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Commercial Regulatory Issues

ILFA Director Says GAO Report Recognized the Value of Litigation Funding

The Government Accountability Office’s (GAO) recent report into the litigation finance industry was viewed by some as a promising start to wider acknowledgement and acceptance of the practice, whilst others criticized it for a lack of tangible policy recommendations. However, the leader of one of the industry’s most prominent associations has stated that the GAO’s report in fact recognized the ‘value of commercial legal finance’ to improving access to justice. Writing in RealClearPolicy, the executive director of the International Legal Finance Association (ILFA), Gary Barnett, argues that the report demonstrated the viability and positive impact of the litigation funding industry. Barnett points out that the report highlighted third-party funding’s ability to widen access to legal redress, whilst also noting that the significant due diligence that funders conduct on prospective cases ensures a high quality of cases being brought before the courts. Barnett contrasts the GAO’s findings with the oft-repeated criticisms leveled by the U.S. Chamber of Commerce and other parties, who claim funders represent a threat to U.S. security and are allowed to control litigation with no regulation or oversight. Barnett highlights that it was in fact notable that the GAO did not recommend additional regulatory measures, nor did it seem to support critics’ calls for increased disclosure around funding.
Commercial Deals

RPX Report Finds 36% Slowdown in Q1 NPE Litigation

One of the biggest topics in the world of patent litigation is the role of Non-Practicing Entities (NPEs) in driving a wave of patent infringement cases, often backed by funders eyeing lucrative investment opportunities. Whilst the role of NPEs in patent litigation is a divisive topic, with critics blaming NPEs for acting as ‘patent trolls’ and pursuing supposedly frivolous litigation, new research indicates that NPE litigation saw a downturn in the beginning of 2023. Research produced by RPX Patent Market Intelligence found that there was a 36% decrease in the volume of NPE litigation in the first quarter of 2023, which RPX attributes to two main reasons.  The first cause of this slowdown was the much-discussed conflict around funding disclosure in Delaware, that led IP Edge LLC, a leading NPE firm, to add zero new defendants to litigation in Q1 2023 (compared to 147 new defendants added in the first quarter of 2022). Secondly, RPX highlighted a 55% reduction in the number of defendants in the Waco Division of the Western District of Texas, which was caused by a standing order that no longer allowed plaintiffs to file in their preferred division. RPX’s full report includes insights into: changes to the Patent Trial and Appeal Board (PTAB), developments within the UK and Europe around SEP and FRAND litigation, and additional highlights from the litigation funding market. The full report can be found here. **Note: a previous version of this story stated that IP Edge filed zero new cases in Q1 2023. For accuracy's sake, we adjusted the statistic to read that IP Edge added zero new defendants.  We regret the error. 
Announcements Commercial Regulatory Issues

Validity Finance is First Commercial Litigation Funder to Achieve B Corp™ Certification

Validity Finance, one of the largest private commercial litigation funders in the United States, today announced that it has been awarded Certified B Corporation™ (B Corp) status. This recognition acknowledges Validity’s accountability to its stakeholders, including employees, investors, clients, and the communities in which it operates. Since its founding, Validity has been a purpose-driven organization focused on funding meritorious litigation as a corrective measure for an unbalanced legal system, and its new B Corp status reflects this commitment.

Validity’s B Corp certification, bestowed by the nonprofit B Lab, is an acknowledgement that the company is meeting high standards of verified performance, accountability, and transparency on factors ranging from environmental sustainability to employee benefits and corporate governance. Validity is the first U.S. commercial litigation funder to achieve B Corp status, a significant milestone in the maturation of the litigation finance sector, joining such prominent companies as Patagonia, Bomba, and Warby Parker.

“The B Corp evaluation process offered an excellent framework for Validity to review and improve our policies and practices, and to affirm our commitment to making a meaningful impact for our clients and the legal community,” said Ralph Sutton, Validity’s Founder & CEO. “Since our founding five years ago, we have been guided by a promise to not only help promote fairness in the legal system, but also to adhere to the strictest ethical standards in our business operations.”

There are currently only 6,000 Certified B Corporations across more than 80 countries and 150 industries. To become a Certified B Corporation, companies must undergo a comprehensive, multi-year assessment of the impact of their operations and business models on their workers, customers, communities, and environment, and must receive a minimum verified score on the B Impact Assessment. Certified B Corps are legally required to consider the impact of their decisions on all stakeholders.

“At a time when the U.S. Chamber of Commerce is attempting to leverage misinformation to unfairly stigmatize the litigation funding sector and to preserve the unfair advantage traditionally afforded deep-pocketed defendants in commercial litigation, we are proud to spotlight our corporate purpose,” said Julia Gewolb, Validity’s Chief Risk Officer.

Validity approaches every funding opportunity with a focus on trust, fairness, and transparency, enabling the company to build and sustain long-term client relationships by empowering clients with the resources they need to pursue and resolve meritorious litigation fairly and equitably. With decades of combined experience in funding, the Validity team of trial-tested attorneys has invested more than $400 million since 2018 across more than 70 matters.

“As commercial litigation funding expands in the U.S., it’s important to engage and educate people about the industry’s dedication to a more equitable legal system,” said Roman M. Silberfeld, National Trial Chair at Robins Kaplan. “I commend Ralph and Validity for being so forward-thinking and taking this significant step to solidify their commitment to responsible business practices.”

About Validity Finance

Validity is a leading commercial litigation finance company dedicated to fair and transparent funding practices that build trust. The first funder to become a certified B Corp, Validity’s mission is to make a meaningful difference in the legal system by helping clients bring good cases to trial with top counsel, while managing legal spend and risk. We believe every client has the right to a fair deal, clear term sheets, access to strategic advice, and timely responses. We invest in commercial, patent, bankruptcy, and breach of contract litigation, as well as international arbitration. Clients and law firms count on Validity for reliable capital, strategic resources, and risk mitigation that supports their litigation goals.

Commercial Regulatory Issues

Settlement CFOs in Australian Federal Court

The viability of third-party litigation funding relies on the ability of funders to ensure that if their funded case reaches a successful conclusion, they will be able to secure an adequate financial return to make their investment worthwhile. However, recent developments in the Australian courts have demonstrated the difficulties of this process as it relates to the practice of courts making common fund orders (CFOs). A recent piece of analysis by Herbert Smith Freehills examines the potential consequences of a ruling by Justice O’Callaghan in the Federal Court of Australia, in the case of Davaria Pty Ltd v 7-Eleven Stores Pty Ltd, which denied the litigation funder’s application for a settlement CFO. The analysis illustrates that this ruling built upon the High Court’s 2019 decision in BMW Australia Ltd v Brewster, which found that s 33V of the Federal Court Act 1976 does not allow the court to order a pre-settlement CFO. Justice O’Callaghan’s ruling went further, by stating that the Brewster ruling made it ‘clear enough’ that s 33ZF equally does not grant the court the power ‘s 33V of the Federal Court Act 1976’. This issue has since been referred to the Full Court of Australia, which is in the process of receiving submissions from Attorneys-General in Australia, and will likely then offer clarification as to the court’s power around making CFOs at later stages of litigation. Herbert Smith Freehills’ article offers additional analysis of the situation, suggesting that ‘this will not be the end of the debate regarding funding models and their permissibility’ and that ‘there will likely be continued innovation in funding markets’. Among other observations, the analysis also reinforces the fact that these developments do not affect the situation in the New South Wales Supreme Court, which ruled in 2022 that courts do have the power to make settlement CFOs.  
Case Developments Commercial

Details of Funding Behind J&J Talc Lawsuits Revealed

Whilst the topic of disclosure in litigation funding has primarily been dominated by discussions around the financing of patent infringement lawsuits, the issue remains a key one across the whole spectrum of third-party litigation funding. Large class action claims against major corporations have been prime opportunities for funders looking to gain lucrative rewards, and new reporting by Bloomberg Law has shed light on one of the highest profile examples. An article by Bloomberg Law reveals the details of third-party funding in the ongoing lawsuits brought by consumers against Johnson & Johnson over the alleged cancerous effects of its talc-based baby powder products. The reporting reveals that it is Virage Capital Management and TRGP Capital who have been working with law firms representing plaintiffs in these cases, having funded over 500 of the 60,000 claims brought against J&J. Bloomberg Law’s Emily Siegel highlights that the reason this information is available to the public is because a 2021 rule enacted in New Jersey ‘requires parties using outside funding to disclose certain information about their backers.’ Of particular interest is the fact that since the rule came into force nearly two years ago, there have only been nine examples of disclosed funding out of over 800 filings examined during that period. Burford Capital’s Andrew Cohen stated that he hasn’t seen a significant impact since the rule was introduced, with very few discovery requests following these rare disclosures, and that the main effect has been to burden litigants with the cost of these additional filings. Of the nine lawsuits that had disclosed third-party funding, familiar names from the industry included Legalist, Longford Capital and Omni Bridgeway.
Announcements Commercial People Moves

Signature Litigation announces appointment of partner Jérémie Fierville to strengthen its corporate and financial dispute resolution expertise in Paris

Specialist disputes law firm Signature Litigation today announces the appointment of dispute resolution specialist Jérémie Fierville as Partner in their Paris office. Jérémie joins Signature Litigation from the French dispute resolution boutique law firm he founded eight years ago, after having spent nine years at a major international law firm. With experience in both Paris and London, Jérémie has developed a strong expertise in corporate, shareholder and financial disputes. He acts for a broad range of French and international companies and financial institutions, which he represents in strategic pre-litigation and litigation matters, as well as mediation proceedings. Jérémie also gives dispute resolution law and business law lectures to postgraduate students at University Paris Panthéon-Assas. Jérémie joins Signature Litigation alongside Senior Associate Luca Bódi and Associate Arthur Lamandé from Fierville Avocats, strengthening the Firm’s dispute resolution practice. Commenting on the appointments, Founding Partner of Signature Litigation’s Paris office Thomas Rouhette stated: “We are delighted to welcome Jérémie and his team and to add his extensive experience to our dispute resolution offering as part of our commitment to grow our Paris partnership.”  Kevin Munslow, CEO of Signature Litigation added: “Jérémie’s appointment represents our commitment to sustained growth across all of our offices, as well as strengthening our multi-jurisdictional client offering. Jérémie already has a recognised presence in the Paris and London markets for his corporate, shareholder and financial dispute expertise, and our conflict-free platform will allow him to further extend his reach and practice.”  Jérémie Fierville, newly appointed Partner at Signature Litigation further commented: “I am particularly enthusiastic about the prospect of joining Signature Litigation, an international law firm entirely dedicated to dispute resolution, which develops for its clients a unique offer on the market combining legal excellence, operational efficiency, and the strength of more than 70 talented solicitors and avocats", he explains. “With my team, I am pleased to be able to bring my expertise in corporate and financial disputes to the Paris office.” Now in its eleventh year, Signature Litigation comprises 20 partners and over 100 members across its offices in London, Paris and Gibraltar. Jérémie’s appointment follows the recent appointment of international arbitration and dispute resolution specialist Tsegaye Laurendeau as partner in September, and the promotion of leading international arbitration lawyer Neil Newing to the Firm’s partnership in October. Jérémie Fierville is Signature Litigation’s newly appointed corporate litigation partner, with over 15 years’ experience acting in highly complex, international commercial and corporate litigation, with a particular emphasis on shareholder disputes. Thomas Rouhette is a founding partner of the Paris office of Signature Litigation and a leading commercial and international litigator. Previously a partner in a major international law firm, Thomas has almost 30 years’ experience in litigation. Kevin Munslow is CEO of Signature Litigation. Signature Litigation is a law firm specialising in commercial litigation, international arbitration and regulatory investigations. Founded in 2012 in London, Signature Litigation also has offices in Paris and Gibraltar.
Commercial Regulatory Issues

Former House Committee Chair Argues Third-Party Funding Threatens U.S. Industry and Security

As we saw earlier this week, efforts by individual U.S. courts and judges to mandate increased disclosure requirements for third-party litigation funding continues to generate fierce debate. Echoing prior critiques made by the Chamber of Commerce and current lawmakers, a former congressional leader has added his voice to the discussion and argued that foreign litigation funders pose a threat to both U.S. industry and national security. In an op-ed for Bloomberg Law, former U.S. representative, Buck McKeon, who served as the Chair of the House Armed Services Committee from 2011 to 2015, argues that new regulations are required to ‘prevent litigation funders from manipulating US innovators and our IP system.’ In the opinion piece, McKeon equates foreign funding of IP and patent litigation to efforts by foreign parties, with the intention to steal intellectual property through espionage, claiming that funders ‘leverage US courts and patents without oversight or transparency.’ McKeon’s central thesis is that the lack of transparency around the involvement of third-party funders could allow malicious actors to damage U.S. businesses through costly litigation, whilst also gaining ‘access to sensitive information during legal proceedings.’ McKeon also suggests that these funders ‘are able to direct lawsuits from behind the curtain’, although it should be noted that funders regularly assert that their funding agreements prohibit any control over the litigation process. McKeon concludes by suggesting that in order to combat the influence of foreign investment in U.S. litigation and the lack of transparency around these activities, action must be taken through federal legislation or through amendments to the Federal Rules of Civil Procedure.
Commercial Regulatory Issues

New European Directives Will Fuel Class Action Growth

At a recent litigation funding conference, much time was devoted to the potential implications of the EU’s Representative Actions Directive (RAD) being implemented by member states later this year. One London law firm argues that it is not just the RAD, but also the EU’s Product Liability Directive (PLD) that will ‘supercharge’ the already bustling levels of class action activity across Europe. In an article originally published on Law360, Edward Turtle and Harriet Jones, associates at Cooley, predict that the combination of these two directives represents ‘a fundamental shift in the European risk landscape’ and will catalyse a major increase in product liability class actions within the EU. Although the PLD is not expected to come into force this year, with implementation unlikely to occur before 2024 or even 2025, changes to the EU’s liability regime will make it easier for consumers to prove their claims, whilst broadening both the scope of potential claims and the range of damages awarded. Among the various changes to the liability regime included in the directive, Turtle and Jones point to the inclusion of digital products and services, as well as adding liability for online marketplace operators. The PLD also provides new disclosure requirements for defendants to provide technical information, widens recoverable damages to include psychological harm, and redistributes the burden of proof by ‘creating new presumptions of defect’. Turtle and Jones argue that while the combination of these new directives does not directly mirror the U.S. model, the EU system still shares similarities as the RAD includes the allowance for third-party funding of class actions and the lowering of the ‘threshold to initiate proceedings’. The new regime also is set up to increase the likelihood of settlements, and at the same time, rebalance the financial incentives by ‘claimants will have the upper hand when it comes to costs.’
Case Developments Commercial

LCM Announces 261% Return on Investment for Comet Insolvency Litigation

Funding of insolvency-related litigation continues to demonstrate its potential, as just this week Litigation Capital Management (LCM) revealed that it achieved an impressive return on investment in its funding of a case brought by Comet's liquidator. This follows the High Court’s ruling in favor of Comet’s liquidator in December 2022, which ordered the retailer’s former parent company, Darty, to pay £110 million into the Court. Covered by Legal Futures, the announcement by LCM revealed the realization and cash receipt of its investment in the liquidator’s case, which yielded a 261% return on invested capital. LCM stated that whilst Darty is still appealing the Court’s judgement, the liquidator had secured a judgement protection insurance policy and ‘an application was made to the Court for payment out of court of sufficient monies to pay LCM’s entitlements pursuant to the Litigation Funding Agreement as well as the cost of defending the appeal.’ From LCM’s original investment of £4.5 million, the funder achieved a £12 million profit. LCM’s CEO, Patrick Moloney, stated ‘This is the second substantive Resolution of a Fund I investment. The Resolution provides a further example of how the use of managed third party investment funds leverages the return to LCM’s balance sheet and its equity investors.’ The previous resolution of a Fund I investment came in February as a result of the settlement of a funded case brought against KPMG, over failures to properly audit Carillion’s accounts.