Alternative Dispute Resolution May Be A Win-Win
Monday August 8th, 2011 - 10:14AM
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It was more than 15 years ago when the CEO of a then-surging specialty appliance company shared with me his rather blunt business philosophy: “Innovate and litigate.”
It made sense, after all, that if a company was going to pour so much of its resources into original product, it had better be prepared to defend its intellectual property vigorously at all costs.
He wanted everyone to know his legal cannons were loaded and aimed at anyone who might even think about encroaching his private turf. It wasn’t just a threat. The company was quick on the trigger with lawsuits, securing injunctive relief, damages or favorable settlements in a number of them.
The Ultimate Cost
The company was out of business before the millennium. Some suggested the constant litigation, necessary as it seemed at the time, was a drain on product development and marketing. Despite its success in the courts, the company couldn’t sustain its success on the retail shelves.
The litigation had muffled the innovation. The ultimate cost to the company outweighed all of its legal rewards.
I was reminded of all of this as officials from the International Housewares Association detailed an initiative endorsing the use of alternative dispute resolution (ADR) to avoid the escalating costs, duration and distraction of litigation. The IHA is encouraging its members to sign a non-binding pledge that they would explore collaborative ADR techniques— such as negotiation, mediation and arbitration— before triggering full-blown litigation (see story in HomeWorld's August 8, 2011, issue).
The ADR Pledge
The goal of the ADR pledge is not to choke the threat of legal action. Brandishing that loaded cannon is every company’s right, and it can be a potent deterrent. Making more executives realize they don’t always have to fire the cannon and why that might be better for their companies… that’s the real objective.
The discouraging news is the potential need for ADR is on the rise because the potential for legal disputes is on the rise. Globalization and the accelerating pace at which this industry moves have increased the chances of blatantly dishonest or recklessly problematic actions.
It’s enough to make weighing the potential efficiency of ADR against the typical cost and time of litigation a worthier exercise in today’s delicate market.
Most litigation ends up in a settlement. Most litigation also takes three years or more. If you could arrive at an acceptable compromise in six months or less, wouldn’t you prefer that option?
That’s the promise of ADR, which in theory moves faster and cheaper by keeping decision-making during the dispute in the hands of the business parties involved, not the courts.
It’ll take more than a non-binding pledge to change the culture of any industry conditioned to flex its legal muscle at the first sign of trouble. Signing the ADR pledge is an admirable start, though, even if all it does is cause a company to pause to consider everything that might be done to avoid the excess cost and distraction of protracted litigation.
Those who sign the ADR pledge shouldn’t be viewed as any less vigilant when it comes to protecting their legal rights. But sometimes it seems lawyers are the ones benefiting the most from the cascade of lawsuits.
With ADR, you don’t always have to win a lawsuit to win in the long run.
Dissecting what Ron Johnson got wrong during his brief, calamitous term at the helm of J.C. Penney is sure to be the focal point of retail strategy and tactics lessons for years to come. But Penney’s future could still hinge to some extent on what he got right.