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can you live in such a way as to reduce the chance that you'll get into a fight with someone else?

can you find a remedy that will make you happy (like an award of money from a court) and doesn't require the other party's consent (like an award of money from a court) but that you can get without going to court?

Interactions, the seeds of disputes

For example, if you buy 100 products every day, perhaps 5 of them will fail to perform as advertised. If you tried to get those manufacturers to remedy the defect, probably at least 1 out of the 5 would refuse. At this point, you have to either lump your losses or start the process of sending nastygrams that ends up in litigation. There is something to be said for getting good at asserting your rights, i.e., by sending more effective demand letters and/or filing legal complaints. But I actually think that there is more to be said for arranging your life so that you only have to buy one product every day instead of 100.

This argument is sufficient to explain why big corporations are constantly in litigation. They engage in thousands of transactions every day and some of them will inevitably go sour. Thus even the nicest and most honest huge company will need a whole legal department and not just one lawyer.

Loose arrangements give rise to litigation as well. Suppose that you work for IBM as an employee. If you show up, there is zero chance that they are not going to pay you. If you develop some software while working for them, there is zero chance that they don't own it. But if you are an independent consultant to IBM, it becomes unclear as to when they should pay you. Did you finish the program you said you would? Yes? So it is 100% bug-free? Well... you can't be sure. So why should they pay you? Did you incorporate some software that you wrote previously for your personal use? If so, does IBM own that? Do they own the customizations you did for them? All of these questions could give rise to disputes which could give rise to lawsuits. Lawsuits that would not be conceivable if you were an employee.

There was an article in the Wall Street Journal back in 1982 about a business executive who got sick of the materialistic Greenwich, Connecticut culture and decided to pare down his possession to 100 items. A pair of shoes counted as 2. I predict that this guy has not been involved in any lawsuits!

Do we all need to live like this? No. But we should be realistic and factor a hassle/dispute/litigation cost into every transaction. So a car that you expect to be reliable, like a Honda, should get a discount relative to a car that you expect to be unreliable, like a Chevrolet. With the Chevy, you will be going into the dealer more often and every time there is a potential for something to happen that will lead to litigation. Don't believe me? Read about the dealer who stole my stereo when I took my car in for warranty service.

Case Study: fancy phone service

So why was this mess predictable in some sense? I'd bought an extra thing that a human being does not really need. I'd bought something that wasn't completely standard. If I'd waited and gotten a cable modem from MediaOne, I could not possibly have been overcharged because they only have two rates ($40 and $50/month).

Did I sue Bell-Atlantic to force them to live up to their side of our contract? No. Bell-Atlantic promised to deliver the $90/month flat-rate if we transferred the account to MIT. That reduced the amount in dispute to around $500, which I didn't pay. They turned the account over to a collection agency which sends me threatening letters on Bell-Atlantic's behalf. An interesting side light is that, after hours and hours spent on the phone and letters back and forth, Bell-Atlantic did not give MIT the flat rate as promised! Instead, they charged MIT almost $1000 extra per month. This went on month after month until, I guess, MIT's flotilla of telecom staff and lawyers straightened it out.

Case Study: copyright

As I discuss at the end of Chapter 4 of my book on Web publishing, I deal with this exposure to disputes in two ways. The first is that I grant other publishers rights on fairly easy terms. They can use my photos on their Web sites, even commercial ones, for free! They just have to put in a hyperlink credit. This cuts down greatly on the number of people with whom I can potentially have a dispute.

Still, 400,000 hits/day times 365 days/year = a lot of infringement. I could spend the rest of my life in court if I wanted to. But I don't. I'd rather take more pictures and build more Web services. So I have decided that it is better for me to simply try to figure out who the individuals responsible for infringement are and stuff them into my on-line hall of shame.

Other photographers and publishers have to make daily decisions as to whether to send nasty letters to Infringers A,B, and C, whether to file legal complaints against Infringers D,E, and F, because they've ignored the nasty letters, whether to go to trial against Infringers G,H, and I, because settlement talks haven't been going well. I'm assuming that they turn some kind of profit from all of this activity but for me the potential is not worth it. I type a few lines into a file on my Web server and put the incident out of my mind.

I've thus answered affirmatively both of the questions that I posed at the top of this article. By reclassifying most users of my images as "not infringing", I've cut down the number of people with whom I can be angry. With my Hall of Shame, I've got something that makes me feel whole (they used my image for awhile on their server; I broadcast their crime forever on my server). I don't have to go to court to edit the files on my Web server. Unlike with mediation or some other standard form or alternative dispute resolution, I don't have to get the infringers' consent to put their names in my Hall of Shame.

What about business?

But what if your company is small and can't realistically afford lawyers to draw up 50-page contracts or litigate when these contracts fall into dispute? Is it better to pretend that you're a Fortune 500 or maybe take an alternate tack?

I'm currently experimenting with an alternative approach at Arsdigita, LLC, a Web tech development company. We do development and hosting of Web sites for people, a typical relationship being worth $100,000 to $200,000. Assume that

if we are working for someone and they don't like our work, they won't pay us

if we are working for someone who runs out of money, they won't pay us

if someone likes our work they'll want us to do more and therefore will pay us to keep things rolling along

Suppose we have the second case. We're working for a small company and they run out of money so they don't pay us. A contract might help us win a judgment against them but maybe not. They might agree that they owe us the money. And even if we got a judgment, what good is it against a company that is nearly bankrupt?

Suppose the customer is paying. Well, then you don't need a contract if you have checks coming in!

So far I've been doing this for about three years. I do business on a handshake with people I trust. I don't do business at all with people I don't trust. There is usually a 10-point email message that says who is going to do what and for how much money. But no attempt is made to make this a legally impressive document. It is only for clarity. I even tell customers flat out that if they don't pay, we will make no attempt to collect. We are open about being a zero-litigation business.

Results? One customer failed to pay me $5000. He had gotten a handshake agreement for a big contract from a large company and they weaseled out on him. He agreed that he owed me the money. He felt badly about it. I think he probably could pay if I hung him up by his heels. But do I want the money that badly? Would I got to court to get it? Certainly not. So what would have been the point of having a contract? Anyway, I think some day he will get rich off another contract and pay me the $5000. If not, the $5000 saved is a lot less than it would have cost me to (1) keep lawyers on retainer for the past three years, (2) have them review the dozens of subdeals I've done with the dozen-odd clients I've had, (3) spend unpaid time with these lawyers and hassling contract points with customers instead of logging into their Web server and solving their problem.

Another customer failed to pay on time. This was especially bad because it was a fixed price development plan and the amount of work had spiralled to about three times what I'd expected. I was convinced that it was the customer's fault for changing the spec and was very anxious to pocket the final payment and move on to a new arrangement. So after I killed myself to bring their site live, they said "oh, sorry, we didn't get the investment capital and actually have no money right now."

A real business person would have presumably tried to figure out whether this was true. Presumably they didn't get their capital but perhaps they had some money and were paying the aggressive vendors. Maybe it was worth threatening legal action so as to get moved into the "aggressive vendors" camp. But mentally I didn't have that option. I was in zero litigation mode. So I just said "well, call me if you get some money. But don't ask me to do much more work right now because I can't afford to assume your investment risk. Since I'm not a shareholder in your company, there is no upside for me."

I wasn't trying to be nice. I was simply operating within the principles that I'd set down as best for me and I was being honest about how much credit risk I was willing to take. The result? They said I was the vendor who hadn't screamed at them and they appreciated that. They sent me a check about 10 days later when, I'm presuming, they got the investment they'd been counting on.

No contract, no litigation had worked sufficiently well for me in business that I started experimenting with the same approach in my personal life. After buying a condo in September 1996, I tried to get good tradespeople that I could trust. I asked them roughly what it would cost and did not ask for a contract or written estimate. Sometimes I did not even ask for any kind of estimate. The result? As least as good as if I'd had contracts. In fact, the only really thorny problems I had were with my central air conditioning installation, for which there was in fact a moderately detailed contract (drafted by the contractor). I blame myself to some extent for these problems because I went the full yuppie route and ordered deluxe features that few other homeowners would spec. Also, the one major thing the contract left open was how much time they had to fulfill it, so in the end I sweated for most of the summer while (I darkly suspect) they made piles of money installing systems in more insistent/litigious customers' homes. I don't think the contract protected me in any way.

Is this all stupid?

even without any kind of contract, your rights are protected to a large extent by Common Law and statutes like the Uniform Commercial Code. A contract is really just a way of saying "we want to be different from or more specific than Common Law and the statutes." If you write me a check for $10,000 to buy my car and I cash the check without delivering the car, you can sue me just as easily with or without a contract.

budget for disputes/litigation when you do things like (a) buy anything that isn't completely standard and cheap, or (b) enter new business arrangements, particularly hard-to-specify ones

think about what it would mean to have no contracts and no lawyers. Would it increase the number of disputes that you had? Would it make them harder to resolve? If not, why pay the lawyers and spend the time with them?

Caveat: before deciding to do everything with just a handshake, type "Statute of Frauds" into Altavista. You'll find that almost every state has a list of situations in which oral agreements are not enforceable. Typically these include the following: real estate, sales of goods for more than $500, contracts that can't be completed within one year (this includes most employment agreements), prenuptial agreements (!).

A dark note

A lot of ink is spent on the topic of consumers bringing poor helpless Fortune 500 companies to their knees with lawsuits, e.g., the famous McDonald's hot coffee incident. Plaintiffs' lawyers quickly tried to counter this flood with facts like Stella Liebeck's eight days in the hospital getting skin grafts for her third-degree burns, the fact that the coffee was 40 degrees hotter than industry standard, and the fact that McDonald's had gotten 700 previous complaints. But I never saw anyone address the question of whether McDonald's had ever apologized for the injuries and offered to pay for her medical expenses. I'm guessing that they did not and that she never would have filed suit if they had.

Companies who won't even answer letters from people who've been seriously injured tend to vitiate my system. If the alternatives are truly either (1) being a chump and paying all of your own medical expenses even when you know it was someone else's fault, or (2) hiring a lawyer to beat those medical expenses out of the responsible party, then hiring a lawyer looks pretty attractive.

Companies that behave this way present an even deeper challenge to my system. Fortune 500 companies are professionally managed by the best graduates of the top business schools. We must assume then that ignoring injured consumers (Ford in the case of my flight companion), and flouting contracts with weaker parties (Bell-Atlantic in the case of my ISDN line) is profit-maximizing. McDonald's only had to pay $480,000 to Stella Liebeck (her original big award was reduced by the judge). Her medical expenses were probably around $25,000. So unless the average Stella Liebeck has a better than 1 in 20 chance of winning a huge lawsuit, then it is in fact cheaper to stonewall customers who've been wronged. If companies find it cheaper to breach contracts when they think they won't get successfully sued and litigate whenever they think they can net a few dollars extra, then shouldn't we all do it?

My rebuttal to this argument is that companies and people are different. Corporations have no soul. It does not corrupt Bell-Atlantic's psyche to beat an undeserved $500 out of me and an undeserved $5000 out of MIT for my ISDN line. Bell-Atlantic does not have a psyche. They exist solely to maximize profit and everyone accepts that.

If we accept that people should employ the same standards as companies, then we'd all have to become radiologists, middle managers, and tax lawyers. But we don't all do that! Some people become artists, teachers, historians, and writers (some even become scientists and engineers). And, unless we have MBAs, we don't call these people losers. So we must think that there is more to life than maximizing profit.

So what can a person do? If we are all chumps who won't ever sue then Bell-Atlantic is going to take our last nickel for "enhanced Three-way Calling" that their records show we ordered. But if we all sink to the level of Bell-Atlantic every day then there will scarcely be any joy in living.

I guess my bottom-line proposal is near-infinite patience. Assume that the person or company with whom you're dealing has honor and integrity. Bend over backwards to hold that assumption, interpreting every ambiguous fact in their factor. For example, to adhere to my system I must assume that the slow A/C contractors were not out working on other folks' houses but were in fact waiting for parts that are in fact difficult to get. If you can possibly think of the other party as honest, then fulfill your side of the bargain as if they were 100% honest. A lot of the time you'll be wrong. The other party was in fact taking advantage of you and you're out a few $thousand. But your psychology will be healthier and your world will be a more satisfying place to live. You do not have to feel like a powerless victim. You used good manners and gave someone else the benefit of the doubt.

If, on the other hand, a person or company gives you nothing to work with, then feel free to sue them. If you're you're 100% sure that they did something wrong and 100% sure that they got your letter and you're 100% that they didn't make a good faith effort to settle with you, then certainly you've got to choose between the pain of lumping it and the pain of litigation.

Lawyers like to say "a bad settlement is better than a good lawsuit." I guess I think they're right.

January 1999 Update

Basically the good news is that we've scaled up ArsDigita without getting into any legal disputes despite the large number of customers and therefore interactions and potentials for misunderstanding.

The bad news is that I bought some stock from a couple of full-commission brokers at CIBC Oppenheimer in San Francisco (Michelle Bach and Dave Carey). They made some mistakes that cost me $18,000 and then refused to acknowledge or correct them. So now I have to either find a securities lawyer and go after them or lump the $18,000 loss.

philg@mit.edu

Reader's Comments

While I find myself agreeing with almost everything phillip has to say, I do have this slight criticism. Phillip, you have made a lot more money than the average person in your life. So the idea of throwing away "a few $thousand" is less an issue for you than it is for the rest of us unwashed heathens. Why the relentless upper-middle class perspective?



-- adam margulies, April 11, 1998

It seems that many of these litigation problems could have been avoided by the use of registered mail. When you hold the receipt for a registered letter, there can be no legal doubt that the letter that you sent had reached its intended recipient. Surely you sent your correspondence using registered mail.



-- Grendle@aol.com --, May 21, 1998

You wrote: "...the famous McDonald's hot coffee incident. ... But I never saw anyone address the question of whether McDonald's had ever apologized for the injuries and offered to pay for her medical expenses. I'm guessing that they did not and that she never would have filed suit if they had." From: http://www.brown-szaller.com/bzqrt-4.htm (paraphrased): The woman was 81 years old. McDonald's knew about the temperature issue for years. 700 incidents of scalding cases had been settled in the past. The scalding was so severe it caused THIRD DEGREE BURNS. The victim has stated that she never would have sued them if they hadn't refused to pay her medical bills. I've heard that the original suit was for the cost of the medical bills, around $8,000, but the site doesn't mention this. (The envirolink page below quotes Nader as saying it was $20,000). The amount the jury awarded, 2.7 million dollars, was approximately two days worth of coffee sales for McDonalds (they gross about 1.3 million dollars a day from coffee). The amount the judge actually awarded was $480,000. Apparently McDonald's hasn't learned its lesson; somebody else sued them for first and second degree scalding burns, in 1997. Most of the links out there are people who don't know any of the details, but hey, here's one from the envirolink network (I volunteered there a bunch back in '95) that quotes Ralph Nader: http://arrs.envirolink.org/maiLists/mclibel/mc95-73.html One thing this little exercise has left me with is a strong desire to email the rest of the 33 links I found with the real details of the story - or perhaps just the ones that are obviously personal web pages.



-- Steven J. Owens, December 30, 1998

Thoreau would have smiled at Phil's comments, and I mean this as a compliment. A crucial point for further reflection here is the distinction between individuals and corporations (for these purposes nonprofits also count). Phil comes close when he says that corporations have no soul -or psique. The missing corollary is that not being real persons, corporations should not be treated as such; sadly, our legal framework accords them rights which work reasonably for individuals with limited resources and lifetimes (most persons), but become a mockery in the hands of large organizations, for which devoting just some of their resources to manipulate the system becomes feasible on a routine basis. It is illuminating to realize that this was not always so: a mere century and a half ago (in the US, double that time in the UK, where the concept of corporation was born), corporations were given very stringent charters, had limited lifetimes and business domains, etc. As for the `upper middle class' viewpoint which Adam Margulies decries above, the principles stand for most of the demographic who read these lines, appropriately scaled. Being really poor is an entirely different matter, of course.



-- Cris Pedregal Martin, May 20, 1999

The Uniform Commercial Code applies to transactions between _merchants_ and not between ordinary consumers and merchants. Ordinary Joe and Josephine Consumer have much more protection under various consumer protection laws that vary widely by state. The UCC above applies in every state except for Louisiana.



-- Matthew Endo, June 1, 1999

The previous comment of Mr. Endo stating that the Uniform Commercial Code does not apply to transactions involving consumers is incorrect. He is correct, however, in suggesting that consumer protection statutes are an important source of protections for individual consumers. Consumer protection statutes are in addition to any remedies that an individual consumer might against a merchant under the UCC. Many, perhaps most, states have consumer protection offices, frequently as a part of their attorney general or equivalent office. The filing of a consumer protection complaint a little cost may sometimes bring a good result in an appropriate case, without resort to hiring an attorney and commencing litigation.



-- Maureen Garde, June 13, 1999

I've been a litigator for 23 years. The best advice I can give to people who are victims of wrongful behavior at the hands of another is that they should ask themself if the American civil justice system will give them what they want or expect. So that their wants and expectations can be immediately dashed, let me point out that the only thing the civil justice system can deliver is money. You will not get an apology, you will not get your health [or whatever] back, and your life will not be the same as before you were wronged. At most, you will get a check after your lawyer deducts fees and costs. And then, I guarantee you that it will be less money than you want or expect and that it will come to you so slowly that your next company paid six-week vacation to [fill in the name of some place you have never been to but think is exotic because you don't know any better] will come sooner. If that is what you are willing to tie yourself up in knots for, have at it and bless you. For those who are the wrongdoers, I could not agree more with the implication of a prior post that an apology is all most people want or need. If that happened more often, I would be out of work. But it doesn't so, ...., well, you get the drift.



-- Ken O'Brien, September 2, 1999

After 20 years of schooling they put me on the day [litigation] shift. And aside from getting a juicy slice of the american pie, I have really nothing I can be proud of, except for a few cases in the reporters, and nearly a like number of reversals on appeal. I guess the point of this is that not even lawyer, at least those that are honest with themselves, like this fool business. It's just that it is a juggernaught that feeds on itself. A client of mine, who just happens to be a prostitute, told me to get honest work, and she is a good client!



-- Geoffrey Giles, April 23, 2000

On the "Engineers and Scientists" hyperlink web page is found a paragraph with a photo of an apparently homeless man beside it: Albert, PhD Electrical Engineering and Computer Science MIT '84 relaxing on 15th Street in New York City. "I had a tenure-track position at Carnegie-Mellon but after seven years they said it was unfair to keep me from the great opportunities outside the university." When a person becomes unable to earn a living at all due to a recurrent generic dispute with employers; then how does such a person maintain a "zero litigation" lifestyle? The alternative is to eventually die on the streets of America, as seems to have happened to the engineer cited above. "Taking the lumps" can make sense when luxuries are at stake, but is this realistic when physical survival is at stake?



-- Robert rIGGS, March 25, 2001

Your problems with including the non-litigation oath in your personal life reminded me of the Prisoner's Dilemma discussion in the book Complexity. The goal was to investigate why people cooperate at all, since in most situations cooperation gains a smaller immediate advantage in exchange for the risk of betrayal. The game-theory answer says that entities shouldn't cooperate, even though most people find it worthwhile to do so. The dilemma arises because of the expectation that cooperation or conflict is a one-time deal, without any persistence. If the situation is repeated, it becomes apparent that ongoing relationships give cooperation a much stronger advantage. In business -- and in particular in this business, where the explicit assumption is that happy customers will continue to pay -- the ongoing relationships give everyone reason to cooperate. In private life, however, most big-money situations are not iterated -- at least, not often enough to matter. I don't expect that I'll buy a house more than once every ten years, or a car every five. If something goes wrong, I can't depend on enlightened self-interest convincing the other party to cooperate. (Yes, if the other party is wrong often, word-of-mouth will put them out of business, but that doesn't help me.) Result: personal big-money problems require some conflict resolution, such as litigation. (Some smaller transactions do repeat, and probably get some advantage from cooperation -- e.g. take-a-penny/leave-a-penny at the grocer. I'd wager that smaller non-iterative transactions get ignored or litigated based on expected transaction costs i.e. is it worth the time to get the money back.)



-- Patrick Bowman, May 23, 2001

I applaud Philip's personal effort to rely less on litigation, and feel that it echoes a national need to rely less on legislation. Often when an individual feels slighted, injured, or infringed upon in any way, the phrase "there oughta be a law" comes to their mind. Elected officials often campaign for re-election on the strength of all the "good" new laws they have passed. The law books continue to grow to the point that even the best trained attorneys often cannot stay fully abreast of all the possible legislation that could have bearing on a particular case. "Zero litigation" is probably as unrealistic as "zero legislation." But I wish for people to develop a habit of thought where having to make laws, and having to compel people to perform according to them, are both regarded as a regrettable form of ultimate recourse, when no voluntary, cooperative strategy can suffice. On a personal note, several posters have wondered whether it is possible for financially disadvantaged individuals to live a "zero litigation" lifestyle. I have been both destitute and successful, and have been able to follow a philosophy much like Philip's throughout these financial ups and downs. However, even when I had no assets and was deep in debt, I was blessed with the ability to work and earn, making my own way out of the hole. Perhaps ability is the actual determinant of who can afford to make such lifestyle choices as "zero litigation." If you get knocked down but have no means to pick yourself up, perhaps you have no choice but to turn to society (the courts) for redress from without. Whereas a resourceful artist/programmer/citizen like Philip has sufficient ability, and confidence in his ability, to rely on his own strength.





-- Rob Heittman, October 22, 2001

Lawyers and guns have one aspect in common. Sometimes, the threat is more productive than the actual use. I'm sure most of the time the 'no-litigation' strategy is the best, but it's most efficient not to let people know you've adopted this policy.



-- Ed Bolton, October 27, 2001

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