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Do This Work Before Filing a Commercial Lawsuit

Posted by attorney Mark Walters

The law and litigation are business tools. Litigation should only be used when your software company's business needs require it, and only when the business analysis conclusions support litigation for an achievable and favorable business result.

In my experience, most litigators do not think like this. Very few litigators have ever owned or run a business and most litigators do not think like a business owner. It's not their fault; it's their training. Litigators are trained on the law and the litigation process, not on how to run and grow a business. Furthermore, many litigators fail to fully appreciate and properly advise their software company clients on how hugely distracting the lawsuit will be, and the huge risk this imposes on the business.

Making matters more complicated is the economic reality that litigation firms profit from clients that file and proescute lawsuits. Indeed, unless the litigation firm has clients that pay them to file and prosecute lawsuits, the litigation firm dies.

Commercial litigation should only be filed after the software company's management team has conducted a pre-litigation analysis that includes at least the following factors:

  1. Legal analysis based on the law and facts, including statute of limitations and review and analysis of evidence;

  2. Economic damages analysis (how much can you collect; what is the business value of the likely outcome);

  3. Estimate and recoverability of legal fees and costs;

  4. Risks of loss (economic, reputation, injury to goodwill, opportunity cost caused by distraction and momentum loss);

  5. Ability of the management team to stay focused on running and growing the business during the litigation;

  6. Is there a business solution that is likely to achieve a favorable business result with less risk to the business?

Because litigation firms are economically incentivized to have clients who sue, it is a best practice to have the analysis led by a lawyer with no economic stake in the business decision to file or not file the lawsuit. In fact, this is what a Fortune 100 company General Counsel does for the Fortune 100 company. This independence helps the management team make better decisions. Don't forget: Litigation firms view litigation as the answer to commercial disputes and most litigation firms expect to profit from your lawsuit win, lose or draw.

Finally, keep in mind that commercial disputes are business problems that can often be solved by business solutions. For this reason, I believe that most software company's can avoid commercial litigation all together if the management team focused on item 6 above (Is there a business solution that is likely to achieve a favorable business result with less risk to the business?) for 60 to 120 days before filing the lawsuit, if the statute of limitations allows. Think and approach the problem with new thinking. Hire consultants if necessary to explore the situation and attempt to define a paradigm shift that can achieve a favorable business result with less risk to the business, and do not underestimate the risks that litigation will impose on the business.

Yes, your software company will need to spend money to define and implement a business solution, but the litigation firm expects to be handsomely paid. Hence, your management team should compare the cost to define and implement the business solution to item 3 above (Estimate and recoverability of legal fees and costs) and the anticipated value of the favorable business result to item 2 (Economic damages analysis) and and make a business decision.

Never file a lawsuit without doing this work first.

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