‘The key difference between India and the US is law enforcement'

Most Indian companies who try to do business in the West soon come up against a problem — while they could ‘manage’ their ways around laws in India, they have to stick to both the letter and spirit of the law abroad.

Little wonder then that lawyers like John M Callagy soon become indispensable to them. As chairman of Kelley Drye & Warren, one of the biggest law firms in the US, Callagy and his firm have untied the legal knots for a range of top Indian firms in the US, including Tata Steel, Taj Hotels, Ranbaxy, Mahindra & Mahindra, Sesa Goa and State Bank of India. Sreejiraj Eluvangal caught up with Callagy to get the legal low-down on the legal adventures of Indian firms in the US. Excerpts:

How big is the legal spending by Indian companies in the US and in which areas do they spend more?
It is difficult to estimate the figure, but I would say it would easily be in hundreds of millions [of dollars] per year.

As to which broad areas, it would be around 20-25% related to mergers and acquisitions, including due diligence etc. The remaining is mainly litigation — dealing with US government investigations — especially in the pharma industry, product defects, business disputes, trademarks and patents, etc.

A large portion of the litigation arises because the US is a very litigious country — people go to court if they feel claims made in your advertisements are not true. Another new area we are seeing now is bankruptcy-related litigation, where companies are trying to acquire assets stuck in bankruptcy proceedings.

Which industries are the highest spenders in terms in the legal expenses in the US?
The highest spenders are Indian pharma companies, followed by IT and then banking and the auto sector.

What are the usual blind-spots for Indian companies entering the US? What is your advice to smaller companies who have dealings in the US, but cannot afford the costly US legal process?
If you are merely doing business with US partners and do not intend to establish a local business there, then my advice is to protect yourself through some means of security. For example, if you are exporting something, use a letters of credit as security. Unless you own assets there, there is no point in filing a case there and going through the legal system.
As for the usual mistakes, I have found the Indian companies who approach the US to be very, very careful. They have usually done their homework. But yes, there are areas where the US legal system is considerably different from that in India.

First is the contingency fee. Under this, you can, technically, fight a case with no money. The lawyers enters into an agreement with you under which he will take a particular percentage of whatever monetary award you get if you win the case. The second area is the whole system of pre-trial. Under this, both parties are obligated to reveal all their sources of information to each other so that both can be well prepared. So witnesses can be examined even before the trial begins and this process can last for up to two years.

The third difference is the institution of jury [panel of peers]. The idea of placing your case, which can make a difference of $50 million or even a billion dollars to you, into the hands of 5-6 ordinary people who may have no knowledge of the subject can be quite unsettling for many. It is a roll of the dice, to some.

These are related to the litigation-process. Are there also differences in compliance?
Yes. From what I know, India too has strict laws — on environment, tax, bribes, labour etc. But the key difference between India and the US is enforcement. Not only are the laws strict, but companies have to realise that they are strictly enforced in the US. For example, under the Foreign Corrupt Practices Act (FCPA), even if you are not a US-based company, you can still be penalised in the US if you are caught offering bribes in a country other than the US. Having a subsidiary in the US is all it takes for you to be covered by this law.

The tendency to settle out of courts is very strong in the US. Why is that?
Roughly 90% of the cases are settled out of the courts at some stage or the other. A large part of the reason has to do with the long pre-trial process when both parties exchange information. With this discovery process, you get an idea of the position of the other party is. It sometimes leads to a rethink. People also tend to withdraw their cases just before the beginning of the trial. They don’t want to get on the stand and be cross-examined.

The other reason is that the costs start piling up and companies say ‘I didn’t know it was going to cost me this much!’ Also, if the case does not involve questions of fact and is more about the interpretation of statutes, parties can request for summary judgement. Such judgements also spur settlements.

You also have registered lobbyists at your firm’s disposal. Are Indian companies active in this process of trying to influence government polilcy?
The major Indian companies are all doing it. For example, the bailout package had clauses which prevented beneficiaries [of the bailout measures] from offshoring their work. I am sure that Indian companies took the opportunity offered by lobbying to make their cases before legislators. Ultimately, the legislators themselves depend on the presentations and data collected by lobbyists for facts.