Summary of litigation trends survey

The Fulbright 9th Annual Litigation Trends Survey asked companies to consider, among other things, where they spend their budgets, how they handle international arbitrations, and what issues they encounter relating to privacy and data protection during disputes and investigations. What follows is a bulleted summary from Fulbright’s 9th Annual Litigation Trends Survey. For a link to the descriptive “white paper” go to:

Survey Note:

The Fulbright survey reflects information collected from 392 in-house attorneys. Of the respondents, 82 percent identify themselves as general counsel and 14 percent as head of litigation. Seventy percent of all respondents are located in the U.S., 26 percent in the U.K. and 4 percent in other countries. Forty-seven percent of respondents maintain offices in at least three countries, while 16 percent have offices in 21 or more countries.

The companies represented in the survey are public and private — roughly a 50/50 split — and span the following industry groups: energy, engineering and construction, financial services, health care, insurance, manufacturing, real estate, retail and wholesale, and technology and communication. Sub-industries are also well represented. For instance, U.S. energy respondents are split among oil and gas, drilling, power, and alternative energy; while U.S. health care sub-industries include pharmaceuticals, hospitals, and medical devices.

Companies of all sizes participated in the survey: 49 percent of respondents were larger companies (with gross revenues of $1 billion or more), 31 percent were mid-size (gross revenues of $100 million to $999 million), and 20 percent were smaller (gross revenues of less than $100 million). Thirty-two percent of all energy respondents and 31 percent of manufacturing respondents had gross revenues of $10 billion or more in the previous fiscal year. Respondents from the financial services, real estate, and retail sectors dominated the smaller-company category.

Managing Litigation: Budgets, Fees and In-House Hiring

1. Spending is Trending: Litigation spending rose in 2011, with 53 percent of U.S. companies reporting an annual litigation spend of $1 million or more. The 2012 U.S. spend stayed level with 53 percent of companies again reporting an annual spend of $1 million or more. However, there was a slight bump in the high dollar range, with 27 percent of U.S. companies reporting an annual spend of $5 million or more compared to 23 percent in 2011.

2. Engineering: A Special Case: Engineering and construction respondents reported an enormous annual spend with 57 percent spending $5 million or more, the highest annual litigation spend among all industries represented in Fulbright’s survey.

3. Budgeting for IP: E-discovery, contracts, and labor and employment litigation have been perennial cost centers for survey participants. Year after year, companies expect their budgets in those areas to see double-digit percentage increases. In 2011, IP litigation — particularly at larger tech and retail companies — was added to that list. This year’s survey shows that IP remains a top concern: 13 percent of all companies expect budget increases in IP and only 5 percent forecast a decrease.

4. Alternative Fees Take New Direction: For many years, alternative fee usage had been on the rise among survey participants, a reflection of the wish to keep costs not only low but also predictable. This year’s survey showed a shift in direction for both U.S. and U.K. respondents. In 2010, 52 percent of U.S. respondents used alternative fees for at least some of their work, and that figure increased to 61 percent. in 2011. This year’s survey revealed a scaling back — to 51 percent. In the U.K., the story was similar, with the number of respondents using alternative fees increasing in 2011 (66 percent up from 50 percent in 2010) but decreasing in 2012 to 63 percent. Larger companies from health care, manufacturing and tech stood as the leaders in usage. And where alternative fees remained in use in the U.S., they accounted for a decreasing portion of overall work: 87 percent of U.S. respondents claimed that less than 30 percent of the money spent on outside counsel was billed via alternative fees.

a. Is the Cooling Off Temporary?: Maybe so. Only 39 percent of U.S. respondents expect an increase in the use of alternative fees over the next 12 months compared to 52 percent of U.S. respondents who expected an increase in the previous survey. In the U.K., the picture is different, with 42 percent of U.K. respondents predicting an increase, up from 29 percent last year.

b. Who Uses Them?: Large, public companies have always led in alternative fee usage, and they did again in 2012. By sector, however, use was down across the board, particularly in the insurance industry: 71 percent of insurance respondents reported using alternative fees in 2011; in 2012, that rate fell to 50 percent. The energy sector also drastically reduced its use of alternative fees.

c. Pay-for-Performance: Over the years, Fulbright’s survey has found in-house counsel experimenting with different types of alternative-fee arrangements. Contingent fees, popular in 2010, gave way to fixed-fee, blended-rate and capped-fee arrangements in 2011 and 2012. While this year’s survey indicates that fixed-fees continued to have heavy use among U.S. respondents, such arrangements have become less common in the U.K., where performance-based fees more than doubled in popularity from 2011 to 2012. Eighty percent of this year’s U.K. respondents and 77 percent of U.S. respondents said performance-based fees are “effective” or “very effective.”

d. Case-specific: Nearly a fifth of all respondents used blended-rate fee arrangements in class actions, contract cases, and insurance and intellectual property litigation. Around a quarter of respondents used fixed-fees for contracts and insurance litigation, while about a quarter of respondents used performance-based fees for business torts, insurance litigation, and intellectual property cases.

5. In-House Hiring Slows: During the lean years of 2008 and 2009, in-house legal departments bulked up to cut costs, hiring more attorneys to conduct or manage litigation. In-house hiring stayed flat in 2010, but then came back strong again in 2011 before flattening once more in 2012.

a. Going In-House: Fifty-eight percent of U.S. companies employed three or more in-house lawyers in 2012, compared to 53 percent in 2011 (and 40 percent in 2010); while 72 percent of U.K. companies employed three or more in-house lawyers in 2012, matching 2011 (and following 62 percent in 2010). Industry-wise, energy and insurance companies led, as 73 percent of respondents from each of these industries employed three or more in-house lawyers.

b. More to come: Thirteen percent of all respondents expect the number of in-house lawyers who manage or conduct litigation to increase in the coming year, while only 3 percent expect a decrease. Among industry sectors, prospects for increases in in-house litigation management teams stood highest among tech, health care, energy, retail/wholesale, insurance, and manufacturing companies. Correspondingly, when it comes to hiring outside counsel, respondents from insurance, real estate, retail, and tech experienced a greater decrease than increase during the last 12 months.

c. Firm Hiring Up in U.S.: Twenty percent of U.S. respondents have increased the number of law firms on their outside counsel litigation roster over the past 12 months, and only 14 percent have decreased the number. In contrast, the numbers for U.K. companies were reversed: 22 percent decreased outside firm hiring while only 9 percent reported an increase.

d. Secondment: U.K. vs. U.S.: Sixty-nine percent of U.K. respondents — versus only 31 percent of U.S. respondents — participated in a secondment in the last two years. Companies that are larger and/or public, including those from engineering and financial services, were the most involved.

Regulatory Investigations
6. Investigations Reach 5-Year High: In 2011, the percentage of companies retaining outside counsel for assistance in a regulatory investigation jumped considerably in the U.S. (from 43 percent to 55 percent). In 2012, the number rose again, hitting 60 percent in the U.S. About one-third of all respondents in last year’s survey reported having spent more time addressing regulatory investigative requests in the past three years. This year’s survey found that overall rate continuing to increase, to 42 percent, with nearly 30 percent of all respondents predicting an increase in the coming year and only 10 percent expecting a decrease.

7. The Targets: Nearly three-quarters of respondents from the energy, health care, and manufacturing sectors have been the target of a regulatory investigation. The energy, health care, manufacturing, and tech sectors were each involved in investigations concerning six or more U.S. regulators over the past year.

8. Who’s Investigating Whom?: As in 2011, the DOJ and the state attorneys general have been active in investigations. While the DOJ’s focus has been on tech, health care, engineering, and energy companies, the state attorneys general tended to focus more on insurance companies. In addition, the SEC has stepped up its efforts with investigations targeted at financial services and insurance companies.

9. Regulatory Investigation in U.K.: Seventy-two percent of Fulbright’s U.K. respondents retained counsel for a regulatory investigation in the last year, up from 27 percent in 2011 and 26 percent in 2010. U.K. respondents are mostly concerned with investigations by the Financial Services Authority (38 percent).

Internal Investigations
10. Internal Scrutiny Steadies: Since 2008, the percentage of companies reporting internal investigations that required outside counsel has fluctuated between approximately 30 percent and 50 percent. The high in 2008 was followed by a dip in 2009. Last year’s survey found that rates of internal investigations had risen. This year’s survey revealed 42 percent of U.S. and 46 percent of U.K. companies retained counsel for one or more internal investigations in the past 12 months.

11. Prevalence at Smaller Companies: Whereas outside regulatory scrutiny tends to focus on companies that are larger and/or public, rates of internal scrutiny are highest at companies that are smaller and/or private. Ninety-six percent of smaller companies and 93 percent of private companies expect the number of internal investigations involving their company to increase or stay the same in the coming year (compared to 85 percent of larger companies and 83 percent of public companies).

12. A Sector Shift: In last year’s survey, health care, energy, and engineering sectors led the industry pack in internal investigations. This year’s survey showed the financial services, manufacturing and retail sectors experiencing higher rates, with at least 50 percent of each industry reporting one or more internal investigations in the last 12 months. Retail led the pack as 55 percent of companies in that sector underwent at least one internal investigation, and 19 percent underwent six or more.

13. Whistleblower Allegations Remain High: And could climb higher. More than one-fifth of all respondents (26 percent in the U.S. — up from 22 percent in the previous survey; and 37 percent in the U.K. — up from just 21 percent in the previous survey) reported being subject to allegations by a whistleblower. As always, larger companies — as well as those from engineering, health care, and manufacturing — were more likely to see whistleblowers emerge. Expect the trend to continue in 2013: Only 3 percent of all respondents predict a decline in whistleblowers over the next 12 months.

14. What Becomes of Allegations?: Consistent with past surveys, the most common outcome of a whistleblower allegation was an internal investigation (78 percent of respondents subject to whistleblower allegations), particularly for financial services and insurance companies (with both sectors reporting that 100 percent of allegations led to internal investigations). The second-most common outcome was a regulatory investigation (44 percent of respondents against whom allegations were made). Least common was a proceeding brought by a whistleblower or a third party (40 percent of respondents against whom allegations were made).

Bribery Investigations As Expected
15. Enter the U.K. Bribery Act: Last year’s survey respondents showed signs of gearing up for the implementation of the U.K. Bribery Act of 2010. Twenty-five percent of all respondents undertook reviews of existing procedures, compared to 38 percent in the U.K. Their concerns, it turns out, were justified. In this year’s survey, 25 percent of all respondents and 37 percent of U.K. respondents said they’ve changed the way they operate due to anti-bribery legislation. While the rate of U.S. companies engaging outside counsel for a corruption or bribery investigation remained steady at 9 percent, the rate of U.K. companies that dealt with such an investigation in the past 12 months tripled — from 6 percent in 2011 to 18 percent in 2012.

16. Foreign Transactions: Companies in both the U.S. and U.K. are conducting heightened levels of due diligence for corruption in the context of mergers, acquisitions, and other transactions with a foreign country, perhaps in an effort to stem a surge in bribery investigations. Sector-wise, engineering and manufacturing companies reported the highest rate of investigations, conducting due diligence for bribery and corruption at around twice the rate of other industries.

Labor & Employment:
Litigation: Two Countries, Two Stories

17. Slowing in the U.S.: As the U.S. unemployment rate declines, labor and employment litigation eases. Across all areas — from race discrimination to retaliation suits — U.S. companies reported falloffs in litigation, with the most pronounced drop in wage and hour disputes. While last year’s survey showed 25 percent of U.S. companies reporting an increase in this type of litigation over the prior 12 months, this year’s survey showed that rate cut to 12 percent. Sector-wise, only engineering (20 percent) and health care (22 percent) reported rates of increase in wage and hour disputes that match the previous year’s overall average. Notably, the vast majority of wage and hour disputes filed against U.S. companies are brought in state court.

18. Accelerating in the U.K.: Meanwhile, labor and employment litigation rose in the U.K., where companies reported increases in all areas. Sex discrimination cases saw the highest rates, with 15 percent of companies reporting an increase in these cases during the last 12 months, up from 4 percent in 2011.

19. Discrimination Suits Gaining: Last year’s survey noted that the labor litigation landscape appeared to be shifting toward discrimination suits. Indeed, even though labor litigation was down in 2012 in the U.S., discrimination suits continued for companies on both sides of the Atlantic. About a quarter of companies in the U.S. and U.K., and across the industry sectors surveyed, listed discrimination as the area with the greatest increase in the past 12 months. When asked which area will see the greatest increase in the next 12 months, over one-third of all companies again list discrimination.

20. A Spike in Costs: Across the board, costs of labor litigation are up. In the U.S., 41 percent of companies reported an average cost to defend a single employment arbitration suit — excluding settlement — of $100,000 or more (up from 34 percent in 2011). In the U.K., 75 percent of companies reported an average cost of $30,000 or more, with 25 percent reporting $100,000 or more (up from 32 percent and 3 percent respectively in 2011). The average cost to defend a single plaintiff employment suit was also up: 61 percent of U.S. companies (up from 59 percent in 2011) and 44 percent of U.K. companies (up from 15 percent in 2011) reporting a cost of $100,000 or more. The average cost to arbitrate a class action employment suit was more than $200,000 for 54 percent of U.S. companies (up from 45 percent in 2011) and $100,000 or more for 61 percent of U.K. companies (up from 12 percent in 2011). The average cost to litigate a single plaintiff employment action was $100,000 or more for 67 percent of U.S. companies (up from 51 percent) and $100,000 or more for 67 percent of the U.K. companies (up from 12 percent).

Intellectual Property & Trade Secrets
21. Patently Litigious: Last year’s survey found 13 percent of all respondents bracing for budget increases in IP. Indeed, 24 percent of all companies filed an IP suit in the past 12 months. Larger companies were nearly three times as likely as smaller companies to file an IP suit, and six times as likely to defend against one. While the vast majority of IP litigation was brought (and defended against) for less than $250,000, 15 percent of the companies who responded to the cost-related questions pegged their average cost to litigate an IP case at between $1 million and $10 million.

22. Engineering: A Special Case: Whereas manufacturing, retail and tech companies tend to bring IP suits at approximately the same rate as they defend against them, this year’s survey revealed an anomaly in engineering: Even though 40 percent brought an IP suit in the last 12 months, only 13 percent defended against one.

23. Patents, Patents, Patents: With IP litigation up, Fulbright asked respondents to break down their IP litigation by five practice areas: patent, trade secret, trademark, counterfeiting, and copyright. In the U.S. and U.K. — and particularly for manufacturing and tech companies — patent infringement accounted for much of the typical company’s overall IP litigation portfolio, and patent suits accounted for the majority of big-dollar cases, which were defined as proceedings involving an amount in controversy of more than $5 million. Nine percent of all respondents and 24 percent of retail respondents expect the number of patent cases in which their company becomes involved during the next 12 months to increase from last year.

Litigation versus Arbitration – The International Scene
24. How Should We Resolve This?: Last year’s survey found that litigation was still the preferred mode of resolution for disputes that are not international in nature. In this year’s survey, Fulbright asked about disputes that are international in nature. For these cases, arbitration was favored, at least among U.S. companies: 25 percent chose arbitration; 15 percent chose litigation; and 60 percent said “It depends.” U.K. companies are split with 23 percent choosing litigation and 20 percent choosing arbitration, with 57 percent saying “It depends.” Avoidance of a jury, cost-effectiveness, and confidentiality ranked as the top reasons to choose arbitration for international disputes.

25. Energy, Engineering & Smaller Companies – A Special Case: While mid-size and larger companies preferred arbitration in international disputes, smaller companies skewed toward litigation and were the least likely to have been party to an international arbitration in the past 12 months. On the other end of the spectrum stood energy and engineering companies. Nearly half of respondents from each of these industries — about twice the average — chose arbitration in international disputes; and nearly half from each had been party to an international arbitration in the past 12 months.

26. Law Beats Seat: Across geography, company size, and sector, respondents generally preferred the following seats for international arbitration: Singapore in Asia (versus Hong Kong or Kuala Lumpur), Dubai in the Middle East (versus Bahrain or Qatar), and London in Europe (versus Geneva, Paris, Stockholm, or Zurich). “Logistical convenience” and “Location of the company” were the primary influences on respondents’ choice of seat. Even at home, U.S. respondents show a strong bias toward their own regions: Texas companies preferred Houston; East Coast companies preferred New York; California companies preferred Los Angeles; and so forth. But even while companies would prefer to arbitrate at home, the vast majority of U.S. respondents would rather concede choice of seat than choice of law.

27. Lessons of Experience: Among 10 arbitration institutions, including the Stockholm Chamber of Commerce and the Singapore International Arbitration Centre, survey participants reported that a bulk of their arbitration experience in the past five years has been with the American Arbitration Association, JAMS, the London Court of International Arbitration and the International Chamber of Commerce Court of Arbitration. The energy, engineering, financial services, and retail sectors encounter UNCITRAL at higher rates than other industries.

28. Right to Appoint: Nearly two-thirds of the companies with the most experience in international arbitrations — companies that are larger and/or public in the energy and engineering industries — regarded the right to appoint at least one member of the tribunal as a key right they wish to retain.

Class Actions
29. Still Flat: For the fifth year in a row, class actions remained flat, with only a quarter of all respondents — and about 40 percent of larger companies — having faced one or more class or group action in the past 12 months in U.S. courts. Sector-wise, retail, financial services, and engineering face slightly higher levels of class actions than peer industries. Labor and employment actions and consumer cases still lead.

30. Successful Reform?: As for the class actions brought against them, both U.S. and U.K. companies reported major decreases in the number that were settled or dismissed through litigation — indication, perhaps, that class action reform is working in the U.S.

Corralling Data: Protecting Privacy in an Age of Social Media and Mobile Devices
31. Privacy & Data Protection: Nearly one-third of all respondents — with particularly high rates among larger companies, as well as among the engineering, financial services, health care, insurance, and tech sectors — encountered issues involving privacy and/or data protection in disputes or investigations in the past 12 months. Issues arose most frequently in the context of collecting data from company equipment and from employees’ personal equipment. Companies were also concerned about the use of third-party vendors to collect and process data.

32. Clouds Overhead: It’s no secret that cloud computing is “the big thing” in data storage technology. In 2011, more than a quarter of all companies reported using cloud computing. In 2012, the rate jumped to a third. Of those companies that use it, a third have had to preserve or collect data from the cloud in connection with actual or threatened disputes or investigations.

33. Social Media and Mobile Devices: With Facebook exceeding 1 billion members and Twitter having more than 500 million registered users, social media is no longer a niche area of life online. Given its ubiquity, companies must adapt policies to address how information on social media impacts litigation.

a. Employees & Social Media: About one-fifth of all companies — slightly up from last year’s survey — have had to preserve or collect data from an employee’s personal social media account in connection with a dispute or investigation. Notably, respondents from the tech and communication sector report a rate below the survey’s average. But only 9 percent of U.S. companies reported having to actually produce, as part of discovery, information stored on social media.

b. When Data Goes Mobile: Last year’s survey found that while 91 percent of U.S. companies permitted employees to conduct business on mobile devices, only 30 percent had to preserve or collect data from those devices for a litigation or investigation. This year’s survey revealed that gap has narrowed: 41 percent of U.S. companies have had to preserve or collect data from an employee’s mobile device for a dispute.

34. To Self-Preserve or Not?: While 69 percent of all companies rely on self-preservation to fulfill their document preservation obligations in disputes or investigations, that rate increased beyond 75 percent for companies in engineering, manufacturing, and retail. What’s the alternative? Instead of self-preservation, the most popular ways to preserve potentially relevant documents were to ask IT to collect all data sources from the pertinent custodians and to maintain data sources that prevent deletion or modification. Those who don’t rely on self-preservation cited, as reasons, cost-effectiveness and the efficiency of not having to rely on the custodian.

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