Legal spending takes a large bite out of a company’s bottom line. For most companies with business as usual it ranges from 0.2%-0.4% of overall revenues. It can be much higher. Going through a large contentious litigation can raise it as high as 3% or 4%.
Controlling these costs has become a high priority for management and in-house legal teams. In this series of articles we’re going to focus on litigation, which makes up a large portion of overall spend for most organizations. This post looks at some of the macro trends we are likely to see in 2017, while future posts will focus on strategies and tactics to controlling these costs.
In 2017, commercial litigation will continue to be influenced by the traditional drivers: economic performance and regulation. While the Trump administration has made moves towards the repeal of Dodd Frank legislation it is expected that regulatory investigations will continue at their current pace for the foreseeable future. We have identified two key areas to watch: 1) increasing number of labor disputes arising from the workplace and 2) the potential changing of venues for filing of patent suits over the coming year.
Labor Disputes – Costly and Public
2016 made it clear that nobody is immune from labor actions. This trend of increasing public high-cost litigation arising from the work place is set to continue.
Contentious employment disputes are costly, lengthy and carry reputational risk for an organization. According to a study by Hiscox the average labor dispute lasts 245 days and costs between $75,000 - $125,000 with a summary judgment and $175,000 - $250,000 with a jury verdict. US companies now have an 11.7% chance of having a claim brought against them by an employee: the result of increasingly politicized workplace relations environment and an aggressive US Labor department.
One interesting trend in this space is the rise of the ‘Gig Economy’ in the technology sector, where companies are using new staffing models and alternative employment contracts. These organizations are at a greater risk and likely to get drawn into costly public labor disputes. Similarly, the Oil and Gas sectors will need to ringfence funds for potential labor disputes as the industry continues to transition to more contract-based employment with its workforce.
Patent Applications – A Change of Venue?
Patent applications have been rising steadily for the past decade. The fast pace of technological innovation combined with an increasingly effective ability to enforce patents internationally means the trend is likely to continue.
As a result, patent litigation has become a significant concern for many companies operating in the modern-day market place. In 2017 the US Supreme Court is set to decide upon a case that could substantially change the face of patent litigation. In the case of TC Heartland LLC v Kraft Food Brands Group LLC the court will decide on rules governing the venue for filing patent disputes.
As it currently stands patent suits can be filed in any district where the defendant makes sales. This has led to the majority of suits being filed in the plaintiff friendly jurisdiction of the Eastern District of Texas. If the Supreme Court rules that patent suits must be filed where a company is incorporated, it’s likely that the venue for patent litigation would shift to more defendant-leaning jurisdictions such as Delaware.
Companies engaged in a high volume of patent litigation will be tracking the outcome of the TC Heartland case with great interest as they look to plan strategically for litigating pending suits.
In the next post in the series we will look at effective strategies forward-thinking legal departments can use to effectively avoid and control excessive litigation costs.