Litigation finance start-up first to use data-backed methods

Signal of change / Litigation finance start-up first to use data-backed methods

By Toby Strudwick / 17 Oct 2016

Silicon Valley based start-up ‘Legalist’ is to be the first litigation financer to use big data in its assessment process. Litigation finance is where a third party covers the legal cost of a court case, in exchange for a share of the settlement.

Legalist’s founders have developed an algorithm that allows them to trawl through fifteen million previous cases, and analyse the influence of 58 factors on the chances of a favourable reading. By using a data-backed method, the lengthy and costly assessment process is streamlined significantly. If a given case has a potential return exceeding $1 million, and a favourable chance of success then Legalist will back it.

So what?

Litigation finance is not new, but the use of big data in this context is. Because digital methods make the assessment much easier and cheaper, Legalist is free to finance much smaller cases than the norm. For instance most litigation financers won’t back a case with a potential return less than $25 million.

Legalist’s co-founder something Shang is hoping to change this, and open funding up to smaller businesses. Legal costs can often be hugely inhibitory for a small business, who may accept an unfavourable settlement when faced with a war of attrition with a larger, wealthier opponent.

Her intentions are good; the ability for parties with more money to get the upper hand in court is a flagrant affront to justice. However, litigation finance is a controversial practice in its own right, and some commentators are sceptical that Legalist’s business model will ameliorate, and not exacerbate existing problems.

Nevertheless, access to justice is a growing problem even in developed countries – with the cost being an important aspect of this. In the UK, cuts to legal aid led to a catastrophic drop in the number of cases heard.

Legalist is not the only digital legal service hoping to help fill this void. In Australia, a Dutch AI platform called Rechtwijzer that can provide dispute resolution services in civil cases is being trialled. A student in the UK recently developed an online bot that helps users appeal parking fines, leading to 160,000 being overturned.

On the other side of the scales are possible disruptive effects on the legal profession. Solicitors are thought to be some of the best protected against automation, but services such as Legalist seem at least capable of doing some of the work for them.

Most reporting of Legalist’ launch has focused on her being the recipient of a Peter Thiel Foundation grant. Thiel made headlines for funding a huge litigation against Gawker that led to the news-site declaring bankruptcy. Therefore his links to Legalist are easily portrayed as the perfect villain story, but Shang is keen to shake this connection. She states that Legalist will not fund cases against the media, cases backed by individuals, nor those to be heard in a criminal court.

Sources

http://www.bizjournals.com/sanjose/blog/techflash/2016/08/y-combinator-startup-uses-big-data-to-invest-in.html

http://www.slate.com/blogs/future_tense/2016/08/25/legalist_a_lawsuit_financing_startup_uses_algorithms_to_spot_promising_cases.html

http://uk.businessinsider.com/legalist-will-fund-your-lawsuit-if-it-thinks-you-have-a-good-shot-at-winning-2016-8

What might the implications of this be? What related signals of change have you seen?

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