News

• Forty percent of businesses expect an increase in the number of disputes they will face in the coming year.
• Financial services and insurance sectors fear the worst with one in two expecting an increase in the number of disputes.
• Almost three-quarters of businesses (73%) have had at least one lawsuit commenced against them in the past 12 months.
• One-third (34%) of companies have had a regulatory proceeding commenced against them in the past year.
• Concerns over e-discovery requests could explain why one in two U.K. companies block social networking Web sites, such as Facebook and MySpace.

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 6^th Annual Litigation Trends 
Survey Report

Companies are bracing themselves for a big year of litigation with two in five (40%) businesses anticipating an increase in the number of legal disputes in the next 12 months, according to respondents of Fulbright’s 6^th Annual Litigation Trends Survey Report published today by global law firm and litigation heavyweight Fulbright & Jaworski International L.L.P. This figure is up 9% compared to last year’s survey.

The larger the organisation, the more concerned it is about the possibility of facing more litigation in the year ahead, with more than half (52%) of companies with revenues of more than US$1 billion expecting to see a rise in disputes this year, compared with just 6% who expected to see fewer disputes during the next 12 months. The financial services and insurance sectors topped the list of industries expecting an increase in litigation with 50% and 56% of respondents, respectively, saying they anticipated facing more disputes.

Effect of The Economy on Litigation

Businesses identified the economy as the principal reason they expect to see more litigation (cited by 48% of U.K. respondents who expected an increase). Two-thirds of respondents (68%) said that the economic crisis had affected their organisation and management of litigation. In terms of the types of litigation seen by companies, a net increase was seen in matters concerning bankruptcy/insolvency (32%), contracts (27%) and regulatory matters (13%), among others, such as patents and labour/employment issues.

“An economic downturn of the type we are experiencing normally leads to an increase in litigation as regulators become more active, company accounts are scrutinised more carefully, laid-off employees head to court and businesses start proceedings to collect money owed,” said Chris Warren-Smith, partner and co-chair of Fulbright’s Global Litigation Practice Group. “Most telling about this year’s results is that very few companies across the board expect any decreases in any area of litigation.”

Fulbright’s 6^th Annual Litigation Trends Survey Report indicates that litigation exposure remains high, with almost three-quarters (73%) of businesses saying they had at least one lawsuit commenced against them during the past year. The most frequent type of litigation seen by businesses surveyed during the past year concerned contracts (41%), followed by labour/employment (36%) and personal injury (23%).

About one in two companies (48%) surveyed said they had filed a lawsuit during the past 12 months, and 15% of all lawsuits involved more than US$20 million in value.

Litigation and Litigation Spend

Fulbright’s 6^th Annual Litigation Trends Survey Report highlights an increase of about 10% in the amount spent on litigation, excluding costs of settlement and judgment, from a median figure of $833,000 last year to $917,000 in 2009. Of the larger corporates (US$1 billion or more), just under half (45%) spent more than US$5 million on litigation, an increase of 9% from 2008.

With litigation spending up as a result of the economic crisis, company lawyers are seeking competitive rates and trying to get a better idea of what their litigation costs will be. As a result, there appears to be a move away from hourly billing rates, with just under half (45%) of respondents saying that they are now using alternative fee arrangements, such as fixed fees or fees linked to the outcome of the case.

This practice is even more common amongst large corporates (US$1 billion or more) with 56% saying they were using alternative fee arrangements. The overwhelming reason given for using a different fee structure was to lower costs (65%), followed by having predictable or fixed costs (19%).

Regulatory Inquiries and Investigations

Regulatory issues remain a critical concern for companies, with about one in four (23%) surveyed citing regulatory issues amongst their top three to five types of legal concerns.

This is understandable in light of the finding that one-third (34%) of respondents surveyed have had a regulatory proceeding commenced against them in the past year and that 8% of all companies surveyed reported a regulatory proceeding commenced against them worth more than US$20 million. Fulbright’s 6^th Annual Litigation Trends Survey Report indicates that public companies are more likely to be the subject of regulatory proceedings than private companies.

Fulbright’s 6^th Annual Litigation Trends Survey Report reports a net increase of 13% in the number of companies who say that the economic crisis has meant they’re seeing more regulatory litigation.

About two in five (38%) companies say that they retain outside counsel to deal with regulatory or government investigations. The larger the company, the more likely they are to use outside counsel for these matters, with 50% of US$1 billion companies saying they had used outside counsel for regulatory investigations, compared with just 20% of companies with revenues of under US$100 million.

During the past three years, roughly two in five (37%) respondents have spent more time on regulatory investigation requests or regulatory enforcement proceedings, either as a party or non-party, compared with just 5% who are spending less time. In terms of sectors, respondents from the insurance and energy industries both report significant increases in the amount of time spent addressing regulatory requests (53% and 47% increases, respectively).

Fulbright’s 6^th Annual Litigation Trends Survey Report also indicates that respondents are seeing an increase in cooperation between regulatory agencies in different countries, with 17% of U.K. companies reporting this trend. This would appear to highlight the increasing international nature of regulatory enforcement efforts between countries.

Lista Cannon, partner-in-charge of Fulbright’s London office, commented, “The increased time spent on regulatory matters over the past three years undoubtedly reflects the increased complexity of regulatory issues and the growing confidence of regulators to use their full range of investigation and enforcement powers. Another prominent feature is the increasing level of cross-border cooperation by regulators, who realise that international problems require a coordinated international solution.”

Dealing With Corruption or Bribery Investigations

Twelve percent of all respondents said that they have engaged outside counsel to assist with a corruption or bribery investigation. Only 17% of all respondents say they have engaged in due diligence for bribery or corruption relating to a merger, acquisition or other business transaction with a foreign country.

Some 16% of respondents said that they had made a decision not to do business in a country based on the perceived degree of local corruption in that country.

Most Active Regulators

In terms of overall regulatory activity, the U.S. Department of Justice (DOJ) was the regulator most commonly cited by respondents (41%). The most frequently cited U.K. and EU regulators were the Financial Services Authority (FSA) (27%), followed by the U.K. Competition Commission (21%), the EU Commission (15%) and the Serious Fraud Office (SFO) (12%).

Alex Rene, a Fulbright partner based in London and a former trial attorney in the DOJ’s Criminal Division, Fraud Section, commented, “New guidelines recently published by both the SFO and FSA indicate a strong desire to introduce a new corporate culture aimed at helping regulators to root out domestic and international corruption. There is no doubt key U.K. regulators are getting tougher. Those who are familiar with international practice in this area will recognise clear themes adopted from the DOJ.”

Internal Investigations and Whistleblower Activities

One in four businesses (25%) surveyed undertook at least one internal investigation significant enough to require assistance from outside counsel in the past year. The split between large and small companies is notable, with 40% of large companies (US$1 billion or more) undertaking an internal investigation compared with 12% of smaller companies (under US$100 million). Furthermore, 23% of the large companies surveyed expect the number of internal investigations to increase over the next 12 months.

Fulbright’s 6^th Annual Litigation Trends Survey Report also indicates that just over a quarter (28%) of companies undertaking internal investigations go on to report the outcome to a regulator. This figure is even higher in the U.S., where a third (33%) self report.

One in five (21%) of all respondents have been the subject of allegations by a whistleblower in the past three years. Approximately three-quarters (73%) of these whistleblower allegations became the subject of an internal investigation, and 22% developed into a regulatory investigation. A quarter of corporates (24%) are resigned to an increase over the next year in the number of lawsuits being brought by “whistleblowers” in their industry.

Antony Corsi, a partner in Fulbright’s London office commented, “Serious allegations made by whistleblowers can be particularly difficult for companies to address. Often the whistleblower has a conflicting self interest, for example, an attempt to obtain immunity from prosecution. The companies concerned must be careful to be seen by their regulator to conduct an appropriately thorough investigation, and not a whitewash.”

E-Discovery and Social Networking Web Sites

Ninety-five percent of U.K. respondents are satisfied, very satisfied or completely satisfied with their outside counsel’s electronic discovery work in the U.K.

Fulbright’s 6^th Annual Litigation Trends Survey Report highlights a high number of respondents who think the use of full pre-trial disclosure in the U.S. should be reconsidered (61%). When the same question was put to the respondents concerning the procedures in England and Wales, much lower levels of dissatisfaction were indicated (26% of the total respondents).

About half of the respondents (52% of U.K. and 46% of U.S.) claim to block employees accessing social networking Web sites. Two in five of all corporates (42%) block the most popular personal social networking sites (such as Facebook, MySpace and Bebo) and 30% block business-related networking sites (LinkedIn and Plaxo). The YouTube web site is also blocked by more than a third of companies (37%).

The high number of companies banning such social media sites is understandable in light of the finding that 18% of U.K. companies have been asked to produce electronic information from such web sites as part of an electronic discovery request in legal proceedings. Notably, technology companies are the least likely to block social networking sites, with 56% of all tech companies in Fulbright’s 6^th Annual Litigation Trends Survey Report saying they have no restrictions on such sites.

Melanie Ryan, a Fulbright partner, commented, “For some businesses, networking sites can provide an efficient platform for keeping up-to-date with the latest developments and maintaining a profile in their industry. For those businesses that block access, such benefits are outweighed by the possible legal risks, including the inadvertent disclosure of confidential or proprietary information and the resulting claims or fines imposed by their regulators – not to mention, the security threat to their IT systems.”

Arbitrations

Thirty-eight percent of respondents had an arbitration commenced against them and 8% had an arbitration commenced against them worth more than US$20 million during the past year. Some 22% of U.K. companies have been party to an international arbitration in the past 12 months.

One in five (21%) respondents had commenced an arbitration and, of those, 7% were worth more than US$20 million. More than three in five (63%) U.K. companies have commenced an international arbitration, compared with 38% of U.S. companies. The trend for international arbitrations looks to continue with only 4% predicting a decrease in the number they will be involved in during the next year. The most popular location for arbitrations was London (52% of all respondents), favoured by both U.S. and U.K. companies. London was more popular than both New York (3%) and Paris (5%).

David Howell, a partner in Fulbright’s London office and co-head of Fulbright’s Arbitration Practice, commented: “Fulbright’s 6^th Annual Litigation Trends Survey Report affirms what those in practice have long known: that the international business community holds London in high regard as a pre-eminent location for arbitrations, reflecting the availability of a pool of sophisticated advisers and arbitrators supported by a neutral and arbitration-friendly court system.”

About the Report

Fulbright’s 6^th Annual Litigation Trends Survey Report is an independent survey of senior corporate counsel. Now in its sixth year, the report surveyed 408 company lawyers (from a wide range of industry sectors) and is the largest canvas of corporate counsel on litigation issues and trends.

For further information or to request additional analysis on specific topics, please contact partner-in-charge Lista Cannon (+ 44 (0) 20 7832 3601), partner Chris Warren-Smith (+ 44 (0) 20 7832 3604) or partner Antony Corsi (+ 44 (0) 20 7832 3659) at Fulbright & Jaworski International LLP.

Download Fulbright’s 6^th Annual Litigation Trends Survey Report at www.fulbright.com/litigationtrends19.