May 13, 2011
WSJ: Company Lawyers Sniff Out Revenue
Selected portions below from the Wall Street Journal
By VANESSA O’CONNELL
Companies are warming to a new way of generating revenue: suing for it.
Ford Motor Co., Tyco International Ltd. and Michelin SCA, among others, say their lawyers are devoting more time and effort to bringing in extra cash by thinking like plaintiffs.
Following in the footsteps of several big drug and technology companies, which have aggressively pursued alleged patent infringers, companies in a range of industries have stepped up legal action, not only in the patent arena but also against suppliers, insurers and even utilities they think have done them wrong or owe them money.
The sums they win from these “plaintiff recovery” lawsuits usually aren’t big enough to be singled out in earnings statements. Nor do individual cases typically have a material impact on the bottom line. But, taken together, they can produce hundreds of millions of dollars in added revenue for a company in a single year, potentially turning its legal department into a profit maker.
“It adds up to real money over time,” says Tom Sager, general counsel at chemical maker DuPont Co. In one case, DuPont won roughly $92 million in a settlement with its insurers, which it had sued in Texas seeking reimbursement of asbestos claims against the company.
Now, DuPont is looking into pursuing money from parties whose alleged mistakes or faulty equipment, it says, led to shutdowns or production disruptions at its plants. It is also expanding its recovery efforts abroad, including to Russia, Kazakhstan and China. That may require filing more lawsuits in emerging markets.
The recent enthusiasm for litigationâ€”or threats of litigationâ€”as a revenue-raising tool comes as companies move toward trimming their overall legal spending and asking their in-house legal staffs to do more.
The trend also coincides with a big push by business lobbyists for caps on damage awards in certain types of lawsuits and steps to make it tougher for consumers to band together to sue companies.
The strategy was inspired in part by intellectual-property litigation, which can yield lucrative technology-licensing deals.
Since 2008, corporate spending on intellectual-property litigation in the U.S. has risen by an average 3.4% a year, according to BTI Consulting Group Inc., a Wellesley, Mass., firm that surveyed 370 lawyers at Fortune 1000 companies.
That compares with an average yearly increase of 1.9% in spending on all U.S. commercial litigation and a 1.5% average annual increase in corporate spending on all litigation, BTI says.
At DuPont, lawyers recovered nearly $3.6 million during the first quarter of 2011. That came on the heels of the $454.7 million it took in last year from 198 separate recoveriesâ€”half of them outside the U.S. The individual sums ranged from less than $16,000 to almost $185 million. Half required litigation or a formal arbitration process, according to DuPont’s Mr. Sager.
Companies have long pursued recoveries on a case by case basis, but what’s different now is that in-house lawyers are making the chase a priority, says Judith A. Reinsdorf, Tyco’s general counsel. In March lawyers at the Switzerland-based manufacturer launched an “Asset Recovery” program under which it will seek to collect unpaid debts, royalties or refunds from suppliers or others that it thinks will require legal action. “We hope to help the company’s bottom line,” Ms. Reinsdorf said. “It’s about getting smarter.”
To some, the trend smacks of misplaced priorities. Kenneth S. Resnick, general counsel at General Electric Co.’s GE Oil & Gas, says it suggests that a business is “failing at something else if it has to rely on lawyers” to recover money for supplier errors.
Suing to recover revenue also risks becoming a distraction for management, other critics say. “The legal department could be subjecting its senior management to having to give depositions, and it certainly is opening the company up to discovery, in the form of answering interrogatories and producing company documents,” says E. Berton Spence, a former head of litigation for Regions Financial Corp, a lender in the Southeast.
Lawsuits that look like “slam dunks” often turn into “long, hard fights for little reward,” he adds.
The full article is here
The Wall Street Journal Law Blog also has a post, entitled “Corporate America Discovers Its Inner Plaintiffs' Lawyer“