Antitrust Lawsuits and Litigation Finance: What GCs Need to Know

Picture this: you are the general counsel (GC) of a mid-sized private company that is under pressure from a much larger competitor acting in apparent violation of antitrust law. After business-to-business efforts at an amicable resolution fail, you must decide whether to sue. On the one hand, your company has lost millions of dollars in sales that can be claimed as damages. On the other hand, your legal budget does not account for protracted litigation, the company has other pressing uses for its capital, and there is always the risk of losing the case. How can you protect the company without massive legal spending or relying on contingent-fee lawyers (who, for a host of reasons, may not be your preferred choice of counsel)? One increasingly popular solution to this dilemma is litigation finance: a non-recourse arrangement through which an investment firm pays the legal fees and costs of a lawsuit in exchange for a return paid from proceeds of the claim if, and only if, the claim succeeds.

Why Antitrust Litigation Is Well-Suited to Financing

Antitrust cases have a combination of attributes that make them particularly well-suited to litigation financing.

Complexity. Antitrust lawsuits can be massive and far-flung, potentially affecting entire industries even if filed by just one plaintiff. Industry-specific knowledge is often crucial to successful litigation of antitrust claims, and the underlying legal issues in antitrust cases often require expert testimony on damages, causation, antitrust injury, and market definition. Antitrust cases also are often brought on behalf of large classes, which adds complex factual and legal issues. Moreover, antitrust claims can intersect and overlap with other causes of action in the tort, contract, and intellectual property realms, further complicating these cases.

Duration. Given their complexity, antitrust matters often last for years. One recent study found that, across 5,020 cases filed in federal courts, antitrust cases took a median of 1.8 years from filing to resolution at the trial level, with the slowest 25% of cases taking an average of 4.9 years and the slowest 10% of cases averaging eight years. In the two most popular courts for antitrust litigation in the study — the Northern District of California and the Southern District of New York — the median times to resolution were 2.5 and three years, respectively. These timelines compare with median resolution timeframes of 273 days for breach-of-contract cases, 212 days for patent lawsuits, and 182 days for securities disputes.

Cost. The complexity and long duration of antitrust cases can also make these cases expensive to litigate. The costs stem not only from the need for experienced counsel and expert witnesses but also from the expenses of motions practice and discovery. Defendants frequently produce millions of documents, and the parties can take dozens of depositions or more.

Damages and Settlements. On the other side of the equation, corporate plaintiffs would not pursue complex, extremely costly, and long-lived litigation without the prospect of substantial damages. In antitrust, the federal Sherman Act (like many state antitrust laws) provides not only for the recovery of actual damages, but treble damages for successful claims. The Sherman Act also authorizes cost and fee awards for prevailing plaintiffs. Depending on the facts, state-law tort claims accompanying federal antitrust causes of action may provide for punitive damages as well.

The Potential Benefits of Litigation Finance in Antitrust Suits

One solution for corporate plaintiffs facing the problem of potentially complex, long-lived, and costly antitrust cases is litigation finance. A “non-recourse” funding arrangement will de-risk the litigation for the plaintiff, preserve the plaintiff’s entitlement to the bulk of a damage recovery, compensate counsel, and provide an acceptable return on investment for the finance firm.

Typically, the funder will receive either a multiple on its investment, a percentage of any ultimate recovery, or a combination of the two. Under any approach, payment to the funder comes only upon a successful resolution of the lawsuit. This enables the plaintiff to offload its legal fees and costs, free up its capital for other uses, retain counsel of its choice regardless of rates or willingness or work on contingency, and shift the downside risk to the funder, while still securing a substantial recovery in the event of a successful resolution. Indeed, used correctly, litigation finance can turn the GC’s office into a profit center for the company.

Litigation financing in antitrust cases also has benefits for a plaintiff’s financial reports and projections. Under generally accepted accounting principles (GAAP), litigation costs are booked as an expense in the period they are incurred, yet potential future recoveries are not treated as an asset on the company’s balance sheet. Compounding this problem, when a recovery occurs, the recovery is usually a one-off revenue event and does not factor into the plaintiff’s forward-looking revenue projections. As a result, analysts and investors may ascribe too low a value to a company that finances a plaintiff-side antitrust lawsuit out-of-pocket. With non-recourse litigation financing, however, legal fees and costs are covered by the funder, letting the company book lower expenses and higher net income.

Involving the right litigation finance firm can also provide corporate antitrust plaintiffs and their counsel with added analytical benefits. Before agreeing to invest in a matter, a reputable funder will conduct its own due diligence to identify the strengths and weaknesses of the case, as well as to investigate the financial viability and ultimate enforceability of a judgment. Through this process, plaintiffs and their lawyers receive additional insights into the case from experienced litigators who work for or on behalf of the funder.

Finally, because reputable funders are highly selective, acceptance of a case can be an important sign of strength in the case’s merits. This can send a powerful message to defendants and may enhance the settlement value of a claim.

Just as every company and every case are different, so too is litigation finance. Funding arrangements are bespoke and account for myriad factors, depending on the facts and circumstances of each unique case. However, the nature of antitrust litigation makes it very well-suited to financing. A properly constructed deal, negotiated with the involvement of experienced counsel, can support a strategic affirmative recovery program and benefit all parties involved.

Foley & Lardner has a wealth of experience guiding clients through antitrust litigation and the process of securing litigation financing. If you have any questions about these topics, please contact the author of this article or any Foley & Lardner attorney.