Litigation funding use among firms in the Am Law 200 rose by 46% in 2021 as compared to 2020. Big firms partook in forty-one percent of four hundred twenty-six litigation funder deals begun that year and fifty-three percent of the deals involving portfolios of multiple cases—a remarkable four hundred eighty-eight percent increase from 2020.
Insiders believe the increased portfolio activity, with greater capital implicated, demonstrates both greater comfort by firms in dealing with litigation funding as well as the convenience of obtaining funding for a group of cases rather than submitting to a time-consuming valuation of one case at a time.
Combined, forty-seven litigation funders committed $2.8 billion to new arrangements, almost eleven percent more than in 2020. The numbers indicated a decline in smaller firm involvement in litigation funding deals, suggesting boutique firm funding needs are being met in other ways.
Patent litigation funding, largely folded into portfolio deals, went up sixty-one percent, encompassing twenty-nine percent of all commitments. While significant, the rise in funder interest in this litigation area was foreseeable given many recent hefty verdicts in patent disputes. According to legal analytics firm Lex Machina, 2020 was a record year for patent damages, with $4.7 billion awarded, more than the previous five years combined. Though the 2021 figures have not been officially reported, they will likely be at least comparable to those of the year before.
Likely more surprising for big litigation funders was the lack of growth in capital sought for monetization of claims—or converting a portion of a pending claim into cash. A vast majority (ninety-two percent) of the money funders committed will go to covering legal fees rather than, as funders had hoped, to companies using claims to generate cash flow for projects beyond their legal departments. In fact, the share of third-party capital allocated to claims monetization went from ten percent in 2020 to an even more humble eight percent in 2021. This decline is probably less due to unawareness of the option to monetize claims and more due to business judgments that holding on to the claims is more valuable to the company.
Also slightly decreased from 2020 was the average dollar value per transaction initiated in 2021. Despite added portfolio deals upwards of $50 million, the average value funders committed last year was $6.5 million per contract, compared to $7.8 million the year before. Commentators see this leveling off as signaling a maturing market, where big funders are becoming adept at underwriting more modest transactions and specialty funders are competing for these smaller deals, which is good for the consumer.
In general, despite the challenges of the last couple of years, the legal funding industry seems to be stably growing and brimming with opportunities for generating capital for lawsuits.
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