Two numbers about discovery costs and total litigation costs, with circumspection

Sophie Ross of FTI wrote recently that “many analysts estimate that the cost of legal review comprises about 70 to 80 percent of total e-discovery costs.” This is from Met. Corp. Counsel, Dec. 2011 at 15. sophie.ross@fticonsulting.com Earlier, she states that Fulbright & Jaworski found recently that “on average a corporation spends $3 million per legal case.” The quote about review costs follows, implying that about 75 percent of the average $3 million case goes to document review, or something over $2 million per case. Clearly, the implied and extrapolated conclusion is unsupportable.

The Eighth Annual Litigation Trends Survey Report of F&J (at 21) found that 47 percent of the 275 U.S. companies it surveyed spent less than $1 million on litigation annually. After all, as seen on page 5 of the report, one third of the respondents had only 1-5 lawsuits in 2010 and another quarter had 6 to 20. Only about one-half of the companies had revenues greater than $1 billion. Thus, at typical figures of a half percent of revenue going to legal expenses, the other half of the survey population would have been unlikely to spend in total more than $5-6 million, of which two-thirds or so went to external counsel and vendors. So half the survey population came nowhere near spending $3 million per lawsuit.

Moreover, the most common causes of litigation pending against U.S. companies (at page 11), were disputes over contracts (about 44%), labor and employment (46%), and personal injury (23%). Few suits of those kinds incur costs in the millions of dollars.