2011 Litigation Trends Survey

The three-year upward trend in traditional litigation since 2008 leveled off over the past year, but was replaced by a steady rise in regulatory proceedings. The 2011 Fulbright & Jaworski Litigation Trends Survey of senior corporate counsel reveals that 40% of respondents had at least one regulatory proceeding commenced against them in the past 12 months, up from 37% in the 2010 survey and 34% in 2009.

Regulatory concerns and company growth are the leading reasons given by respondents for expecting an increase in regulatory actions over the coming 12 months. Compared with last year's survey, barely half as many respondents cite the poor economy as a reason for their expectations of more litigation ahead. Few foresee a decrease; 92% of U.S. respondents and 85% of UK respondents expect litigation will either increase or remain at current levels for the next 12 months.

The 2011 Litigation Trends Survey canvassed 405 senior corporate counsel, including 275 in the U.S., 129 in the UK and one who did not specify a location. Respondents are with companies of all sizes, based on gross annual revenues: larger companies ($1 billion or more), mid-sized ($100 million'$999 million), and smaller companies (less than $100 million). An independent research firm conducted the survey, which is now in its eighth consecutive year.

Shifts in Litigation

The percentage of companies reporting at least one lawsuit commenced against them in the past 12 months decreased slightly, from 75% in 2010 to 73% in 2011; however, there was a slight increase in companies with 21 or more suits commenced against them. The
technology/communications, retail/wholesale, insurance, engineering/construction and healthcare sectors all faced increased litigation over the past year; suits against real estate, energy and manufacturing companies declined, while financial services remained flat.

U.S. companies were less likely to be plaintiffs in 2011, with 52% of them filing lawsuits over the past 12 months compared with 60% in the 2010 survey. However, UK companies became more aggressive: Forty-two percent filed at least one suit compared with 36% in the 2010 survey.

More Lawyers Inside and Outside

After tapering off slightly in the 2010 survey, the staffing-up of in-house legal departments seems to have resumed. Companies with more than five in-house lawyers managing litigation have increased in the U.S. to 25% from 21%, and in the UK to 46% from 39% in 2010. In that year, 47% of the larger companies had more than five lawyers managing litigation in-house; in 2011, it was 53%. For smaller companies, the figure has tripled year-over-year. Sixteen percent of all respondents expect still more increases over the next 12 months.

Companies are also hiring more outside counsel: Twenty-three percent have added to their outside-counsel roster, compared with 21% in 2010. Decreases remained constant at 13% of all respondents. The sharpest rises in companies adding outside counsel are among the smaller companies (14% in 2010, 23% in 2011) and companies in the UK (11% in 2010, 16% in 2011).

Rises in Litigation Costs and AFA Use

Spending on litigation dropped in the 2010 survey after rising for several years. The increase resumed in 2011, with 53% of U.S. companies and 46% of UK companies spending $1 million or more annually on litigation. Respondents identifying litigation areas for increased spending over the next 12 months most often choose electronic discovery (18%), followed by labor and employment (17%), contracts (15%), IP/patents (13%) and regulatory investigations (12%).

The use of alternative fee arrangements (AFAs) for at least some part of total outside counsel spend has grown steadily, from 45% of all respondents in 2009, to 51% in 2010 and now 62% in 2011. Companies of all sizes have followed this trend. The question is, are companies simply trying out AFAs, or will they become a more meaningful part of total outside counsel spend? For now, they account for less than 20% of outside counsel billings, according to the 60% of U.S. respondents and 41% of UK respondents who are using them. The majority of UK respondents rate the various types of AFAs as very effective. Their U.S. counterparts are not as convinced.

Investigations Climb Steadily

In the 2010 survey, about one-third of U.S. respondents accurately predicted an increase in the regulatory investigations their companies would face. Results of the 2011 survey show regulatory investigations hitting a four-year high, with 55% of U.S. companies and 27% of UK companies retaining outside counsel for regulatory investigations in the past 12 months.

Internal investigations requiring the assistance of outside counsel increased in the U.S. for the third straight year: Thirty-two percent of U.S. respondents reported at least one internal investigation in 2009, 43% in 2010 and now 46% in 2011. Comparable UK figures remained relatively stable at 43% in 2011 compared with 44% in 2010 ' but still well above the 18% in the 2009 survey. Almost a quarter of the U.S. companies and one-fifth of UK companies that conducted an internal investigation went on to report the matter to a regulatory agency.

U.S. companies subjected to whistleblower allegations remained stable with 22% of the 2011 sample, but there has been a significant increase in the UK. In the 2009 survey, just 6% of UK companies had faced a whistleblower allegation during the previous three years; that number rose to 12% in 2010 and has now reached 21% in the 2011 survey.

Bribery or corruption investigations, including those associated with the FCPA and equivalent UK laws, have dropped significantly since the 2010 survey. Just 9% of
U.S. companies and 6% of UK companies have faced such an investigation in the past 12 months, compared with 12% of U.S. companies and 26% of UK companies in 2010.

In the 2010 survey, 35% of UK respondents predicted the new UK Bribery Act, which came into force in July 2011, would change the way their companies did business. In 2011, that figure declined to 21%. However, the percentage of U.S. respondents who expect the Act to impact their operations actually rose slightly from 11% in 2010 to 12% in 2011.

A Closer Look at International Arbitration

This year's survey examined respondents' approaches to international arbitration, such as factors influencing their choice of the law governing the dispute. More than 80% cite familiarity with the law as most important, far more than location considerations or even impartiality.

As for the seat of arbitration, there is a wide divergence between U.S. and UK companies. When given a choice, 70% of U.S. respondents would select their home jurisdiction, and only 4% would agree to the choice requested by the counterparty. On the other hand, just 18% of UK companies would insist on their home jurisdiction, and 69% would be open to the counterparty's choice.

International arbitration experience continues to be more widespread among UK companies. Just as in the 2010 survey, more than half of UK companies were a party to at least one international arbitration in the past 12 months, versus less than one-fifth of U.S. companies. However, in general, international arbitrations are up significantly from the 2009 survey, when 17% of all respondents reported at least one in the prior 12 months. In 2010, it rose to 29% and in 2011 to 30%.

A Lull in Patent Infringement Cases

There has been a decline in patent infringement proceedings, particularly among U.S. respondents: just 12% were a claimant/plaintiff in the past 12 months, compared with 21% in the 2010 survey, and U.S. companies that were defendants declined slightly from 26% in the 2010 survey to 24% in 2011. Similar declines are evident even among the larger companies in the survey, dropping from 30% that had been a claimant/plaintiff in 2010 to 20% in 2011, and 37% that were defendants in 2010 to 32% in 2011.

Manufacturing, engineering/construction and healthcare companies are the sectors most likely to have filed one or more patent infringement lawsuits in the past 12 months. The most frequent targets of a patent infringement suit in 2011 were the retail/wholesale sector, technology/communications, and manufacturing.

Despite the recent decline, 13% of all respondents list IP as an area of litigation budget increases over the next 12 months, suggesting there could be more activity coming.

Labor and Employment Cases Rise

One-quarter of U.S. respondents say multi-plaintiff wage and hour disputes (FLSA) have increased, compared with 18% in the 2010 survey. The retail/wholesale sector leads all other industry sectors, with 37% of respondents reporting an increase. Wage and hour is also where the greatest increase in multi-plaintiff cases has occurred, according to 44% of all respondents, followed by race discrimination at 14%. Most wage and hour claims are filed in state courts, according to 80% of U.S. respondents.

U.S. respondents listing the claims that create the greatest monetary exposure again start with wage and hour (43%) and include retaliation (33%), which is somewhat surprising, since just 12% list it as an area where the number of disputes has increased. Race and age discrimination are next on the monetary exposure list (28% each).

Class Actions Remain Flat

One-quarter of all respondents have faced one or more class actions in the U.S. over the past 12 months, a level that has remained fairly consistent over the past four surveys. There has been a gradual increase among larger companies in recent years, rising from 36% in 2009 to 39% in 2010 and 41% in 2011. Half of the retail/wholesale and insurance sectors report one or more class actions against them. Labor and employment and consumer cases are the most common types. For example, 80% of retail/wholesale companies have had a labor and employment class action, and 25% at least one consumer class action.

Privacy/Data Protection and the Cloud

One-quarter of all respondents have encountered privacy/data protection issues in the past 12 months, down from 43% last year, but still significant. Cloud computing is now used by more than a third of public companies surveyed, nearly half of the technology companies, and about a third of manufacturers. Forty percent of the companies using cloud computing have had to preserve and/or collect data from the cloud in connection with actual or threatened litigation, disputes or investigations.

Evolving e-Discovery Issues

Just over a third of all respondents say their company has made a concerted effort to be more cooperative or transparent with opposing counsel in the discovery process, and 57% of those say they benefited from lower litigation costs. The most common reason given by respondents from companies not making the effort is a litigation strategy of defending on all fronts.

About a third of all companies surveyed have had to preserve and/or collect data from an employee mobile device for litigation or an investigation. More than half of those companies found that the wide distribution and/or disconnection of devices was the biggest challenge.

Almost a fifth of the companies in the survey have had to preserve or collect data from an employee's personal social media account in connection with company litigation in the past 12 months. Meanwhile, 45% of companies in this year's survey have no restrictions on the use of social media websites by internal network users, an increase from the last time the question was asked in the 2009 survey, when 34% had no restrictions.

Conclusion

As the moving parts driving the global economy become more numerous and complex ' from technology to business operations to the regulatory framework ' the litigation landscape will continue to change, sometimes gradually and sometimes quite rapidly.

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