In Litigation, It's Usually the Fall that Kills the Client
By John W. Toothman
Washington Business Journal (May 13, 1994)
Tell all the lawyer jokes you want, but sooner or later the legal system will get the last laugh. For many businesses, the punch line arrives as a lawsuit. Whether the case is a frivolous jab from a disgruntled employee, sour grapes from a competitor or overzealous ranting by a government regulator with political ambitions, just having the litigation label slapped on your business can be the kiss of death.
Thanks to the terrible reputations of lawyers and litigation, few people look behind that label to consider the real merit of the case; even fewer know what to look for if they bother. A whiff of impending litigation can cause lenders to reexamine loans, venture capitalists to venture elsewhere and suppliers to close the supply spigot.
According to Bob Kagle, general partner with TVI, a venture capital firm in Menlo Park, Calif., "several times, the existence of litigation has been a deal breaker. "No matter how confident the company is that it can win, the fact is that the case will be a sink of time and energy," concerns Kagle.
For a company with publicly traded stock, a threat of litigation can send its stock price tumbling, regardless of the merit of the case. A highly visible case in point is the federal government's ongoing investigation of Microsoft Corp. on allegations of illegal product tying and unfair trade practices relating to sales of MS-DOS and other Microsoft products.
Microsoft's stock dropped five full points on Aug. 1, 1993, the day the Justice Department announced it would take over the investigation on which the Federal Trade Commission had already wasted three years. Yet real action by Justice is at least another year away, probably two, which is plenty of time for intense lobbying to kill the case.
Even if the case gets to court, it may collapse under its own complexity, especially if the government draws one of the conservative judges appointed by Presidents Bush or Reagan -- the philosophy and stamina of the trial judge are critical to the outcome of this case.
Beyond lobbyists and the judge, the government's biggest handicap in pursuing Microsoft is very basic: After 12 years of attrition and inactivity, the Justice Department lacks the seasoned, aggressive antitrust lawyers it would take to bring this monster of a case to court. "When President Reagan took office, the Antitrust Division lost some of its best trial lawyers. Since then, its bark often has been worse than its bite," according to Barry Coburn, special assistant to the Director of Operations of the Antitrust Division until 1985.
Recently there has been a much publicized multimillion dollar effort by Assistant Attorney General Anne Bingamen to hire and train dozens of new antitrust lawyers, but most of them are being drawn from large law firms -- impressive resumes, but no practical experience. Microsoft is an example of how factors like the legal team and the philosophy of the trial judge can make the real threat of a case far less immediate or, ultimately, significant than the public imagines.
Litigation occasionally kills companies, but it is more often this stigma, the interminable litigation process that Bob Kagle called the "sink of time and energy," or the attorney fees, not the case's eventual result, that tortures companies to death first.
To prepare for the real problems litigation can cause, here are five pieces of advice every business should place in a glass container labeled "In Case of Litigation Emergency, Break Glass and Read Immediately":
©1994 John W. Toothman
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