the litigation risk management approach to strategic ip litigation

34 Coquito Court, Menlo Park • California 94028 • Phone 650.854.1914 • www.litigationriskmanagement.com • [email protected]

LitigationRisk Management

Institute

Bruce Beron, Ph.D., President

Strategic Litigation Risk Management & Settlement Valuation

A Process To Better Understand & Manage The Risks of Litigation & Settlement

Risk ManagementLitigation

Institute © Bruce Beron 2014 LRSMV Strategic Process

Clients who have faced significant litigation have expressed concerns and worries with similar themes.

What is the overall exposure/up-side of the litigation and is there anything we can do about it?How might the litigation affect the business?Can any business decisions influence the litigation?What is the most we should pay/least we should accept to settle cases?Are we getting the best possible settlements - how much are we leaving on the table?Are the legal teams and business management communicating effectively?

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For the past 30 years we have been helping Fortune 500 clients to address these concerns - quantitatively and unambiguously.

We lead them through a structured Risk Management Process that:• Makes sure the right people are using their time and expertise

effectively and efficiently

• Illustrates the overall exposure/gains.• Determines proper settlement valuations• Ensures the best settlements • Enables clear, unambiguous communications among all the

team members and builds alignment among• Inside & Outside Counsel•Business Management•The Board.

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People

Case Teams

Litigation Steering Team

Process

Proper Risk Management requires the right people, following the right process with high quality content.

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To best understand and manage the litigation, settlement and business risk, you need teams at different levels in the organization.

Senior Management TeamDepending on the import of the case, there may be no need to involve Senior Management.

Litigation Steering Team

Case Team

People

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Senior management has the authority, but not the time, to manage the process. However, they must participate to the degree necessary to give them confidence in the results.

• The Senior Management Team should be the people with the ultimate responsibility to the board of directors.

• CEO / COO / Unit Business Manager

• GC / Head of Litigation

• CFO / Finance

People

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The Litigation Steering Team provides the overall guidance to the Case Teams and communicates results back to the Senior Management Team.

• The Litigation Steering Team should include people who have a broad understanding of the issues and knowledge of where to go for information and expertise. They should have good judgment and trust, both up and down, in the organization.

• Head of Litigation

• Lead Inside Counsel

• Overall Lead Outside Counsel

• Lead Outside Counsel for the type of Litigation

• Class Actions, Individual Cases, Regulatory, Securities, Coverage, etc.

• Unit Business Manager / Director

People

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The Case Team is where most of the work gets done and requires members who have the knowledge and experience. with the litigation and / or the business

• The Case Team should have the detailed knowledge and understanding to guide and facilitate the risk analyses for each class of Litigation and Business Impact.

• Outside Counsel with working responsibility for the cases

• Managers having working familiarity with business units or lines impacted

People

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The composition and number of teams is highly dependent on the company’s organization, customary practices, job responsibilities and the cases at hand.

• At the early stages of the process, the Senior Management Team participation is optional.

• The Litigation Steering Team is central to the process — the composition can be flexible.

• At least one Case Team must be included.

• For small or routine cases we usually work solely with a Case Team.

• If necessary, an appropriate level manager/attorney in the legal department and a business manager act as the Litigation Steering Team.

People

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The Litigation Risk Management Process ensures the effective, efficient, timely management and resolution of the situation.

Litig

atio

n St

eerin

gTe

amC

ase

Team

s

Review FullRelevanceDiagram

ApproveNegotiation

StrategyObjectives

ReviewSettlementValuation

Approve: DesignFrameIssues

1. Frame Litigation & Business Situation

2.DevelopFull Relevance Diagram Case by Case

3. Evaluate Expected Outcome& Risk:Overall & Case by Case

5. Refine Manage & UpdateNegotiation Strategies

0. DesignProcess

High Level Relevance Diagram

Seni

orM

anag

emen

tTe

am

4. Develop Negotiation Strategies for Settlement Opportunities

ReviewSettlementValuation

Process

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It is important to differentiate Mean or Expected Outcome and Risk.

Most people think of Risk as a nebulous combination of likelihood and a bad consequence.

• If we try this case, we might (likelihood) take a big hit (consequence).• Our goal is to make this explicit by quantifying both components.

We will develop a clear, quantitative picture of the range of possible outcomesThis picture can be usefully summarized by two numbers:

• Mean or Expected Outcome is the probability weighted or average outcome and represents the Reservation Price, the settlement value above which we will not pay or below which we will not accept.

• Risk is the range of possible outcomes, the uncertainty. • Expressed as a probability distribution or Risk Profile

• If the Risk is great enough, one should adjust the Reservation Price.

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It is important to differentiate Expected Outcome and Risk (continued).

Consider:

• A situation in which you will loose $100M with certainty is not risky, it‘s just lousy.

• A situation in which you might win either $10M or $100M is very good, but it is also very uncertain and therefore risky.

We want alternatives that both maximize the Expected Outcome and minimize the Risk.

Often we can only change one at the expense of the other.

• We need to understand these trade-offs.

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The Decision Tree is a strategic map of the possible outcome scenarios, their likelihoods and their consequences.

The difficulty in developing decision trees is keeping them simple, yet insightful and useful.

43

LitigateSettle

Settle 43

Litigate 71

Indemnification Limit = $50M

Settlement

Cross Claim 3

Litigation 60

Cross Claim 11

Liability

Indemnification Limit = $50M Indemnification

0.30 Lose Cross Claim 10

0.70 No

Litigation0.40 Lose

0.60 Win

0.30 Lose Cross Claim

0.70 No

ClaimExceeds

Indemnification

0.20 Yes

0.80 No

Expected OUTCOME PROBClaim (millions) Scenario

Amount

$40. 100.% 1

$100M $50. 6.% 2

$0. 24.% 3

$0. 70.% 4

$150M $150. 40.% 5

$0. 60.% 6

$35M $35. 30.% 7

$0. 70.% 8

Settlement Decision — Indemnification

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After the Mean Value and Risk Profile have been determined, we use proprietary game theory models to develop and execute an optimal Negotiation Strategy.

Focal point of this effort will be the Litigation Steering Team.

In the Negotiation Assessment Meeting

The issues up for negotiation are specified.Quantitative inputs for the model are discussed and agreed to by the Team

The results drive the development of a Negotiation Strategy

Regular phone meetings keep the inputs updated and allow refinement of the strategy.

5. Refine Manage & UpdateNegotiation Strategies

4. Develop Negotiation Strategies for Settlement Opportunities

Process

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The Negotiations Strategy Process delivers practical answers to key questions.

•To whom should we be talking?

•How aggressive should our opening position be?

•Who should participate in the discussions?

•Should we present a unified position?

•Whom can we influence?

•If an agreement is possible, what will the terms be?

•Will negotiations break down?

Process

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Litigation Risk Management & Settlement Valuation addresses critical litigation and business issues and delivers the best possible settlement.

It provides:

• A defensible course of action

•Explicit, quantitative Expected Outcome and Risk Profiles for each alternative

• A clear Negotiation Strategy that leads to the best possible settlement

• Clear communication among litigation teams and business management.

• Information presented in a such way that people hear what they need to hear, not what they may want to hear.

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the litigation risk management approach to strategic ip litigation

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