Finding high-quality local counsel in regions with especially complex legal systems is one of the greatest challenges companies face
Gone are the days when a company mostly had to face court battles with competitors or customers who were around the corner or across the country. These days, the reach of these battles is worldwide. One net effect of a global economy is that companies doing business everywhere can also end up in court anywhere.
A recently released report from international law firm Hogan Lovells, 2013/14 Global Currents: Trends in Complex Cross-Border Disputes, analyzes the volume, proportion and cost of cross-border disputes. The portrait isn't pretty. Of the nearly 150 senior lawyers and executives from large global companies who responded to the survey, 30 percent said they have caseloads that consist of cross-border disputes, while half the general counsel polled expect an increase in these battles royale over the next two years.
Cases can be expansive, with 90 percent involving two or three countries, and some crossing into as many as 50 jurisdictions, according to the report. It's bad news on the bottom line. Cross-border fights are also costly -- $2.3 million to $6.5 million when they involve two to five different countries.
Much of the rancor in the cases stems from customers and suppliers wrangling over commercial, contractual or intellectual property issues. Other cases center on regulatory actions against companies for antitrust and other matters.
'We tried to obtain information about what are the real challenges and how companies are dealing with them, so that the information would be useful to general counsel facing similar issues,’ says Dennis Tracey, a partner in Hogan Lovells' litigation and arbitration practice.
Research revealed that the legal systems in the United States, China, India and Brazil are seen as posing the biggest challenges, with the US environment especially daunting. 'The perception is that there are significant damage awards here. There are contingent fees and in the US, class actions are common. The US is a country of law and a highly professional bench,’ Tracey says.
Cross-border disputes bring unique headaches. It's tough enough for companies to comply with their home country's regulations, let alone those in foreign jurisdictions with which they may not be familiar. Matters are further complicated by different time zones, cultures and languages. The greatest challenge, however, is finding high-quality local counsel in difficult regions, according to the survey. That was a problem particularly for US-based companies, says Tracey.
Still, for all the negative buzz about cross-border disputes, the report concludes that these lawsuits aren't always a bad thing. In fact, they can be powerful strategic tools.
'Say you are a global pharmaceutical company and you are in litigation because you believe your patent has been violated by sales in seven countries. If that litigation enforces your patent rights and you get an injunction that stops your competitors, then a lawsuit becomes critical to your business strategy,’ Tracey explains.
The takeaway is that cross-border disputes are costly, complex, and more prevalent than ever before. Companies are waking up to this reality and, according to survey respondents, using several strategies to better manage the process, including evaluating cases early, handling more of them in-house rather than seeking outside counsel, and settling early, versus long, drawn out litigation.
Companies are also being more proactive by reviewing procedures and ensuring that their compliance programs satisfy multiple jurisdictions.
Such steps are a good start, but going forward, even more will be required as the volume of cases and their complexity continue to increase. Firms will need to expand their internal expertise, including technical know-how and project or case management skills in foreign jurisdictions. Companies will also need to build stronger relationships with international law firms, says Tracey.
Although the report finds that boards are intensifying their scrutiny of cross-border disputes as they assess what they mean for their company's reputation and what the cost and exposure to risk mean for their business models, boards can go further still.
’They have to exercise their authority and ask hard questions so cross-border disputes don't get out of control.’ Tracey says.
