New York, N.Y. — Davidson Kempner Capital Management has emerged as a prominent financier in ongoing patent litigation against Amazon’s Audible Inc., marking the hedge fund’s first public acknowledgment in the burgeoning realm of litigation finance. This $16.1 billion industry is captured by the investment community’s increasing interest, as hedge funds and private equity firms explore opportunities to back lawsuits.
Traditionally, funders in litigation finance are vocal about their services and actively engage with law firms seeking support. However, many investment managers, including Davidson Kempner, often prefer to operate discreetly, revealing their involvement only through legal documents or regulatory filings. Rebecca Berrebi, a litigation finance broker, emphasized that the market for financing lawsuits extends well beyond the typical funders, with many asset managers also investing directly in legal cases.
In the realm of litigation finance, Davidson Kempner supports Audio Pod IP LLC’s claims against Audible through a specially formed LLC, as revealed in court documents. Audible’s legal team has accused Audio Pod of strategically seeking funding beyond its home state of Virginia to leverage New York’s extensive financial market for its patent claims.
Additionally, records link Davidson Kempner to several patent-owning entities involved in lawsuits against major technology companies, including Samsung and ByteDance, underscoring its active participation in patent litigation. Other firms, such as BlackRock, Ellington Capital, and Cliffwater, are also engaging in these financial ventures, further illustrating the growing trend of hedge funds investing in legal disputes.
While BlackRock did not respond to inquiries, the hedge fund disclosed in its SEC filings that it might allocate a portion of its credit fund towards litigation financing, an undertaking that could result in significant financial risk if the cases do not succeed. Similarly, Cliffwater participated in a substantial deal with Gramercy Funds Management, which recently lent over $550 million to a UK law firm.
The mass tort sector has become a focal point for institutional financial partners, with recent reports revealing increased capital inflow to support marketing campaigns for law firms targeting specific tort cases. Michael Kelley, a partner at Parker Poe, noted that investments in this area often range from $10 million to $20 million, providing law firms with diversified funding opportunities.
Some traditional litigation funders have become more accommodating to new partners as the market evolves, moving away from previously restrictive practices. For instance, Ellington Capital was recognized as a financial backer in litigation involving Johnson & Johnson’s talcum powder products.
Financial strains faced by law firms involved in lengthy mass tort cases have led to growing refinancing needs, prompting discussions on the potential for longer-term capital solutions to alleviate these challenges. Kelley highlighted an opportunity for more stable investments to support lenders navigating the complexities of these protracted legal battles.
As the landscape of litigation finance continues to grow, stakeholders are witnessing both challenges and opportunities, leading to a careful consideration of investment strategies in the legal sphere.
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