Transatlantic Competition and the Role of Litigation Finance

coins3Today we live in a global economy. Companies compete for market share and profits in sectors new and old, crossing borders and entering new spheres. It should therefore come as no surprise to hear that claims of anti-competitive corporate behavior have surged.

Government inquiries confirm this. In the US, the Department of Justice reported that from 2013 to 2014, the total number of anti-trust investigations rose by 23%.  Likewise, in 2015, Europe witnessed a similar increase, with a stream of high-profile antitrust actions against Google, Sky, Disney, Warner Bros and other major US film studios brought by the EU Competition Commission.

Not all businesses suffering as a result of anti-competitive behaviour are household names, nor are they as fiscally solvent—which is key given that companies require significant resources to pursue a competition litigation claim.

The Cost of Competition Litigation

Competition claims are amongst the most complex, expensive, and high-risk commercial cases. The legal know-how is highly specialised. Out-of-pocket expenses are incurred at very early stages of the litigation. Expensive expert witnesses are the norm and typically critical to asserting a successful complaint that can be sustained through the initial pleading stage of a case.

All this means that from the outset the litigant must be prepared to absorb significant costs just to file a claim. But this in itself can be problematic because the claimants have necessarily endured financial hardships as a result of anti-competitive behavior, leaving them especially challenged by high hourly rates and up front expenses.

Sources of Funding

 Outside funding offers an alternative for claimants that can enable them to pursue competition cases. Capable of mitigating the risk and cost borne by clients and firms determined to pursue meritorious competition claims, litigation finance is increasingly recognised as a useful tool for overcoming the financial obstacles synonymous with competition litigation.

The need for litigation finance varies in different jurisdictions around the world, and indeed has become even more overt as recent legislative changes have highlighted the costliness of such claims.

In the UK, England has long represented a popular jurisdiction, but only clients with exceptionally deep pockets have had the financial wherewithal to manage the high costs of these actions. The 2015 Consumer Rights Act has attempted to rectify this, with the UK’s Competition Appeal Tribunal opting to facilitate claims brought by small and medium-sized enterprises and consumers.

Similarly, in the EU competition litigation was historically far narrower, but the Directive on Antitrust Damages Actions adopted by the European Parliament has reduced the roadblocks to compensation for victims of anti-competitive behavior. For example, there is now a presumption that cartel infringements cause harm and that a final infringement decision by a national competition authority constitutes irrefutable proof in a civil court of the same country that an infringement occurred. In the US, the 1890 Sherman Act established a federal law guaranteeing the automatic trebling of damages awarded to successful plaintiffs in antitrust cases, so the potential for large awards has ameliorated the enormous cost and risk of pursuing claims—that is, for those clients able to secure the resources to pursue them in the first place.

Use of Litigation Financing

Regardless of changing regulations in some jurisdictions, the fact remains that competition claims are ideal candidates for litigation financing.

In the US this is the result of the requirement to prove harm in civil matters even after government prosecution: expensive expert witnesses must be engaged every time a claim is pursued, putting pressure on clients even when their firms are willing to work on a conditional basis. In the EU, conversely, alternative fee arrangements are not a developed part of law firm offerings, so clients must seek other means to help with the financing of costly litigations established by the Directive.

Even the UK’s new Consumer Rights Act expressly prohibits damages based agreements, preventing firms from working on a conditional or contingent basis. Claimants must be prepared to pay for legal expenses outright.

The Risks of Litigation Financing

However, in each jurisdiction claimants can also share cost and risk by engaging a litigation financier. Claimants and firms may finance competition matters either as single cases or portfolios of multiple claims.

So whilst securing expenses-only finance or engaging a qualified firm to work on a contingent or conditional basis is an option for clients with competition claims, working with a litigation finance specialist like Burford is the only option that works across jurisdictions and can support the various business and capital needs of both clients and law firms. This is particularly true in countries like Germany where contingency arrangement are prohibited but third party financing is not.

There’s no question that competition remains a growing area of need and opportunity.

The Growing Need

As the Department of Justice continues to crack down on anti-competitive behaviour in the US and changing laws in the UK and Europe make it increasingly more feasible for meritorious cases to be brought, the need for external financing will continue to grow. In the US, further education about financing options remains key, as antitrust litigation—despite being extraordinarily costly—is still largely underserved by the funding industry. That is even truer in the UK and EU, where new laws will inevitably expand the scope of claimants who seek to be made whole but who still lack the means to do so without financing.

Litigation finance meets that need, and as we progress into 2016, this will no doubt come further into the light.

Nick Rowles-Davies is Managing Director of Burford Capital (UK) and author of Third Party Litigation Funding.

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