Dubious data from Fulbright’s litigation survey: 0.53% of revenue on average spent on litigation

Law departments in the US and UK should pore over the findings from Fulbright & Jaworski’s Second Annual Litigation Trends Survey, which is based on 304 US and 50 UK interviews or survey responses. I reviewed the 32-page summary report and the 126-page full report.

Notwithstanding my appreciation for the report as a whole, I question one metric proclaimed (2005 at 2): “A corporation with $1.5 billion in revenues averages more than $8 million per year in corporate litigation costs.” I could not locate the underlying data for this sentence.

Two quibbles: I presume the sentence means that the average annual litigation spend for the 103 corporations in the survey that reported revenues of $1 billion or more was somewhat more than $8 million. Second, the term “corporate litigation costs” certainly includes external counsel and other vendors, but does it also include settlements and judgments? In this study it might also include “regulatory proceedings” and arbitrations (at 8)

The rest of the summary report does not explain the calculation of this metric, but the typical spend on litigation counsel for billion dollar plus companies is not 0.53 percent of revenue. For companies of this size, total legal spending – inside and outside – does not typically rise that high, let alone the litigation component. Total spend is usually around 0.4 percent, of which external spend is commonly about 60 percent. Litigation typically accounts for 50-60 percent of external spending. Ergo, litigation spend would be about 0.12 percent, not 0.53 percent.

If the metric of $8 million for a $1.5 billion company includes settlements and judgments, thus accounting for the higher figure, the report should highlight the scope, because we rarely find data on resolution amounts. (See my post of May 30, 2005 on including settlements and judgments in total legal spending and July 16, 2005 on some partial data.)