Litigation Finance Valuation: An Antitrust Case Study

Understanding how to assess the value of claims is an essential part of Litigation Finance. Any reputable funder will have their own in-house team of analysts and experts in a variety of disciplines. One way to better understand the process, is with case studies.

Burford Capital offers this case study to demonstrate its vetting and valuation process for potential cases. The antitrust case presented, involves price-fixing within the dairy industry. The action alleges a conspiracy to reduce the supply of milk to drive up prices.

In antitrust cases, there are three main things to consider: overcharges, single damages, and potential settlement value. Overcharges are exactly what they sound like—how much extra buyers were forced to pay due to the alleged price-fixing. Market data is used to show patterns in pricing and elasticity (elasticity refers to how much a product’s pricing is impacted by supply and demand). In the case of dairy products, elasticity would be significant.

Once the overcharge amount has been estimated, the single damages must then be calculated. This formula is basically the amount the buyer should have paid (or would have paid, but for the conspiracy to drive prices up,) subtracted from what they actually paid. In the US, federal antitrust laws require awards of three times the single damages amount.

Settlement value refers to the amount—usually, a percentage—of the single damages claim that can likely be collected. This can be impacted by the stage of litigation when a settlement is proposed (before discovery, after a motion is denied, etc.). Whether the buyer is a direct or indirect purchaser might also impact settlement value, as would any related criminal proceedings. Settlements tend to be higher when there are criminal charges pending in connection with the case.

As one can see, a funder’s calculation doesn’t conclude at whether or not the case is winnable. Settlement value is a key tenet of investment valuation.