US-based litigation-focused law firm Kobre & Kim, which has an office in Tel Aviv, has teamed up with a global litigation financing firm, Bentham IMF, to set up a $30 million litigation fund to help Israeli firms fight legal battles on foreign soil. The fund will be launched in Tel Aviv Tuesday evening.
“When Israelis have legal disputes in the US, including problems involving intellectual property, this is when we come in,” said Michael Rosen, a Tel Aviv-based attorney with Kobre & Kim, in an interview with The Times of Israel.
A litigation fund is a fund set up by a third party that provides the financial resources to enable costly litigation, for a share of the proceeds if the litigation is won. If the litigation isn’t successful, the fund bears the burden of the costs it has agreed to fund. This kind of financing has been gaining ground in recent years. Most of the funds cater to the biggest, high-value legal cases, but some of them are created for smaller matters.
The new fund “is designed to allow Israeli companies to compete on equal footing, even when facing off against the largest international companies in what would be otherwise be prohibitively expensive litigation,” said Rosen.
The New York-based legal firm has offices in 11 countries, including in London, Seoul, and Hong Kong.
Israeli startups from their outset are geared to do business abroad, the local market being small. Most of them eye the US, where their investors and their main customers generally reside. To grow, they often need to team up with larger companies in some way that involves revealing how their product works. And that could lead to problems. Because when a second company enters the scene, there could be breaches of confidentiality or even of patents; promises made and not kept.
Kobre & Kim has worked with a number of Israeli companies, including in the fields of computer virtualization, machine learning, and computer vision, to help them enforce claims abroad against multinational companies that have poached their trade secrets and patents.
“Like them, there are lots of others,” Rosen said. “Israeli companies in general lack the resources to carry out the fight. Multinational corporations are confident they can scare off the startups.”
When disputes happen, startups, generally cash-strapped in the first place, are very limited in how they can fight back because of the staggering costs of litigation. They often give up the fight even before it begins.
It costs as much as $5 million to $10 million to file a suit in the US, explained Rosen. You may be able to recover it, if you win the case, he said. But you still need funds to get the litigation going and keep it on track, and “no startup has the money to do that,” he said.
For Israeli firms the issue becomes even more challenging because they lack the resources and the confidence to succeed, as there are cultural differences and they don’t know how to navigate the US legal system.
“Other funds have invested in Israeli cases, but it is difficult for Israeli companies to access them,” explained Rosen. No other fund has dedicated $30 million just for Israeli startups and their claims, he said.
The amount may seem like a drop in the ocean, he admitted, in light of the fact that foreign litigation can exceed $10 million. But that is because the new fund is prepared to handle smaller cases as well. “This allows us to expand beyond just the blockbuster cases,” he said. “There is a niche that is not fully realized for funding the smaller, less expensive cases, and the new fund will be equipped to handle those, too.”
Kobre & Kim have partnered with Bentham on a number of litigations, Rosen explained. “We impressed upon them the value of Israeli technology and of claims that can come out of here,” he said. And Bentham decided it was worth jumping into the fray. The amount of money in the fund could also grow with time, Rosen said. “This is the first step,” he said. “Money that is earmarked is easier to access.”
Bentham was founded in Australia in 2001 and set up its US arm in 2011. In the past six years, the US firm has reviewed thousands of cases and made over 162 investments in cases, recovering some AUD 2.1 billion ($1.55 billion) in damages, according to the company’s website. The idea is to share the risk, but also the upside when there is one.
The Kobre & Kim Bentham litigation fund for Israeli tech companies will take on litigation in any country, Rosen said. “Startups should come to us if they have an issue,” he said. “We will do due expedited due diligence on the case, often within a few weeks.” If the claim is reliable, the fund will take on the case.
There are perhaps some dozens of Israeli cases filed every year in the US, said Rosen. “We are not talking about hundreds of cases,” he said. But “what are the potential claims out there? People give up. We are trying to solve that problem.”