Vanderbilt Law Review
Conventional wisdom holds that lawsuits harm a corporation’s reputation. So why do corporations and other businesses litigate even when they will likely lose in the court of law and the court of public opinion? One explanation is settlement: some parties file lawsuits not to win but to force the defendant to pay out. But some business litigants defy even this explanation; they do not expect to win the lawsuit or to benefit financially from settlement. What explains their behavior?
The answer is reputation. This Article explains that certain types of litigation can improve a business litigant’s reputation in the eyes of its key constituents—constituents that help it succeed in the marketplace. It is their changed views of the litigant—and subsequent actions taken based on those changed views—that provide the financial benefit from a lawsuit that the court may not deliver. For example, technology companies use patent litigation to discourage employee flight, consumer products companies may use litigation to affect consumers’ opinions about competitors, and some corporate plaintiffs may even use litigation to address reputational harm following a crisis. In all these examples, business litigants may benefit from the reputational effects of the litigation even if they lose in court.
This Article makes two contributions. Descriptively, it challenges the conventional wisdom that lawsuits are always bad for business by revealing hidden incentives found outside the courthouse that are neglected in the standard explanation for litigant behavior. Specifically, it explains how litigation can contribute to reputation-building through signaling or framing strategies. It also describes how this reputation-building can result in different types of distributed gains: interparty, intertemporal, and interinstitutional. Practically, it highlights that the legal rules that could address this reputation-building may lack utility due to the timing of reputational effects in litigation.
Kishanthi Parella, Public Relations Litigation, 72 Vand. L. Rev. 1285 (2019).