The world of litigation funding is a complex one, with many different facets and a variety of interrelated industries. Its growing popularity has been fuelled by billions of dollars from hedge funds, private equity and other institutional investors. There are also crowdfunding platforms now spreading the word, and the high returns, to private investors.
For a number of reasons, antitrust cases, especially antitrust damages cases, are particularly well suited to litigation financing. The recent growth in the number of antitrust damages actions in Europe, coupled with the size of the damage claims, has created a unique opportunity for litigation funding companies.
The risk of bringing an antitrust damages action can be very high, and not all cases will ultimately be successful. At the same time, successful antitrust actions often result in awards that start in the tens of millions of dollars, making these cases particularly lucrative for litigation funders.
Public and Private Enforcement
The primary purpose of antitrust laws is to prevent cartels and monopolistic behaviour by leaders in their respective industries. This anti-competitive behaviour can stifle competition, raise prices and harm consumers, and governments have a vested interest in preventing it. Public enforcers are armed with special powers and use special procedures to investigate an infringement. The key objective of public enforcement is usually seen in the creation of a deterrent effect, typically by imposing a fine.
Infringements of the antitrust rules are not only detrimental for the economy and consumers at large: they also cause concrete harm (e.g. higher prices, lost profits) to concrete victims (e.g. infringers’ direct and indirect customers; infringers’ competitors and their customers). However, when violations of antitrust laws take place, follow-up litigation to obtain compensation can stretch out over many years and cost huge sums of money.
And that’s where litigation funding comes in. With litigation funding, a third party finances the legal costs.
It often makes a great deal of sense for even large organizations to outsource their antitrust damage claims, due to the enormous cost and high level of complexity these cases entail. By outsourcing their antitrust litigation to a specialised external provider, or a special purpose vehicle (SPV) formed for the purposes of the claim, that provides expertise and arranges for funding, businesses of all sizes can better focus their internal resources, allowing them to concentrate on their core activities without losing out on any potential compensation.
When they opt for litigation financing, the businesses involved do not incur any costs. The third party funder provides the money needed to pursue the case, including solicitors’ fees, and they are entitled to a share of the proceeds only if the case is ultimately successful.
The Benefits of Funding
Although antitrust damages actions can be complicated and expensive, and actual damage can be difficult to prove, successful litigation is often extremely profitable. Even so, the successful resolution of an antitrust damages action typically requires extensive research, deep knowledge and specific expertise. By putting up the capital, litigation financing firms allow promising antitrust actions to go forward, all while shielding the companies involved from the high cost of pursuing these complex cases.
The antitrust field is perhaps the most obvious example of how litigation finance can aid the economy and society at large. Antitrust laws are essential to ensuring fair competition and preventing monopolistic behaviour, but those laws only have power when they are enforced.
Private competition litigation can be an important complement to public enforcement in the achievement of compliance with competition law. The full effectiveness of the antitrust rules, and in particular the practical effect of the prohibitions laid down therein, requires that anyone can claim compensation for the harm caused to them by an infringement of those provisions.
Dr Kees Jan Kuilwijk