weeks, with commentators speculating on how this situation will resolve and the potential implications for the wider litigation funding industry. However, a new piece of analysis breaks down what lies at the core of this dispute, reframing the story as one about the breach of a litigation funding agreement and the ensuing consequences, rather than the supposed idea of a funder exerting undue control on settlements. Writing in an op-ed for Bloomberg Law, Dai Wai Chin Feman, director of commercial litigation strategies at Parabellum Capital, offers a comprehensive analysis of the root cause of the dispute: Sysco’s original breach of its agreement with Burford. Dai Wai traces this conflict back to Sysco’s breach of its $140 million funding agreement, by breaching the terms prohibiting ‘Sysco from divesting collateral without Burford’s consent’. Dai Wai explains that in order to maintain access to Burford’s capital, Sysco gave Burford an increased share of the claims’ proceeds and ‘agreed not to settle without Burford’s prior consent’. Having agreed to this consent right and identifying a ‘settlement floor’ for the future resolution of the claims, Sysco then sought to negotiate settlement terms below that floor and ignored Burford’s attempt to exercise ‘its consent right based on the commercial unreasonableness of the terms’. As laid out by Dai Wai, this led to Burford seeking the arbitration panel’s injunction, which was granted by the tribunal and led to Sysco’s lawsuit, along with what the author describes as ‘an aggressive public relations campaign’. Dai Wai concludes his analysis by suggesting that ‘Sysco essentially seeks to benefit from a nine-figure windfall borne out of its own breaches’ and ‘has conducted a master class on how to breach a litigation funding agreement.’

It is often said that one of the most attractive qualities of litigation funding is that it stands as an uncorrelated asset class, largely insulated from market forces and the macroeconomic situation. However, given the extremely turbulent global economic conditions, one industry leader has provided a blog post analysing whether this commonly accepted statement can be taken at face value. Writing in for Thomson Reuters’ Dispute Resolution Blog, Tets Ishikawa, managing director at Lionfish Litigation Finance, suggests that in the wake of SVB’s collapse ‘it would be a mistake to sit back and watch the mayhem with the comfort that litigation funding is uncorrelated.’  Looking at how the current market downturn could affect the litigation finance industry; Ishikawa highlights the inherent complexity of this sector that can dissuade outside investors who lack expertise in the area. This sits in contrast to some investors’ preference to return to safe and familiar investments in times of disruption. Ishikawa pairs this with the fact that in such an environment, there could be a naturally occurring ‘pinch on capital raising’ for litigation funders, which could even lead to ‘some industry consolidation’. Furthermore, Ishikawa points out the current economic environment can substantially raise the risk of litigation investments, especially where the defendants’ underlying assets could be devalued by outside pressure, and therefore impact the ability to make accurate predictions on the true return on investment. Building on his previous analysis of the ways defendants can ‘arbitrage the time value of litigation’, Ishikawa states that these same economic pressures could encourage defendants to drag out litigation rather than settle, in order to effectively manage their liquidity. However, Ishikawa suggests there are naturally positive correlations from the market downturn, such as the other commonly held belief that litigation activity increases during economic disruption. Moreover, he returns to the idea that much like how the litigation funding industry benefited from the 2008 financial crisis, there is equal potential that this period could lead to similar growth driven by corporates turning to third-party funding in order to continue to pursue meritorious litigation whilst managing their own cashflow pressures.