Dispelling legal finance myths: A defense funding case study

In January 2015, the world’s largest razor company, with an estimated 64% of the global shave care market,[1] brought suit against a startup that had yet to manufacture a single razor. The business press jumped on the case—The Gillette Company v. Craig Provost, John Griffin, William Tucker, Douglas Kohring, and ShaveLogic, Inc.—as another battle in the so-called “razor wars,” in which new entrants like Dollar Shave Club and Harry’s have shrunk Gillette’s market share after a century of dominance.

But there’s another angle to the story: litigation finance. That’s because outside finance played an important part in this extraordinarily high-stakes commercial dispute—and in doing so, it set to rights two common misperceptions about who uses litigation finance, and why.

Even as it becomes increasingly commonplace in the business of law, litigation finance is often misunderstood. A frequent assumption is that litigation finance is always used by plaintiffs, never defendants. Another myth, stubbornly propagated by the US Chamber Institute for Legal Reform, is that litigation finance is used to stoke “frivolous” lawsuits.

 

Starting a “razor war”

ShaveLogic develops razor and shaving technology to provide a more precise shave. To advance its business, ShaveLogic had hired former Gillette employees Craig Provost, John Griffin, William Tucker and Douglas Kohring, all of whom were involved in the design of the ShaveLogic razor.

In July 2014, ShaveLogic obtained a patent for a component part, with Provost and Griffin listed as co-inventors. In January of the following year, Gillette filed a complaint in Massachusetts state court against ShaveLogic and the former Gillette employees, alleging that they misappropriated Gillette trade secrets and engaged in unfair competition, and that the employees breached their non-disclosure agreements with Gillette.

ShaveLogic denied all of Gillette’s claims and counterclaimed that the latter had intentionally interfered with ShaveLogic’s business relations and engaged in unfair trade practices.

But while Gillette had the weight of its market share to sustain its suit, ShaveLogic was stripped of the financial resources it needed to build a business—or defend itself in court.

 

Financing an underdog’s defense

As the lawsuit proceeded, the cash-strapped ShaveLogic sought litigation financing. Burford agreed to provide the resources needed to mount a vigorous defense as well as to pursue ShaveLogic’s counterclaims on a non-recourse basis. If ShaveLogic prevailed in the litigation and maintained control of its patent and applications Burford would earn its investment back and a return, to be paid from a combination of a settlement, if any, and/or future razor sales.

After both sides filed motions for summary judgment, the court ruled in favor of ShaveLogic, denying Gillette’s motion and allowing ShaveLogic’s counterclaims to proceed. The court ruled that “a reasonable jury could conclude that Gillette deliberately asserted baseless claims against ShaveLogic in an attempt to scare off [its] investors and potential business partners, and thereby drive ShaveLogic out of the market for wet-shaving products.”

In August 2017, the remaining claims were dismissed after the parties reached an undisclosed settlement.

 

Dispelling litigation finance myths

External capital played an important part in this extraordinarily high-stakes commercial dispute—and in doing so, refuted the misperception that litigation finance is only used by plaintiffs, and that it is used to stoke “frivolous” lawsuits. The ShaveLogic case study belies both of these unfounded assumptions. Not only was litigation finance provided to the defendant in this matter, but it was the funded party’s adversary instead of the one using financing whose claims were dismissed on summary judgment as without merit.

ShaveLogic’s use of third-party capital is a case study in how litigation finance works for the defense as well as the pursuit of claims. It illustrates how access to capital can support just outcomes when resources are asymmetrical. And, ultimately, it further demonstrates that litigation finance cannot be pigeonholed in its purpose or its end users.


[1] Financial Times, “Dollar Shave Club wins market share and customers with back-to-basics approach” (March 16, 2017).


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