Legal Law

three Questions For A Litigation Finance Advisor (Half II)

This week, I continue my written interview with Rebecca Berrebi of litigation finance consultancy Avenue 33 LLC, regarding her experience in the legal industry and her decision to launch her new firm. Please see below for Rebecca’s answers to my second and third questions, focused on her view of the rapidly evolving field of litigation finance, especially in light of the stress on legal budgets presented by the COVID-19 pandemic.

As usual, I have added some brief commentary to Rebecca’s answers below but have otherwise presented her answers as she provided them.

GK: 2) Where do you see the litigation funding industry heading over the next few years?

RB: This largely unregulated industry is growing and evolving so quickly — the litigation finance market from six months ago is already different today. First, particularly in response to the pandemic, companies are becoming increasingly interested in using litigation finance as a tool for monetizing assets and smart accounting. Second, as more investors are recognizing the potential value of litigation as a non-market correlated asset, the funding class is expanding from the traditional, single-mandate third-party finance shops to include larger, multistrategy, and special-situations funds, as well as family offices. Finally, more and more law firms are opening up to the possibility of using funding as a way to grow their client base without risking their own bottom line.

But, with growth comes challenges. I expect litigants will ultimately demand more transparency into transaction structure and pricing from funders, and lawyers will face more stringent guidelines for dealing with conflicts, ethics, and confidentiality concerns. As recently as August of 2020, the American Bar Association released a controversial “Best Practices for Third-Party Litigation Funding,” suggesting guidelines that lawyers should follow when dealing with a case that is financed by outside sources; this type of proposed regulation and ensuing debate will continue.  While regional funders outside of the U.S., including the Association of Litigation Funders of England and Wales, have already developed, a larger collective of global third-party financiers, the International Legal Finance Association, just publicly launched as of September 8, 2020.

Despite a lack of a united influence to-date and public disclosure in the industry, at Avenue 33, we do, and will continue to, closely monitor the market and the players so we can advise our clients with well-informed, current information. We also keep up with the expansion of service offerings, so we know what additional providers may be helpful and cost-effective to supplement current efforts. And, as in any developing industry, using an industry expert as a consultant to advise on the particular concerns of the moment can only serve to diminish uncertainty and create value for all stakeholders.

GK: Rebecca makes a compelling case in my view for having expert guidance when it comes to litigation finance. Her characterization of the field (at least in the United States) as a “developing industry” is apt and there is definitely room in the market for someone with an insider’s perspective to consult on prospective deals. As anyone who has interacted with litigation funders knows, once the sheen of the music-to-a-lawyer’s ears of someone willing to pay their bills wears off, the hard work of arriving at a workable deal begins. In those discussions, it seems plain that having someone with experience in the funding industry on your side would be an advantage, or at least preferable to negotiating an unfamiliar contract on your end. Not only is the potential for mistakes minimized, but having someone like Rebecca on the team sends a clear signal to the counterparties that your side is approaching the endeavor with all seriousness.

GK: 3)  Are you anticipating more funding opportunities due to capital inflows into litigation funding because of COVID-19?

RB: Yes. The fact is, we are already seeing an increase of capital available as well as an increase in demand from litigants for funding, and I expect that trend will continue. It makes sense that many investors are seeking opportunities to put capital into assets immune to the volatile market swings that have ensued since the outbreak of COVID-19. Also, it is inevitable that when the global economy falters, there is a rise of disputes, leading to a proliferation of litigation and bankruptcy. I also expect that interest in litigation finance to grow among law firms who have not used funding before, as it is a very beneficial tool to stabilize the legal business and bring cases with the security of payment. Avenue 33 is well positioned to provide expertise to all new entrants in the market, saving them money and time.

GK: Not much to add here, since I am in agreement with Rebecca’s points on the impact of COVID both on investor interest in litigation finance as well as litigant/law firm demand for funds. In fact, the word is already out that there has been an uptick in seeking funding related to patent litigation over the past few months, a trend I am sure is being mirrored in other sectors. At the same time, even with more capital flowing into funder coffers, I don’t anticipate a material lessening of standards among funders when it comes to making investment decisions, especially in such a familiar area (by funder standards) like patent litigation.

My thanks to Rebecca for the insights and cooperation, and I wish her the best of luck with her new — and necessary — consultancy. It is always a privilege to hear from someone who is at the forefront of a key component of the modern IP litigation ecosystem, and I thank Rebecca for agreeing to this interview. I am always open to conducting interviews of this type with other IP thought leaders, so feel free to reach out if you have a compelling perspective to offer.

Please feel free to send comments or questions to me at [email protected] or via Twitter: @gkroub. Any topic suggestions or thoughts are most welcome.

Gaston Kroub lives in Brooklyn and is a founding partner of Kroub, Silbersher & Kolmykov PLLC, an intellectual property litigation boutique, and Markman Advisors LLC, a leading consultancy on patent issues for the investment community. Gaston’s practice focuses on intellectual property litigation and related counseling, with a strong focus on patent matters. You can reach him at [email protected] or follow him on Twitter: @gkroub.

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