A few months ago I was contacted by one of the firms that brokers analysts and told  that we should get ready for a wave of litigation and related expert witness work. During a downturn, people tend to get more concerned about the money that is leaking through the cracks and competitors who appear to be taking unfair advantage. In addition, law firms face a reduction in retainer income and the reality that companies generally cut back on insurance-like services, like legal support and consulting, as their critical needs (keeping the lights on) take up a higher percentage of their declining income. This comes together in the form of increasing litigation between companies and class-action litigation initiated by law firms. I’m not aware of this ending well; it can cripple vendors, destroy companies and careers, and put additional pressure on markets that are currently treading water.

SCO and Why Litigation Is a Bad Competitive Tool

SCO is a perfect example of why litigation is a bad choice as a competitive weapon in any industry. It has to do with competence. If you were an expert in tennis, for instance, you wouldn’t choose to compete in Grecian wrestling. Litigation is a complicated skill and one that requires a high level of expertise. Few CEOs know how to compete with it. Those who do tend to be in the litigation business. SCO was a perfect example of a firm choosing to compete through litigation, though it had no real clue how to do so.

Baystar Capital, its biggest investor, tried to get it to shift to a litigation-centric management model and wisely asked for its money back when SCO’s executive team refused. This lack of focus resulted in a long string of mistakes that eventually killed the company and made Baystar, in hindsight, look incredibly wise for exiting.

The reason litigation looks so attractive is that people focus on the large public settlements, not on the large public failures, and tend to see cases only from their own perspective. This leads to decisions that are incredibly expensive and largely unsuccessful. In litigation, both sides believe strongly that they are right. One side is generally very wrong and doesn't know it. TV helps create an impression that the good guys win and the bad guys lose, and that the entire process is over quickly. The truth is that the outcome is never certain, it always costs more and takes longer than planned, and it is seldom clear to the court who the good guys and bad guys really are. The first storm appears to be surrounding Intel.

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