2010 Litigation Trends Survey

In the 2009 Fulbright & Jaworski L.L.P. Litigation Trends Survey, 42% of U.S. corporate counsel reported they expected an increase in the volume of legal disputes over the coming 12 months. The 2010 survey has proved them right. Lawsuits became more numerous with 87% of respondents in this country reporting their company had at least one new lawsuit commenced against it in the previous 12 months, up from 83% in 2009. Those with more than five new lawsuits commenced against them represented 58% of the U.S. sample this year, compared with 50% last year; those with over 50 new lawsuits rose 3% to 21% of this year's U.S. sample.

The three-year upward trend in litigation since the economic crisis hit in 2007 may continue. More than a quarter of all respondents expected the volume of disputes their companies will face in the next 12 months to increase. The primary reason: the continuing economic slump, cited by 40% of U.S. respondents and nearly half of those in the UK. The changing economy will also affect the way the legal profession does business, according to half of U.S. respondents and nearly a quarter of UK respondents.

The regulatory area is now the third most common litigation concern after contracts and labor and employment, replacing bankruptcy on last year's survey. This is not surprising in light of major reforms in health care and financial services and the still-evolving framework for offshore oil production. A quarter of all respondents expect their companies to face an increase in regulatory proceedings over the next 12 months; that figure rises to approximately one-third of respondents in the energy, health care, manufacturing and insurance sectors.

These are just a few of the results of the 2010 Litigation Trends Survey of 403 senior corporate counsel in the United States and the United Kingdom, conducted for the seventh consecutive year by an independent research firm.

Most Frequent Targets

Naturally, the mid-sized and largest companies surveyed were the most likely to have had a new lawsuit commenced against them ' 82% in each of those categories, compared with 51% of the smaller companies. Real estate, manufacturing, energy and health care companies were the most frequent defendants. Manufacturers were the most likely to have had at least one new lawsuit with $20 million or more at issue. Industries on the receiving end of lawsuits were also the most likely to have initiated a lawsuit, including two-thirds of the energy and engineering/construction sectors, followed by insurance and manufacturing.

Arbitrations were most often directed at energy companies, with 57% of them reporting at least one arbitration commenced against them in the previous 12 months. Just over half of the energy sector had also faced a new government or regulatory investigation in the last 12 months, followed by insurance (45%), health care (44%), manufacturing (43%) and financial services (38%).

International Disputes

One in five U.S. respondents reported their companies had been a party to an international arbitration in the past 12 months versus more than half of the UK sample. More than one in four UK respondents and one in seven U.S. respondents expect an increase in international arbitrations over the next 12 months. In drafting contracts for cross-border dispute resolution, 42% of U.S. respondents favored a clause referring to international arbitration, and 19% preferred including references to both international arbitration and national courts. UK respondents leaned even more heavily toward international arbitration, with 60% favoring it in a dispute resolution clause, and another 24% opting for references to both international arbitration and national courts.

The Economy and Litigation Management

The most often cited result of the economic crisis on litigation management was “tighter cost control.” Yet that clearly does not mean wholesale budget cutting. In fact, 28% of respondents said they have increased their litigation budget, while just 16% reported a decrease. What may be more significant is that companies are shifting resources to where they are most needed. For example, a quarter of respondents plan to increase their budgets in the areas of e-discovery and contract disputes, while one-fifth of them are devoting more money to labor and employment and regulatory matters.

The trend toward alternative fee arrangements continues as a way to make litigation costs more predictable. Although the percentage of respondents using alternative fees rose to 51% this year from 45% in last year's survey, the amount of work billed this way remains relatively low. Barely a quarter of respondents use alternative fee arrangements for 30% or more of their litigation spend. The majority of smaller (63%) and mid-sized companies (54%) do not use them at all.

An Active Investigations Picture

U.S. companies that retained outside counsel in the last 12 months for assistance with a government or regulatory investigation actually declined slightly from 47% last year to 43% this year, but the next 12 months may be a different story. One-third of U.S. respondents expect an increase in government or regulatory investigations, compared with just 9% last year. UK companies are already experiencing the rising tide of government and regulatory investigations; 26% of them had dealt with a government or regulatory investigation in this year's survey, up from 17% last year. More than half of the health care companies and nearly half of the insurance and energy sectors faced a government or regulatory investigation in the past 12 months.

The incidence of internal investigations also turned up this year, reversing a four-year downtrend. Forty-three percent of respondents conducted one or more internal investigations with the assistance of outside counsel in the past 12 months, compared with just 28% in 2009. Even among the smaller companies, about a quarter of them conducted an internal investigation, double the number in last year's survey. In the same time span, internal investigations among the largest companies rose from 40% to 58%. Significantly, a quarter of the companies conducting an internal investigation reported the matter to a regulatory agency, as a result of the investigation.

In the past three years, whistleblower allegations had been directed at one-fifth of the entire survey sample, most often in the health care, manufacturing, engineering/construction and retail/wholesale sectors. Expectations of still more whistleblower claims over the next 12 months are highest in the energy, engineering/construction and health care sectors, where nearly one-third of respondents in each predict an increase. The effect of expanded whistleblower provisions contained in the Dodd-Frank Act, passed just after the survey was completed, remains to be seen.

Transatlantic Impact of New UK Bribery Act

It isn't surprising that UK respondents are already feeling the effects of the new UK Bribery Act, with more than one-third of them predicting that the law will change the way their companies do business. What is surprising is that 11% of U.S. respondents also believe their operations will be affected by the law.

Corruption or bribery investigations, including matters associated with the FCPA and equivalent UK laws, have increased significantly in recent years as enforcement agencies expanded their cross-border cooperation. UK companies that engaged outside counsel for assistance with such investigations in the previous 12 months went from 5% in the 2008 survey to 12% in 2009 to 26% this year. The corresponding figure for U.S. companies rose from 7% in 2008 to 12% last year and remained there this year. Even among smaller and mid-sized companies, there are similar upward trends.

Labor and Employment Litigation on the Rise

Labor and employment cases have contributed to the overall rise in litigation in recent years, in large part due to the economic crisis and its continuing effects. Employees increasingly are suing their employers, as evidenced by the third straight year of noticeable increases in multi-plaintiff cases. For example, 18% of respondents said wage and hour disputes (FSLA) are up, and nearly half of them said that this is the area of the greatest increase in multi-plaintiff suits. Misclassification and overtime are the main contributors to the rise, while claims related to meals and breaks have declined. Eleven percent of respondents also reported increased multi-plaintiff cases in traditional labor union-related matters and age discrimination. However when considering both single- and multi-plaintiff cases, more than half of respondents said discrimination cases showed the greatest increase, and 44% expect discrimination cases to continue rising in the coming 12 months. Areas most often identified as creating the greatest monetary exposure were race and age discrimination, and wage and hour cases.

Required arbitration of employment disputes in non-union settings is on the rise. More than a quarter of U.S. respondents said that is their company policy, up from 19% last year. Nearly 80% believe arbitration is beneficial to employee relations.

Class Actions Relatively Stable

Class actions have remained at about the same level for the past three surveys with a quarter of companies facing a new class action in the past 12 months. As would be expected, class actions were more common among the largest companies (39%) and among publicly held companies (36%). The most frequent types of new class actions were labor and employment and consumer cases.

Patent Infringement Cases

One of every five respondents has been a claimant or plaintiff in a patent infringement case in the past 12 months, up somewhat from last year's 17%. Two survey segments became noticeably more aggressive in initiating patent infringement actions: The figures for smaller companies and for manufacturers doubled this year over last year (10% and 52% respectively). Engineering/construction and real estate companies also filed more patent suits this year, while technology/communications dropped significantly from nearly 40% last year to 15% this year.

Smaller companies were also patent infringement litigation defendants more often, tripling from just 3% last year to 9% this year. However, fewer large companies defended patent cases, dropping from 41% to 37%. Health care and manufacturing are the most likely sectors to increase their patent infringement filings in the next 12 months, but manufacturers are also just behind in retail/wholesale respondents in expecting to be on the defense more often.

Data Issues and Electronic Discovery

More than 40% of all respondents have encountered privacy/data protection issues in the past 12 months. Among the largest companies and those in the UK, the figure was more than half. The most frequent problem areas involved the use of third-party vendors to collect and process data, search and collection of data on company equipment used by employees, and identification, collection, review or transfer of data from the EU or other jurisdictions to the United States.

On a related question, the idea of modifying U.S. rules of civil procedure to limit electronic discovery in civil actions got a ringing endorsement from 70% of all respondents. The same sentiment regarding the UK rules of civil procedure was expressed by 60% of all respondents. Just 26% believe the legal guidelines regarding preservation of data in anticipation of legal action are sufficiently clear.

Finally, some companies are using online social media for business purposes, despite increased exposure to litigation risks and potential e-discovery problems. LinkedIn, for example, is used by 26% of the companies in the survey, followed by those that use company blogs (23%), Twitter (22%) and Facebook (17%). Most likely those figures will grow, but companies will need to carefully assess the risks, as well as the rewards, of doing business online, just as they must do in the rest of their operations.

Steve Dillard is Chair of the Global Litigation Department of Fulbright & Jaworski L.L.P., which commissions an independent research firm to conduct the Litigation Trends Survey each year.

In the 2009 Fulbright & Jaworski L.L.P. Litigation Trends Survey, 42% of U.S. corporate counsel reported they expected an increase in the volume of legal disputes over the coming 12 months. The 2010 survey has proved them right. Lawsuits became more numerous with 87% of respondents in this country reporting their company had at least one new lawsuit commenced against it in the previous 12 months, up from 83% in 2009. Those with more than five new lawsuits commenced against them represented 58% of the U.S. sample this year, compared with 50% last year; those with over 50 new lawsuits rose 3% to 21% of this year's U.S. sample.

The three-year upward trend in litigation since the economic crisis hit in 2007 may continue. More than a quarter of all respondents expected the volume of disputes their companies will face in the next 12 months to increase. The primary reason: the continuing economic slump, cited by 40% of U.S. respondents and nearly half of those in the UK. The changing economy will also affect the way the legal profession does business, according to half of U.S. respondents and nearly a quarter of UK respondents.

The regulatory area is now the third most common litigation concern after contracts and labor and employment, replacing bankruptcy on last year's survey. This is not surprising in light of major reforms in health care and financial services and the still-evolving framework for offshore oil production. A quarter of all respondents expect their companies to face an increase in regulatory proceedings over the next 12 months; that figure rises to approximately one-third of respondents in the energy, health care, manufacturing and insurance sectors.

These are just a few of the results of the 2010 Litigation Trends Survey of 403 senior corporate counsel in the United States and the United Kingdom, conducted for the seventh consecutive year by an independent research firm.

Most Frequent Targets

Naturally, the mid-sized and largest companies surveyed were the most likely to have had a new lawsuit commenced against them ' 82% in each of those categories, compared with 51% of the smaller companies. Real estate, manufacturing, energy and health care companies were the most frequent defendants. Manufacturers were the most likely to have had at least one new lawsuit with $20 million or more at issue. Industries on the receiving end of lawsuits were also the most likely to have initiated a lawsuit, including two-thirds of the energy and engineering/construction sectors, followed by insurance and manufacturing.

Arbitrations were most often directed at energy companies, with 57% of them reporting at least one arbitration commenced against them in the previous 12 months. Just over half of the energy sector had also faced a new government or regulatory investigation in the last 12 months, followed by insurance (45%), health care (44%), manufacturing (43%) and financial services (38%).

International Disputes

One in five U.S. respondents reported their companies had been a party to an international arbitration in the past 12 months versus more than half of the UK sample. More than one in four UK respondents and one in seven U.S. respondents expect an increase in international arbitrations over the next 12 months. In drafting contracts for cross-border dispute resolution, 42% of U.S. respondents favored a clause referring to international arbitration, and 19% preferred including references to both international arbitration and national courts. UK respondents leaned even more heavily toward international arbitration, with 60% favoring it in a dispute resolution clause, and another 24% opting for references to both international arbitration and national courts.

The Economy and Litigation Management

The most often cited result of the economic crisis on litigation management was “tighter cost control.” Yet that clearly does not mean wholesale budget cutting. In fact, 28% of respondents said they have increased their litigation budget, while just 16% reported a decrease. What may be more significant is that companies are shifting resources to where they are most needed. For example, a quarter of respondents plan to increase their budgets in the areas of e-discovery and contract disputes, while one-fifth of them are devoting more money to labor and employment and regulatory matters.

The trend toward alternative fee arrangements continues as a way to make litigation costs more predictable. Although the percentage of respondents using alternative fees rose to 51% this year from 45% in last year's survey, the amount of work billed this way remains relatively low. Barely a quarter of respondents use alternative fee arrangements for 30% or more of their litigation spend. The majority of smaller (63%) and mid-sized companies (54%) do not use them at all.

An Active Investigations Picture

U.S. companies that retained outside counsel in the last 12 months for assistance with a government or regulatory investigation actually declined slightly from 47% last year to 43% this year, but the next 12 months may be a different story. One-third of U.S. respondents expect an increase in government or regulatory investigations, compared with just 9% last year. UK companies are already experiencing the rising tide of government and regulatory investigations; 26% of them had dealt with a government or regulatory investigation in this year's survey, up from 17% last year. More than half of the health care companies and nearly half of the insurance and energy sectors faced a government or regulatory investigation in the past 12 months.

The incidence of internal investigations also turned up this year, reversing a four-year downtrend. Forty-three percent of respondents conducted one or more internal investigations with the assistance of outside counsel in the past 12 months, compared with just 28% in 2009. Even among the smaller companies, about a quarter of them conducted an internal investigation, double the number in last year's survey. In the same time span, internal investigations among the largest companies rose from 40% to 58%. Significantly, a quarter of the companies conducting an internal investigation reported the matter to a regulatory agency, as a result of the investigation.

In the past three years, whistleblower allegations had been directed at one-fifth of the entire survey sample, most often in the health care, manufacturing, engineering/construction and retail/wholesale sectors. Expectations of still more whistleblower claims over the next 12 months are highest in the energy, engineering/construction and health care sectors, where nearly one-third of respondents in each predict an increase. The effect of expanded whistleblower provisions contained in the Dodd-Frank Act, passed just after the survey was completed, remains to be seen.

Transatlantic Impact of New UK Bribery Act

It isn't surprising that UK respondents are already feeling the effects of the new UK Bribery Act, with more than one-third of them predicting that the law will change the way their companies do business. What is surprising is that 11% of U.S. respondents also believe their operations will be affected by the law.

Corruption or bribery investigations, including matters associated with the FCPA and equivalent UK laws, have increased significantly in recent years as enforcement agencies expanded their cross-border cooperation. UK companies that engaged outside counsel for assistance with such investigations in the previous 12 months went from 5% in the 2008 survey to 12% in 2009 to 26% this year. The corresponding figure for U.S. companies rose from 7% in 2008 to 12% last year and remained there this year. Even among smaller and mid-sized companies, there are similar upward trends.

Labor and Employment Litigation on the Rise

Labor and employment cases have contributed to the overall rise in litigation in recent years, in large part due to the economic crisis and its continuing effects. Employees increasingly are suing their employers, as evidenced by the third straight year of noticeable increases in multi-plaintiff cases. For example, 18% of respondents said wage and hour disputes (FSLA) are up, and nearly half of them said that this is the area of the greatest increase in multi-plaintiff suits. Misclassification and overtime are the main contributors to the rise, while claims related to meals and breaks have declined. Eleven percent of respondents also reported increased multi-plaintiff cases in traditional labor union-related matters and age discrimination. However when considering both single- and multi-plaintiff cases, more than half of respondents said discrimination cases showed the greatest increase, and 44% expect discrimination cases to continue rising in the coming 12 months. Areas most often identified as creating the greatest monetary exposure were race and age discrimination, and wage and hour cases.

Required arbitration of employment disputes in non-union settings is on the rise. More than a quarter of U.S. respondents said that is their company policy, up from 19% last year. Nearly 80% believe arbitration is beneficial to employee relations.

Class Actions Relatively Stable

Class actions have remained at about the same level for the past three surveys with a quarter of companies facing a new class action in the past 12 months. As would be expected, class actions were more common among the largest companies (39%) and among publicly held companies (36%). The most frequent types of new class actions were labor and employment and consumer cases.

Patent Infringement Cases

One of every five respondents has been a claimant or plaintiff in a patent infringement case in the past 12 months, up somewhat from last year's 17%. Two survey segments became noticeably more aggressive in initiating patent infringement actions: The figures for smaller companies and for manufacturers doubled this year over last year (10% and 52% respectively). Engineering/construction and real estate companies also filed more patent suits this year, while technology/communications dropped significantly from nearly 40% last year to 15% this year.

Smaller companies were also patent infringement litigation defendants more often, tripling from just 3% last year to 9% this year. However, fewer large companies defended patent cases, dropping from 41% to 37%. Health care and manufacturing are the most likely sectors to increase their patent infringement filings in the next 12 months, but manufacturers are also just behind in retail/wholesale respondents in expecting to be on the defense more often.

Data Issues and Electronic Discovery

More than 40% of all respondents have encountered privacy/data protection issues in the past 12 months. Among the largest companies and those in the UK, the figure was more than half. The most frequent problem areas involved the use of third-party vendors to collect and process data, search and collection of data on company equipment used by employees, and identification, collection, review or transfer of data from the EU or other jurisdictions to the United States.

On a related question, the idea of modifying U.S. rules of civil procedure to limit electronic discovery in civil actions got a ringing endorsement from 70% of all respondents. The same sentiment regarding the UK rules of civil procedure was expressed by 60% of all respondents. Just 26% believe the legal guidelines regarding preservation of data in anticipation of legal action are sufficiently clear.

Finally, some companies are using online social media for business purposes, despite increased exposure to litigation risks and potential e-discovery problems. LinkedIn, for example, is used by 26% of the companies in the survey, followed by those that use company blogs (23%), Twitter (22%) and Facebook (17%). Most likely those figures will grow, but companies will need to carefully assess the risks, as well as the rewards, of doing business online, just as they must do in the rest of their operations.

Steve Dillard is Chair of the Global Litigation Department of Fulbright & Jaworski L.L.P., which commissions an independent research firm to conduct the Litigation Trends Survey each year.