Trending Now
Commercial Special Features

Litigation Funding May Be a Lifeline for Businesses and Law Firms Distressed by Coronavirus Shutdown

April 8, 2020

Litigation Funding May Be a Lifeline for Businesses and Law Firms Distressed by Coronavirus Shutdown

The following piece was contributed by Joshua Libling, Portfolio Counsel at Validity Finance, LLC. Litigation finance has always billed itself as a way of helping meritorious claims regardless of the economic strength of the litigant. The coronavirus pandemic is now exerting enormous and growing stress on law firms and clients. If ever there was a moment for litigation finance to live up to its own hype, this is it. We think it can. Keeping Plaintiff Cases Running at Reduced Cost.  Paying hourly fees to a law firm may be low on the priority list when weighed against retaining key employees or preserving cash for an economic re-start. But having the right priorities doesn’t change the fact that clients with pending claims deserve to see an appropriate return.  Funders can assist in at least two ways. First, by converting hourly rate cases into hybrid contingency fee cases, clients can continue litigating claims without outlaying funds. Funders will pay law firms 50% or more of their hourly fees and potentially all costs, as needed, in return for about 20% of any recovery.  The law firm would also be entitled to a similar contingency, leaving clients with the bulk of the case proceeds. This can be good for both the client and the law firm. The client gets to reduce its expenditures. The law firm takes or continues a case that may have become a de facto contingency case anyway because of the client’s resources constraints, or may have disappeared altogether, and gets 50% of its billables paid now with participation in the upside later. Second, economic pressures unrelated to the merits of the litigation can cause clients to accept unreasonably low settlement offers.  Sometimes settling is the right thing to do.  But settling for too little is no different than any other asset fire-sale. A funder can help by ensuring that the resources exist to continue the litigation, if that is the best course. Again, this should help all parties. The client doesn’t sell an asset on the cheap, and the law firm protects a meritorious ongoing case. Monetizing New Plaintiff Cases.  This is a time when many clients need to be taking a hard look at their balance sheets and maximizing their assets. A meritorious claim is an asset, but it is an unproductive asset unless you litigate it. Funding can help monetize a company’s litigation assets. Even in the pre-litigation, investigation stage, funders can assist in identifying claims, independently confirming case merits, connecting clients without lawyers to a small group of suitable and efficient counsel to choose from, and making the necessary investments to effectively pursue the case. In fair funding transactions, clients will still retain the lion’s share of the upside. Because a funder’s capital is non-recourse to any other collateral, this kind of arrangement offers  upside opportunity without downside risk to a client, and a contingency recovery to the law firm. Clients can take a litigation asset they would otherwise get nothing from, turn it into something productive, and minimize risk while doing so. Helping Defendants With Trouble Paying.  The lack of capital and decreased ability to tolerate outflows is not limited to the plaintiff side of the v. Law firms are seeing clients unable or unwilling to properly fund their defense, and clients are being faced with difficult trade offs between continuing to defend their legal rights and directing that capital to their core business needs. Funding can help these clients and law firms also. Defense-side cases can be turned into partial contingency matters through the negotiation of success fees or similar arrangements that define and monetize what victory means on the defense side. Funding can draw its return from that success fee and pay a portion of defense costs to the law firm in the interim, reducing the burden on the client (perhaps to nothing during the pendency of litigation) and providing the law firm with a reliable stream of paid work. Bundling Plaintiff and Defense Cases to Reduce Fee Exposure.  Law firms and clients look forward to inflows of proceeds from strong plaintiff cases.  Clients must defend claims against them.  By bundling plaintiff and defense-side litigation together, funding provides capital for both affirmative claims and defensive needs. In effect, the client uses the value of the plaintiff-side litigations to reduce their costs on the defense side, thereby reducing outlays and smoothing their risk profile.  Most obviously, the risk of continuing fee exposure can be greatly mitigated. This can work at the law firm level as well as the client level. Enhancing Law Firm Growth. Law firms will need to pitch to companies facing just the kind of liquidity or capital issues that funders can help solve. Law firms with pre-existing relationships and in-place portfolios with funders will have a competitive edge because they can offer contingency fee arrangements at the outset of the competitive process. Funding can thus speed up client matter acquisition. Funding is not limited to plaintiff-side litigations. A firm that has a stable of plaintiff-side contingency cases can use those litigations, and funding, to create bundled portfolios of mixed defense-plaintiff matters. Moreover, funding can provide a mechanism for investing in firm growth, allowing firms to share the risk of large portfolios of cases, or even to hire new partners to bring business to the firm. Difficult times call for creative solutions and new ways of doing business. But being creative doesn’t have to mean doing something untested. In the United States, litigation funding has been providing increased liquidity and decreased risk to companies and firms for over a decade. In Australia and the United Kingdom, funding has been used effectively for even longer. Litigation assets should not be squandered, nor sold for bargain basement prices, nor made to sit idle for months or years when clients urgently need capital. The time for funding to make a significant contribution to clients and firms is now.  If you have litigation assets and need to extract value from them, or need to reduce your litigation costs or risks, this is the moment to be creative.  Funding can help.

Commercial

View All
Commercial Deals

SIM IP and Tangibly Partner on Trade Secret Litigation Finance

By John Freund |

A new partnership between SIM IP and Tangibly signals a targeted expansion of litigation finance into the trade secret enforcement space, combining capital with technology designed to assess early stage risk. The collaboration reflects growing interest among funders in data driven approaches to underwriting complex intellectual property claims, particularly those that are traditionally viewed as expensive and uncertain.

A press release reports that the two companies have launched a joint offering aimed at financing trade secret litigation while leveraging Tangibly’s technology platform to help identify, value, and monitor trade secret assets. The partnership is positioned around an AI driven model that evaluates the strength of potential claims earlier in the lifecycle, with the goal of reducing uncertainty for both claimholders and funders before significant legal costs are incurred.

According to the announcement, SIM IP will provide litigation financing for qualifying matters, while Tangibly’s platform will support due diligence by mapping trade secret assets, tracking misappropriation risks, and generating data that can inform enforcement strategies. Trade secret claims often present unique challenges compared to patents, including evidentiary complexity and difficulties around valuation. By combining funding with structured analytics, the partners argue that more meritorious claims can move forward that might otherwise stall due to cost or risk concerns.

The launch also comes against a backdrop of heightened scrutiny of litigation funding disclosures in the United States, particularly in intellectual property disputes. While the partnership announcement does not focus on regulatory issues, it highlights how funders are refining their models to emphasize selectivity, transparency, and risk management rather than broad based capital deployment.

For the legal funding industry, the collaboration underscores a broader trend toward specialization and technology integration. As competition among funders increases, partnerships that blend capital with proprietary tools may become more common, especially in niche areas like trade secrets where early insight can materially affect case outcomes and investment performance.

Case Developments Commercial

Judge’s Pushback Limits Funding Discovery in Apple Patent Fight

By John Freund |

A federal judge has rejected an effort by Apple to force disclosure of litigation funding materials in a patent infringement dispute, reinforcing judicial reluctance to open third-party funding arrangements to routine discovery. The decision comes amid ongoing debates over transparency in litigation finance and marks another instance where courts have declined to equate outside funding with improper influence.

As reported in Bloomberg Law, the dispute arises from Apple’s defense against patent infringement claims tied to its iPhone “Back Tap” functionality. As part of its litigation strategy, Apple argued that communications between the plaintiff and its litigation funders could reveal undue control over the case or otherwise undermine claims of independence by counsel. According to the court, those arguments fell short of the threshold required to justify disclosure.

In denying the request, the judge emphasized that generalized concerns about litigation funding do not override long-standing protections such as the work-product doctrine. Materials prepared in anticipation of litigation remain shielded absent a clear showing of substantial need, and the court found no evidence that the funder’s involvement compromised legal strategy or decision-making. The ruling also rejected the notion that the mere presence of third-party funding creates a presumption of relevance or discoverability.

The decision aligns with a growing body of case law in federal courts that treats litigation funding as a legitimate commercial arrangement rather than an automatic basis for expanded discovery. While some judges have ordered limited disclosures in narrow circumstances, particularly in class actions or conflicts analyses, courts have generally resisted defendant attempts to use funding as a backdoor to privileged materials.

Commercial Regulatory Issues

Rep. Issa’s Litigation Funding Transparency Effort Falters in House Judiciary Committee

By John Freund |

The latest attempt to legislate transparency in U.S. litigation funding stalled in the House Judiciary Committee this week when the committee considered the Protecting Third Party Litigation Funding From Abuse Act but recessed without ever voting on the measure and did not reconvene to advance it. The bill, introduced by Representative Darrell Issa of California, has now effectively been pulled from further consideration at this stage.

An article in IPWatchdog states that the Protecting Third Party Litigation Funding From Abuse Act was debated alongside other measures during a lengthy markup that focused primarily on immigration enforcement issues. The measure closely tracked a previous effort, the Litigation Transparency Act of 2025, also spearheaded by Issa, which sought to require parties in civil actions to disclose third party funding sources and related agreements. Like its predecessor, the current bill faced procedural challenges and competing priorities in committee, and did not reach the floor for a vote before lawmakers recessed.

Issa and his co-sponsors have framed the effort as necessary to illuminate so-called abuses in the U.S. litigation system by requiring the identity of third party funders to be disclosed to courts and opposing parties. But the repeated failure of similar bills to gain traction reflects deep partisan and practical concerns. Opponents argue that broad disclosure mandates could chill legitimate funding arrangements and impede access to justice, while supporters insist that transparency is essential to protect defendants and the legal system from hidden financial interests.

The stall of this latest proposal comes amid other congressional efforts on litigation finance, including separate proposals to address foreign funding in U.S. courts, but underscores the political and policy challenges in regulating private capital in civil litigation. With the bill pulled, stakeholders will watch for whether future iterations emerge in committee or form the basis of negotiations in upcoming sessions.