Litigation is something I try to avoid. It is way better to work out differences by sitting down and negotiating a reasonable deal for both parties.

But litigation is a fact of life in business. You cannot avoid it all of the time. Companies and people will sue you even when you have done nothing wrong. So you need to have a framework for thinking about litigation.

Here are some of the things I have learned over the years:

1/ Litigation is expensive and can go on for a very long time. There is no sense of urgency in litigation. You can easily spend more money litigating than settling. If you can settle for less than the likely litigation expense, even if you have done nothing wrong, it is usually better to hold your nose and do that.

There are some people who argue that regularly settling for less than litigation costs will give you a reputation as someone who does that and it will make you a target for lawsuits, often baseless ones. I understand that argument, but I still think settling for less than likely litigation costs is generally the right approach. 

2/ You can lose in litigation even when you have done nothing wrong. I have a friend who is a litigator and he advised me a long time ago that “assume you have a 50/50 chance of losing, no matter how strong your case is, and then you will tend to make the right business decisions.” His point is that you should not fall back on the comfort of a “strong case.” Life is not fair. You can lose when you should win. Plan for that.

3/ Litigation expense is leverage in litigation. Early on at USV, we ended up in some minor litigation. We spent a lot of money on discovery and the other side figured out how to spend very little. We got very far over our skis on the case and we ended up settling on very favorable terms for the other side. We let the other side use expense to their favor. I promised myself I would never do that again. But I see companies we work with do that all the time. It is very easy to want to “lawyer up and fight” and often that is not the best strategy. It can be better to do the rope-a-dope and let the other side spend all of their money and get over their skis.

4/ There are times when you have to fight even if you can settle. If settling a case would materially harm your business, to the point that you would have a hard time operating it, then you must fight. These are existential cases. They are very rare, but they do come along once or twice in a career. When one like this comes along, “lawyer up and fight” is the right strategy and you should amass the best legal team money can buy and you must do everything you can to win. Figuring out when something is existential is the key. Often things feel existential when they are not. That is where the mistakes are often made.

5/ There are lawyers who are great business advisors. I like the term consigliere for them. And there are lawyers who are great litigators. Make sure you have both of them working for you in a litigation. If you can get a consigliere in your company as your General Counsel, you will be way better off in litigation. If you can’t afford that, have one on your board or in your life. The consigliere will help you manage the business side of the litigation and the litigator will manage the legal side of the litigation. It is hard for a business person to manage a litigation without a lawyer at your side.

Those are few of the things I have learned over the years. But my first rule of thumb is to avoid litigation if you can. It really sucks.

PS – I realized after re-reading this post that I left out something very important. Arbitration is an excellent replacement for litigation. Think of it as “litigation light.” It is very important to have arbitration clauses in your everyday contracts (employment, construction, sale of software, provision of service, etc). Arbitration clauses require arbitration in lieu of full blown litigation in the event that there is a dispute over the contract. Arbitration is like litigation in that you can lose even though you did nothing wrong, but it will cost you a lot less time and money to reach a resolution and if you lose, the damages are often a lot more reasonable.

#life lessons#MBA Mondays

Comments (Archived):

  1. awaldstein

    Well put and I agree.Early on worked for a few companies that were very litigious and spent a chunk of my life in depositions and embroiled in cases as an exec.A great lawyer is a true asset and you should hold them close.

  2. jason wright

    “But my first rule of thump is to avoid litigation if you can.” – yeah, forget lawyers. first rule of right club? thump hard.

    1. fredwilson

      Yeah. Thanks for pointing out that typo. I fixed it.

      1. jason wright

        Fred ‘Thumper’ Wilson 🙂

      2. Anne Libby

        I think it’s a powerful metaphor:Rule of Thump — A mental model formed in the school of hard knocks.

  3. LIAD

    also the opportunity cost of litigation (wasted brain power/diversion of focus etc/ stress) can easily exceed the financial and emotion costs of settling by an order of magnitude. – really digesting ‘life is not fair’ – putting your faith in cosmic karma, and working on equanimity can make the stench of settling much more palatable even when right is on your side.

    1. fredwilson

      Good advice

    2. PhilipSugar

      Yes I was going to make this point you have compartmentalize because it can eat up all of your time

    3. LE

      also the opportunity cost of litigation (wasted brain power/diversion of focus etc/ stress) can easily exceed the financial and emotion costs of settling by an order of magnitude.Exhibit ‘A’ on this is US v. Microsoft and how it was said (and is obvious) that it took their eye off the Internet ball.….The suit began on May 18, 1998, with the U.S. Department of Justice and the Attorneys General of twenty U.S. states (and the District of Columbia) suing Microsoft for illegally thwarting competition in order to protect and extend itssoftware monopoly. In October 1998, the U.S. Department of Justice also sued Microsoft for violating a 1994 consent decree by forcing computer makers to include its Internet browser as a part of the installation of Windows software. While the DOJ was represented by David Boies, the States were separately represented by New York Attorneys General Alan Kusinitz, Gail Cleary and Steve Houck.

  4. kenberger

    Been there, done that.The US legal system is unique and allows so much opportunity. But the flip side is how disturbing and absolutely grotesque it can often be, today.It can be exactly like that bar scene in 48 Hours where Eddie Murphy pretends to have authority and says, “Let’s see what we can fck with next!” (even if they have nothing on you), and as the proprietor, you actually have to cave unless you stupidly stick to the unlimited price of your pride.

  5. sigmaalgebra

    Gee, from some movies, I got the impression that any person running a major business in NYC needed to have “all the judges and politicians in their pocket”.Ah, how could that ever have been true? Must have been just Hollywood or something I didn’t hear clearly, right???But in Chicago? New Orleans? At times in the past, Memphis, Kansas City?And that consigliere guy you mentioned, maybe I’ve heard that term somewhere before??What about “It’s not personal. It’s just business.”.Chicago? Sure, I’ve got it wrong!! Now I remember:There is violence in Chicago. But not by me, and not by anybody who works for me, and I’ll tell you why because it’s bad for business.Maybe there isYou can get much farther with a kind word and a good litigator than you can with a kind word alone.or something like that!

  6. JLM

    .Binding arbitration — if you are looking for a means to reduce your legal and litigation risk write into your contracts “binding arbitration” as the sole dispute resolution technique.What you are looking for is “expedited arbitration” under the “Commercial Rules” of the American Arbitration Association.Here is a good primer:…Pay attention to “complex cases.”Most jurisdictions today require mediation as a prelude to setting a court date to hear a case. In Travis County, TX it has been a local rule of civil procedure for decades.Mediation is just “non-binding” arbitration. So, you are paying for it already.Most lawyers will give you advice that they don’t like binding arbitration — yeah, because they can’t bill you a million dollars for discovery and depositions. You can still have discovery and depositions, but it is expedited.This expedited feature knocks out the run-up-the-cost approach to litigation for both your team and theirs.I used to be able to dispose of a typical landlord-tenant dispute in less than two weeks. Much of the work was done in house – such as filing for the arbitration and notices.The lawyers — on both sides — used to hate arbitration because I had done a lot more of it than they did and they couldn’t blow smoke up my ass and run up the costs.Remember arbitration, by design, is considered alternative dispute resolution and has relaxed rules of civil procedure and evidence.I never got screwed in arbitration.A couple of tricks:1. File a lawsuit and ask in the lawsuit to be removed to arbitration. This gets you a court order to start the arbitration and the other party cannot waste your time.2. When you get an award, file it with a court of competent jurisdiction so you have an enforceable court order against which to collect. It is one thing to get a judgement, it is another to collect it. A court order makes it much easier.3. Write into your arbitration paragraph that “loser pays” which means the loser pays for your legal and arbitration costs. This overcomes the statutory provisions of many legal issues in which you simply cannot collect legal fees. Now, under a good arbitration provision, you can obtain contractual legal fees.4. Be very careful on who you pick as the arbitrator. Make it into a home team advantage. Research some of their other awards — which is hard as Hell. I was involved in one of the largest settlements from a state government on an employment issue and got the right arbitrator.5. Write arbitration into every stinking contract you sign or offer. I am a huge fan of Employment Agreements with CEOs.It is good for the CEO because she can afford to litigate with the company.It is good for the company because a CEO cannot drag them through court for years.”Expedited binding arbitration under the Commercial Rules of the American Arbitration Association”I invested in some companies in which my target was the litigation reserve. I settled a bunch of suits that everybody told me I never would. I won some suits I should not have. I lost some suits I should not have. I won a lot of suits I should have.Bottom line is I made money by knowing what I was doing and understanding the rules of civil procedure. I used to do my own negotiations face-to-face.The ability to manage litigation, litigation risk, and to minimize expense is just one more C-suite level skill for an accomplished business person, but what I learned in 33 years of CEO-ing is never, ever get inside a court in front of a jury of idiots if you can avoid it.Arbitrate. Your lawyers will say I am nuts.JLMwww.themusingsofthebigredca…

    1. fredwilson

      Yuppp. I added that as a PS after I published the post .100% agree

      1. JLM

        .Further to your PS, you can also limit damages — as an example no punitive damages or consequential damages — by the artful crafting of your arbitration provision.I have written arbitration provisions which limit damages and provide for a payout. In any event, I have always sought to limit damages to the amount of actual money changing hands.If I sell you something for $1000, damages cannot be more than $1000 plus costs.The artistry available for crafting a good arbitration provision is unlimited.JLMwww.themusingsofthebigredca…

        1. fredwilson

          Great advice

        2. PhilipSugar

          Lawyers hate this one too but it gives both sides clarity what is at stakeIt’s also easier to do up front max amount paidHow can you want cheaper than free

    2. jason wright

      Nominet UK has the compulsory Dispute Resolution Service process for domain name registration disputes, with the added voluntary option of mediation if both parties agree to it. It’s better than receiving a spicy lawyer’s letter in the post, but it doesn’t prevent it. Unfortunately DRS is often used abusively as a cheap and easy way of ‘trying it on’ by ‘chancers’, people who would never use a lawyer… because they have no legitimate claim. It’s time consuming to defend, but often necessary to challenge false statements and outright lies. It’s astonishing how low people are prepared to go to grab a piece of the internet for free. The human condition!

    3. kenberger

      Great actionable content (I was actually waiting on “what will JLM say here?”). No debate re arbitration being much better than court action.Of course, even arbitration is often nothing easy, either, can still require super expensive efforts emotionally and financially, and can still easily sink a company and the well-being of the people involved. The lawyers can *still* say, “might as well pour money into this now, to prevent it from going to trial”, and if there’s a 3rd party involved (public co?), their law firm will probably insist on that track from the beginning.

    4. Tom Labus

      all time great comment!!!

      1. Girish Mehta

        Yesterday he cracked a joke about lawyers. Today he provides a playbook to deal with lawsuits. This @JLM is an intriguing character.

    5. sigmaalgebra

      Seeing the topic today, I was waiting for your comment. I was correct to do so!A keeper, thx.

    6. LE

      By the way nobody is going to think of this, but your comment illustrates why a’good’ businessman’s brain combined with an attorney teamed up in (as only one example) a divorce case typically has a big advantage over a non businessman and an attorney in a divorce case. Not legal but guiding strategy. This allows the businessman to add synergistically to what an attorney is able to achieve for the client. All else equal of course. The attorney is a tool with specific knowledge and experience. They do need help though in terms of crafting strategy as a result of being immersed in the law for such a long time they can and do loose sight of practical ways to achieve a victory over the opponent.

    7. Richard

      Another approach is to include an exact damage amount per infraction into the four corners of the contract. People avoid breaching contracts when they know upfront what it will cost. And enforcing the contract is simpler as you do not need to prove damages.

      1. JLM

        .Very small point — when attempting to limit damages, it is more effective to say,”The arbitrator may not award punitive damages, consequential damages, or any direct and proximate damages or fees in excess of $1,000,000.”The reason this is better is because it is not within the agreement and therefore would not be assailable if the other party said the arbitration agreement itself was not enforceable in part.The other party can ask that any provision of the arbitration agreement between the primary parties be declared unenforceable in part, but cannot change the arbitrator’s instructions as the arbitrator is not a party to the agreement.I paid partial tuition to learn that fact.JLMwww.themusingsofthebigredca…

        1. Rick Colosimo

          If the arbitration provisions are part of the contract, they’re subject to the same rules as the rest of the contract. Maybe you’re talking about a Texas-specific rule, but it’s not generally applicable. Changing the instructions is easier for exactly the reason you cite – without the arbitrator as a party, the agreement to use specified rules is only an agreement between the two parties, and thus changing those rules can’t really affect an unnamed, hypothetical arbitrator (who almost certainly is not a third-party beneficiary).Perhaps your description related to post-contract agreements with the arbitrator to commence arbitration?

          1. JLM

            .Inartful explanation on my part. I meant to ensure that the contractual provisions of the arbitration clause are mirrored in the arbitration contract directly.If you agree to limit damages or to expedite arbitration, don’t count on those provisions being honored by an arbitrator by “reference.”Write them into the arbitration contract exactly as you want them.I have had a lot of arbitrations in front of retired Federal judges and they don’t read anything but the arbitration contract.Don’t get me wrong, I like retired Federal judges, but they see themselves as demi-gods. A strength and a weakness.JLMwww.themusingsofthebigredca…

    8. cavepainting

      Great comment!Arbitration is also abused quite a bit.My past firm was once stiffed by an international client who used local arbitrators clearly colluding with the client.And of course, too many companies still use arbitration for racial discrimination and sexual harassment related matters. This almost always prejudices the outcomes in favor of the employer.Will be great to get your thoughts on the downsides of arbitration for the employee or vendor and how best to mitigate them.

      1. JLM

        .Arbitration is a tool in a business professional’s tool box. Used well, it has good outcomes. Used poorly, it has less than good outcomes.Like any tool, it is only as good as the craftsman on the other end of the handle.There is no substitute for knowing your tools, the facts of your case, investing the requisite energy into the case, and articulating the outcome you want.One thing I see fairly often is that parties do not define the outcome they want.I once told someone in an arbitration that I was not going to settle for less than $XXX.We spent 8 tiresome hours and I held my ground, never once wavering or giving any suggestion I would take less.We settled for $XXX and I let the other party pay me out over two years.We all ran out of energy. When the energy took off, the deal came together. The other party told me afterwards that even the arbitrator told them I was not kidding.Funny thing is I would have taken a lot less, but not before we got through the whole day. I was watching the time and energy.JLMwww.themusingsofthebigredca…

  7. William Mougayar

    The business-to-legal inter-relationship is often underrated and I’m learning it is a key balance to be aware of. It has a circular cause and effect.An aggressive lawyer could be wrong on the business impact, and an overconfident CEO could also be wrong on a given legal path.Something has to give eventually, and even winning sometimes involves compromising on losing something else in the process.

  8. Girish Mehta

    Great points all. And the last paragraph sums it up well.To your second point – If a person internalizes at a young age that Life is Not Fair, they give themselves a head-start on the rest of their life. I have not known any person who expected fairness from life and who was happy. https://uploads.disquscdn.c

  9. Matt Zagaja

    I am sure Elon Musk would have appreciated this advice more than a few months ago before the SEC ate his breakfast.

    1. jason wright

      I think he knew EXACTLY what he was doing, and with top legal advice in his back pocket.

  10. Pointsandfigures

    You also have to look at the financial statements of the other side. If they are public, go through them closely. If they can’t pay, might not make sense to litigate.Your point on discovery is right on. Spend as little as you can but enough so you actually can build a defense/case depending on what you are doing.Keep your ego out of it. That’s hard to do. Remember, this will take energy and it will detract from executing the business. But, sometimes you have to do it in order to execute. Calculate the costs/opportunity costs as well as you can upfront so you go in with eyes open. Then, expect the unexpected.

    1. fredwilson

      Great advice. Ego is a problem in litigation

      1. kenberger

        YES. The issue is that some of the very smart and energetic people who can help you make the most magic, have a double-edged sword brain and once you swing into a me vs you mode, will put an irrational unlimited premium on “winning”, with no regard to what they break. Or even make it an objective to specifically break things.

    2. jason wright


    3. Tom Labus

      I think you have to have a top exec take this over and let everyone else get on with the business. But what a distraction!!

  11. Tom Labus

    Companies of all sizes have gotten lost in this type of mess and never recovered. I think of how MSFT not only recovered from endless ligation but is now the most valuable company. Satya to the HOF on next ballot please.

  12. Salt Shaker

    The legal compensation model is so flawed. Law firms and attorneys allegedly are working on a client’s behalf, but quite often their compensation isn’t driven by economic efficiency. The two areas can be diametrically opposed. Time (both yours and theirs) represents money for them. Legal ethics doesn’t necessarily go hand in hand w/ monetary ethics.

    1. Pointsandfigures

      There are “angels” who fund litigation now. Pretty crazy business but it keeps companies on the straight and narrow if you know they are out there.

      1. JLM

        .There have been people who have purchased lawsuits for a long, long time.JLMwww.themusingsofthebigredca…

    2. LE

      Law firms and attorneys allegedly are working on a client’s behalf, but quite often their compensation isn’t driven by economic efficiency.Little known fact on insurance coverage is that the amount of coverage directly correlates to being able to provide an attorney who sues with enough money in settlement that it does not pay to come after someone personally (or a company) to achieve a perhaps nominal bigger win if at all.I figured this out years ago years ago. It makes sense if you understand human nature. Door number 1 vs. Door number two combined with ‘time and work needed to achieve the goal’ let’s say.You have a PI case let’s say with a strong claim. The policy is $2m. The insurance company will settle let’s stipulate and the attorney knows the available pot is $2m. So there is no reason to go after anyone personally or pursue the company in court where they may or may not get $3m (made up numbers for illustration). Now if the insurance amount was only $250k that doesn’t give enough spoils to go around to the client and the attoreny. So in that case (by the theory) it pays to litigate.So important rule is ‘enough money so the attorney makes as easy win and profit (on a contingency case).

      1. Salt Shaker

        We had a flood in our apt a few months ago. The upstairs neighbor’s pipe burst (bad weld). Three days in a hotel, 2” of water, ruined carpets, drywall. The plumber took full responsibility. Dealing w/ his insurance company was interesting. To your point, the longer I strung out settlement I figured the better it would be for me, including finally telling them we’re gonna litigate (though would never do). It honestly wasn’t for a real large sum by insurance standards. Net, net when all was said and done, I got almost double their initial offer.

        1. JLM

          .In property insurance, you cannot be compensated for “pain & suffering” but you can be compensated for something called “loss of peaceful enjoyment” which is almost the same thing.When you have a damage claim, it is always good to have the damage repaired by YOUR contractor at the insurance company’s expense and not settle the claim until the repairs are done because the second you knock the wall open you find something else.You should also notify your insurance company because they will likely have a “setoff” arrangement with the other insurance company which means at the end of the year they settle all bills owed between them.Your deductible may come into play.Great companies, like USAA, are so generous on water claims that it is embarrassing.JLMwww.themusingsofthebigredca…

          1. LE

            I had a boat flooded out at the beginning of the boating season when I was much younger. Boating season on the East Coast, you know what I am talking about. Very short. Rains half the time. I had the boat hauled to the yard and fixed immediately and took pictures. No way I was waiting for an adjuster and loosing precious weekends. My father in law said I was nuts. They will never pay you. Well they paid me and didn’t have an issue with me getting the boat repaired either before they saw it (this was pre digital photos btw so that not the reason). It flooded, here is the damage, here is the repair, here are the bills now pay me. They paid full amount. Boat repaired in record time. If I had waited and followed the procedure (wait for appraiser and approval) I would have lost 1/2 the summer (what happened to my father in law with his damage).One of my base theories that I use (in cases even which don’t involve insurance) is my saying ‘make it easy for the insurance adjuster.This stems back to the time when things were hard for them to do their job because of lack of computerization. So if you give them something that looks legit since they are lazy and paper pushers (who smoke cigarettes) they will do the easiest thing and just approve what you send them. That was my experience over time. Have used that in cases not involving insurance and it works very well I have found.To your point insurance companies are sticklers for wording. Call it ‘this’ and ‘we don’t pay’. Call it ‘that’ and ‘we pay’.Wording porn: On condo board I wanted a small capital contribution paid for any new owners to the complex. Lawyer president ‘Mr Roberts Rules of Order’ starts to say ‘oh well we can’t do that it takes a 60% majority bla bla bla bla. I say ‘ok let’s call it an ‘admin fee’. He says ‘fine ok, yes, we can do that’. Problem solved. Management company then says ‘well then does the money go into the reserve or the operating account? Who fucking cares where it goes. That is like an insurance company. You have to not use a trigger word that makes it likely for them to say ‘no’.

        2. LE

          Just personally I have found that fear of the unknown works way better than a lawsuit especially with a large company.The reason is the lawsuit isn’t personal pain to the person you are dealing with. [1] They have a department and a staff for that. It then off their plate and is someone else’s issue. So it’s not the same as dealing with, say, USV where it’s Fred and partner’s pain. Not to mention that when you say lawsuit you are giving someone the diagnosis and at that point they explore what that means. The unknown (at least what I have found in practice) works much better. Same with medicine you may have noted. The unknown (even when you consider the worst case) is worse than the known.Also in business I can’t tell you the number of times I’ve had people that have threatened lawsuits. To your point it’s typically an empty threat. They know more about this than you do. Never had a single one come to fruition based on a threat before hand. Definitely possible of course.[1] Pain to the person you are dealing with is keeping an accurate log of how many times they screw up (they will) and say or do the wrong thing that you can then use against them or with their superior which is 100% what they want to avoid having happen. I had a local official here who called me last week on Friday evening worried that I would get her in trouble for a wrong invoice they sent to me that I got aggravated about. She kept repeating ‘just please call me directly next time’. Was very clear she didn’t want her shitty billing system crashing down around her. Worked very well. I was nice to her didn’t want to spoil her weekend.

          1. Salt Shaker

            Nah, maybe they’re passing the buck, as you say, but my claim wasn’t a big or impt enough fish to warrant their legal dept’s time and manhours. Way too inefficient a case for that, relative to other, larger cases on their plate. What’s a few more K’s? Just pay and clear the docket. I said to the contact person at the insurance company, “respectfully, we’re not getting anywhere, I’d like to dial this up to your supervisor.” Two emails to the supervisor and we were done.

    3. Rick Colosimo

      Having lived on all sides of this kind of issue (other than as a judge, I guess), your viewpoint is common among businesspeople. What is often left out of the analysis is the client’s ability (right) to revisit decisions after the fact and claim “but I would have won if only….” Now, legal malpractice claims aren’t easy to win at trial – because you really have to prove that you would have won – but they are costly to lawyers in terms of dealing with them, reputation, and increased insurance costs afterwards.The same factors that lead people to complain about – and doctors to practice – defensive medicine apply to lawyers.No one knows up front what the economically efficient amount of preparation is. But the client sure knows afterwards whether it seems like the right amount was spent!

      1. Salt Shaker

        Fair points. Things always look a lot clearer w/ 20/20 hindsight.

      2. JLM

        .Anybody who has actually taken a number of issues to trial gets the sense of “should have won” beaten out of them most ricky tick.Juries are not even a crap shoot. In craps, you get two dice which are identical. Juries are a slice through those who could not come up with a way to get out of it or those for whom the daily stipend is the best gig they’ve had in a while — plus free lunch.The combination of a judge, a jury, the law, the plaintiff, the defendant , the geography — this is all before you even get to the facts of the case — is a multi-variable differential equation which is impacted by what everybody had for breakfast that day.I have seen weak facts presented by a master story teller (lawyer) end up in a favorable outcome.I have seen unassailable facts turned into dust by any of a number of different countervailing forces.If you risk going before a jury — or any other random collection of idiots — you are taking a risk which has no direct connection to right v wrong, or truth v falsity.One more reason for binding arbitration.Always hire good lawyers who have actually tried cases. There is a huge difference between a good counselor, consigliere, and somebody who gets down in the trenches with juries and judges.It is like the difference between being a Ranger and being a JAG off.You even want a guy who has lost a few cases, so he knows what it feels like, how inexplicable it is.I have sat at that plaintiff’s or defendant’s table thinking I knew how things would turn out and been flabbergasted at what turned the issue.JLMwww.themusingsofthebigredca…

  13. DJL

    “Have a young Doctor and an old Lawyer.” – “Tex” Laves

  14. kidmercury

    this is one major benefit of crypto not cited enough. as crypto disrupts real world governments and litigation is reduced drastically via smart contracts and blockchain-based arbitration, a lot of this stuff will end up getting cleaner, faster, cheaper, and more honest in aggregate.

    1. DJL

      One of the best applications for crypto will be e-discovery. The lawyers always win.

    2. Richard

      Do you think any attorney worth his salt is going to stipulate to the security of the blockchain.

      1. kidmercury

        i don’t think that, but i think eventually a blockchain will emerge that makes attorney’s credentialed by the nation-state system to be obsolete; the legal equivalent of VHS tapes

        1. Richard

          Talk about a long tail event !

    3. Adam Sher

      Will you explain how this block-chain based arbitration and contracts makes it easier to resolve a conflict? Please use the following example.A technology company sells its service on a two-year contract to a business, which the business agrees to pay on a monthly basis. The technology company installs, trains, and implements the technology. 4 months in, the customer disputes that the service works and does not pay. Currently, the customer may cancel a credit card, dispute the charge, disallow ACH, close the funding account. The tech company can negotiate, litigate, or acquiesce. Moreover, the customer is so incensed about the product, the customer threatens to sue or slander the company because the company attempts to enforce the contract.

      1. kidmercury

        here is how i envision blockchain technology evolving (different from current state), and how such an evolution will apply to your example:1. let’s assume a blockchain exists that we’ll call Future Blockchain (FBC for short). let’s call the technology company in your example Good Tech and the customer Mad Customer. 2. in order to have FBC govern your transactions, your transaction must be priced in FBC coin. 3. moreover, you must also be an authorized merchant on the FBC chain. such authorization means you will need to use only technology compatible with FBC, you must be in good standing, and you must comply with whatever surveillance requirements FBC puts forth. to be a consumer on the FBC chain and buy from FBC merchants, you must abide by a similar set of requirements. 4. FBC has the technology to monitor the effectiveness of the application put forth by Good Tech. FBC essentially administers the service level agreement of Good Tech. 5. As such, it can determine if Good Tech is living up to its promise. 6. Remember, Mad Customer has to pay using FBC coin. so FBC has control over Mad Customer’s wallet and can prevent, or at least recognize (and probaby automatically), fraudulent closures. 7. The steps here will prevent a large number of conflicts between Mad Customer and Good Tech. however, in highly nebulous instances where the technology is not enough, FBC may have a “jury” or arbitration panel of sorts consisting of humans who provide qualitative input. these humans have access to all the data and register their votes on the blockchain. it has the potential to be a much faster process than what we currenlty see juries do. and remember, this only applies to cases that cannot be automatically resolved by smart contract enforcement.this future has other problems. but i believe it will be better than our current one. the biggest problem is discovering how we get there. i doubt the path will be very easy, but i’m confident it will be well worth it.

        1. Adam Sher

          OK, thank you for explaining that scenario. I underestimated the scope of what you described. I see the biggest problems in items (or steps?) 4-6. Regarding items 4 & 5, typical SaaS SLAs do not list discrete features and usually contain CYA language that basically negates its obligation to deliver features with the except of up-time. While I think this is bullshit, I’ve been on both sides of this argument and saw user error so frequently that most “violations” of an SLA are related to user error.The FBC scenario seems to rely on being able to determine binary outcomes for the user of Good Tech.Regarding 6, I suppose you could have a dispute mechanism so before the next payment is due, Mad Customer would trigger the dispute mechanism, which could result in a process that includes an escrow the disputed funds. As a business owner, I like that idea because my experiences skew heavily towards me always delivering my service and payment disputes arise over an array of issues that may be best summarized as user error.Conversely, to my interpretation of a bias towards the business owner, I could see how that would turn off customers from using technology on FBC. I typically let customers out of contracts if they complain enough, and the contract value is low enough, because to do otherwise guarantees that I will never earn that customer’s business in the future.@kidmercury:disqus could you set up FBC to only handle the financial transaction? In this world, Good Tech would automatically submit a usage report (e.g. Mad Customer logged in x times, performed y actions, etc…) to FBC that would then use that info as the basis to process, hold, dispute the financial transaction? The reason I pose this last scenario is because it seems easier to not create a FBC that would be able to administer and implement Good Tech.

          1. kidmercury

            i like your idea of having FBC handle only the financial component, although i wonder about the details of how GoodTech submits its usage report: is FBC simply supposed to take Good Tech at its word? what if Good Tech is lying? If FBC has access to the data directly and it is all recorded on the FBC blockchain, that may help people have trust in the whole mechanism. but, i certainly think we will see some kind of compromise regarding how integrated the whole system must be. i suspect it will start out very unintegrated, much like how google search started out; at one point google’s KPI was how quickly they could get you off their property and to another web site that satisfied your request. if you’ve been to a google search page recently, it seems like their current goal is almost the opposite: keep you in the googleverse forever. likewise, as chains with apps built on top of them get going, i would expect the blockchain to start out fairly decentralized with apps having greater freedom, but as the monetary stakes get higher and as users get more sophisticated with their demands and expectations, i think greater integration will emerge. and so the cycle repeats…..

          2. Adam Sher

            FBC could access the data via API. I have yet to see a claim that the data I present to a customer is fabricated or otherwise falsified. The claim is usually they are unwilling to adopt a workflow that enables my products to work correctly therefore my product does not work. Even more common is that they under use my products, which they equate to my product not working. I may have 99 problems but violating my SLA ain’t one. With that said, there would certainly be edge cases where companies would be incentivized to commit fraud (i.e. Enron, Allied, Theranos).I like your analogy to Google. In other words, could I use FBC instead of Stripe?

          3. Adam Sher

            I’ve had employees of customers fraudulently represent themselves as executives or other people with purchasing authority and this always results in my employees, or me, wasting time and money. DocuSign does not solve this because it only creates proof that the signors who still misrepresented themselves signed the document.If FBC can prove authority then that’s a killer feature.

          4. PhilipSugar

            Problem is item 4.That can either be solved with litigation or as JLM says binding arbitration.Because every technologist who sells technology knows that an non technology end user must use.Now there are two sides to the coin, I have seen many cases where the technologist blatantly tells the end user bullshit. No different than a car mechanic who rips off somebody by telling them a lie. Worst is a technology sales person who says it will do anything. (What is the difference between a software salesperson and a used car salesperson? The used car salesperson knows when they are lying)This hurts the rest of us, it is pissing in the well as I say. But the other case is the end user does something so stupid, doesn’t do something, or expects some sort of unimaginable product and then doesn’t pay.ORI have actually come to the point of view, I don’t care about long term contracts. I am fine with 90 day terms lined up the the end of each quarter. Have for fifteen years. I charge a cost recovery setup fee and then a pro-rated quarter and then each quarter. Understand I can fire you as well as you can fire me 90 days notice important point. You agree if you don’t pay by the end of the quarter which puts you 90 days late you therefore find useless and agree I simply turn off.So you can “beat” me for either the setup fee and that quarter or a quarterly fee. Max damages are past 4 quarters fees in binding arbitration.It really focuses everybody’s mind on one thing: the customer.Now yes there are some customers that shouldn’t be a customer, no use “forcing” them.Salespeople get paid 1/12 of each quarterly fee for the first year and 1/12 of any net increase for the upcoming years (you can add simple kickers like a 50% increase for any amounts over quota, and a discount before quota (actually easier just to fire somebody not making quota) Same base amount is put into bonus pool for implementation and support people. ONLY upon payment. Then a very small residual.All setup for ease of accounting, ease of legal, ease of employee alignment. Pay people by the month. Expenses by the month, setup all leases and contracts by the month. Total close time? Noon of the first day after the month. Recap and review by COB.Massive forecasting needed? Nope. Collections? Nope just send notices at the end of each month, 60 day salesperson has to call, ast one Fedex notice of termination. Simple DB program to calculate commissions, and bonuses.I find that for other than esoteric things like IP and taxes, you can simplify them out of your business, but you have to be willing to take the simplicity.

          5. Adam Sher

            Are those quarterly payments for consumer, business, enterprise, or all types of products?

          6. PhilipSugar

            All types but if you go monthly you increase frequency 4 fold but that is totally doable. I just square up via a pro-ration to make all invoices go out on the first and payments on the last dayPeople will say that is bad for cash flow but it is easy to manage which is good for cash flow

  15. Tom Labus

    Fred took his Jet’s frustration out in writing this great post!!!

  16. PhilipSugar

    Last piece of advice this quickly becomes competitive/combative under our rule of law lawyers are taught to win at all costs

    1. Adam Sher

      I’d argue that is not the case; however, a very successful tactic for many attorneys is to bully opposing counsel and their clients until they get the desired outcome. The outcome of this tactic isn’t much different to winning at all costs and often a high cost!

      1. PhilipSugar


  17. LE

    His point is that you should not fall back on the comfort of a “strong case.” Life is not fair. You can lose when you should win. Plan for that.The paradox that I learned and experienced, early on in business, is that sometimes if you have a strong case it actually works against you.Why? Because then the opponent in theory (if you are correct) has a weak case. And what do people do when they have a weak case? They are more likely to bend facts and lie and do what it takes to win the case.

  18. LE

    When I was in my mid 20’s I was sued by Elizabeth Dole [1] [2] (she was secretary of Labor at the time and of course Bob Dole’s wife) over an obscure labor infraction at my company. The issue was that you didn’t have to give employees breaks at all. But if you did the breaks had to be at least 15 minutes and we were only giving 10 minutes. So once again, no need to give breaks to employees but if you did they had to be at least 15 minutes long (this is iirc, minutes could vary). The attorneys who I had contacted had never come upon this issue they told me.Someone filed a complaint I would imagine. Coincidentally the labor department office was a few blocks from our ‘headquarters’. [3] So one day showed up to do an audit of all our records. When they were done they filed a lawsuit to collect the approx $40k (today’s dollars) that they said we owed in back pay to about a dozen employees (iirc). One of them was actually my sister I think.So I went to the Penn Law library and spent a couple of days researching the law (‘preparation theater’). I contacted my local congressman who offered to do zip. He ran as if the entire request for help was toxic. My ex father in law happened to have just installed an alarm system in the head of the local DOJ’s home, and he said to me ‘oh he likes me I will take care of this for you!’. To me that was a joke (that he even thought that but it shows you the kind of person he was) and the official immediately recused himself from any involvement. That was funny. By the way that is why he is was a great ‘tin man’. He thought people liked him and trusted him and it became a reality.I next met with a labor attorney or two. One said ‘best case scenario we fight it and we might be able to get them to cut it in half’.So I took my ‘preparation theater’ and went in directly myself to the head of the labor department for a meeting (aka ‘sitdown’). He sat there very patiently so I wasted as much time of his that I could. However I could tell that he was an immovable block. Not similar in any way to people in business who were much much easier to get what I wanted from as I had always been able to do (large corporations in particular were my specialty..)In the end after wasting more of his time I was able to get him to cut the amount due in half. After he agreed to that I said ‘ok but I need 5 years to pay this off, ok?’. I didn’t need 5 years obviously, but couldn’t resist the temptation to get more. He agreed, no problem because it was still in DOL’s minds enough of a win. We then made payments over time. Honestly it wasn’t that bad of an experience and I learned from it.[1] A very fine southern woman. I love the fact that the lawsuit was in her name.[2]…[3] Conspiracy wise this could mean two things. a) Easy for them to do the audit, no travel expenses. b) Disgruntled employee told story on lunch break to labor department person who spurred them on.

  19. Sue Heilbronner

    My brother built a very successful startup-focused legal practice and recently sold it so that he could pursue more alternative resolutions and proactive planning strategies. His expertise is in trademark.

  20. Ethan Andelman

    Don’t forget about mediation! Nearly every commercial litigation will be ordered to mediation at least once during its lifetime. Mediation is essentially a settlement negotiation where a trained, neutral professional helps direct the parties’ discussions. A good mediator can help craft a win-win resolution to what otherwise appears an intractable situation.Engaging in early mediation (for instance, even before a lawsuit is filed) is a good way to avoid the dispute taking on a life of its own in litigation. Of course, you need to get the other side to agree to mediation and a mediator — the mediators themselves can assist in this.

  21. Angelo Castello NYspinewellnes

    Litigation has been one of the top 10 most unpleasant experiences in my life.Divorce, a minor professional incident and a very minor small claims matter.They were all nerve wracking, time consuming and emotionally very charged.It seems like litigation dredges a snake pit for the breeding of anger, greed,envy, jealously, and often the other deadly sins.During dark times I take great comfort in the wisdom from Rudyard Kipling’s opening to his poem “IF”;”If you can keep your head when all about youAre losing theirs and blaming it on you,If you can trust yourself when all men doubt you,But make allowance for their doubting too.If you can wait and not be tired by waiting,Or being lied about, don’t deal in lies,Or being hated, don’t give way to hating,And yet don’t look too good, nor talk too wise:”