As the saying goes, nature abhors a vacuum. There’s a corporate version of that, too: Companies fear uncertainty. Even newer companies in embryonic industries (think Tesla and electric vehicles) that invite disruption to established markets prefer to follow business plans along with all they entail, such as income projections, product rollouts, and marketing plans.
Uncertainty comes in a variety of flavors. There’s predictable, “natural” uncertainty—sooner or later the economy will hit a speed bump, or a massive winter storm could paralyze whole regions of the country. Those events aren’t under corporate or, indeed, anyone’s, control.
But that’s not what we’re addressing here. Sooner or later, companies have to sue another company that they believe interferes with their legitimate interests. The resulting litigation could be over a simple contractual issue, or it could be a market/antitrust dispute. And in our tech-obsessed economy, differences over intellectual property can take on a War of the Roses aspect, with each side committing to a years-long battle that consumes millions of dollars in profits and human capital. Think of epic battles such as Apple vs. Microsoft at the turn of the century, or Pfizer vs. Teva Pharmaceuticals and Sun Pharma, costing a whopping $2.1 billion in litigation costs.
Surprises await companies even in what first appears to be straightforward corporate litigation. Discovery can turn up unpleasant facts that blindside one of the parties. The defendant’s lawyers can wage a long war of slow attrition, draining human and financial capital and distracting management from important goals. The legal department, under budgetary pressure during the best of times, is now responsible for possibly paying out millions of dollars for outside counsel to wage war on its behalf. Such battles generate the perception of company lawyers as a drain on the legitimate business of the enterprise. Litigation can damage a company in other ways, too. Costs are charged against profits, and a drain on profits can set in motion a host of bad events not limited to reduced product investment, sagging share prices, and a key employee exodus.
But it doesn’t have to be that way. Committing to litigation finance as a matter of corporate policy when disputes arise can smooth out these unexpected, unpleasant surprises along the way, and mitigate the unavoidable aftereffects of a drawn-out legal war. Litigation finance can take the cost of litigation off the company’s balance sheet. Down the road, if the company prevails, it will have to report the win—but it won’t be reported as profit, but as a singular event. At the same time, the company at the outset of litigation will get an infusion of capital that will ease pressure on the legal department’s resources, including hiring of optimal outside counsel to wage the battle.
The benefits go beyond the legal department. Without the drain of litigation costs, startups and others contemplating IPOs look better to prospective investors. Company operations benefit, too, with more capital available to other departments.
Finally, the legal department, long stigmatized as a cost center, can start to erase that perception and function as a full business partner that adds value to the company. That perception that it exists solely to say “no” to business-side colleagues and to defend the company only, will fade. And, with the uncertainty that litigation can bring to corporate plans vanquished, management, including top lawyers, can return to realizing crucial corporate goals.
If your company is facing uncertainty because of litigation and you would like to explore strategies to minimize that uncertainty, please contact us to discuss how we may be able to help.