If you’re in the business of doing business, disputes are unavoidable. Disputes can come from a wide variety of sources, be they competitors, regulators, suppliers, creditors, or clients. As a field defined by its participants, commercial litigation covers a wide range of types of legal actions and disputes.
What connects civil litigation across all this variety is its impact on the parties: commercial litigation is both tremendously costly and highly disruptive, and its outcomes can have a significant impact on the way a company does business. Because of this, the goal of those involved in a commercial litigation dispute is deceptively straightforward: get it over with as fast as possible, with as little consequences as possible.
In this article, we’ll take a look at six types of commercial litigation, and discuss tools and strategies companies can use to reduce cost and disruption as much as possible.
What you’ll find in this blog:
What is commercial litigation?
Why does commercial litigation matter?
Commercial litigation vs. other civil litigation
The 6 types of commercial litigation
1. Securities Litigation
2. Breach of Contract
3. Intellectual Property (IP) Litigation
4. Antitrust Litigation
5. Regulatory Disputes
6. Consumer Class Action
How to resolve commercial litigation cases
What Is Commercial Litigation?
Commercial litigation is the area of the law that deals with disputes either between commercial entities, or between commercial entities and regulatory agencies. Included in this umbrella term are, amongst others, securities litigation, breach of contract, intellectual property (IP) litigation, antitrust litigation, regulatory disputes, and consumer class action suits.
Why Does Commercial Litigation Matter?
Nearly every corporation in the United States has to deal with litigation, with the average US corporation balancing a docket of 37 lawsuits, and in companies with US$1+ billion in revenues, that number rises to 140 suits. Additionally, commercial litigation matters because of the impact it has on the companies involved. Even if we put aside the costs involved (we’ll get back to them later), litigation can be tremendously disruptive: it can distract from the running of the business itself and takes away valuable time from the individuals involved in the handling of the case. What’s more, the reputational damage a company can incur can have consequences both during and long after the suit. The reputational cost of a case goes up the longer it takes to find a resolution.
A stained reputation may cause:
- Existing clients to leave;
- Prospective clients to stay away or choose competitors;
- Suppliers to hesitate doing business;
- Future issues, as regulators and suppliers may be less inclined to seek alternate means of conflict resolution.
Going back to the cost aspect, commercial litigation is expensive. In 2019, law firm Norton Rose Fulbright found that corporations spend US$1.5 million in litigation per billion in revenue. In 2010, a survey report presented at the Committee on Rules and Practice and Procedure Judicial Conference of the United States found that amongst respondents (Fortune 200 companies), the average cost of outside litigation was nearly US$115 million in 2008, with an average 9% increase measured year-over-year between 2000 and 2008. Moving that annual percentage forward at the same rate, that would mean those same companies spent $323.5 million annually on outside litigation in 2020. That is, assuming that the growth rate remained the same between 2008-2020 as it was in 2000-2008. If anything, the estimate is likely on the lower end.
In short, commercial litigation is expensive, financially and otherwise.
Commercial Litigation Versus Other Civil Litigation
Since commercial litigation doesn’t deal with criminal charges, it falls squarely under civil litigation, or dispute resolution. No one’s going to jail at the end of a commercial litigation suit, after all. As with all civil suits, the parties in a commercial litigation go through a set process that starts with a grievance and ends with a judgement (on appeal). Along the way, attorneys are retained, facts investigated, discovery conducted, suits filed, etc. etc.
What separates commercial litigation are features unique to it, usually due to the fact that the parties involved are corporations rather than individuals:
- Cases tend to be more complex and highly specialized;
- Commercial litigation suits tend to be filed in federal courts, rather than the state courts common for other civil suits;
- Commercial litigation cases take longer to resolve, with cases sometimes dragging on for years;
- The Discovery phase of the procedure takes significantly longer, with eDiscovery and/or (digital) forensic experts entering the fray.
Unsurprisingly, because of the expertise involved and time needed, commercial litigation tends to be significantly more expensive than other types of civil litigation.
6 Types of Commercial Litigation
With the amount of legal firepower corporations can muster, it should be no surprise that there is a very long list of possible types of grievances they can file against other corporations. As stated earlier, the most common types are securities litigation, breach of contract, intellectual property (IP) litigation, antitrust litigation, regulatory disputes, and consumer class action suits. Let’s look at these six in that order.
1. Securities Litigation
Securities class action lawsuits occur when investors file suit against a publicly traded company for perceived violations of securities laws, leading to economic injury. Investors may sue a corporation in which they hold stock when said corporation has lied to them about facts to support decision made, or committed some type of fraud. In 2020, securities related settlements exceeded US$5.8 billion, a 61% increase compared to 2019.
The largest securities class action settlement in recent years was US$1.21 billion, paid out by Bausch Health, formerly Valeant Pharmaceuticals, which came at the end of a long process started in 2015. In this case, shareholders alleged they had been misled by investors about the financial performance and business operations by the company. As part of the settlement, Bausch Health admitted no wrongdoing.
Perhaps the most famous case of fraud-related securities litigation is the one involving the Enron Corporation, which culminated in the corporate giant, with over US$100 billion in revenue claimed in 2000, filing for bankruptcy in 2001.
2. Breach of Contract
For the most part, breach of contract cases are exactly what the name implies: a contract was signed between parties, but the terms weren’t fulfilled. However, breaches come in different forms. To illustrate these types, let’s assume two parties sign a contract that says Company A will deliver 500 ballpoint pens to Company B by January 1st, 2021:
- If Company A makes it known by December 1st 2020 that it cannot fulfill the order, and is unable to deliver the pens by the agreed-upon date, Company B can sue Company A for breach of contract. This is called an anticipatory breach.
- If Company A doesn’t say anything, but simply doesn’t deliver any ballpoint pens by January 1st 2021, Company B can again sue Company A for breach of contract. In this situation, the breach has in fact occurred, and is thus an actual breach.
- If company A does deliver by January 1st 2021, but instead of ballpoint pens they deliver a shipment of pencils, Company B can sue Company for breach of contract, this time for a material breach.
- Finally, if Company A does deliver ballpoint pens by January 1st 2021, but instead of 500 pens they only deliver 300, Company B can sue for a minor breach of contract.
Regardless of the type, Company B may pursue Company A for a breach of contract, and can seek damages and restitution for two types of damages. First (and easiest), expectation damages, Company B can demand to be reimbursed for all (or part) of the money they paid Company A for the ballpoint pens.
The second type of damages are consequential damages, or damages incurred by Company B as a result of Company A breaching the contract. Putting a number on consequential damages can be tricky, and is often subject to negotiations between parties. To illustrate, let’s say Company B planned to bring the ballpoint pens to a major trade show as a way to attract people to their booth. With no pens to give out, nobody was interested in talking to them. Company B may argue in court that the consequential damages of the breach of contract extended to the cost of the event itself, and potentially even the expected business result from the contacts made at said event. Company A will of course dispute this and… well, that’s why court cases can take a while.
Beyond financial damages, breach of contract can also be used to release the non-breaching party from contractual obligations in the same contract (rescission), or for the breaching party to (partially) remedy the breach by performing a certain action, this type of specific performance usually happens if the damages are not able to cover the losses.
Lately, the events surrounding the global COVID-19 pandemic have likely led and will continue to lead to a rise in contract breach cases, with businesses unable to operate normally.
3. Intellectual Property (IP) Litigation
Like contract breaches, Intellectual Property litigation can seem straightforward: copyrights, patents, trademarks and trade secrets. One party owns it, another party uses it without permission, the party that owns the IP sues, and we’re off. Although by no means simple, IP cases tend to be relatively uncomplicated compared to (for example) securities cases. The role of the court is to decide whether or not the infringement occurred, and if it has, what damages the wronged party is entitled to.
For example, in 2008 MGA Entertainment (the makers of Bratz dolls) were sued by Mattel Inc. (the makers of Barbie dolls). Mattel’s contention was that their former employee, Carter Bryant, the creator of Bratz for MGA, had conceived of Bratz while employed by Mattel. Bryant’s employment contract assigned Mattel rights, title and interest to Bryant’s inventions (including, but not limited to, discoveries, improvements, processes, developments, designs, data computer programs, and formulae, whether patentable or unpatentable). The two companies spent the next 3 years fighting in court debating whether or not those stipulations could include ideas Bryant had while under contract.
Judgment initially went against MGA in 2008, with rulings awarding Mattel US$100 million in damages paired with decisions by the court that effectively prevented MGA from selling their dolls in the future. In 2009, they successfully petitioned the court to reverse that decision. Finally, in 2011, MGA won their appeal, and were awarded over US$300 million in damages and fees.
4. Antitrust Litigation
Antitrust laws aim to promote competition between corporations, to the benefit of consumers. The three main statutes are the Sherman Act of 1890, the Clayton Act of 1914 and the Federal Trade Commission Act of 1914. Antitrust laws seek to achieve three key results:
- Prevent price-fixing, cartel operations, and other activities that unreasonably restrain trade;
- Restrict corporate mergers & acquisitions that likely reduce competition;
- Prevent the abuse of monopoly power.
Antitrust cases can be brought either by the United States government, or other corporations who are in some way wronged by antitrust law violations (usually victims of cartel activity).
The results of antitrust cases can range from fines, to mandatory policy changes. In some cases, where harmful monopolies are involved, the courts can order companies with monopoly power to break up themselves up into smaller companies that will compete with one another, such as in the cases of Standard Oil in 1911 and the AT&T Corporation in 1983. A similar type of breakup nearly happened with Microsoft in 2000, but this was reversed on appeal, with Microsoft coming to a settlement with the DOJ that saw significant restrictions imposed on the tech giant.
In late 2020, another tech giant, Google, was sued by the DOJ and two separate coalitions of states for antitrust violations, just like Microsoft, AT&T and Standard Oil were before. Given the timeline of the most recent comparable case (Microsoft, 1998-2002), the Google suit may take a long time to resolve.
5. Regulatory Disputes
In cases where a corporation is accused of breaking rules set by regulatory agencies, companies can find themselves sued by regulators for financial damages to compensate for their rule-breaking. On occasion, in addition to civil suits (which we’re discussing here) those who break regulations may find themselves criminally liable as well. To some degree, regulatory disputes overlap with antitrust litigation (cases can be brought by U.S. Department of Justice or the Federal Trade Commission), other times, fraud charges can be brought by financial regulators (e.g. the Federal Housing Finance Agency suing 17 Wall Street banks for securities fraud).
6. Consumer Class Action
Class action suits happen when a large group of wronged parties are treated as a ‘class’ and found to be a single party in a lawsuit. In the case of consumer class action, these parties are individual consumers, obviously. Consumers who feel they are wronged by a company may seek out others who are similarly aggrieved, and sue as a class.
Examples of class action suits are numerous, with cases concerning a wide range of topics and alleged misdeeds, from privacy violations to faulty products, and from improper practices to unwanted telemarketing. Consumer advocacy groups maintain listings of open class action suits where aggrieved consumers may join in on the suit.
As with all of these types of commercial litigations, results vary: by far the most commonplace result is a settlement out of court, since recovery of legal fees is highly unusual in Class Action suits, it makes sense for a defendant to want to get out of court as fast as possible: even if they win the case, they have no way of recouping their legal expenses.
In case they do get to court Consumer Class Action (if won by the plaintiff) are granted settlements. If not, there’s very few consequences. Attorneys for Consumer Class Action suits usually work on a no-cure-no-pay (otherwise known as “contingent fee”) basis.
How To Resolve Commercial Litigation Cases
Whenever possible, the best way to deal with incoming litigation is to avoid going to court. As we stated above, commercial litigation cases have both a financial and reputational impact. It is, at its core, dispute resolution: virtually any solution other than going to court is usually worth the effort. Alternative Dispute Resolution, or ADR, makes it possible to find solutions to disputes that don’t include the long drawn-out process that usually accompanies court cases. Seeking a solution outside the courthouse is viable, for example, for contract breaches and cases involving intellectual property.
Of course, arbitration isn’t always possible, since both parties must agree to it. At times, settling out of court may prove a good strategy. Settling out of court is especially viable for corporations who find themselves subject to a Consumer Class Action suit, since there’s often no way of recovering legal fees, even if the case is ruled in the defendants’ favor.
If arbitration and settling don’t work, and there’s no way to avoid going to trial, then the only thing to do is to make sure the process requires the smallest team (while ensuring the quality doesn’t suffer), and avoid disrupting the business as much as possible. Nowadays, that means automating where possible and using eDiscovery tools (like ours!) to quickly and efficiently gather, process, and produce evidence on one end, and search evidence provided to you on the other.
Of course, even using the best tools available to you doesn’t mean you’ll win, but it’ll keep the costs down as much as possible, without requiring daily business coming to a grinding halt. It’s worth reminding ourselves that when Microsoft won their case against the Department of Justice in 2001, and were allowed to remain a single company, the company leadership was so distracted by the suit that they weren’t able to focus on developing their phone operating system. According to Bill Gates: “There’s no doubt the antitrust lawsuit was bad for Microsoft, and we would have been more focused on creating the phone operating system, and so instead of using Android today, you would be using Windows Mobile if it hadn’t been for the antitrust case.”
Commercial litigation is a varied, wildly complicated field through which different actors seek what they believe justice to be. Disputes can arise from such a wide variety of sources, that it is almost impossible for any corporation of significant size to avoid lawsuits for any meaningful amount of time. Dealing with legal disputes of all kinds is business as usual, and as such dealing with the costs involved should be considered part of the cost of doing business.
At the same time, finding ways to reduce both the time and the costs associated with legal disputes is vital. As stated above, lawsuits bring with them a hidden cost that is hard to quantify, but impossible to ignore: while the dollar cost of the commercial litigation impacts the bottom line, reputational damage impacts the company’s ability to generate that bottom line.
Making use of eDiscovery tools allows companies to ascertain quickly what their legal exposure or risk is, allowing them to make a more informed decision when it comes to settling. If you know you’re going to lose, avoid fighting. When data is received from the opposing side, effective eDiscovery can provide you with in-depth insight into the evidence provided to you. In all, it helps you win faster, and understand when it’s time to walk away. Lastly, using the automation options eDiscovery solutions provide help create a faster, more consistent and defensible way to manage the data involved in modern commercial litigation.