Costs make companies leery of potential lawsuits

After a lengthy court battle, Advancis now must change its name, signage, letterhead, Internet site and other corporate properties. While insurance covered most its legal costs, the price tag to conduct a new name search and make the other changes is likely to run several hundred thousand dollars, said Robert Bannon, Advancis’ vice president of investor relations and corporate communications.

‘‘We have a heightened focus on the name selection process now to make sure we can avoid this situation in the future,” Bannon said. ‘‘But you can never be 100 percent sure.”

More executives, especially those with small businesses, are leery of lawsuits these days, according to a recent U.S. Small Business Administration report. The report recommends that top company officials should be less trusting of employees, competitors and customers, and take more care to address complaints and oversee operations.

About two-thirds of small-business owners responding to an SBA survey who were sued said the legal costs rose above $10,000. But another survey of small-business executives by the National Federation of Independent Business put the median legal expenses in the past year between $4,000 and $5,000.

Still another report by the National Association of Manufacturers says business executives are not that concerned about lawsuits. The fear of litigation ranked at the bottom in a list of 10 factors affecting businesses — behind such factors as energy prices, foreign competition, taxes and regulations — in the association’s annual survey last year.

Moreover, statistics show that the actual number of lawsuits filed has declined in many areas. For example, there was a 29 percent drop in tort filings in Maryland state courts between 1996 and 2004, according to the National Center for State Courts.

Still, the lawsuit fear exists in the mindset of many business owners, according to the SBA report. The report didn’t name companies but cited cases such as a construction company that ‘‘effectively” went out of business after losing its bonding over a case in which an architect’s design caused a customer’s roof to leak.

Chamber: Lawsuitsalways a concern

‘‘Businesses are always concerned about the cost of litigation and the potential of being sued,” said Ronald W. Wineholt, vice president for government affairs with the Maryland Chamber of Commerce.

Costs related to tort lawsuits increased by almost 6 percent from 2003 to 2004 to $260 billion, according to the Washington, D.C., business organization American Tort Reform Association.

Officials with the American Association for Justice, a District legal organization that formerly was the Association of Trial Lawyers of America, questioned the tort costs figures in a news release. They pointed to how not only have tort filings decreased in recent years, but median inflation-adjusted awards in tort cases dropped 56 percent between 1992 and 2001 to $28,000, according to a U.S. Justice Department study.

In Montgomery County, more cases are being settled before going to court through arbitration or alternative dispute resolution, said Paul F. Kemp, past president of the Bar Association of Montgomery County.

‘‘The tort caseloads have been falling,” said Kemp, who is also on the board of governors of the Maryland State Bar Association and works in the Rockville office of Venable LLP.

The growth in the use of alternative resolution in federal courts and the increasing difficulty and cost of bringing a case to court were cited by the Justice Department as major reasons for the number of tort cases resolved in federal courts falling by 79 percent between 1985 and 2003.

Many landlord-tenant cases

Maryland attracts more than its share of civil cases: More civil cases per capita were filed in Maryland state courts than in any other state in 2003 and 2004, according to the National Center for State Courts.

More than 450,000 of the almost 1 million new civil cases filed nationally in state courts in 2004 involved landlords and tenants, the center reported. The number of such cases is particularly large in Baltimore City and Prince George’s County, said Katherine Kelly Howard, secretary of the state bar association and a lawyer with Regional Management, a Baltimore property management company.

Those cases are fueled by Maryland being one of a few states to let tenants stay if they pay what is owed after a court judgment is granted, Howard said. ‘‘This sets up a cycle where landlords who have tenants who are late on their rent month after month have to keep resorting to court to get them to pay rent,” she said.

Tenants in Philadelphia don’t have this right and are ‘‘going out the door” as soon as a judgment is granted, Howard said. There are also a lot of small-claims cases involving non-landlord collections, such as physicians, she said.

Another factor that may drive the number of civil cases is that Maryland is attracting more complex business and technology cases, as the state is recognized as a leader in electronic record-keeping, Kemp said. The records are thus preserved so they can be discussed years later, he said.

You say Advancis,I say Aventis

In the case of Advancis, the Germantown biotech, officials felt they had taken great care to come up with a name that would not infringe on other companies, Bannon said.

In 2001, the company changed its name from Advanced Pharma to Advancis Pharmaceutical Corp. after becoming aware of a nutritional drug company with a similar name, according to court documents. Officials spent months coming up with a name, rejecting Advansys because it was too close to DelSys, before settling on Advancis.

‘‘We were aware of Aventis, since they were one of the largest companies in the industry,” Bannon said. ‘‘But we felt the name we chose was different enough, especially after they later became Sanofi-Aventis. ... It’s a very difficult process to choose a name these days.”

The judge in the case wrote that Sanofi failed to produce evidence of ‘‘actual consumer confusion,” but because Advancis’ products have not been on the market long, that situation weighed ‘‘only slightly” in Advancis’ favor. Advancis has until June 30 to make the name change and expects to choose a new name by March 31, with the second quarter spent in the transition process, Bannon said.

A different judge ruled against Germantown broadband company Current Communications Group in a similar trademark-infringement lawsuit against Current Media, a San Francisco cable and satellite television network co-founded by former vice president Al Gore. Current Communications abandoned its legal action last year.

Some companies have blamed litigation for driving them to bankruptcy. In a recent earnings report, W.R. Grace and Co., a $2.8 billion Columbia chemical manufacturer, cited litigation related to asbestos and mining in Montana for filing for Chapter 11 bankruptcy in 2001.

Grace saw its net income drop 73 percent to $18.3 million last year, which officials blamed primarily on a $32.7 million increase in legal costs and a $19 million increase in bankruptcy-related expenses.

Tort By the numbers

While tort case filings declined between 1993 and 2003, contract filings, many of which involve businesses, rose by 21 percent over the same period, according to the National Center for State Courts.

About 15 percent of some 300,000 cases filed in federal courts each year involve businesses, according to the U.S. Small Business Administration.

The number of employment discrimination complaints filed with the U.S. Equal Employment Opportunity Commission dropped by 17 percent between 1994 and 2005 to 75,428.

About 70 percent of small business owners in a recent National Federation of Independent Business survey said they have trust and confidence in lawyers, although most thought their fees were too high.

Among the advice from small-business owners who were sued is to address all complaints in a timely manner, be less trusting of employees, customers and other companies, exert a tighter control over the business’ daily operations, make sure employees are bonded, post required EEOC posters and document everything, according to a U.S. Small Business Administration survey