Antitrust claims and legal finance

Liz Bigham: Charlie, to start us off, could you talk about some of the factors that make antitrust claims so complicated and expensive?

Charles Griffin: Sure. So, there are a few things. For one thing, antitrust cases often involve allegations of market-wide harm. The conduct often affects broad swathes of the American economy in some cases and often over a very long period of time. So when you're trying to prove or disprove a claim like that, it involves very extensive discovery, which can be quite expensive because it requires a lot of lawyer hours and expert analysis.

Experts are really one of the most expensive parts of discovery in an antitrust case. Plaintiffs and defendants will often have several different experts performing very complex statistical analyses of the industry and the effect on prices of the alleged anti-competitive behavior. It’s a difficult exercise. You must figure out what the world would've been like if the defendants hadn't engaged in this anti-competitive behavior. You have to disentangle lots of different factors about the industry, about consumers and things like that. It’s not just a matter of arithmetic, it takes a lot of data, it takes a lot of hours, a lot of processing and very high quality well-credentialed experts. 

On top of the experts, there's typically a lot of document productions, tons of depositions because there's just so much material on both sides that that ends up being relevant to proving the anti-competitive behavior and ultimately proving damages. So, another reason the cases can be so complex and expensive is because often there are a number of different parties on both sides of the v. There can be many different plaintiffs or groups of plaintiffs throughout the supply chain who claim that they were harmed by the conduct.

Sometimes there are competitors who are in the mix as well. Often, there are multiple defendants because many antitrust cases allege that different companies conspired with each other to raise prices or otherwise affect the industry in an anti-competitive way. The cases are often brought against very large companies, the dominant player or players in an industry who have very deep pockets. The incentive to litigate very vigorously adds to the complexity and expense. At the end of the day, the stakes are very high because the damages can be quite significant. When you're dealing with products or industries where there are, for example, billions of dollars in sales each year, even a modest effect on prices can result in huge damages. If you succeed in proving your claim at trial under state and federal antitrust laws, damages are tripled. The defendants face potentially massive liability in many of these cases. At the same time, the plaintiffs are fighting for very significant damages. That just raises the stakes for everyone.

LB: Given the cost and complexity of antitrust matters, it's not surprising that legal finance is often used to help defray some of that cost and share the risk. Can you talk about the different ways that law firms and corporate counterparties to Burford benefit from using legal finance in an antitrust context?

CG: In recent years, we've really seen legal finance being integrated into antitrust disputes in a few different ways. That’s because it offers some very clear benefits for law firms and businesses. The classic model of legal finance is that a client wants to hire a particular firm but doesn't want to pay the firm's full fees and expenses. For whatever reason, the firm isn't comfortable taking the case on contingency. Legal finance helps bridge that gap by funding the cost of the litigation. So, the firm gets paid and the experts get paid, but that's not coming out of the client's pocket.

Businesses can really benefit from that model in the antitrust context in particular. We’ve seen that businesses are increasingly starting to realize that they are the victims of anti-competitive behavior, and that they're entitled to compensation for that; sometimes significant compensation that can make a big difference to the businesses.

Bottom line, if an antitrust dispute is being pursued on a class-wide basis on behalf of a class of victims, then the individual business may be a member of that class. They can rely on class counsel to litigate the case and maybe they'll be entitled to a portion of the recovery at the end of the day. But we've seen and businesses have seen that they really have an opportunity to improve their recoveries by opting out of the class and bringing their own claim, using their own counsel. The benefits of that are really big. You can control your own claim, you can control the settlement discussions, and ultimately you have a lot more opportunity to get more value out of the claim that can be used for the business. But doing that and opting out requires hiring your own counsel and paying for your own experts.

Legal finance allows you to get the benefits of opting out while reducing, or potentially, eliminating all those upfront costs because the finance provider can pay those costs for you. You’re essentially able to pursue these very high value claims for free. The capital is non-recourse, which means that if you don't win the claim, then the capital provider doesn't get paid back. That’s an attractive feature for many companies. 

Once a business decides to pursue a valuable claim like that, legal finance can also help in other ways because that claim becomes an asset that can be financed. For some claims, particularly large claims, a capital provider can provide upfront capital collateralized by the value of the claim, and that capital can be used for purposes other than the litigation. It can be used for general corporate purposes. If the company needs some extra cash, they can pursue this kind of transaction, which we refer to as a monetization, and that essentially just means accelerating a portion of the company's damages. The company doesn't have to wait around throughout the litigation that can be very lengthy to recognize a portion of the value from it. Antitrust claims are good candidates for that kind of transaction because they are large and because they can take a long time. It can be very attractive to a business to try and accelerate a portion of that recovery using legal finance. 

Finally, going back to the law firm side, we talked to a lot of law firms who are generally comfortable taking some risk and might even be willing to take most cases on full contingency. Sometimes these are class action firms that represent classes of plaintiffs. In the antitrust case, because of the length of time it can take and because of the size of the expert costs in particular, even those kinds of firms might not be comfortable paying all those amounts out of their own pocket as the litigation goes along. A capital provider like Burford can fund for example, just the expert expenses or even provide capital to represent a portion of the firm's foregone fees over the course of that lengthy litigation. That allows these firms to share risk and see some cash along the way throughout these cases that would otherwise require very substantial amounts of out-of-pocket investment on their part.