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Startup uses algorithms to fund civil lawsuits

Legalist uses historical data to determine which cases are likely to pay off.
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Zimmytws via Getty Images

It won't shock you to hear that many companies see lawsuits as opportunities for profit. Patent trolls base their entire businesses around it, after all. And now, they may use technology to help that happen. Legalist, a young startup, is trying to build on the litigation finance world (already a $3 billion field) by using algorithms to determine when a company should invest in someone else's lawsuit. The software compares a suit against 15 million historical cases to calculate the likelihood that a lawsuit will succeed. If the action is likely to pan out, Legalist funds the case in return for a cut (as much as 50 percent) of either the damage awards or the settlement.

The creators stressed to Silicon Valley Business Journal that they're not backing individual lawsuits, like the sort that let Peter Thiel get revenge on Gawker. However, the strategy could still prove damaging. Lawsuit-happy companies frequently cherry-pick lawsuit locations in order to get courts that will see things their way -- patent trolls sue in eastern Texas (particularly Marshall or Tyler) knowing that the judges regularly turn a blind eye to dodgy claims. While Legalist's business model could empower honest companies that couldn't otherwise afford to seek compensation, it could also help sketchy firms that are trying to game the system.

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