A recent CFO article on The Next Wave did a great job of pointing out that litigation is likely to spike again this year, starting next quarter. Noting that recession-related litigation last spiked in 2001 when the dot-com bubble burst, the wounds of recession often encounter a particularly painful form of salt as corporate attorneys stand ready to pour it on if they sense weakness in a rival, or a way to compensate for their own economic woes. Legal wrangling is already erupting across the board as aggrieved plaintiffs battle over breached labor contracts, unwarranted (executive) layoffs, dubious financial disclosures, broken supply chains, ailing strategic partnerships, ravaged 401(k) plans, unjust competitive practices, intellectual-property infringements, and curtailed credit lines. And as the article notes, that’s only a starting list.
Furthermore, the experts are expecting an avalanche in legal activity, starting as early as next quarter, with electronic discovery, intellectual property rights, anti-trust initiatives, and foreign corrupt practices leading the way, even though large companies are already spending millions a year on litigation. (In 2007, one in five large U.S. companies spent $10 Million or more on litigation, and the number of smaller companies spending more than $1 Million on litigation increased threefold.) As such, companies should expect their rivals to dust off their patents, pull out all the stops against perceived monopolies and their acquisition activity (under the “anti-trust” umbrella), report them on any practice that could be considered a foreign corrupt practice (in hopes that a resultant fine will bankrupt them), and challenge any e-discovery initiative as violating client-attorney privilege.
So what can you do to mitigate the risk?
- Legal Team Readiness
Make sure your legal team is primed and ready for unexpected, unwarranted, and ill-conceived litigation. They should be fully staffed; up-to-date on corporate policies, practices, and promotions; and supported by legal experts and support firms already on retainer.
- Patent Perception
Make sure that your legal team is well versed in the patents owned by your competitors and the usual patent trolls in your industry and that preliminary arguments as to why they don’t apply and / or why they are invalid (proof of prior art) are already drafted. In addition, they should be ready with counter-arguments as to potential violations of your patents by your competitors. Sometimes, nothing quashes a patent suit faster than the threat of a valid counter-suit.
- Acquisition Acuity
Avoid any acquisitions not already under way that could be seen as contributing to a monopoly, and insure that you have lots of facts, figures, and expert opinions ready to go as to why your current merger and acquisition plans will not result in a monopoly. If you do your homework, you just might be able to get the case thrown out before it ever gets to trial.
- Practice Proofing
Make sure your legal team has an expert (on retainer) on the laws with each country you are doing business with as well as the foreign corrupt practices act, alien tort claims act, and other laws that could be used to bring charges against your firm on home soil. Have that expert review all of your proposed dealings before any contracts are signed, before any money changes hand, and before any new operations are initiatied.
- e-Discovery Deftness
Have your legal and IT teams do a thorough review of the e-Discovery service(s) that you plan to use and insure that their processes are sufficient to prevent disclosure of attorney-client privileged information at least 99.999% of the time. (If you expect that from your SaaS offerings, you should expect it from your e-Discovery offerings! There’s no way that 800 documents should slip through in a batch of only 78,000, as that’s an error rate of 1.02%.) After all, every attorney-client privileged document that slips through is a piece of key evidence that you could be denied.
- Quality Quest
If you’re linked to a salmonella, melamine, or other food safety scandal in any way, shape, or form, you’re pretty much guaranteed to be a defendant in a class-action lawsuit these days. Your only defense (against criminal / federal action) is to prove that you exceeded every federal regulation and quality standard and were methodical and religious in your quality testing.
- Security Strafing
With the recent changes to the IEEPA that increase the civil penalty for a “person to violate, attempt to violate, or cause a[n export] violation to “an amount not to exceed the greater
of (1) $250,000; or (2) an amount that is twice the amount of the transaction that is the basis of the violation“, the introduction of 10+2 where an importer importers can be charged with fines equal to the shipment value if they fail to
file and face charges of $5,000 per transaction with missing or inaccurate data, and an increasing number of customs audits (especially against those companies without a solid C-TPAT history), it’s only a matter of time before your weak links are discovered … and if those weak links including non-compliance with one or more regulations, you could be risking a multi-million dollar fine. Do a security compliance audit before the fact, and if you find any discrepancies, voluntarily report them (under the guidance of external legal council) immediately.