Litigation finance helps companies keep their cool during trade secrets disputes

A trade secrets case can be emotional for corporate executives. Such cases often stem from a betrayal by a trusted former employee who is accused of stealing critical information that can endanger the current and future health of a company.

Feeling angry—and even vengeful—about such behavior is an entirely human response. Yet mixing emotion with litigation often results in poor decision-making. Emotional reactions may impede rational analysis about appropriate litigation strategy and can lead companies to overestimate a claim’s value and chances of success.

A company must determine whether a trade secrets case is in its best long-term interests and whether the case will be successful when it reaches court. As violated as company leaders feel at present about a trade secrets theft, they are likely to be even unhappier in a few years’ time if the case has distracted employees from their jobs and failed to produce the recovery they had anticipated.

Litigation funding can provide an opportunity for companies to check their strategies and the strengths and weaknesses of their disputes—and help rein in emotions that might affect decision-making. Reputable litigation funders make careful assessments of potential litigation and are staffed by litigation experts who have worked on complex trade secrets matters and who understand how to value claims and judge their potential for generating a large judgment or settlement.

 AN INDEPENDENT ASSESSMENT

A funder approaches cases as an investment opportunity and conducts extensive due diligence prior to entering a funding arrangement. This process has the added benefit of giving the claimant, its executives and board, and its in-house counsel a sober, third-party view of their claims and the company’s legal strategy.

For instance, the funder is bound to ask questions likely to come up in court, such as whether the company adequately tracked its trade secrets and made a reasonable effort to protect them. In trade secrets litigation, judges are increasingly granting summary judgments to defendants who can show that a plaintiff did not take reasonable steps to protect intellectual property.

A funder will also understand the growing complexity and sophistication of trade secrets cases. The number of cases is increasing, as more companies rely on digital information assets to drive their businesses. At the same time, data is more vulnerable than ever because employees are often accessing information in less-secure environments—such as personal laptops and smartphones.

In the largest cases, awards are routinely reaching nine figures, and several of these types of cases have shifted from state to the federal courts. A key driver of this shift has been the federal Defend Trade Secrets Act, enacted in May 2016, which allows claimants to file trade secret misappropriation cases in U.S. district courts.

 FINANCIAL BENEFITS

The growing size and complexity of trade secrets cases makes them more expensive for companies to pursue—and conversely, more attractive to litigation funders, who specialize in financing cases that are complicated in scope and have the potential for a large judgment or settlement.

Funders provide non-recourse financing, which means they receive a return on their investment only in the event of a successful recovery or settlement. This can create a number of financial benefits for companies whose litigation meets the criteria for financing.

For larger companies, paying legal fees can result in an immediate reduction in earnings, while a recovery may occur years later and with little or no impact on the company’s profit picture because of unfavorable accounting rules. Funding allows the company to erase litigation expenses from the bottom line, and the funding itself can be booked as revenue. Pursuing funding and aggressively litigating a trade secrets case may also send a message to competitors and employees that the company will protect its rights.

Start-ups and smaller companies can use litigation finance to help level the playing field with larger, better-funded foes. With funding, a company can hire high-quality legal counsel and receive the capital to withstand protracted litigation without having to accept an early settlement for pennies on the dollar.

The decision to pursue trade secrets litigation should align with a company’s business objectives. Funding can help ensure this, allowing the company to meet financial goals and assert its rights—without succumbing to emotion.

LEARN MORE

Recently, Stephanie Southwick, an investment manager and legal counsel for Omni Bridgeway, spoke with James Pooley for the company’s Beyond Hourly podcast. Pooley, the author of Secrets: Managing Information Assets in the Age of Cyber Espionage, is a veteran Silicon Valley litigator and one the world’s leading trade secrets litigation experts.

Pooley offered his insights about recent trends in trade secrets litigation, steps companies are taking to safeguard their intellectual property, and how litigation finance can help provide support for enterprises considering a trade secrets case. Listen to the podcast or read the transcript here.

To learn more about Omni Bridgeway’s litigation funding capabilities, visit our Company Insights. While there, explore our recent podcasts, blog posts, and videos. Or contact us for a consultation to learn more about the ways we can help you pursue meritorious claims.