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Pending Study Suggests Plaintiffs Should Settle, Rather Than Litigate

By Peter Zura

While it isn't patent-specific, a somewhat controversial study will be published in the Journal of Empirical Legal Studies that looked at 2,054 cases that went to trial from 2002 to 2005 to see if parties are better off settling rather than going to trial.

Of course, one of the problems with such a study is that you can only make one-way determinations when evaluating litigation decisions. In other words, the only useful data would be refused settlement offers (that aren't sealed) compared to related jury verdicts. Nevertheless, some potentially interesting findings were made:

Generally, defendants were "wrong to go to trial" less often than plaintiffs - for defendants, the choice to litigate was wrong in 24 percent of cases, while plaintiffs were wrong in 61 percent of cases. In just 15 percent of cases, both sides were right to go to trial.

However, while defendants were wrong less often, the price for being wrong was substantially greater - getting it wrong cost plaintiffs about $43,000. For defendants, the cost was $1.1 million.

[M]ost of the plaintiffs who decided to pass up a settlement offer and went to trial ended up getting less money than if they had taken that offer. ?The lesson for plaintiffs is, in the vast majority of cases, they are perceiving the defendant?s offer to be half a loaf when in fact it is an entire loaf or more,? said Randall L. Kiser, a co-author of the study and principal analyst at DecisionSet, a consulting firm that advises clients on litigation decisions.

As part of the study, which is the biggest of its kind to date, the authors surveyed trial outcomes over 40 years until 2004. They found that over time, poor decisions to go to trial have actually become more frequent.

The study has attracted the attention of the New York Time, that wrote in a recent article:

[T]he study tried to account for that possibility and found that factors like the years of experience, rank of a lawyer?s law school and the size of a law firm were less helpful in predicting the decision to go to trial. More significant was the type of case.

For example, poor decisions by plaintiffs to go to trial ?are associated with cases in which contingency fee arrangements are common,? according to the report. ?On the defense side, high error rates are noted in cases where insurance coverage is generally unavailable.?

The findings are consistent with research on human behavior and responses to risk,
said Martin A. Asher, an economist at the University of Pennsylvania and a co-author. For example, psychologists have found that people are more averse to taking a risk when they are expecting to gain something, and more willing to take a risk when they have something to lose.

?If you approach a class of students and say, I?ll either write you a check for $200, or we can flip a coin and I will pay you nothing or $500,? most students will take the $200 rather than risk getting nothing, Mr. Asher said.

But reverse the situation, so that students have to write the check, and they will choose to flip the coin, risking a bigger loss because they hope to pay nothing at all, he continued. ?They?ll take the gamble.?

Read NYT: "Study Finds Settling Is Better Than Going to Trial" (link) (graphic)

See ABA Journal: "Most Plaintiffs Who Reject Settlement Offers Do Worse at Trial" (link)

Full post as published by Two-Seventy-One Patent Blog on August 26, 2008 (boomark / email).