$100 Million Lawsuit: Litigation Funder Accuses Co-founder of Stealing Secrets

The world of litigation finance is heating up, and not just in the courtroom. A recent $100 million lawsuit filed by a litigation funder against its co-founder and a law firm has exposed the high stakes and intense competition within this rapidly growing industry. This case highlights the critical importance of protecting trade secrets and the potential consequences of their misappropriation, especially as litigation funding intersects with emerging areas like crypto assets.

What’s at Stake? Trade Secrets in Litigation Funding

At the heart of the lawsuit is the allegation that a co-founder of a litigation fund, Archetype Capital Partners, stole trade secrets and confidential information to benefit a competing venture. According to the lawsuit, Andrew Schneider, the co-founder, and Bullock Legal Group, an Atlanta-based law firm, conspired to misappropriate Archetype’s “innovative” methods for funding mass tort litigation and systematic overlap discovery. Archetype claims that this scheme has resulted in $100 million in losses for the fund.

But what exactly constitutes a trade secret in the context of litigation funding? It can include a variety of proprietary information that gives a business a competitive edge, such as:

Underwriting models: The specific formulas and criteria used to evaluate the merits and risks of potential lawsuits.
Risk assessment strategies: Methods for determining the likelihood of success and potential payout of a case.
Client acquisition techniques: Proprietary methods for identifying and securing lucrative litigation opportunities.
Systematic overlap discovery: Innovative methods for funding mass tort litigation.

The lawsuit alleges that Schneider, while still associated with Archetype, used his access to this confidential information to form a joint venture with Bullock Legal, using the stolen data to secure investment funding for cases, particularly those related to video game addiction litigation.

The Legal Framework: Protecting Trade Secrets

Trade secret law protects confidential information that provides a business with a competitive advantage. Unlike patents, copyrights, and trademarks, trade secrets do not require registration with the government. However, to be protected, the information must be:

Secret: Not generally known or readily ascertainable by proper means.
Valuable: Provide a business with an economic advantage over competitors.
Subject to reasonable efforts to maintain secrecy: The company must take steps to protect the confidentiality of the information, such as using non-disclosure agreements (NDAs), limiting access to sensitive data, and implementing security measures.

In the U.S., trade secrets are protected under both state law and federal law, primarily through the Defend Trade Secrets Act (DTSA) of 2016. The DTSA provides a federal cause of action for trade secret misappropriation, allowing companies to sue in federal court and seek remedies such as injunctions, damages, and, in some cases, punitive damages and attorney’s fees.

Litigation Funding: A Growing Industry

Litigation funding, also known as third-party funding or legal finance, involves an outside party providing funds to a litigant in exchange for a portion of any settlement or judgment. This practice has become increasingly popular in recent years, with the global market valued at billions of dollars and growing.

Why is litigation funding on the rise?

Access to justice: It allows individuals and companies with meritorious claims to pursue legal action, even if they lack the financial resources to do so.
Risk management: It enables businesses to offload the financial risk associated with litigation, freeing up capital for other investments.
Profit potential: It offers investors the opportunity to earn high returns on successful cases.

However, the growth of litigation funding has also raised concerns about transparency, ethical considerations, and the potential for conflicts of interest. The $100 million lawsuit involving Archetype Capital Partners underscores these concerns, highlighting the need for clear rules and regulations to govern the industry.

Crypto and Litigation Funding: A New Frontier

The intersection of crypto assets and litigation funding is an emerging area with significant potential. As the crypto market continues to grow, so does the number of legal disputes involving digital assets, including:

Securities fraud: Lawsuits alleging that crypto companies violated securities laws by offering unregistered securities.
Theft and fraud: Cases involving the theft or fraudulent transfer of crypto assets.
Contract disputes: Disputes arising from smart contracts or other agreements related to crypto assets.

Litigation funding can play a crucial role in these cases, providing the financial resources necessary to pursue complex and often costly legal action. Moreover, innovative approaches are emerging, such as using blockchain technology to crowdfund lawsuits through Initial Litigation Offerings (ILOs), opening up new fundraising opportunities for claimants and allowing retail investors to participate in the litigation funding market.

However, this also raises new challenges, including the need for regulatory clarity and investor protection. The inherent risks of litigation, combined with the volatility of the crypto market, make it essential to approach these investments with caution.

What Happens in Trade Secret Litigation?

Trade secret litigation can be complex and time-consuming, often involving extensive discovery, expert testimony, and court hearings. Here’s a general overview of the process:

Filing a Complaint: The plaintiff (the trade secret owner) files a lawsuit alleging misappropriation of trade secrets.
Discovery: Both parties exchange information and evidence, including documents, emails, and witness testimony.
Motion Practice: Parties may file motions to dismiss the case, exclude evidence, or obtain summary judgment.
Trial: If the case does not settle, it proceeds to trial, where both sides present their evidence and arguments to a judge or jury.
Remedies: If the plaintiff prevails, the court may grant injunctive relief (prohibiting the defendant from further use or disclosure of the trade secret) and award damages to compensate the plaintiff for its losses.

Advice

If you believe your company’s trade secrets have been misappropriated, it is crucial to take immediate action to protect your rights. This may include:

Consulting with an attorney: An experienced trade secret lawyer can advise you on the best course of action and help you navigate the legal process.
Conducting an internal investigation: Determine the extent of the misappropriation and identify the individuals involved.
Sending a cease and desist letter: Demand that the defendant immediately stop using or disclosing the trade secret.
Filing a lawsuit: If necessary, file a lawsuit to seek injunctive relief and damages.

Conclusion

The $100 million lawsuit between Archetype Capital Partners and its co-founder serves as a stark reminder of the importance of protecting trade secrets in the competitive world of litigation funding. As this industry continues to evolve and intersect with emerging areas like crypto assets, it is essential for companies to implement robust security measures and seek legal counsel to safeguard their valuable confidential information.

Are you a litigation funder or a company seeking to protect your trade secrets? Contact us today for a consultation to discuss your legal options.