Litigation Continues to Rise

In today’s world, it is highly likely that any company will find itself in a dispute, and that this dispute will lead to a claim being filed either in a court of law or with an arbitral body. Particularly as the global economy continues to perform sub-optimally, many businesses find themselves experiencing financial challenges, supply stream interruptions, or even customers that do not want to pay what they are obligated to pay. Class action lawsuits continue to rise, employment-related claims are still permeating throughout the legal system, trade secret misappropriation claims remain in vogue, data breaches continue to foment litigation, and statutory claims are filed against companies on a regular basis. These are just a few of the many types of litigation that continue to play out on a daily basis before judges and arbitrators.

All trends evidence that the number of lawsuits or arbitrations being filed continues to increase. Those trends further reflect that litigation is expensive, with electronic discovery contributing mightily to the high costs.

Data Shows Continuation of Class Action Claims

The first half of 2024 has seen new trends emerge in the class action landscape. Securities class action filings have increased in the first half of the year, relative to where such filings stood in the latter part of 2023. More than 110 securities class actions were filed in state and federal courts during the first six months of 2024. While cryptocurrency-related class actions decreased in number, six new securities lawsuits were filed alleging liability resulting from the use of AI. This trend will only continue to rise as AI is further embraced in everyday business operations. Likewise, current cases pending before the US Supreme Court regarding pleading requirements for securities fraud class actions as well as concerning the disclosure of financial risk factors by public corporations may further open the courthouse doors to new claims.

During the first six months of 2024, class actions targeted three primary sectors – namely, technology, biotech and manufacturing ‒ and those three sectors involved 70 class action lawsuits. On the settlement front, the first half of the year saw settlements of 40 class actions totalling more than USD2 billion for class members.

The class action trends are not limited to securities suits. Throughout the past few years, class actions involving Americans with Disabilities Act (ADA) compliance and data breaches have ranked among the fastest-growing areas of litigation. This exponential growth has not taken a breather so far in 2024. The ADA has been on the books for more than 30 years, leading to profound changes in access to public and private spaces as well as targeting discrimination based on disability.

The growth of technology has transformed ADA enforcement by taking it into the digital world, as ADA class action suits today often revolve around virtual spaces. Maintaining an ADA-compliant website may prove more challenging than building a ramp or providing seating for those with disabilities. Many companies have begun using generative AI to maintain the accessibility of their websites, which may have led to the continuing increase in ADA claims related to website accessibility. Simply put, counting on generative AI to maintain website accessibility and avoid compliance issues is no more reliable than using ChatGPT as a source for definitive or uncontroverted facts.

In the employee arena, labour and employment class actions continue to rise, and companies report spending more money on defending such suits than on any other form of class action. The increase in such claims may reflect increasing employee dissatisfaction with pay or hybrid work policies, as well as a general increase in workplace activism.

Effect of Economic Trends on Litigation

It is no secret that, on a global basis, interest rates have remained fairly high and countries are suffering from high inflation. The labour market remains tight. Not surprisingly, broader economic trends such as these stretch corporate resources. This, in turn, leads to circumstances that have an impact on litigation.

Deal-making has been slow throughout the past year. As a result, the first half of 2024 saw a record low in the number of federal lawsuits filed challenging a merger. Indeed, only two such suits were filed.

That being said, in recent years, companies have entered into joint ventures, combinations or other forms of transactions. Now, in light of the economic challenges facing many companies, lawyers are being engaged to examine the finer points of those deals in order to provide a roadmap for companies to extricate themselves from a “losing” business relationship. The likely result? A lawsuit.

Continued Rebirth of Antitrust Litigation

During the past few years, antitrust claims have emerged after nearly two decades of slumber. This is particularly true in the technology and entertainment spheres. Among examples of this are the claims brought against Apple in March 2024, alleging that the company exploited its monopoly position to thwart competition from companies offering applications that competed with Apple products. Two months later, claims were asserted against Live Nation Entertainment and Ticketmaster (a subsidiary of Live Nation Entertainment), alleging that the company was engaging in anti-competitive behavior in the live concert industry. These are just a few of the more high-profile antitrust filings requiring expenditure on significant legal resources.

Technology and Litigation

Throughout the past decade, business has become more technology-centric as paper forms increasingly become a relic of the past. Businesses depend on cloud computing and other online activities to compete on a global scale. Massive amounts of data are collected and stored as part of companies’ regular business operations.

However, as a result of this technological shift, the news is replete with stories about data breaches and cyber-attacks in companies ranging from the Fortune 100 to small start-ups. Inevitably, following such a breach, lawsuits are filed. Some of the claims are being brought as class actions by plaintiffs’ lawyers on behalf of consumers; others are asserted on behalf of the party whose IT system was hacked against their insurers or other accountable parties, in order to seek compensation for any damage that was suffered.

Data breach class actions reflect this trend, increasing from approximately 200 filings in 2020 to more than 1,300 such suits in 2023. This trend continued throughout 2024. As long as data protection laws continue to be strengthened worldwide, new governmental regulations continue to be promulgated and massive settlements are announced, no one should expect the brakes to be pushed on the filing of these lawsuits.

Moreover, US states such as Illinois have statutes regarding the collection and storage of biometric information. As businesses have digitised many of their security, payroll and time-keeping functions, they have (often) inadvertently run afoul of state laws providing for the storage, collection and use of such information. This has led to a plethora of litigation that is poised to continue.

The trend for new suits in this regard has significantly slowed as most companies adopted the consents and other documents necessary to insulate themselves from liability. Yet a number of such suits remain pending and, as further states adopt laws regarding the collection and storage of biometric information, this trend may reverse.

The next wave of these suits may be lurking around the corner as companies gather genetic information. The collection of genetic information is governed by federal law as well as state statutes, often providing for steep penalties. These laws prohibit enquiries into family medical history, among other things, in connection with employment. In 2023, more than 20 class action lawsuits were filed alleging violation of the Illinois statute in this regard ‒ a trend that continued throughout 2024.

Technology has also led to increased litigation is in the trade secret arena. The odds of a company unwittingly finding another company’s trade secret on its computer system or experiencing an unplanned disclosure of its own trade secret are substantially increased today. This stems from a variety of reasons, ranging from employee mobility being on the rise, reductions in force, workplaces that are remote or hybrid, and workers increasingly bringing their own devices to the workplace. The number of lawsuits filed alleging the misappropriation of trade secrets has been continually increasing for the past several years and, thus far, 2024 is no exception to this trend.

Suits relating to employee non-compete agreements used to clog up court dockets. Now, as the federal government has taken steps to curtail the enforceability of such non-compete agreements and many states have followed suit, non-compete litigation is largely a relic of the past. However, trade secret litigation has taken its place, as companies endeavour to protect their assets. In recent years, litigation involving trade secrets has increased in sophistication, and clients have become more aware of the legal protections available under state and federal law.

Additionally, as competition has intensified in many industries, companies often turn to trade secret protection for their core economic business drivers instead of seeking protection under the patent laws. Financial drivers such as customer lists, algorithms, and other proprietary technology or business methods enjoy better protection as trade secrets, which essentially enables companies to continue to derive economic value from their protected secrets in perpetuity. As workforces with access to confidential and proprietary information remain increasingly remote, and workers display an increased willingness to speak out about business practices they do not agree with, the necessity for businesses to protect their confidential information is magnified.

Trade secrets are often core to a business’ economic viability, if not its success, and rank among a company’s most valuable assets; put another way, they are often a company’s “crown jewels”. Well-known examples include the formula for Coca-Cola, Google’s search algorithm, and the secret sauce recipe of McDonald’s. None of these examples enjoy patent, copyright or trade mark protection – rather, each is a protected trade secret. A trade secret enjoys significant advantages over the other forms of IP protection in that disclosure is not required and the “secret” can be protected for an unlimited period. Although many of the big IP litigation battles historically involved patent challenges, that is no longer the case. Many well-known companies are or have been involved in costly trade secret litigation in recent years.

This litigation in the trade secret space cut across a wide swathe of industries, ranging from cannabis to fashion and retail, e-commerce and consumer products. Historically, trade secret claims had been brought in state courts, but now ‒ following the 2016 passage of the federal Defend Trade Secrets Act (DTSA), which created a federal cause of action for trade secret theft ‒ claims are routinely brought in the federal courts.

On the recovery side, courts have continued to award successful plaintiffs substantial damages in trade secret cases. Although most claims are resolved prior to trial, the past five years have seen federal court trade secret claims result in large jury verdicts. If nothing else, recent years serve as a stark reminder that the damages that are being awarded for trade secret claims remain staggering.

ESG and Shareholder Lawsuits

Many businesses, both public and private, have embarked on ESG initiatives in recent years. Some of these plans were large and audacious, whereas others were more modest in scope. Either way, even though companies have traversed through increasing scrutiny from consumers, investors and government agencies in terms of ESG issues, the risk of litigation related to these efforts has never been higher. Much of this new ESG litigation has been filed in courts located in Washington, DC.

The past year has seen an increase in claims over corporate responsibility regarding ESG agendas. Most of this litigation is brought by private litigants or by government agencies intent on pushing back against ESG initiatives. And there are no signs of that changing any time soon.

New claims are targeting companies for activities taking place within their supply chains. By way of example, in February 2024, Starbucks was sued for advertising its products as “ethical” while at the same time sourcing its products (including coffee) from farms where labour abuses are reportedly taking place. Likewise, Mondelez (the maker of Oreos) was accused of misleading consumers by claiming that its production practices are “100% sustainable”. These types of lawsuits are not new but are increasing in number.

The rise in these types of suits resulted from increased awareness and heightened scrutiny surrounding ESG issues, non-profit organisations using local consumer protection laws (eg, in Washington, DC) that afford standing to sue, and increased litigation funding that has made the costs of such litigation more palatable on the plaintiff side.

Companies are also being challenged over their ESG initiatives as a whole. As a result, companies may be taking a new approach to laying out their environmental goals ‒ namely, they are not doing so, demonstrating an increasing trend towards “greenhushing” (or being radio silent regarding their approach to environmental goals). This most certainly does not mean that companies have eschewed setting environmental goals for their businesses. On the contrary, they continue to set goals but are simply not discussing those goals publicly, so as to avoid fomenting litigation.

Although engaging in greenhushing may be one antidote to the problem of increasing ESG litigation, it also deprives companies of the inherent value underlying public pronouncements of an ESG programme. Whether as investors or consumers, many are looking to engage with companies that are deemed to be advancing ESG initiatives. By staying silent, companies miss out on these associations and any attendant benefits that may accrue.

One path that some companies have engaged in as part of a litigation avoidance programme is to make their environmental statements aspirational rather than definitive. These statements are made in the vein of “we hope to achieve” or “we expect that we will improve” rather than definitive statements espousing concrete, measurable goals. Properly substantiated aspirational claims may prove to be a path to success.

However, companies should be forewarned that merely transforming goals into “aims” or putting “want” or “should” in front of a stated goal may not suffice to render that goal aspirational. And, even if the goal is aspirational, is it still definite enough for investors or consumers to rely upon it? If so, it may still be actionable, even if properly substantiated.

But what does it mean for a claim to be “properly substantiated”? How much substantiation is needed? Can the substantiation be from an industry group or does it need to be “independent”? These are just a few of the questions that need to be considered in substantiating claims. Best practices would suggest that independence and scientific rigour go a long way in providing a safe harbour for aspirational pronouncements.

Green marketing has also been a hot source of claims recently. While companies have responded to increasing calls for environmentally and ethically sustainable products by marketing their new offerings as “green”, private lawsuits alleging that these efforts are misleading or deceptive have multiplied exponentially ‒ a trend that will most probably continue its upwards trajectory. As a result, companies should engage in heightened efforts to avoid making environmental claims that may be overstated, inaccurate or misleading in any way.

“Clean” and “sustainable” are marketing words that are often used. Yet these words are currently giving rise to false advertising claims, proving once again that language matters. And the risk is not only of a false advertising suit. For public companies, if their marketing claims about a product lead to a decrease in the stock price, a derivative or securities claim will likely follow.

Litigation Costs Continue to Rise

The discovery process in litigation used to be characterised by teams of lawyers visiting warehouses where documents were maintained and reviewing those documents page by page in search of the proverbial “smoking gun” ‒ identifying which documents had to be produced in discovery and which documents might be left untouched, hidden in a company’s annals. However, this rarely happens today, given that most company information is stored electronically.

Yet the electronic storage of information has not, in consequence, decreased the cost of litigation – it has increased it. The vast amount of electronically stored information means that there is so much more data to be collected and combed through. Companies are required to store their data or may face claims that they have spoliated information, which can often have drastic consequences. And there is often a significant imbalance in information, meaning costs related to e-discovery are disproportionately borne by one party to a dispute.

The end result of this mountain of information is that the timeframe for a typical piece of litigation gets extended and the associated costs continue to rise.

Where Do Things Go From Here?

Litigation will always exist. Business disputes exist and plaintiffs’ lawyers will continue to explore new causes of action as businesses take steps to minimise risks based on existing types of claims. As long as insurance companies do not adopt a business model of paying out on every asserted claim, insurance litigation will continually be on the court dockets.

Recent litigation trends are not likely to disappear in the coming year. Companies need to assess these trends from a strategic perspective and consider how business operations may be affected. There are certainly steps that can be taken to minimise risk. But litigation risk cannot be avoided completely.