New Litigation Trends Survey Reveals a Rising Tide

A total of 392 corporate counsel participated in the current survey, including 275 in the U.S., 100 in the UK and 17 in other locations. The survey includes nine major industry sectors and a small number of organizations in various other sectors. The data are analyzed by country of residence, U.S. region, privately/publicly held companies, industry sector, and company size divided into three categories by annual revenues: larger companies ($1 billion or more), mid-sized ($100 million-$999 million), and smaller companies (less than $100 million).

Spending Up, AFA Use Down

The number of companies spending $1 million or more on litigation annually has gradually risen over the past three years, from 46% in 2010 to 51% in 2011 to 54% in 2012. This increase has also been driven largely by the UK, which reached the same level as the U.S. sample this year at 53% that spend $1 million or more. Among larger companies, 33% spent $10 million or more in 2012, up from 19% in 2011.

The use of alternative fee arrangements (AFAs) appears to have tapered off in the past year after reaching 62% of all respondents in 2011. The figure dropped to 52% in 2012, and similar declines are seen among companies of all sizes. A growing majority of respondents using AFAs estimate they use them for less than 20% of their outside counsel billings. That figure has risen from 52% in 2010 to 55% in 2011 to 66% in 2012. Among those using AFAs, 76% say they are satisfied with the quality of work provided under these arrangements.

In-House Legal Departments

There are indications that companies are increasing staff in legal departments after a decline in hiring due to the financial crisis of 2008-2009. Thirty percent of U.S. companies employed more than five in-house lawyers to manage litigation in 2012, up from 25% in 2011 and 21% in 2010. Comparable UK figures are 44% in 2012, 46% in 2011 and 39% in 2010. Sectors where additions to litigation management staffs are most likely in the next 12 months are technology/communications, health care, energy, insurance, retail/wholesale and manufacturing.

Regulatory Investigations

In the current survey, 60% of U.S. companies have retained outside counsel for assistance with a regulatory investigation in the past 12 months. That figure continues the trend that rose sharply from 43% in 2010 to 55% in 2011, and marks a five-year high. The UK trend has been even more dramatic, rising from 27% in 2011 to 72% in 2012. The DOJ, SEC and state attorneys general have been the most active U.S. agencies involved in investigations. In the UK, it has been the Financial Services Authority.

In addition, 42% of all company respondents this year report at least one regulatory proceeding commenced against the company in the past 12 months. This marks a three-year trend of incremental rises in new regulatory proceedings.

The level of internal investigations commenced in the last 12 months requiring assistance from outside counsel has remained relatively stable over the past three surveys: 43% in 2010, 46% in 2011 and 42% in 2012. One notable exception is among smaller companies in the survey, where the number of respondents reporting at least one internal investigation doubled from 24% in 2010 and 26% in 2011 to 48% in 2012. In the current survey, financial services, manufacturing and wholesale/retail are the sectors most often involved in internal investigations, ranging from 50% to 55% of respondents.

UK Whistleblowers

UK companies with whistleblower allegations lodged against them in the prior three years have steadily climbed to six times the 2009 figure of 6%. They reached 12% of the UK sample in 2010, 21% in 2011 and 37% in 2012. The U.S. figure rose only slightly in 2012 to 26% from the 22% reported in both 2010 and 2011.

The most frequent result of whistleblower allegations in 2012 was an internal investigation (78%); 44% resulted in regulatory investigations and 40% in third-party proceedings.

Corruption or bribery investigations requiring the retention of outside counsel in the past 12 months were reported by 9% of U.S. respondents in the 9th annual survey, the same level as in 2011 and down slightly from 12% in 2010. These types of investigations involving UK companies spiked back up to 18% of the 2012 sample.

More U.S. companies than previously anticipated have changed the way they operate since the UK Bribery Act 2010 took effect, as well as similar anti-bribery legislation in other countries outside the U.S. In 2012, 22% of U.S. respondents said their companies have indeed changed how they operate, compared with just 11% in 2010 and 12% in 2011. Changes have been even more common among UK companies, where 37% of respondents reported changes in operations, owing to such legislation. That is in line with the 2010 survey in which 35% of UK respondents predicted changes. That figure dropped to 21% in 2011, which might indicate that some UK companies had already taken steps to adapt to the emerging international framework.

UK companies have also been more likely to encounter issues related to trade sanctions in the last 12 months by a margin of 19% versus just 4% of the U.S. sample.

International Arbitrations

More than a quarter of all companies in the survey have been parties to one or more international arbitrations in the past 12 months ' most frequently those in the energy, engineering/construction and manufacturing sectors. Respondents were asked for the first time to identify their preferred seats of arbitration in the major regions of the world. In Asia, Singapore was the choice of two-thirds of respondents. For the Middle East, slightly more two-thirds of respondents chose Dubai. More than three-quarters preferred London for European arbitrations, and Houston and New York were the leading choices in the United States for approximately one-quarter of the respondents.

In answer to another new question in the 9th annual survey, 57% of respondents said they regard the right to appoint at least one tribunal member as a key right.

Patent Infringement Cases

In the past 12 months, 22% of U.S. companies were involved in an intellectual property lawsuit as claimant/plaintiff and 29% as respondent/defendant. UK companies were more likely to be involved in IP cases ' 33% as claimant/defendant and 38% as respondent/defendant. Patent infringement cases have risen sharply after dropping in the 2011 survey to just 12% of companies involved as claimant/plaintiff and 19% as respondent/defendant. In 2012, 51% of all respondents reported their companies had patent infringement cases in the past 12 months. Trademark cases were the second most common ' 23% as respondent/defendant and 44% as claimant/plaintiff.

Excluding the cost of settlements or awards, the average costs of an IP case, whether litigating or defending, range from $100,000 to $1 million, according to 30% of all respondents. Nineteen percent estimated average costs of more than $1 million.

Wage and Hour Claims

Compared with the previous survey, only half as many U.S. respondents put wage and hour disputes (FSLA) on their list of multi-plaintiff labor and employment cases that had the greatest increases in volume ' just 12% in 2012 compared with 25% in 2011. The current figure is also well below the 2009 and 2010 levels of 17% and 18%, respectively. California remains the most active region for wage and hour disputes with 25% of respondents reporting increases there. Forty percent of respondents also consider wage and hour claims to be the ones that create the greatest monetary exposure for companies. Age and race discrimination cases were also among the top four in monetary risk, although the various types of discrimination cases all declined in frequency. Retaliation claims rounded out the four posing the greatest monetary exposure.

Labor and Employment Class Actions Rise

Overall, the number of class actions has remained relatively flat over recent years with about 40% of larger companies having faced one or more class or group actions in the past 12 months in U.S. courts. However labor and employment cases have risen steadily from 35% of the survey sample in 2010 to 48% in 2011 and 52% in 2012. Compared with 2011, fewer class actions have been resolved, either through settlements or dismissals.

More Privacy/Data Protection Issues

In the past 12 months, more than a quarter of the companies surveyed have encountered privacy/data protection issues in disputes or investigations, up slightly from 2011. These types of issues are most prevalent in the health care sector where 56% of respondents reported their companies have encountered them.

A solid majority of companies (69%) rely on self-preservation to fulfill discovery obligations in disputes and investigations, and 41% reported using it for all matters. More than a third of companies use technology-assisted review (e.g., predictive coding or other analytics) for at least some of their matters.

Conclusion

The 9th Annual Litigation Trends Survey confirms that the volume and sources of disputes are growing, whether in the global economy or the virtual world. And changes across the disputes and regulatory landscape are taking place at an increasingly rapid pace.

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

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The 9th Annual Litigation Trends Survey, commissioned by Fulbright & Jaworski L.L.P. and conducted during 2012 by an independent research firm, reveals a highly active litigation picture, especially in the UK, where disputes are definitely on the rise. In both the U.S. and the UK, 86% of respondents reported that their company was a target of at least one lawsuit during the past 12 months. The difference is in the rise from the previous survey, when 83% of U.S. respondents but just 48% of UK respondents said one or more lawsuits had been commenced against their company.

In general, companies have also been more aggressive on the plaintiff's side; 60% of all the companies surveyed commenced one or more lawsuits in the past 12 months, compared with 48% in 2011. Again the most notable increase is in the UK, which rose from 42% in 2011 that had commenced one or more lawsuits to 56% in 2012.

Respondent Profile

A total of 392 corporate counsel participated in the current survey, including 275 in the U.S., 100 in the UK and 17 in other locations. The survey includes nine major industry sectors and a small number of organizations in various other sectors. The data are analyzed by country of residence, U.S. region, privately/publicly held companies, industry sector, and company size divided into three categories by annual revenues: larger companies ($1 billion or more), mid-sized ($100 million-$999 million), and smaller companies (less than $100 million).

Spending Up, AFA Use Down

The number of companies spending $1 million or more on litigation annually has gradually risen over the past three years, from 46% in 2010 to 51% in 2011 to 54% in 2012. This increase has also been driven largely by the UK, which reached the same level as the U.S. sample this year at 53% that spend $1 million or more. Among larger companies, 33% spent $10 million or more in 2012, up from 19% in 2011.

The use of alternative fee arrangements (AFAs) appears to have tapered off in the past year after reaching 62% of all respondents in 2011. The figure dropped to 52% in 2012, and similar declines are seen among companies of all sizes. A growing majority of respondents using AFAs estimate they use them for less than 20% of their outside counsel billings. That figure has risen from 52% in 2010 to 55% in 2011 to 66% in 2012. Among those using AFAs, 76% say they are satisfied with the quality of work provided under these arrangements.

In-House Legal Departments

There are indications that companies are increasing staff in legal departments after a decline in hiring due to the financial crisis of 2008-2009. Thirty percent of U.S. companies employed more than five in-house lawyers to manage litigation in 2012, up from 25% in 2011 and 21% in 2010. Comparable UK figures are 44% in 2012, 46% in 2011 and 39% in 2010. Sectors where additions to litigation management staffs are most likely in the next 12 months are technology/communications, health care, energy, insurance, retail/wholesale and manufacturing.

Regulatory Investigations

In the current survey, 60% of U.S. companies have retained outside counsel for assistance with a regulatory investigation in the past 12 months. That figure continues the trend that rose sharply from 43% in 2010 to 55% in 2011, and marks a five-year high. The UK trend has been even more dramatic, rising from 27% in 2011 to 72% in 2012. The DOJ, SEC and state attorneys general have been the most active U.S. agencies involved in investigations. In the UK, it has been the Financial Services Authority.

In addition, 42% of all company respondents this year report at least one regulatory proceeding commenced against the company in the past 12 months. This marks a three-year trend of incremental rises in new regulatory proceedings.

The level of internal investigations commenced in the last 12 months requiring assistance from outside counsel has remained relatively stable over the past three surveys: 43% in 2010, 46% in 2011 and 42% in 2012. One notable exception is among smaller companies in the survey, where the number of respondents reporting at least one internal investigation doubled from 24% in 2010 and 26% in 2011 to 48% in 2012. In the current survey, financial services, manufacturing and wholesale/retail are the sectors most often involved in internal investigations, ranging from 50% to 55% of respondents.

UK Whistleblowers

UK companies with whistleblower allegations lodged against them in the prior three years have steadily climbed to six times the 2009 figure of 6%. They reached 12% of the UK sample in 2010, 21% in 2011 and 37% in 2012. The U.S. figure rose only slightly in 2012 to 26% from the 22% reported in both 2010 and 2011.

The most frequent result of whistleblower allegations in 2012 was an internal investigation (78%); 44% resulted in regulatory investigations and 40% in third-party proceedings.

Corruption or bribery investigations requiring the retention of outside counsel in the past 12 months were reported by 9% of U.S. respondents in the 9th annual survey, the same level as in 2011 and down slightly from 12% in 2010. These types of investigations involving UK companies spiked back up to 18% of the 2012 sample.

More U.S. companies than previously anticipated have changed the way they operate since the UK Bribery Act 2010 took effect, as well as similar anti-bribery legislation in other countries outside the U.S. In 2012, 22% of U.S. respondents said their companies have indeed changed how they operate, compared with just 11% in 2010 and 12% in 2011. Changes have been even more common among UK companies, where 37% of respondents reported changes in operations, owing to such legislation. That is in line with the 2010 survey in which 35% of UK respondents predicted changes. That figure dropped to 21% in 2011, which might indicate that some UK companies had already taken steps to adapt to the emerging international framework.

UK companies have also been more likely to encounter issues related to trade sanctions in the last 12 months by a margin of 19% versus just 4% of the U.S. sample.

International Arbitrations

More than a quarter of all companies in the survey have been parties to one or more international arbitrations in the past 12 months ' most frequently those in the energy, engineering/construction and manufacturing sectors. Respondents were asked for the first time to identify their preferred seats of arbitration in the major regions of the world. In Asia, Singapore was the choice of two-thirds of respondents. For the Middle East, slightly more two-thirds of respondents chose Dubai. More than three-quarters preferred London for European arbitrations, and Houston and New York were the leading choices in the United States for approximately one-quarter of the respondents.

In answer to another new question in the 9th annual survey, 57% of respondents said they regard the right to appoint at least one tribunal member as a key right.

Patent Infringement Cases

In the past 12 months, 22% of U.S. companies were involved in an intellectual property lawsuit as claimant/plaintiff and 29% as respondent/defendant. UK companies were more likely to be involved in IP cases ' 33% as claimant/defendant and 38% as respondent/defendant. Patent infringement cases have risen sharply after dropping in the 2011 survey to just 12% of companies involved as claimant/plaintiff and 19% as respondent/defendant. In 2012, 51% of all respondents reported their companies had patent infringement cases in the past 12 months. Trademark cases were the second most common ' 23% as respondent/defendant and 44% as claimant/plaintiff.

Excluding the cost of settlements or awards, the average costs of an IP case, whether litigating or defending, range from $100,000 to $1 million, according to 30% of all respondents. Nineteen percent estimated average costs of more than $1 million.

Wage and Hour Claims

Compared with the previous survey, only half as many U.S. respondents put wage and hour disputes (FSLA) on their list of multi-plaintiff labor and employment cases that had the greatest increases in volume ' just 12% in 2012 compared with 25% in 2011. The current figure is also well below the 2009 and 2010 levels of 17% and 18%, respectively. California remains the most active region for wage and hour disputes with 25% of respondents reporting increases there. Forty percent of respondents also consider wage and hour claims to be the ones that create the greatest monetary exposure for companies. Age and race discrimination cases were also among the top four in monetary risk, although the various types of discrimination cases all declined in frequency. Retaliation claims rounded out the four posing the greatest monetary exposure.

Labor and Employment Class Actions Rise

Overall, the number of class actions has remained relatively flat over recent years with about 40% of larger companies having faced one or more class or group actions in the past 12 months in U.S. courts. However labor and employment cases have risen steadily from 35% of the survey sample in 2010 to 48% in 2011 and 52% in 2012. Compared with 2011, fewer class actions have been resolved, either through settlements or dismissals.

More Privacy/Data Protection Issues

In the past 12 months, more than a quarter of the companies surveyed have encountered privacy/data protection issues in disputes or investigations, up slightly from 2011. These types of issues are most prevalent in the health care sector where 56% of respondents reported their companies have encountered them.

A solid majority of companies (69%) rely on self-preservation to fulfill discovery obligations in disputes and investigations, and 41% reported using it for all matters. More than a third of companies use technology-assisted review (e.g., predictive coding or other analytics) for at least some of their matters.

Conclusion

The 9th Annual Litigation Trends Survey confirms that the volume and sources of disputes are growing, whether in the global economy or the virtual world. And changes across the disputes and regulatory landscape are taking place at an increasingly rapid pace.

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