Litigation Funding for US Antitrust Matters
Few types of litigation rival antitrust matters in terms of their size, complexity and cost. It is due to these basic characteristics, as well as other aspects that we will explore, antitrust matters are a good fit for litigation funding. In this whitepaper, we provide insight into how clients, litigators and funders interact to drive favorable outcomes in antitrust matters.
Woodsford provides capital for fees and costs to pursue antitrust litigation in exchange for a share of the eventual recovery. The funding is passive—meaning Woodsford has no decision-making authority—and non-recourse—meaning we receive our deployed capital and return only if the litigation results in a recovery.
The Fit Between Antitrust Matters and Litigation Funding
Many antitrust cases have the following characteristics which make them an ideal fit for litigation funding:
Large Size/Significant Complexity:
Antitrust cases can be large and high-stakes, with implications that can reshape companies and entire industries. Indeed, the diversity of antitrust matters themselves – and the varied issues that arise as they are pursued – cannot be overstated. Antitrust cases may be focused or can involve parallel government and private actions, spanning multiple federal, state and even global jurisdictions. These cases can involve a single plaintiff or groups of plaintiffs pursuing multi-faceted actions resembling class actions. Antitrust claims may involve other commercial (or even criminal) claims, further complicating their management and case handling. A good example of this is the interplay between antitrust and intellectual property law, which can give rise to complex and protracted litigation, where corporate titans may clash to define an industry’s IP standards. From the litigator’s perspective, funding can give the law firm confidence that a complex matter is well-resourced to proceed across any number of uncertain outcomes. The example below highlights how litigation funding played a role in supporting a large antitrust case.
Several groups of small producers/ manufacturers, spread across the country, sought to bring an antitrust case against their largest industry competitor in response to that company’s broad, aggressive series of acquisitions which had consolidated market power and limited competition. The plaintiffs were working with an experienced law firm that recommended organizing the actions into several coordinated litigations, each of which was sizable, to be filed in multiple United States District Courts. The cases included complaints for several violations of antitrust law, including predatory pricing, and conspiracies to restrain trade. Due to the scope of the cases – and the need to put them on a sound financial foundation from the outset – litigation funding was put in place.
As practitioners can attest, antitrust matters, due to their complexity as outlined above, are extremely expensive to litigate. These cases are particularly expert-intensive, often requiring intricate analyses from economists or statisticians, and it is not uncommon for expert fees alone to exceed $1 million. And these costs can be difficult for many plaintiffs to absorb. Antitrust cases often involve smaller plaintiffs – with businesses that may have been compromised or damaged by the alleged behavior – versus large and deep-pocketed defendants able to afford elite counsel from top law firms. Absent its own significant financial resources to pursue its case, a small claimant may even be forced into a low-figure settlement that does not reflect fair value or an adequate financial remedy for the damage that has been sustained.
Unfortunately, defendants often pursue a “war of attrition” strategy to blunt or derail a meritorious plaintiff from prosecuting its claim. The following example highlights how litigation funding addresses the cost of antitrust matters.
Several small service providers, operating within a mature market and similar geographic region, sought to bring a multi-faceted antitrust litigation against a large national company. The defendant was operating in a nascent but tangential market, one in which its offering potentially represented a viable alternative for the plaintiffs’ offering. The defendant was accused of anticompetitive and predatory pricing practices, intended to capture market share within the targeted geography and drive competitors that could not afford to operate at such pricing levels, out of the market. In this circumstance, litigation funding was put in place to address the extremely high burden of expert costs, as both a renowned economist and a cost accountant were to be retained to develop damage theories and calculations (which had previously been explored by the law firm on a preliminary basis). As the case progressed, each expert was heavily involved in the preparation and presentation of the plaintiff’s case as well as in responding to arguments put forth by various experts for the defendant.
Time to resolution:
Given the complexities in antitrust cases, these cases can last for several years, even over a decade. These delays include various appeals on antitrust issues, such as class certification and objections, which only add to the costs for these cases. In addition, courts nowadays are limiting the number of law firms that have leadership roles in these cases. As the costs are usually split amongst the law firms on the leadership committees, this adds additional pressure and constraints on the law firms to carry these costs until a resolution is obtained.
Like almost all cases, the prospect of filing a lawsuit is driven by the potential recovery that may be obtained if successful. Antitrust cases tend to have significant damages. For example, the Sherman Act provides not only for actual damages, but treble damages along with fees and costs incurred by the successful party. State law claims can add additional punitive damages to these cases.
Opt-out cases present an excellent opportunity for using litigation funding
Many antitrust actions involve multiple plaintiffs which have been injured by anticompetitive conduct. In the US, class actions are often an effective mechanism to allow adjudication on a group-wide basis. However, in some instances, an individual plaintiff may have strong claims that would be better brought as a stand-alone action. In such instances, the plaintiff faces a difficult choice: participate as a class member and risk a smaller recovery, or “opt-out” and pursue claims individually, allowing more control and a potential for higher recovery, but requiring substantial investment in litigation costs. Indeed, many companies are seeing the financial benefit of opting-out of a class action when they have significant, large claims in the antitrust case. However, the decision by a General Counsel or CEO to opt-out is not one that is made lightly, especially in light of the challenges and expenses discussed above and the fact that most opt-out cases are not resolved until the class action is resolved. Litigation funding helps to alleviate one of the main pain points in deciding to opt-out, namely the capital outlay for the opt-out litigation. In addition, it will help the company’s financial statements as the company, under GAAP, would no longer have to book the litigation expenses on its balance sheet. By having the litigation funder provide the capital for these expenses, the company does not have to report these expenses on its balance sheet as to provide a more accurate picture of the company’s financial status. The availability of litigation funding, and the expertise that a funder like Woodsford brings, can help ease that decision making process and facilitate the best recovery for a plaintiff considering opting out.
The softer benefits of funding
Having your client’s case reviewed by an expert, dispassionate, objective third-party adds an extra (and free) layer of professional due diligence to their claims. In 2017, leading global firm Freshfields Bruckhaus Deringer stated:
“To our ears, the concern sometimes expressed that funding breathes life into unmeritorious claims rings false. On the contrary, the involvement of a funder adds an additional layer of diligence at an early stage of the process, leading to greater rigor in risk and cost-benefit assessments. This brings with it greater objectivity that would, if anything, tend to weed out less meritorious cases.”
Although a funder’s involvement usually remains confidential throughout the case, we have found that where a defendant’s is aware of our involvement, it often leads to rapid and positive settlement discussions, even with defendants that typically do not settle. The knowledge that the claimant is fully resourced and that the claim has overcome the high bar set by the funder before they will invest, sends a very strong message.
It should also be emphasized that, as stated above, litigation funders do not control the litigation that they finance. However, sophisticated funders such as Woodsford are staffed with expert litigators with decades of top law firm experience who can, and often do, offer a valuable resource to the claimant and their lawyers. All decisions regarding the case and potential settlement should always remain firmly in the hands of the lawyer and claimant. Clearly though, the main role of the funder is to relieve some of the financial stresses of litigation, particularly those unique to antitrust matters, allowing the lawyers to focus on successfully prosecuting the complex dispute.
Finally, the reality of today’s globalized economy means that anticompetitive behavior and its economic impacts increasingly span jurisdictions. While antitrust enforcement and private litigation take place within a national jurisdictional framework, it behooves lawyers and potential plaintiffs to understand how similar matters may be proceeding in other jurisdictions. Because of Woodsford’s global reach, we can add substantial strategic value to antitrust claims that have a broad jurisdictional footprint.
Building a successful relationship to benefit your clients
If there is a theme to be drawn from large antitrust cases, it perhaps is that they tend to attract the most experienced litigators and law firms. And many of these law firms are also increasingly willing to devote contingency resources to antitrust cases, allowing funders to share risk with these law firms – an important consideration for the funder since it assumes a passive role in the case.
Given the complexity of antitrust matters, it is hardly surprising that a funder’s diligence is rigorous. However, what is less appreciated is how funding discussions also enable law firms and funders to build trusted relationships, with benefits for the case in question and beyond. Ultimately, success in funding antitrust matters, like any other complex dispute, comes down to the essential concept of balance. Experienced funders seek neither to assume all the risks nor to pass them to others, instead recognizing that only balanced arrangements can sustain a case over the long-term and through challenges in the high-stakes arena of antitrust litigation.
For more information please contact Mitesh Modha.