Originally published for the Canadian Corporate Counsel Association's 20th Annual Meeting, Quebec City, August 17-19, 2008.
To those who fall between the categories of the very rich and the very poor, the cost of litigation is prohibitive. In his novel Bleak House, Charles Dickens centred his plot on Jarndyce v. Jarndyce, litigation in connection with an estate. After years of litigation, during which the parties died or were born into the lawsuit, the case finally came to a close with the announcement that the estate had been entirely consumed in costs. The moral drawn by the author was that one should suffer any indignity and any fate rather than become involved in the Court of Chancery.1
The Corporate Party
Litigation – a nasty 10-letter word that, according to rational thought, is to be avoided. Litigation has to be reported to auditors, explained to management and, in many circumstances, disclosed to stakeholders and the press. It is expensive, time-intensive and personally distracting to your senior executives. It drains resources and budgets.
The traditional role of corporate counsel is to avoid litigation. The standard instructions are geared to keeping the corporate party out of court and seeking early settlement opportunities. Only when litigation cannot be avoided does one fully accept it.
Corporate counsel are fully adept at managing litigation when their clients are pulled into court. The routine is relatively straightforward:
- retain appropriate outside counsel; determine and set the
- augment the departmental budget if the projected expense is
- analyze the legal issues and obtain an opinion from outside
counsel as to the likelihood of success;
- conduct a cost/benefit assessment with the risk profile in
- set the corporate objectives; determine and implement a
litigation or settlement strategy;
- implement an internal and external communication and reporting
- create the internal support team.
"Hope for the best; prepare for the worst" is the mantra. It would surprise the writer if most, if not all, corporate counsel did not have written policies and protocols in place to manage litigation.
While knowledge about what to do when the client is sued is well developed, the same may not be true when it comes to litigation that is sponsored by the client. The reason perhaps derives from the way we are hard-wired: it is always easier to criticize than it is to create. Similarly, it is easier to react than to take the first action. Getting sued causes one to react. Most people tend to respond to threats quickly. The "fight or flight" reaction within all of us kicks in to force prompt action. Thus the management of inbound litigation is a relatively easy paradigm to analyze. We react to the threat. The emotional reactive response is tempered by the policies and protocols that were designed to manage precisely the situation when the corporation is attacked.
However, when a corporate party chooses to engage in litigation voluntarily, the analysis, assessment and management of that process appear to become much more difficult. The approach is still the same but, for some reason, the litigation becomes more onerous and burdensome than when the client is sued. Indeed, this is a natural state of affairs because the corporate plaintiff will bear the burden of discharging the onus it has placed upon itself. It assumes, and the court and opposing parties will impose upon it, the responsibility of proving every element of the claim it asserts. The forum, process and pace of the litigation are also, by and large, of its choosing. Whereas reacting to litigation is an exercise in "spotting the issues" and resolving them, moving a case forward is one of creating the issues from scratch. There is more than one correct course of action. The lawsuit requires creativity and decision-making abilities. The fear of being criticized for choosing anything less than the optimal course is often enough to cause most rational people to avoid bringing litigation altogether.
As we all recognize, there are times when the corporation must sue. The purpose of this paper is to provide some thoughts and ideas to assist those advising corporate plaintiffs.
Litigation for Profit?
The main complaints about civil litigation are that it is time-consuming, slow and expensive. The expense is a product of the litigation process. The rules of thumb are twofold. First, the bigger and more complicated a case, the more it will cost. Second, the weaker the case, the more it will cost. (The wag will note that the second of these rules is engaged in every strong case, because the defendant with the weak position will drive the costs up.)
In Canada, almost every jurisdiction employs a cost allocation rule, which provides that the victor gets its costs for the litigation paid by the loser. However, cost recovery is meagre. It is roughly 30% to 40% in ordinary cases and 60% to 70% in extraordinary cases where the court orders solicitor-client costs. So, even under a regime where the loser pays the costs of the winner, a large portion of the successful party's costs will not be recoverable.
If a party wants to come out ahead in litigation, it needs to recoup enough damages to offset the cost of the litigation. Sadly, in Canada, financial recovery from litigation is, at best, fair to poor. Even in the world of intellectual property damages, where it should be theoretically possible for a corporate plaintiff to recoup lost market exclusivity, court-ordered remedies have yielded relatively modest damage awards. Some foreign jurisdictions (such as the United States) allow successful parties to seek treble damages in certain circumstances. In Canada, our laws are not so punitive to a transgressor.
Punitive and exemplary damages are available, but are not often awarded. When they are, they are awarded only after a trial. Parties are not likely to agree to punitive damages in a settlement. Therefore, a party will probably have to go to trial and endure all appeals before a punitive or exemplary award is recovered.
Frankly, the financial aspects of litigation in Canada are not favourable to a corporate plaintiff wishing to recover as much as, if not more than, it has expended to achieve success. While most parties would like to make money at litigation, the sad reality is that in Canada it is difficult.2 That said, there are some strategies that can be employed to minimize cost and maximize success.
Keep Your Eye on the Prize
The first of these strategies is straightforward: eliminate unnecessary expenditures. The cost of litigation can be trimmed by streamlining the litigation process. This sounds familiar. Corporate counsel are more than able to trim the fat from a litigation budget so that the corporation pays only for services that are required and that provide value. But streamlining means more than that. Streamlining means taking only those steps that advance the goal of financial recovery and avoiding all steps that delay or detract from that goal. Plan the strategy and tactics from the start and avoid deviating. For example, silly motions, such as pleadings motions, are to be avoided.3 Trim back on examinations for discovery, which can be a big, expensive time-waster. Instruct your counsel to hold a short examination on a narrow set of issues. When you focus on those aspects of your case that are critical, time and delay will fall away.
You Have to Get to Vegas to Win in Vegas
The second strategy is to understand that it takes the expenditure of money to make money in litigation. This point can be explained by resorting to an analogy. We all have colleagues and friends who return from trips to Las Vegas with stories of the prizes they have won. "I won five hundred bucks" might be the claim. While the claim might be true, what we never hear about is the cost of the trip – the funds expended to yield the winnings. A $500 winning may not be a winning at all if it cost $1,000 to earn it. However, the victor sees the $500 winning as a windfall. The costs of earning the prize are forgotten, probably because they are sunk costs that would have been incurred no matter what.
The point of the Vegas example is that if you want to play the corporate litigation game, you have to fund it. If you want to fund it, you need to build in an expectation that litigation will cost money. This means that you have to have a budget to draw from. While it is hard to anticipate in advance what litigation expenses are going to be, it is a lot harder to find money when you do not have any budget to draw from. And, quite frankly, this is not as tough as it seems.
If you are an owner of intellectual property rights, you should be able to determine the likelihood that you may have to sue a competitor. For example, a pharmaceutical manufacturer with a blockbuster product that is coming off patent can virtually guarantee that it will need to sue to protect the revenues flowing from the tail end of an important market. If you are a consumer product manufacturer, you know that your "new new thing" will be copied if its entry in the marketplace causes a competitor's market share to erode. If your new new thing creates a new market, unless the barriers to entry are prohibitively expensive, you know that the market will be attacked by a competitive threat. If you are a franchisor, you know that you may have to bring a rogue franchisee back in line. With a little bit of thought – reflecting on the rights that you would be asserting, the competitive and regulatory landscape within which you are working and foreseeable future threats – you should be able to identify situations that will draw your client into situation where it might want to sue. With those situations in mind, you can assess the likelihood of the threat and put a budget in place in advance of the threat arising. You can and should fight for budget so that when you need to sue, you have the funds at your disposal.4
Strategic Strikes – Not Scorched Earth
Use your precious litigation budget wisely. Use it only when good will come out of it. You do not have to sue everybody to get a positive result. A successful suit against one defendant may be all that you need. It is important to recall the reasons, discussed in the introduction to this paper, that make us good at defending litigation. We want to avoid it. The same is true of your competitors: they do not want to engage in protracted litigation if they can avoid it.
Litigation has a chilling effect. Corporate bystanders who have noted that you have sued a competitor will take note and will modify their behaviour to avoid being sued.5 The upshot of this phenomenon is that the corporate plaintiff does not have to take everybody on. A successful litigation outcome against one defendant may translate into other victories. The corporate plaintiff can, and should, pick its battles carefully.
- Whom do you want to sue?
- Where are you going to sue?
Choosing the Defendant: There are a number of factors to consider in picking a defendant. Do you have limitation periods to worry about? Does the defendant have deep pockets to defend itself? Will the party be motivated to settle? Will you be able to recover money from this defendant? Will a settlement or judgment with a party modify the behaviour of other potential defendants? The ultimate decision depends on the facts of the particular case.
In many cases, the defendant is clear. The only issue then is whether to pursue that defendant singly, or to sue the defendant's corporate parent, its distributors or its officers and directors.
Choosing the Right Forum: In Canada, you may have the choice of a number of provinces in which to commence proceedings. You may also be able to sue in Federal Court. Each jurisdiction will have advantages and disadvantages. For example, you will want a jurisdiction that engages in case management of proceedings to keep the case on a tight timeline. Some jurisdictions allow for summary proceedings, which greatly reduce the time and expense of getting into court. All options should be thoroughly canvassed before the lawsuit is commenced.
You may also be able to consider suit in another jurisdiction – such as the United States, where the remedies may be more attractive. Before you embark on litigation around the world, however, consider whether a favourable result in one jurisdiction could be applied in another.6 If you are to embark on multijurisdictional litigation, ensure that you quickly identify areas of conflict, work them out and maintain cross-border consistency.
Not all litigation has to go through the courts. Many alternatives to litigation may be available.7 Even when the courts are engaged, most jurisdictions provide for tailor-made processes. For example, in Federal Court it is possible to hold early neutral evaluation, mediation or mini-trials.8 I am also aware of a proceeding in Ontario that was sliced into a series of mediation-arbitration sessions to quickly settle what would otherwise have been a lengthy trial with many participants.
Be Creative and Effective: Avoid Cookie-Cutter Strategies
Corporate parties are sophisticated. It is not likely that a corporate defendant will decide to blatantly breach an agreement, infringe a patent or engage in anti-competitive behaviour without first thinking it through. This means that when it gets sued, it will have anticipated your complaint. It will have its defences lined up. While you may feel that you can readily win a traditional point-counterpoint battle, you will have much greater success if you can hit the defendant with something that it is not ready for. Push your counsel to consider tort remedies, private enforcement remedies (under the Competition Act, for example9) and public enforcement mechanisms to the extent that they are available.
Ensure that the litigation strategy is in place before the lawsuit commences. Having a crisp legal theory is important. When the litigation theory has crystallized, the facts that you will require to prove your case will be brought into sharp focus. Those facts will help you sculpt and streamline the processes that you will wish to engage.
Focus on the Proof, Not the Process
Civil litigation is a tool. It is a tool for creating leverage, not for truth seeking. It is a contest to see if you can demonstrate to a court that it is more probable than not that you are entitled to the relief you are seeking. It is a race to 51%. The pace of this race is within the control of the parties. The party asserting the lawsuit will want to move it along quickly, or at least at a pace that will maximize the plaintiff's ability to discharge the burden of proof. The defendant will generally want to slow it down. The pace and the process do not matter. It is only the ability to prove your case at the end of the day that matters.
Because litigation is a means to an end, it must not take on a life of its own. The role of litigation is to drive to a financial judgment following trial or a favourable settlement. Take steps to ensure that you focus on the prize. If a step does not advance your legal theory, abandon it. For example, abandon legal theories that will ultimately get you nothing more than a fishing expedition. While we all delight at the thought of having a glimpse into the heart and soul (and file cabinets) of our competitors, the only thing that will truly matter at the end of the day is the soundness of the legal theory – and whether it will give you either a speedy judgment or a quick settlement. Half-hearted theories that you abandon run the risk of striking a sympathetic note in favour of your opponent with a judge who may disentitle you to the full complement of costs that you were expecting.
Focus on the proof. The proof will inform you whether you will be able to discharge your burden of proving your legal theory. The proof will tell you whether your investment in this litigation will pay off. A focus on the proof will help cut down on unwarranted process. Get the facts you need on the first day of discovery.
If one were to focus on the process, one would run the risk that key streamlining decisions would be missed. Costs will escalate. The problem with cost escalation is that your litigation will fall out of the "proceeding according to plan" category. Lose control of your costs and you will feel that the litigation is out of control. When litigation is out of control, you heighten the likelihood that, if the case were to settle, it would settle at less than its optimum value.
But if you continue to keep in mind that the proof is your leverage, at the end of the day you will walk away with a judgment or a settlement that is more favourable than the judgment that you were expecting. This is an important point. Given the meagre cost recovery in Canadian litigation, and given the relatively modest damage awards, the best prospect of a solid financial recovery is to force a favourable settlement. To do this, you will need to marshal the facts in such a way that the defendant would prefer to settle rather than having the facts laid out in open court.
Equally, if the facts do not develop as you thought, or hoped, they would, then you know that you will need to pursue settlement in advance of trial.
Pigs Get Fat, Hogs Get Slaughtered
The decision to sue creates an interesting phenomenon within corporations: "If we are suing, it must be that we have a very strong case. We must win. We will win." This phenomenon is natural. Indeed, one always feels the strongest about a case when it is commenced. But just because you are suing, it does not automatically follow that you will prevail in the litigation. (The risk assessment that you ought to perform before you sue will tell you what your chances of success are.) The phenomenon has to be managed. There will be those in the organization who will be swept up in the hype. The lawsuit will be seen as a guarantee of a victory. If so, there will be pressure to ratchet up the proceedings – to possibly do things that are off strategy.
The classic example is the debate over whether to seek an interlocutory injunction to restrain the offending behaviour and freeze bank accounts, among other things. These remedies have their time and place. However, when the corporate plaintiff decides to sue, an expectation will arise that there will be an injunction following trial. Why not enjoy that injunction now? It is a natural thought. But, unless an injunction was part of the initial critical path, it is to be avoided. Injunctions are hard to get. They are expensive. They divert resources and delay the main thrust of the litigation effort. It is important to stick to the legal theory and strategy. Often in litigation, some minor victory arises to embolden one side. A loss on an interlocutory injunction application could cause the other side to feel that it has won a victory. Avoid giving pyrrhic victories; stick to the plan.
The upshot is that it is critical to implement and control an internal communication strategy so that expectations of stakeholders can be managed. It is equally important to be realistic and to ensure that the key decision makers share this sentiment.
Involve the Business
In order for the client to truly succeed at being a plaintiff, it must truly sponsor the litigation. This means garnering management approval and putting in place a team to support the effort. In typical reactive litigation, the role of in-house counsel is to facilitate the flow of information between the company and its outside counsel. In company-sponsored litigation, the company has to "own" the litigation. The role of the in-house counsel has to be one of quarterback. The corporate counsel is uniquely situated to understand the needs of the corporation, to draw upon the strengths of the organization, to coordinate the activity of busy executives and, most important, to communicate effectively within a corporate culture that may be foreign to its litigation counsel.
The approach to managing litigation when a company is sued is well known. In fact, the methodology is the same when the company is suing, with the added bonus that the corporation gets to go on the offence. While bringing suit is psychologically different from getting sued, there are techniques in place to make litigation more palatable.
Company-sponsored litigation is an asset. It has to be viewed and treated as an asset. Otherwise, the prospect of the litigation will fade away – perhaps to be relegated to an unwanted and recurring ledger expense item in the budget of a successor who begrudges having to manage a litigation that has taken on a life of its own, and whose purpose has been long forgotten.
1. The Hon. J. Roderick Barr, Q.C., "The Cost of Litigation, Bleak House in the 1990s" (March 1993) 12:1 Advocates' Soc. J. 12.
2. In some situations, litigation for profit is possible. In counterfeit litigation, in which punitive damages and contempt awards may be sought, some parties have been successful in litigating for profit – particularly in the United States and in the United Kingdom. But even then, a fresh perspective and methodology has to be employed. As an example, the U.K. law firm Mishcon de Reya has a program called Tulip" (Turning Losses into Profits). See www.mishcon.co.uk/news/articles/docs/article_29.aspx.
3. The Hon. J. Roderick Barr, Q.C. supra note 1. See also Martin Teplitsky, Q.C., "Excessive cost and delay: Is there a solution?" (Autumn 2000) 19:2 Advocates' Soc. J. 5; R. Dinovitzer and J.S. Leon, J.S. "When Long Becomes Too Long: Legal Culture and Litigators' Views on Long Civil Trials" (2001) 19 Windsor Y.B. Access Just. 106.
4. The topic of third-party funding, or litigation insurance, is beyond the scope of this article. However, many sources discuss insurance (both before-the-event and after-the-event), third-party funding and financing. For example, in the June 2008 edition of Managing Intellectual Property, the topic is discussed in Emma Barraclough's article, "Why it pays to spread the litigation risk."
5. For example, see W.T. Gallagher, "Strategic Intellectual Property Litigation, the Right of Publicity and the Attenuation of Free Speech: Lessons from the Schwarzenegger Bobblehead Doll War (and Peace)" (2004-2005) 45 Santa Clara L. Rev. 581 for a discussion of the effect that threats of litigation have on the behaviour of threatened targets. The paper also adverts to the notion of "over-enforcement," which is the use (or perhaps the abuse) of the chill effect to assert spurious rights that the rights holder has no intention of asserting or defending in a court of law. See also R. Coombe and A. Herman, "Trademarks, Property and Propriety: The Moral Economy of Consumer Politics and Corporate Accountability on the Worldwide Web" (2000) 50 DePaul L. Rev. 597; S. Mayhew Schlosser, "The High Price of (Criticizing) Coffee: The Chilling Effect of the Federal Trademark Dilution Act on Corporate Parody" (2001) 43 Arizona L. Rev. 931; M.J. Meurer, "Controlling Opportunistic and Anti-Competitive Intellectual Property Litigation" (2003) 44 B.C.L. Rev. 509; and K.J. Greene, "Abusive Trademark Litigation and the Incredible Shrinking Confusion Doctrine – Trademark Abuse in the Context of Entertainment Media and Cyberspace" (2004) 27 Harvard J.L. & Pub. Pol'y 609.
6. While this topic is beyond the scope of this article, one may wish to pursue litigation in another jurisdiction so as to create an estoppel: See P.L. McGarrigle, "The Role of Foreign Judgments in Patent Litigation: A Perspective and Strategic Overview" (1998-1999) 39 IDEA 107.
7. For comprehensive surveys on alternatives to litigation, see R.A. Pepper, "Why Arbitrate? Ontario's Recent Experience with Commercial Arbitration" (1998) 36 Osgoode Hall L. J. 807; W.G. Horton, "ADR in Canada: Options for the appropriate resolution of business disputes" (Autumn 2002) 21:2 Advocates' Soc. J. 11.
8. See also Chief Justice of the Court of Queen's Bench in Alberta, The Honourable W.K. Moore, "Mini-trials in Alberta" (1995) 34 Alta L.R. 194.
9. See, for example, K. Roach and M.J. Trebilcock, "Private Enforcement of Competition Laws" (1996) 34 Osgoode Hall L.J. 461; M. Condon, "Rethinking Enforcement and Litigation in Ontario Securities Regulation" (2006) 32 Queen's L.J. 1.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.