Introduction: Understanding Litigation Funding’s Growing Importance
In recent years, third-party litigation funding has transformed from a niche financial service to a significant force in the legal landscape. This alternative funding model allows plaintiffs and law firms to pursue cases that might otherwise be financially unfeasible, creating new opportunities—and new challenges—for the legal profession.
Litigation funding is projected to experience substantial growth in the coming years. According to industry forecasts, North America is expected to generate $25.3 billion in litigation funding revenue by 2037.1 The commercial litigation segment alone is anticipated to reach $27.7 billion between 2025 and 2037, highlighting the sector’s significant economic potential.2
A striking trend shows the rapid adoption of this financing model within the legal profession. As of 2017, over 35% of law firms had some form of litigation funding arrangements in place, representing a dramatic increase from just 7% in 2013.3 This fivefold growth over a four-year period demonstrates how quickly third-party funding has gained acceptance among legal practitioners seeking alternative ways to finance complex litigation.
Traditional Funding Models vs. Modern Litigation Finance
The Five Traditional IP Litigation Funding Structures
Historically, IP attorneys have relied on five primary financing structures for litigation.
The most common traditional approach involves a retainer (down payment) followed by billing at an hourly rate. This model places the financial burden primarily on the client, who must have sufficient resources to fund potentially lengthy disputes.
Flat rate or capped fee arrangements represent another option, where attorneys and clients agree to a predetermined fee for handling a dispute. This provides clients with greater cost certainty but may not align attorney incentives with maximizing case value.
Pure contingency arrangements with advancement of costs allow attorneys to receive a percentage of any recovery while covering litigation expenses throughout the case. This approach aligns interests but requires law firms to have substantial capital reserves.
Some contingency arrangements require clients to advance all costs while attorneys still work for a percentage of recovery. This hybrid approach reduces law firm financial exposure while maintaining outcome-based compensation.
Finally, blended arrangements combine a lower hourly rate with a contingency component, distributing risk between attorney and client while providing some guaranteed compensation to counsel regardless of outcome.
The Third-Party Litigation Funding Landscape
Today’s litigation funding market is dominated by specialized firms that emerged primarily between 2010 and 2013. Major players in this space include Burford Capital, which was founded in 2009 and has become one of the largest dedicated litigation funders globally. Other significant firms include Omni Bridgeway, Therium, Validity, GLS Capital, and Parabellum Capital. These companies typically maintain headquarters in major financial and legal centers including New York, Boston, Chicago, and San Francisco.
Several of these firms have developed particular expertise in patent litigation funding. Burford and Omni Bridgeway have established themselves as leaders in patent litigation deals, along with other specialized funders such as Curiam Capital, Fortress Investment, and Magnetar Capital. Many of these companies offer law firm financing services in addition to direct litigation funding, providing capital for operational needs beyond individual cases.
Key Statistics on Litigation Funding
The litigation funding industry has seen remarkable growth in recent years, with financial metrics highlighting its increasing importance in the legal marketplace. According to industry data from 2023, the U.S. commercial litigation finance industry managed approximately $15.2 billion in assets, representing a substantial pool of capital dedicated to legal dispute financing.4
The commitment to new financing agreements remains robust, with funders pledging over $2.7 billion to new litigation financing arrangements in 2023 alone.5 This continued investment demonstrates strong confidence in litigation as an alternative asset class.
The size of individual transactions provides insight into how the market operates at different scales. In 2023, the average size of all litigation financing transactions was $7.8 million. Breaking this down further reveals that single-matter deals averaged $4.8 million, while portfolio deals involving multiple cases averaged $9.9 million, reflecting the premium placed on diversified litigation investments.6
Resource allocation within the industry shows strategic preferences, with approximately two-thirds of funding directed toward lawsuit portfolios rather than individual cases. This allocation strategy helps funders mitigate risk through diversification across multiple matters.
Mass tort cases represent some of the largest funding commitments, typically involving around $50 million in financing. In at least one documented instance, a law firm received as much as $250 million in litigation funding, demonstrating the scale these arrangements can reach in complex, multi-plaintiff scenarios.7
The patent litigation sector has particularly embraced third-party funding, with data indicating approximately 30% of patent cases now involve some form of litigation funding.8 This higher adoption rate likely reflects both the substantial costs associated with patent litigation and the potentially significant damages awards that make these cases attractive investment opportunities.
Common Targets for Litigation Funding
Litigation funding is not uniformly distributed across all legal disputes but tends to concentrate in specific areas where the economics and case characteristics align with funders’ investment criteria.
Mass tort litigation represents a significant segment for third-party funding. These cases typically involve numerous plaintiffs with similar claims against one or more defendants, offering the potential for substantial aggregate recoveries that make the investment worthwhile. The collective nature of these cases also allows funders to achieve economies of scale in their due diligence and risk assessment processes.
Antitrust cases are another common target for litigation funding, as these matters often involve complex market analyses and substantial potential damages. The high costs of economic experts and extensive discovery in these cases can make them difficult for plaintiffs to pursue without external financing.
Asset recovery matters frequently attract third-party funding. These cases involve attempting to collect on existing judgments or claims where the primary challenge is not establishing liability but locating and accessing defendants’ assets. Funders can provide the resources needed for international asset tracing and enforcement efforts.
Commercial disputes between businesses constitute a growing area for litigation finance. These cases often involve sophisticated parties and clearly quantifiable damages, making them suitable for funding arrangements. The defined nature of business relationships helps funders assess potential outcomes more predictably.
Intellectual property cases, particularly patent litigation, have become a prime target for litigation funding. The combination of high litigation costs, potentially substantial damages, and the specialized expertise required makes IP disputes especially well-suited for third-party financing. This category has seen particular growth as companies seek to monetize valuable intellectual property assets without bearing the full financial risk of enforcement.
Legal Challenges to Litigation Funding
Issue 1: Champerty Arguments
Historically, third-party funding of litigation faced legal barriers under the doctrines of maintenance and champerty:
- Maintenance: People who are not party to a legal case providing funding for that case
- Champerty: Maintenance for a profit
While these doctrines were designed to prevent outside interference in legal proceedings, their application has evolved significantly in modern jurisprudence. In Florida, for instance, Hardick v. Homol (795 So. 2d 1107) established that champerty is not a viable cause of action under Florida common law.
At most, champerty can serve as an affirmative defense, primarily in breach of contract claims. Cases like Savage v. Horne (49 S. 2d 329) and Nationwide Mutual Ins. Co. v. McNulty (229 So 2d 585) have limited its application to defense against assignment of contracts. As Cone v. Benjamin (27 So. 2d 90, 107) clarified, “the laws against champerty and maintenance cannot be used as offensive weapons against defendant.”
Issue 2: Discoverability of Litigation Funding Agreements
A significant ongoing debate concerns whether litigation funding arrangements must be disclosed during discovery. The landscape varies considerably across jurisdictions:
- In April 2021, Chief Judge Colm Connolly of the District of Delaware issued standing orders requiring litigants to disclose third-party litigation funding
- Federal Rule 7.1(a) requires disclosure of parent corporations and significant corporate ownership but does not explicitly address litigation funding disclosure
- The Southern District of Florida has no local rule supplementing Federal Rule 7.1(a)-(b)
- The Middle District of Florida requires more comprehensive disclosure through Local Rule 3.03, likely extending to litigation funding arrangements
Case law on this issue is developing rapidly:
- In Abu-Ghazaleh v. Chaul (36 So. 3d 691), litigation funders were held liable for attorneys’ fees when their involvement “risen to level of a party”
- Art Akiane LLC v. Art & Soulworks LLC (2020 WL 5593242) established that broad discovery requests for litigation funding documents must demonstrate relevancy
- Acceleration Bay LLC v. Activision Blizzard, Inc. (2018 WL 798731) found that communications with litigation funders were relevant in a patent dispute
- In Cobra Int’l v. BNCY Int’l Inc (2013 U.S. Dist. LEXIS 190268), Judge Matthewman ordered production of a litigation funding agreement, finding it “relevant and not privileged”
Multi-district litigation (MDL) courts have also addressed this issue:
- In re Zantac (Ranitidine) Prods. Liab. Litig. (2020 WL 1669444) required leadership counsel applicants to disclose whether funders would have control over litigation decisions or settlement offers
- In re 3M Combat Arms Earplug Prods. Liab. Litig. (Case Management Order No. 61) mandated disclosure of claimant and funder names, loan dates, funding amounts, fees, interest rates, and all material terms
Issue 3: Admissibility at Trial
Whether litigation funding arrangements can be mentioned at trial remains contentious. In Bancor Grp. Inc v. Rodriguez (2023 U.S. Dist. LEXIS 181095), Judge Torres ruled that litigation funding “has no bearing” on underlying claims and “should be excluded as irrelevant.” The court noted that evidence of litigation funding might only be admissible “to challenge the credibility of a potentially biased witness.”
Industry Insights from 60 Minutes Coverage
A December 2022 60 Minutes segment on litigation funding provided valuable insights into industry practices and reinforced many of the statistics observed in formal research. The program featured Burford Capital, founded in 2009, which has become one of the industry’s leading firms.
The investigation revealed that Burford typically invests $5 million or more per case, a substantial commitment that reflects the company’s focus on high-value litigation.9 This investment approach aligns with the firm’s financial expectations, as funders generally anticipate doubling their investment in each successful case. However, the segment also highlighted that in certain scenarios, funders may actually receive more from a favorable verdict or settlement than the client themselves.
Despite the inherent risks of litigation, funders like Burford report remarkably high success rates, with some claiming up to 90% favorable outcomes across their portfolio.10 This impressive performance is largely attributed to rigorous due diligence conducted by in-house attorneys who carefully evaluate case merits before committing capital. The thorough screening process helps explain how the industry maintains profitability despite the unpredictable nature of litigation.
An important point of contention addressed in the segment concerns decision-making authority. Most funders maintain they do not interfere with settlement decisions, leaving those determinations to clients and their counsel. However, this separation has been questioned by critics, particularly the U.S. Chamber of Commerce, which has advocated for increased regulation of the industry to ensure greater transparency about funders’ roles and potential influence on case strategy.
Conclusion: The Future of Litigation Funding
As litigation funding continues to grow, the legal system is adapting to address the challenges it presents. Questions of disclosure, conflicts of interest, and client control remain at the forefront of legal debates. While some courts have taken definitive stances on these issues, others continue to evaluate them on a case-by-case basis.
For attorneys and clients considering litigation funding, it’s essential to understand both the opportunities and potential complications these arrangements present. As the industry matures, we can expect clearer guidelines and perhaps more standardized regulations to emerge, potentially bringing greater transparency to this increasingly common funding mechanism.
This article is intended for informational purposes only. It does not constitute legal advice. For specific questions about litigation funding in your matter, please consult with qualified legal counsel.
Footnotes
- Based on projections from the American Bar Association Commission on Ethics 20/20 Informational Report on Alternative Litigation Finance.
- Westfleet Advisors, “The Westfleet Insider: 2023 Litigation Finance Market Report.”
- Law.com Daily Report Online, “Litigation Funding Use in U.S. Law Firms, 2013-2017.”
- Bloomberg Law, “Litigation Finance Market Analysis Report, 2023.”
- Westfleet Advisors, “The Westfleet Insider: 2023 Litigation Finance Market Report.”
- American Bar Association, “Commission on Ethics 20/20 White Paper on Alternative Litigation Finance.”
- Law Journal Newsletters, “Recent Trends in Litigation Finance,” December 2023.
- USPTO Patent Trial Statistics 2020-2023, supplemented by private industry reports.
- 60 Minutes, “Litigation Funding: More investors fund lawsuits, as rules and transparency lag behind,” CBS News, December 2022.
- Based on statements made by Burford Capital executives during the 60 Minutes interview.
About the Authors
A Miami Patent Attorney, Robert Thornburg is a nationally recognized intellectual property litigation specialist who has a built a reputation over the past 15 years in bet-your-business patent, copyright, trademark, trade secret and technology focused litigation on behalf of international and Florida-based businesses.
