Investing in law suits

"To press a suit" means something different to a tailor and to a lawyer. Now investors are getting involved too.

Investing in Lawsuits, for a Share of the Awards
"A small but growing number of investors are exploring this idea, helping companies avoid some of the risks and costs of litigation in exchange for part of any money paid out when the case is settled or resolved by a court."

This reflects some broader changes in the law biz, somewhat related to developments in patent and class action law.

Regarding patents, firms that invest in patents with an eye towards making money from infringement law suits are known by those who dislike them as patent trolls (see here, too). There is both an offensive and a defensive part of that business, and both attract investors, see e.g. Trolling for Patents to Fight Patent Trolls.

Another kind of lawsuits that involve investors are class action suits. Here the investors are often a consortium of law firms that can pool otherwise unbillable hours to devote to a large speculative project that will only pay off in case of a favorable decision or settlement. The theory behind class action is that it should allow the law to bear on malefactors who might harm many people, but each too little to justify the expense of an individual lawsuit. (E.g. a supermarket chain that systematically overcharged everyone twelve cents might eventually be found liable to pay damages to a large class of consumers. If you noticed them doing this, you wouldn't be able to interest a law firm in representing you as an individual plaintiff, but might be able to interest a firm in representing the whole class.) Class action law envisions the firms as responding to claims presented by plaintiffs, and a plaintiff who claims harm is needed to bring the case. But there's a big advantage to being the first firm (or consortium) to bring a class action law suit, since the originating law firms get to represent the whole class of plaintiffs. So there's a temptation for an entrepreneurial firm to go out and hire some plaintiffs, which is against the law. One of the biggest class action firms fell to this temptation: Class-Action Firm Agrees to Pay $75 Million to Settle Kickback Case

HT: Benjamin Kay, an econ grad student at UCSD