With the recent publicity of Hulk Hogan's lawsuit against Gawker Media, and specifically the funding of the lawsuit by third-party Silicon Valley billionaire Peter Thiel, much attention has been drawn to the practice of "litigation funding."
The term refers to the practice in which an outside party funds all or part of a plaintiff's litigation in exchange for a portion of the recovered proceeds. The rise of the practice stems partially from the significant cost of litigation; faced with incurring hundreds of thousands of dollars in attorneys' fees - if not more - many plaintiffs are reluctant to commence a lawsuit, even a righteous one.
Enter a litigation funding firm. Essentially, rather than the attorney taking the case on a contingency basis, the third party funds the case on a similar basis. (At least, that's the basic conceptual model. Some larger litigation funding firms have extended their reach to other avenues, including purchasing judgments to pursue.)
As the application of the practice has grown, and as attorneys and clients have become more comfortable with litigation funding, the industry has boomed. One of the preeminent litigation funding firms, Burford Capital Ltd., recently announced that its profit after tax rose 75 percent from the prior year, and the firm committed $378 million to new investments (a yearly increase of 83 percent). If, as expected, the practice becomes even more commonplace, expect that growth to continue.
