A jury in U.S. District Court in Minneapolis returned a damages verdict on Oct. 22 in favor of Global Traffic Technologies, LLC, headquartered in St. Paul, Minn.  Global Traffic Technologies was awarded $6.75 million in damages for infringement of U.S. Patent No. 5,172,113 by defendant Tomar Electronics, Inc. The jury trial for damages began on October 2, before Chief Judge Michael J. Davis.

Global Traffic Technologies markets and sells the patented Opticom^™ Infrared System for emergency vehicle preemption and transit signal priority. Tomar Electronics, based in Gilbert, Ariz., marketed and sold the Strobecom II traffic preemption system.

The original claim against Tomar Electronics, Inc. was filed on April 13, 2005, for infringement of U.S. Patent 5,172,113. On December 27, 2007, Global Traffic Technologies won an order of infringement against Tomar Electronics, when the court found Tomar had infringed multiple claims of this patent.

A U.S. Bankruptcy Court judge has ruled in favor of Stopol, Inc. and Stopol Auctions, L.L.C. on all counts, dismissing the lawsuit and denying all claims made by Reggie Sullivan and Cornerstone Products, Inc. against the Solon, Ohio-based company and its auction affiliate.

U.S. Bankruptcy Judge Brenda T. Rhodes ruled in favor of Stopol, finding and concluding that “the Stopol Entities did not engage in fraud and did not breach their fiduciary duty to Cornerstone or the bankruptcy estate.”

“Moreover, the Court found that Stopol, Inc.’s direct purchase of machines owned by Cornerstone had been repeatedly ‘encouraged’ by Cornerstone’s President and that the purchases made by Stopol were ‘inherently fair’ to Cornerstone,” according to Stopol attorney Marvin Karp.

Cornerstone had claimed that Stopol bought some Cornerstone equipment from its creditors and then resold the machines through prearranged transactions that it kept secret from Cornerstone.

On February 8, 2006, Stopol hosted and web cast an auction to sell plastics manufacturing equipment from discontinuing operations at Cornerstone Products, Inc.’s Durant, Okla., plant. The auction was a huge success, attracting over 250 bidders and generating in excess of $1 million in proceeds for Cornerstone.

“Stopol has maintained all along that Cornerstone’s claims were false and unwarranted, and now we have a judge’s ruling to confirm it,” said Stopol CEO Neil Kruschke Jr. “Being publicly vindicated in a court of law further supports our reputation as an honest and upstanding company.”

Privately held, Cornerstone Products was a molded product manufacturer that employed nearly 200 at its Durant facility. The plant produced a variety of custom-molded housewares, including trash cans and storage containers. A shrinking market of retailers and rising raw material prices forced Cornerstone to discontinue operations.

So when the dust settles, what will the public markets look like?  What changes will take place to protect against fraud?  I came across the results of a Sybase/Financial Times informal poll taken at the FT Electric Money Conference: Liquidity in Crisis, held this week at Manhattan’s Cipriani Wall Street. Excesses in the securitization industry coupled with a failure of valuation practices and risk management were among the leading causes of the global financial crisis, according to the majority (54%) of respondents.

The crisis, while far-reaching in scope, can be fixed through the kinds of government intervention and bailout programs that are being implemented, according to fully half (50%) of senior financial executives polled at the event.

Some 38% of those surveyed believe that the financial industry, while structurally sound, will also require adjustments to regulatory and accounting practices to return to an even keel. Notably, 53% of the survey’s respondents see a long-term challenge in trying to formulate regulations that can keep up with the dynamic, innovative nature of the financial industry — and Wall Street in particular.

Sinan Baskan, financial markets director at Sybase, commented in the conference’s opening panel on the changing competitive landscape for equities trading: “Public policy will be key to a recovery. Successful public policy could lead to larger trading centers and greater stability internationally. If these policies are not well implemented, market disruption and dislocation will most likely be prolonged.”

The post-credit-crunch outlook for high-performance trading systems will require hard choices about where to invest, Baskan observed to a capacity-filled audience. “Innovation, economies of scale and integration of the stack will be of paramount importance,” he added.

Cal-Bay International (OTC: CBAY) this past week announced that Cal-Bay International has reached an amicable settlement with one of the company’s largest creditors in an out of court settlement agreement, case # 07CC08736.

The settlement includes full relief of the debt to Cal-Bay and the removal of judgments against the company. The agreement also calls for satisfaction of the debt “With Prejudice.”

Melinda Rice of Cal-Bay International, Inc. commented that the company’s legal counsel reached an amicable settlement of the lawsuit “With Prejudice,” ensuring the permanent resolution of the issue.

The settlement terms are to remain confidential but will not result in a new issuance of the company’s stock to satisfy the agreement.

Congress and the Bush White House overstepped their constitutional authority and violated the rights of millions of customers when they passed and approved legislation granting sweeping immunity to telecoms that collaborated in illegal spying. That assertion is contained in a court filing today by three California affiliates and the Illinois affiliate of the American Civil Liberties Union and the Electronic Frontier Foundation, along with other interested parties in cases consolidated in the U.S. District Court for the Northern District of California. The ACLU lawsuits filed on behalf of dozens of plaintiffs – including renowned Chicago journalist Studs Terkel, former California Congressman Tom Campbell, journalist Robert Scheer and actor Richard Belzer – challenge the unlawful collaboration of major telecommunications companies with the Bush Administration’s warrantless dragnet surveillance of electronic communications and records.

“Under our constitutional system, Congress and the Executive Branch do not determine whether actions taken by the Executive violate basic constitutional rights,” said Harvey Grossman, legal director for the American Civil Liberties Union of Illinois and co-lead counsel for the cases combined in the San Francisco court. “Since Marbury v. Madison, we have recognized that only a court can determine the meaning of the Constitution – it is simply not a power granted to the Congress and the President.”

This filing is in response to passage of the Foreign Intelligence Surveillance Act Amendments of 2008 which mandate that courts dismiss any cases against AT&T or other telecommunications companies if the Attorney General chooses to file a secret certification attesting that the executive branch told the phone companies that the surveillance was lawful. Under the immunity provisions, the federal court does not determine whether the spying was in fact legal, but only that the representation of legality was made by the executive branch. The Attorney General has filed such a certification in these cases. This certification, according to the ACLU is not surprising, since the Attorney General argued for immunizing the telecoms in public statements and in testimony before the law was passed in public statements and in testimony before Congress.

“It strains credulity to believe that the same Attorney General who argued that immunity must be granted has fairly and completely weighed the interests of our clients in making his decision to ask the court to dismiss their case without determining whether any constitutional rights were violated,” said Ann Brick, staff attorney for the ACLU of Northern California.

The brief filed today argues in its 1972 “Keith” decision, the Supreme Court ruled that domestic security surveillance requires prior judicial approval in the form of a warrant. The effect of the new immunity law is to overturn Keith and to dispense with this judicial gate keeping and instead to substitute the opinion of the executive branch that the spying is lawful. Thus, the Congress and the White House has unconstitutionally encroached on the well-recognized authority of the courts to determine when a constitutional violation has occurred.

“Instead of changing the law as is its prerogative, Congress simply attempted to substitute a Bush Administration interpretation of the Constitution for established law,” said David Blair-Loy, legal director of the ACLU of San Diego and Imperial Counties. “This creates a clear and unquestionable violation of our fundamental principle of separation of powers.”

Another area of grave constitutional concern for the ACLU is the FISA Amendments overly-broad grant of authority to the Attorney General to censor what materials drawn from the government’s certification can be released in a public decision. The ACLU brief notes that under the First Amendment – and separation of powers required by our Constitution – only a court, not the Attorney General or Congress, can determine what information can be presented in a decision related to a civil proceeding.

“There is a critical First Amendment right to ensure that the public can access materials filed with our courts,” said Peter Eliasberg, managing attorney of the ACLU of Southern California. “Courts must decide what materials can be kept from the public, not a political appointee like the Attorney General, who may be more interested in protecting a particular Administration than the public’s right to know.”

Stats for New Suits

1. Bigger Means More Disputes – While the overall pace of new filings was down the past year, the trend definitely favored smaller companies. A fortunate 47% of U.S. firms with revenues under $100 million reported facing zero new lawsuits in 2007-08, compared with 27% for middle-market businesses ($100 million – $999 million), and 11% of billion-dollar companies. The same pattern applied to volume litigation – 7% of smaller firms got tagged with more than 20 new suits in the past year, vs. 12% for mid-market businesses, but a whopping 45% of companies in the billion-dollar league. That included 29% of large companies served with more than 50 new suits in 2007-08 (vs. only 7% for small firms). The same trajectory applies for big-money suits: Only 8% of the survey’s small company respondents drew a single lawsuit with more than $20 million at stake – but that figure jumped to 38% for billion-dollar respondents. The findings confirm a progression that has been evident for several years – a bigger business model seems to attract more litigation, as well as more high-stakes actions.

2. Are the Brits Less Litigious? – The contrast between new cases filed in the U.K. and the U.S. is striking. Whereas 21% of U.S. firms escaped the past year without a single new suit against them, that total nearly doubled to 41% among U.K. companies. Though only 10% of U.K. firms coped with 20-plus new suits, that figure jumped to 27% for American businesses. In the same vein, 84% of in-house counsel in the U.K. said their companies didn’t face a single action with more than $20 million at issue in the past year vs. 74% in the U.S.

3. One Benefit of Staying Private – For the first time, Fulbright looked at litigation exposures between public and private companies. Overall, privately held companies saw fewer new suits, but were hardly immune to getting sued: 66% had to defend at least one new action in the past year, with 14% dealing with more than 20 fresh lawsuits. In comparison, 83% of public companies defended one or more new suits this year, with one-third of them facing 20-plus new cases. Public companies also had 16% more suits with $20 million-plus at issue than privately held firms

4. Industries Sued Most – Insurance companies were the No. 1 target for new litigation in the past year – two-thirds of insurers faced at least six new lawsuits, including 29% facing more than 50 new actions. Retailers had the next largest docket with 55% fending off six or more new cases, followed by manufacturers (54%) and health care providers (52%). Although they ignited some of the highest profile class actions and government prosecutions, financial services companies were further down the list, with 37% being hit with six or more fresh lawsuits. Tech-communications firms reported the fewest, with 30% facing six or more new suits.

Who’s Suing Whom

5. Bigger Plaintiffs – It turns out that size also appears to affect the rate at which companies go after one another: One-third of firms under $100 million filed at least one new suit this past year. For middle-market businesses, the ratio increased to one-half; and for billion-dollar firms, the number of plaintiff actions was at 73%.

6. Industries Filing Most – Financial services companies were the most prolific plaintiffs, with 35% bringing at least six new lawsuits in the past year, including 11% generating more than 20 new cases. Insurers and engineering firms were the least likely to initiate new actions, followed by manufacturers and health care firms.

Where the Suits Are

7. Most Common Lawsuits – As in past surveys, the three most common lawsuits facing U.S. companies were labor/employment, contracts, and to a lesser degree, personal injury. Rounding out the top 10 in sheer case volume were product liability, intellectual property/patents, insurance, environmental-toxic tort, regulatory, class actions, and professional services. Tax disputes were the least recurring type of reported cases.

8. Targets – While labor, contracts and IP cases were near the top of everyone’s litigation charts, many industry groups were vulnerable to their own class of litigation. Hence, technology-communications companies topped all sectors in IP disputes, which were even more numerous than personal injury cases. Financial services firms reported the highest incidence of securities actions. Energy firms drew the most environmental matters, as well as regulatory proceedings. Health care companies saw the most cases stemming from professional services. Manufacturers were tops in products liability and antitrust. And real estate firms shared the lead in bankruptcy with financial firms.

9. Top Concerns – Offered the chance to consider their most worrisome litigation anxieties, in-house counsel spread their concerns across 15 separate categories of disputes – all but two of them reaching double-digit percentages among reporting companies. Among the more interesting findings: Smaller companies show a greater concern over securities, insurance and real estate litigation than middle-market or billion-dollar firms; and private companies express considerably more concern than public companies in cases related to contracts, labor and personal injury. Meanwhile, companies based in the Southern U.S. worry most about class actions and products liability, while California companies are most concerned with employment actions. Companies in the Northeast face the most environmental cases.

Litigation Ahead

10. More of the Same or Just More? – With the economy continuing to sputter, it is unlikely that the slide in new case filings reported over the past several years will continue. More than half of in-house counsel surveyed by Fulbright felt that the pace of new lawsuits will at least remain stable, with 34% expecting an increase in legal disputes into 2009. Billion-dollar firms were especially wary, with 43% anticipating more litigation and only 3% predicting a decrease. Financial firms feel the most at risk – 50% expect more disputes (only 6% forecast a decrease), followed by health care firms (40% predicting more; 10% less) and retailers (39% more; 3% less). Even among the most optimistic sector – technology – 24% of in-house counsel are anticipating more cases.

11. Litigation Spending Stable – American businesses continue to commit significant financial resources to disputes, with 45% of U.S. companies spending $1 million or more annually on litigation (excluding cost of judgments or settlements). That compares to 34% for British firms. Sixteen percent of U.S. firms are spending at least $5 million annually, including 9% reaching $10 million or more. Litigation is a major line item for billion-dollar companies – 72% reported an annual budget of $1 million or more, including 21% spending at least $10 million, the same rate as 2007. Among public companies, 63% are in the $1 million-plus club, vs. only 26% for private firms. Insurers were the biggest spenders, with 53% budgeting at least $1 million to litigation, followed by energy providers (52%), and manufacturers and financial services firms (both at 51%).

12. No Job Loss Expected – Consistent with their expectations of gathering litigation storm clouds, companies were much more likely to predict that their in-house litigation staffs would increase in the future rather than decrease, by a margin of 19% to 2%. The gap was sharpest among billion-dollar companies, with 23% saying their in-house rosters would rise vs. only 4% seeing a decline. Engineering and energy firms anticipated the greatest likelihood of adding more litigators.

Government Proceedings/Internal Investigations

13. Regulatory Help – New regulatory proceedings may be down, but U.S. companies still have a number of government enforcement issues on their plates. Nearly half (49%) of respondents said they had retained outside counsel in the past year to assist in a government investigation – double the rate among U.K. companies. Larger companies were three times more likely than smaller firms to call on outside counsel – 63% vs. 19% for companies under $100 million. Similarly, 54% of public companies required help on regulatory matters, compared to 31% for private firms. Insurers and manufacturers reported the most new regulatory proceedings in the past year; technology and engineering firms dealt with the fewest government investigations.

14. Subpoena Powers – In an even more telling sign of government action, 30% of U.S. companies were served with a grand jury subpoena or administrative summons this past year – including a substantial 17% receiving at least two government calling cards. Amid heightened regulatory scrutiny focused on Wall Street, 37% of financial services firms received at least one knock on the door since 2007, with 21% served with three or more regulatory subpoenas or summons. Even the lowest segment – technology firms – reported that 15% of their ranks drew one or more subpoenas. Although not every subpoena leads to prosecution or an enforcement action, the high rate of formal demands for information points to a continuing high season for government investigations.

15. Enforcement Calls – Companies facing regulatory/enforcement matters identified more than 15 different agencies and offices calling on them. The most frequent visitor was the Department of Justice, with 47% of firms needing help dealing with a regulatory matter involving the DOJ. No. 2 was the Environmental Protection Agency, followed by the Securities & Exchange Commission, State Attorneys General, Occupational Safety & Health Agency and the Federal Trade Commission.

16. Reaching Resolution – U.S. companies also have been busy working through their government troubles: 29% said they had settled a regulatory proceeding in the past year compared with 10% in the U.K. The number of billion-dollar firms reaching a government settlement was at 39%.

17. Backing Off of Privilege Waiver – In 2007, Fulbright found that 17% of corporate counsel had chosen to waive the critical attorney-client privilege as a show of cooperation in a government investigation, a seemingly high quotient coming on the heels of several high-profile trials and investigations where the waiver of privilege played a central role. This year, in-house counsel were less willing to forego confidentiality, with 9% saying their companies waived privilege in hopes of avoiding a government prosecution or an enforcement action. Billion-dollar firms especially felt the pressure easing. Only 13% reported they had waived privilege compared to 31% giving up confidentiality in 2006-07. Those percentages may drop even more in the coming year following the Justice Department’s Filip memo prohibiting federal prosecutors from pressuring companies and individuals facing investigation to waive their right of privilege in exchange for the cooperation credit. However, congressional sponsors of new legislation to curb any government attempt to induce a privilege waiver may find a 9% figure too much.

Subprime/Backdating

18. Subprime: The Gathering Storm – As Wall Street continues to reel from the mortgage industry implosion, the survey found that companies in affected industries were already preparing for the worst. Even ahead of the most recent failures, takeovers and bankruptcy filings, a sizable 12% of insurance companies and 11% of financial services firms reported having engaged outside counsel to assist with a subprime lawsuit or investigation in the past year. Looking ahead, 22% of financial services sector respondents and 15% of insurers said they were bracing for a subprime action or investigation in the upcoming year. Next year’s survey results may tell a different story.

19. Options Woes Receding – Concerns about stock options backdating, which engulfed hundreds of companies in 2006 and led to multiple SEC prosecutions as well as shareholder class actions and derivatives suits, diminished sharply this past year. Only 7% of U.S. companies conducted an internal investigation related to backdating, compared with 26% that said they had been forced to consider an options review a year earlier.

Bribery and Foreign Corruption

20. Corruption Issues – Billion-dollar companies had a higher incidence of these concerns in the past year, with 20% having undertaken a bribery or corruption investigation compared to 1% for companies under $100 million and 2% for mid-market firms. Manufacturers led all other industry segments in corruption probes at 14%, followed by energy firms at 12% – both industries that are more likely to have operations globally. Overall, 7% of U.S. companies engaged outside counsel because of possible corruption or bribery charges, including violations of the Foreign Corrupt Practices Act. Companies with international operations were more prone to bribery problems – 11% of multinational respondents reported hiring outside counsel to investigate bribery claims, while 20% dealt with potential bribery concerns as part of due diligence in a corporate acquisition.

21. Facilitating Payments – A number of high-profile FCPA investigations in recent years have shed light on so-called facilitating payments to local government agencies and officials, which have long been a part of doing business in the developing world. While most U.S. companies have expressly prohibited such payments, 20% still allow them in some countries as a means of expediting business and government functions. This practice is even more common in the U.K., where 39% of companies still permit facilitating payments.

22. An Ounce of Prevention as Better Policy – Nearly two-thirds of U.S. respondents have policies expressly prohibiting facilitating payments in a foreign jurisdiction. When the FCPA was originally passed in 1977, many corporations feared the Act would be a disadvantage when conducting business in non-Western locales. Such outcries created carve-outs to FCPA liability for facilitating payments. It is noteworthy that the majority of U.S. respondents believe it is better to forbid all such payments than explore a gray area inviting costly and embarrassing investigations for FCPA violations.

23. Walking Away From Trouble – Despite the severe penalties and reputational risks associated with an FCPA prosecution, 13% of companies admit they still allow small direct payments to foreign governments in certain specific situations. One-quarter of energy companies and one-fifth of financial services firms – both sectors with substantial business interests in emerging economies – confirm making direct payments to foreign hosts in some cases. At the same time, 23% of all U.S. companies said they have made the decision to walk away from doing business in a country based on the perceived degree of local corruption. For smaller companies with a lot to lose, the walk-away rate was 39% whereas for billion-dollar companies, it was 31%.

Workplace Cases on the Rise

24. Wage-and-Hour Pressures – With employment cases perennially taking up the largest portion of corporate dockets, Fulbright sought to learn which types of employment disputes are the most nettlesome, particularly in multi-plaintiff cases and class actions. Respondents report the greatest spike in wage-and-hour suits – in which employees allege underpayment for overtime, meal and rest times. Nineteen percent of U.S. companies cited an increase in wage-and-hour cases in the past year vs. only 1% noting a decrease. Retailers, which frequently call on part-time or seasonal workers, appear to have the most exposure: One-third of retail firms saw an increase in wage-and-hour litigation, with none reporting a drop. In contrast, 6% of U.K. companies saw any upward movement in wage-and-hour disputes.

25. Other Employment Cases – After wage-and-hour, companies saw pronounced increases in five other areas of workplace litigation: General discrimination suits, followed by privacy, ERISA, disability claims, and age discrimination. Retailers and financial services firms saw the sharpest rise in discrimination claims; retailers shared the lead with energy firms in ERISA cases; and retailers led again in cases tied to ADA claims.

26. Money Cases – Of 10 major types of employment litigation, U.S. companies pointed to race discrimination cases as creating the highest financial exposure, followed by claims stemming from sexual discrimination; wage-and-hour violations; ageism; harassment; retaliation; disability; non-compete disputes; and violations of the Family Medical Leave Act.

IP Matters

27. Patent Defense – One-third of U.S. companies, regardless of industry type, had at least one patent infringement claim filed against them in the past three years. For billion-dollar respondents, the level rose to just under one-half, and for invention-rich tech firms, the ratio was higher still at 52%. Manufacturers also saw a high rate of patent claims at 52%, including 2% reporting more than 50 cases since 2005. A notable 12% of below-$100 million companies have been hit with at least one patent infringement claim during that period.

28. Patent Offense – Equally worth noting, 21% of U.S. companies initiated at least one patent action in the last three years, including 39% for billion-dollar firms.

29. Patent Volume – The great majority of companies (83%) expect no near-term change in the volume of patent suits. That leaves 12% of respondents expecting an increase of patent cases and 5% of participants expecting a decline.

Electronic Storage/Document Disclosure/Records Retention

30. Some Courts Still Lag Behind – Of course, e-discovery and electronically stored information remain an important part of the litigation process, as a normal part of discovery and document production. And it appears that some jurisdictions may still lag behind on dealing with electronic discovery. Twelve percent of companies said they had been before a court or other litigation tribunal ill-equipped to deal with complex electronic data discovery. For financial services and technology firms, which have mounds of e-files and other electronically stored data, 19% and 18%, respectively, reported facing courts and tribunals not up to the challenge.

31. Rethinking Pre-Trial Document Disclosure – The survey asked in-house counsel to consider whether the mounting costs and complexities of pre-trial document review should prompt a review of litigation disclosure laws and procedures. Nearly two-thirds of companies answered in the affirmative, including 74% of middle-market firms. Congress is hoping to resolve the problem with legislation designed to allow litigants to mutually agree to share large amounts of data while preserving the right to claim certain data as privileged under so-called “clawback” and “quick peek” provisions.

32. Going Offshore – In recent years, a growing number of off-shore legal services firms have sprung up, offering both in-house and law firm counsel an option of having mega-file litigation folders reviewed and coded by “back-office” contract lawyers in India and other countries. So far, a handful of U.S. companies – 2% – are availing themselves of such services. However, for billion-dollar firms with much greater volumes of cases the number was a notable 8%. Technology firms were the most comfortable with the practice, with 12% willing to send their document review offshore, followed by financial services firms at 11%.

Relations with Outside Counsel

33. Bet-the-Company Matters – This year’s survey asked in-house counsel to weigh the factors that count most when the stakes are the highest – i.e., when choosing which law firms to represent them in “bet-the-company” cases. Respondents overwhelmingly said “subject experience” was their No. 1 criterion, with 80% choosing it as a top factor. The No. 2 factor was a law firm’s trial record, followed by litigation strategy. Tied at fourth most important were familiarity with a particular venue and a company’s standing relationship with its outside counsel. Despite a drumbeat of comments about law firm rates, only 17% of companies cited billing rates as the most important reason for choosing their litigation counsel.

34. Taking Matters In-House – Of 15 major litigation categories, companies were most likely to handle contract and employment matters in-house without calling on law firms, a likely reflection of their sheer volume as the most common types of corporate disputes. Of note, 27% said they prefer to handle regulatory issues on their own.

Following two straight years of reporting declines in the number of new lawsuits and regulatory proceedings – including a drop in large-dollar cases – U.S. companies now anticipate an uptick in new actions and government probes, as well as the need to hire more in-house litigation staff to help manage the expected rise in disputes. Such is the outlook from the 2008 Litigation Trends Survey just published by international law firm Fulbright & Jaworski L.L.P.

This is the fifth year Fulbright has polled corporate law departments in the U.S. and U.K. on the state of global litigation. The 2008 survey drew input from 358 in-house counsel on both sides of the Atlantic, including 251 U.S. respondents. The survey, initially launched by Fulbright in 2004, is the largest canvas of corporate counsel on litigation issues and trends.

“This year’s survey appears to mark an inflection point for American business, between the end of a prolonged period of prosperity and the start of a period of economic challenge that is likely to fuel litigation over who is to blame and who should pay for the consequences,” said Stephen C. Dillard, who chairs Fulbright’s global litigation practice. “Given that we were polling in-house counsel on the cusp of that transition, it’s no wonder that this year’s findings highlight both the evident calm before the storm, as well as the sense that disputes are on the rise.”

The Recent Drop in New Case Filings

By several key indices, the overall pace of fresh litigation indeed trended downward in 2007-08, with 21% of U.S. companies reporting no new lawsuits filed against them in the past year. That’s an improvement from 17% having stayed litigation-free in 2006-07 and nearly double the number from 2005-06, when 11% of companies reported enjoying a year without any new lawsuits to defend.

Even more pronounced was the drop-off in plaintiff filings: Fulbright found that 56% of U.S. companies brought at least one action against another party in the past year – no small portion, but still a 10% decline from the number of firms commencing new plaintiff filings in 2007 and a larger dip from 2004, when 88% of businesses said they had filed one or more lawsuits.

And there was more to cheer for companies on the defensive – a noticeable drop in big-dollar filings. Only 26% of U.S. firms were tagged with one or more new lawsuits with claims above $20 million in the year past, a decline of 14% from 2007. While 37% of billion-dollar companies had to defend at least one new $20 million suit, that was a dramatic 25% drop from the number reporting a year ago.

Even government enforcers eased off a bit. Forty-three percent of in-house counsel said their company faced some type of regulatory proceeding the past year – a 5% decline from 2007 and a 10% drop from 2006.

Challenging Web of Litigation Exposures Remains

While overall case filings may have slowed this year, the litigation landscape is by no means shrinking. Findings show that most U.S. companies still face a challenging web of litigation exposures, with certain industries prone to particular types of actions – intellectual property/patent infringement, product liability, environmental/toxic tort – even as nearly all businesses contend with disputes involving employment, contracts and personal injury.

Companies also detect a spike in specific types of actions – nearly a third (32%) of Fulbright respondents reported a jump in multi-plaintiff suits stemming from wage-and-hour claims by employees in the past year, with 29% notching an increase in discrimination cases, including age claims. Companies also cited a noticeable rise in privacy lawsuits, whether class or collective actions.

Regulatory proceedings may have ebbed in absolute terms, but American companies report having to contend with investigations by more than a dozen different agencies in 2007-08, including growing scrutiny from state Attorneys General and even the European Union.

By any measure, the sheer volume of U.S. litigation remains very large indeed, including the steady churn of new cases nationally. The survey found that 79% of U.S. companies still reported fielding at least one new lawsuit in the past year – with 27% fending off more than 20 new suits, including 18% coping with more than 50 new actions. The pace of new litigation is especially marked for larger companies and as Fulbright notes this year, among public companies, which were twice as likely as private firms to be on the receiving end of a new filing.

And despite the decline in the number of suits with claims in excess of $20 million, overall litigation costs have not slackened. Indeed, Fulbright found that 45% of U.S. companies are currently spending at least $1 million annually on litigation – a 1% uptick from a year ago.

One area of litigation just beginning to show up in the crosshairs this year was cases tied to the collapse of the subprime mortgage market. Overall, 3% of U.S. companies surveyed were forced to engage outside counsel to assist with a subprime lawsuit or investigation this past year, although figures were sharply higher for several industries, particularly financial services companies and insurers.

A Bear Market Turns Bullish on Litigation

This year’s survey also signals an important perceived change as to how U.S. corporate law departments view the litigation climate. In 2007, only 22% of in-house counsel expected to see an increase in the number of legal disputes faced by their company in the 12 months ahead – and in fact, the rate of new actions slowed in the time since.

The mood has clearly changed one year later, amidst a struggling economy, ongoing credit squeeze and banking crisis, and the effects of the subprime market all sparking a wave of corporate bankruptcies, layoffs, and government investigations: 34% of in-house counsel now anticipate a run-up in litigation involving their company. For some industry groups, the foreboding was 40% or higher. In contrast, in the U.K. – where the economy had not been under the same distress – 21% of in-house counsel surveyed felt they would see a rise in the number of new suits against them.

U.S. companies appear similarly concerned about a shift on the regulatory front: 25% of respondents expect an increase in the number of regulatory proceedings on the horizon, with 8% calling for a decline. For large companies, a sober 35% are forecasting a bump up in government actions in the near future.

As they prepare for more lawsuits, companies likewise acknowledge the need to reinforce their legal troops – in the process suspending a recent trend line to trim litigation expenses. By a five-to-one margin, respondents said they were more likely to add to their staffs of in-house litigation attorneys than cut back in the year ahead.

Litigation-Force Winds Changing Again

If Fulbright’s survey has demonstrated anything in the past five years, it’s that litigation forces are in constant motion and touching all corners of the American business map.

“A look at current exposures makes clear just how broad the U.S. disputes scene is,” said Dillard, pointing to 15 general areas of litigation cited among counsel’s top concerns. “Litigation affects all industries and regions, and certainly all-sized companies, though larger firms invariably invite more cases than small and middle-market enterprises.”

With the economy having fully shifted into bear mode, Dillard observed that in-house counsel were expressing concern that all-out actions could spill onto multiple fronts – not only the perennial contract and employment matters, but also cases stemming from professional liability, real estate, insurance coverage, bankruptcy, theft of IP and trade secrets, and securities litigation.

“You have numerous actions – patent, product liability or toxic tort – that tend to strike some industries more often than others, combined with widening strains of workplace suits such as wage-and-hour and privacy that are hitting everyone, added to a growing array of enforcement agencies knocking at the door,” Dillard said. “It’s no wonder that companies are spending as much time and resources on litigation issues as ever before.”

And in the year to come, survey respondents indicate they expect to see more disputes.

“It’s telling that only eight percent of U.S. participants expect to see a decrease in legal disputes involving their companies over the next year, outnumbered by more than four-to-one by those forecasting a rise in disputes,” Dillard explained, noting that the level of concern was running especially high among billion dollar companies – only 3% of whom said they expected lawsuits to fall, compared to 43% predicting an increase in the coming year.

The 2008 survey asks in-house counsel to consider the types of cases they fear most, as well as their attitudes on outside counsel, litigation costs and staffing, arbitration and regulatory issues, and projections for the future. Most of the respondents identify themselves as principal general counsel and senior counsel.

Spanning 10 industry groups – from financial services to energy, manufacturing, health care, retail, real estate, insurance, education, and technology and telecom – companies were spread across all regions of the country and were well represented by size: 22% report revenues under $100 million, while 39% have sales between $100 million and $999 million, and another 39% at $1 billion and above. Forty-four percent are publicly held (including 58% on the NYSE) and 57% maintain at least one foreign office, with 19% boasting locations in more than 20 countries worldwide.

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Most of the EDGAR rules apply to all electronic filers, whether the filings are processed by the Division of Corporation Finance or the Division of Investment Management. The most significant differences in the rules applicable to filings made with respect to investment companies and institutional investment managers relate to the treatment of exhibits and annual reports to security holders. The following discussion addresses the rules as applicable to all filers; where applicable, differences in treatment are noted.

1. Regulation S-T and EDGAR Filer Manual

The cornerstone of the EDGAR rules is Regulation S-T, a separate regulation containing rules prescribing requirements for filing electronically and the procedures for making such filings. Regulation S-T supersedes a number of the procedural requirements set forth in the Commission’s rules and forms, for example, requirements relating to paper size and number of copies. The Commission amended its rules and forms as necessary to make references to specific electronic filing provisions. Electronic filers that obtain an exemption from the electronic filing provisions of Regulation S-T continue to file in paper in accordance with the paper filing requirements. In addition, as discussed below, the rules permit or require certain filings to be submitted in paper.

Instructions for electronic filing, including technical formatting requirements, are set forth in the EDGAR Filer Manual. See Rule 301 of Regulation S-T. The EDGAR Filer Manual and EDGARLink are available on the EDGAR Database section of the SEC’s website at http://www.sec.gov/info/edgar.shtml.

a. Filing Medium and Filing Format

The EDGAR system accepts electronic submissions by direct transmission via the Internet, dial-up lines or leased lines. Most filers currently make EDGAR submissions via the Internet by linking to the EDGARFILING or EDGAR On-Line websites. A few filers use a dial-up modem connection to EDGAR and some EDGAR filing agents have leased lines that connect directly to the EDGAR system.

On May 5, 2003, a new on-line filing system was implemented as the method for insiders to file electronically their Forms 3, 4 and 5. As a result, EDGARLink (the filer assistance software that is provided to filers filing on EDGAR) support is no longer available for these forms. Persons need the same codes as are required to transmit using EDGARLink, however, to file on the new system. Each insider filing a Form 3, 4 or 5 needs a Central Index Key (CIK) and CIK Confirmation Code (CCC) for validation. This is true whether the insider is filing individually or as a joint filer. Each insider needs and should request only one set of codes even if he or she is an insider of more than one issuer. Persons can acquire the codes only by submitting a Form ID. The Commission’s website posts frequently asked questions regarding the system at http://www.sec.gov/divisions/corpfin/sec16faq.htm.

On April 26, 2004, a new on-line filing system accessed through the EDGAR Filer Management website was implemented as the method for applicants to file their applications on Form ID for access codes to file on EDGAR. As before the new system began, the Commission assigns the following access codes in response to a Form ID:

• Central Index Key (CIK) — The CIK uniquely identifies each filer, filing agent, and training agent. An applicant cannot change this code. The CIK is a public number.
• CIK Confirmation Code (CCC) — The applicant will use the CCC in the header of the applicant’s filings in conjunction with the applicant’s CIK to ensure that the applicant authorized the filing.
• Password (PW) — The PW allows the applicant to log onto the EDGAR system, submit filings, and change the applicant’s CCC.
• Password Modification Authorization Code (PMAC) — The PMAC allows the applicant to change the applicant’s password.

In addition, modifications to EDGAR in connection with establishing the new system require not only applicants who file Form ID, but also users who log onto EDGAR for filing for the first time on or after April 26, 2004, to choose a passphrase. A passphrase enables a user to change access codes other than a CIK and remains valid unless and until the user changes it.

b. Use of HTML

The EDGAR system accepts both ASCII and HTML documents as official filings. The Commission is not now requiring the use of HTML. However, the Commission expects to require HTML for most filings in the future, so it encourages filers to use it and gain experience with this format if they do not have it already. If HTML is used, each EDGAR document may consist of no more than one HTML file.

The EDGAR system imposes certain limitations on HTML documents, as discussed below. Filers may not submit Form N-SAR and Form 13F as HTML documents. These documents have standard formats and tagging designed for presentation in ASCII, and their current format facilitates their downloading and use in other computer applications. However, filers may submit exhibits to Form N-SAR in HTML. See Rule 105 of Regulation S-T.

c. Use of PDF

In addition to permitting the use of HTML in filings, the Commission permits filers to submit a single unofficial PDF copy of each electronic document other than a Form 3, 4, 5 or ID. See Rule 104 of Regulation S-T. Filers may not use PDF documents instead of HTML or ASCII documents to meet filing requirements. Unofficial PDF copies of filings will be disseminated publicly. The unofficial PDF copy is optional, but if a filer submits an unofficial PDF copy of a document, that PDF document must be the same as the official document (the HTML or ASCII document of which it is a copy) in all respects except for the formatting and inclusion of graphics (instead of the narrative and/or tabular description of the graphics). The text of the two documents must be identical. Further, filers may not make a submission consisting solely of PDF documents; filers must include unofficial PDF copies only in submissions containing official documents in HTML or ASCII format.

The substantively equivalent requirement does not apply to non-public correspondence submissions. Filers may submit unofficial PDF copies of correspondence documents that differ from the contents of the associated ASCII or HTML correspondence documents. This enables filers to submit redlined copies of official filings in unofficial PDF copies of EDGAR correspondence documents. If a filer submits an unofficial PDF copy of a correspondence document that differs from the text of the ASCII or HTML document, the text of the ASCII or HTML correspondence document should identify and briefly describe the contents of the unofficial PDF copy.

d. Use of XBRL

The Commission generally permits registrants that file financial information in ASCII or HTML format to participate in its interactive data initiative by submitting that information voluntarily as supplemental tagged financial information in XBRL format as exhibits to specified EDGAR filings under the Exchange Act and the Investment Company Act. The XBRL submission must contain specified mandatory content (which may be accompanied by specified optional content) and appear in a prescribed format.

In early 2006, the Commission staff began to offer expedited processing of registration statements or annual reports that may be selected for review to companies that volunteer to participate in a new interactive data test group. Participants will furnish financial data contained in their periodic reports in XBRL format for at least one year and provide feedback on their experiences including the costs and benefits associated with reporting in the interactive data format.

Because the voluntary XBRL program is experimental, contains other appropriate safeguards, and should not unnecessarily deter volunteers from participating, the related rules provide limited protections from liability under the federal securities laws.

Also in 2006, the Commission awarded contracts to facilitate filer and investor use on EDGAR of interactive data technologies such as XBRL.

e. Limitation on Hypertext Links

Filers who choose to use HTML may include hyperlinks between sections of the same HTML document. They also may include hyperlinks to other documents within the same filing (i.e., exhibits) or to other official filings in the EDGAR database on our public website at www.sec.gov. For example, filers may link from within a document to previously filed documents that are incorporated by reference. The EDGAR system permits links to specific filings only, not to specific information within these documents. Links outside the EDGAR database, including links to websites, are prohibited.

Hyperlinks may not be used as a substitute for providing information required in the filed document when incorporation by reference is not available. For example, a Form S-1 for which incorporation by reference is unavailable may contain a hyperlink to the filer’s Form 10-K, but the filer still must provide all required business and financial information in the Form S-1.

If incorporation by reference is available, the filer must comply with all related requirements even if the filer chooses to use hyperlinks. For example, a Form S-3 may contain a hyperlink to the previously filed Exchange Act reports incorporated by reference, but the Form S-3 still must make the required statements about which documents are incorporated by reference.

Linking material does not make it part of the official filing for determining compliance with reporting obligations. Such material, however, is subject to the civil liability and anti-fraud provisions of the federal securities laws, whether or not the hyperlink is permitted by the Commission’s rules. Moreover, if a company hyperlinks to a hyperlink, which, in turn, links to another hyperlink, the company will be treated as making all the hyperlinked material its own. Also, if a hyperlinked document is corrected or updated by means of a new filing, the document containing the hyperlink also may have to be amended.

f. HTML Standard; Permissible Tags

The Commission has adopted a specific HTML standard for HTML documents submitted on the EDGAR system. Because different Internet browsers used by filers or the public may display the information presented in an HTML document in a different fashion, a document viewed through one browser may have a different appearance and layout from the same filing viewed through a different browser. To maximize the likelihood of consistent document appearance across different browsers, and eliminate active content, the rules specify a set of HTML tags permissible in HTML documents. The tag list is included in the EDGAR Filer Manual. In general, the EDGAR system will suspend submissions that contain tags that are not permitted. The EDGAR system will accept a subset of HTML 3.2/4.0 tags.

EDGAR submissions may not contain tags used to include executable code, in official submissions or unofficial submissions of PDF copies or XBRL-related documents (see Rule 106 of Regulation S-T). In addition, filers may not include tables within tables (nested tables) in their HTML documents. This is because users of EDGAR information may find it difficult to locate and use information in documents with nested tables.

2. Mandated, Excluded and Permitted Electronic Submissions

Rules 100 and 101 of Regulation S-T require filers, with certain exceptions, to submit electronically all documents, including filings, correspondence, and supplemental information, submitted by or relating to registrants under the Securities Act, the Exchange Act, the Trust Indenture Act, and the Investment Company Act.

Except as noted below, the electronic filing requirement also applies to third party filings, whether the filings are made by business entities or individuals. For example, the following kinds of filings must be made on EDGAR, absent a hardship exemption: proxy materials (whether or not filed by the company), tender offer materials, Forms 13F, and Schedules 13D/G. Effective June 30, 2003, filers are required to submit their Forms 3, 4 and 5 electronically. See Release No. 33-8230 (May 7, 2003). Before then, electronic filing of these forms was optional.

The Commission will not accept in paper format filings required to be submitted electronically, absent a hardship exemption. (See Rule 14 of Regulation S-T.) If the staff inadvertently accepts a paper filing not permitted by the EDGAR rules, the filer is subject to certain penalties: ineligibility to use Securities Act forms incorporating by reference Exchange Act reports; inability to incorporate the paper filing by reference (Rule 303 of Regulation S-T); and tolling of certain tender offer dates.

Some documents may not be filed on EDGAR. Among the documents that are excluded are: confidential treatment applications; interpretive, no-action and exemptive requests; filings pertaining to Regulation A and most other offerings exempt from Securities Act registration; shareholder proposal filings; and filings under Section 8(f) of the Investment Company Act (except Forms N-8F and applications for deregistration filed under Investment Company Act Rule 0-2).

Electronic filers should exercise special care when submitting documents or parts of documents that are the subject of a confidential treatment request, including preliminary proxy materials relating to business combinations to which the Commission may give confidential treatment if marked appropriately for such treatment under the proxy rules. Filers must submit these documents in paper or they will become available to the public immediately upon acceptance.

The Commission permits, but does not require, Corporation Finance filers to submit several types of documents electronically. Examples include: the “glossy” annual report to security holders furnished to the Commission for its information under the proxy rules (see no. 9, below, for the treatment of an annual report to security holders that is a part of a filing); the Notice of Exempt Solicitation, the submission that indicates reliance by certain security holders on the Exchange Act Rule 14a-2(b) exemption from proxy material filing requirements under the revised proxy rules; and Form 11-K, the report for employee benefit plans. Another example is Form 144, the notice of proposed sale of securities under Rule 144 under the Securities Act. See Release No. 33-7241 (November 13, 1995). Filers may submit Forms 144 electronically only if the issuer of the securities is a public company. The Commission has solicited comment on the concept of requiring more filings to be made electronically, such as Form 144 and exemptive application filings made by investment companies. See Release No. 33-7855 (April 24, 2000).

Effective April 26, 2004, filers are required to submit their Forms ID electronically. See Release No. 33-8410 (April 21, 2004). Before then, filers were required to submit Forms ID in paper.

Investment companies must file their Forms N-8F (and applications for deregistration under Investment Company Act Rule 0-2) electronically. See Release No. IC-23786 (April 15, 1999).

Effective February 6, 2006, filers who filed their latest registration statements or amendments on Form N-1A, N-3, N-4 or N-6 (S/C Funds) must, for EDGAR submissions specified in the EDGAR Filer Manual, include in the EDGAR template for the specified submissions all series and/or class (or contract) identifiers of each series and/or class (or contract) on behalf of which the filing is made. For new series and/or classes (contracts), filers must enter the respective names in the EDGAR submission template of the filing by which they are substantively added to generate the associated identifiers, which will appear on the acceptance message for the filing.

S/C Funds must use the series and class page on the EDGARFILING website ( https://www.edgarfiling.sec.gov/) to update information for their series and classes (contracts) and to add ticker symbols. Effective February 6, 2006:

• Filings that require series and class (contract) identifiers will be suspended if they do not include identifiers or do not include the correct identifiers for that registrant (CIK); and
• Series and class (contract) identifiers are part of the official filing: a filing made under an incorrect identifier is a filing for the wrong series and/or class (contract), i.e., it is a filing on behalf of the series and/or class (contract) for which an identifier is used and a filing for which an identifier is not included is not a filing for the series and class (contract) for which an identifier is omitted.

S/C Funds are required by Rule 313 of Regulation S-T to keep current their information concerning their existing and new series and/or classes (or contracts, in the case of separate accounts), including series and/or class (or contract) name and ticker symbol, if any; if a class (or contract) does not have but later obtains a ticker symbol, the company must update the information for the class (or contract) to add the ticker symbol.

S/C Funds are also required by Rule 313 to mark as inactive for EDGAR purposes any series and/or class (or contract, in the case of separate accounts) that are no longer offered, go out of existence, or deregister after the last filing for that series and/or class (or contract, in the case of separate accounts) is made, but the registrant must not mark as inactive the last remaining series unless the registrant deregisters.

Effective June 12, 2006, investment companies must submit electronically fidelity bonds under Section 17(g) and sales literature filed with the Commission under Section 24(b). See Release No. 33-8590 (July 18, 2005). Filers should be aware that Rule 304(e) prohibits filers from using graphic or image material to submit information, such as text or tables, that users must be able to search and/or download into spreadsheet form (for example, financial statements). Instead, filers must submit such information as text in an ASCII document, or as text or an HTML table in an HTML document. See Section 8 below.

3. Hours of Operation/Date of Filing

Rule 12 of Regulation S-T provides that electronic filings may be submitted by direct transmission via the Internet, dial-up lines or leased lines to the Commission each business day from 8:00 a.m. to 10:00 p.m. Eastern time. Currently, however, filings may be submitted electronically as early as 6 a.m. Rule 13(a) of Regulation S-T provides that any direct transmission filing that commences after 5:30 p.m. will be dated the following business day. The exceptions to this rule are that registration statements filed to increase the number of shares, as provided by Securities Act Rule 462(b), and, effective June 30, 2003, Forms 3, 4 and 5, receive the same day’s filing date if transmitted by 10:00 p.m. See Rule 13(a) of Regulation S-T and Release Nos. 33-7168 (May 11, 1995) and 33-8230 (May 7, 2003), respectively. Any direct transmission filing commencing before 5:30 p.m., if accepted, will receive that day’s filing date.

4. Exhibits

Rule 102 of Regulation S-T provides that filers are not required to refile in electronic format exhibits previously filed in paper when incorporated by reference into an electronic filing. After becoming subject to mandated electronic filing, a filer must file any new exhibits electronically, absent a hardship exemption. Where an electronic amendment is filed to an exhibit previously filed in paper, the filer must submit electronically only the amendment; the filer will not have to refile electronically the previously filed paper exhibit to which the amendment relates, except for the articles of incorporation, by-laws, and investment advisory contract of the registrant, which must be restated in their entirety upon amendment.

The rules for investment companies differ. In general, filers must submit all investment company exhibits, including exhibits to Form N-SAR, electronically. In addition, investment companies may incorporate by reference only to documents filed electronically. See Rule 102(e) of Regulation S-T.

5. Hardship Exemptions/Adjustment of the Filing Date

Two hardship exemptions are available to permit a filing or other submission to be made in paper rather than electronic format. First, Rule 201 of Regulation S-T provides a temporary hardship exemption for electronic filers, generally for unanticipated technical difficulties in submitting an electronic document. The exemption may be appropriate, for example, for a particular document that a filer is unable to file electronically because of problems with the filer’s computer equipment that had been used previously to transmit either test or required electronic filings successfully. Under that exemption, the filer may make the filing in paper (with a legend on the cover page identifying it as being submitted under Rule 201) and then follow it with a confirming electronic copy within six business days so that the electronic database will be complete. An electronic filer may take advantage of the exemption simply by filing the subject document in paper under cover of Form TH, Notification of Reliance on Temporary Hardship Exemption. No Commission staff involvement is required. If the filing is an exhibit only, then filers must submit the documents under cover of both Form TH and Form SE. The sanctions for violating electronic filing requirements mentioned above also apply where a filer is required to submit a confirming electronic copy of a document filed in paper under a temporary hardship exemption but fails to do so. A temporary hardship exemption is not available for Forms 3, 4, 5 or ID.

Second, under Rule 202 of Regulation S-T, a continuing hardship exemption is available to electronic filers under limited circumstances for exhibits or a filing or group of filings. For example, this exemption might be appropriate for an exhibit consisting of another government agency’s voluminous form that a filer cannot convert into electronic format without causing the filer undue hardship. Unlike the temporary hardship exemption, the staff must act upon a written application for a continuing hardship exemption. If the staff grants the exemption, the filer may make the submission in paper. A continuing hardship exemption is not available for Forms ID.

In most cases, a filer need not follow up a paper filing under a continuing hardship exemption with an electronic copy. However, under some circumstances, the staff believes that it would be in the public interest for the electronic database to contain the document in question. Rule 202(d) allows the grant of a continuing hardship exemption for a limited time only. When the time is up, the filer must submit a confirming electronic copy.

A paper filing submitted under a continuing hardship exemption must include a legend on the cover page of the document identifying it as being submitted in paper under Rule 202 of Regulation S-T. If the filing is an exhibit only, then filers must submit the document under both Form TH and Form SE. Corporation Finance filers should direct inquiries concerning continuing hardship exemptions to the Office of EDGAR and Information Analysis in the Division of Corporation Finance at (202) 551-3610. Investment company filers should direct their inquiries to the EDGAR contact in the Division of Investment Management at (202) 551-6989.

In addition to the two hardship exemptions, Rule 13 of Regulation S-T permits an electronic filer to request an adjustment of the filing date of an electronic document when the filer encounters technical problems beyond its control that prevent electronic submission by the due date specified by the applicable form or rule. Filers should direct requests for filing date adjustments to the contacts listed in the previous paragraph.

6. Signatures

Rule 302 of Regulation S-T provides that required signatures in electronic filings must be submitted in typed form. Required signatures must be typed to ensure legibility of these signatures. Electronic filers must retain a manually signed signature page or other document authenticating, acknowledging or otherwise adopting the signatures that appear in typed form within an electronic filing. Filers must make this document available to the Commission or its staff upon request for a period of five years. Each signatory to the filing must execute the manually signed authentication document before or at the time the filing is made.

Signatures in HTML documents that are not required by statute or regulation may appear as script. The same is true of signatures in unofficial PDF copies, which are not required signatures.

Following a recommendation of the Task Force on Disclosure Simplification, in May 1996 the Commission changed its rules governing signatures to allow typed signatures on all filed documents, with limited exceptions, both paper and electronic. Manually signed signature authentication documents are required whenever typed signatures are filed with the Commission.

7. Safe Harbor

Rule 103 of Regulation S-T provides a safe harbor against liability for errors in, or omissions from, documents filed electronically that result solely from electronic transmission errors beyond the control of the electronic filer. The safe harbor is available where the electronic filer takes corrective action as soon as reasonably practicable after becoming aware of the error or omission.

8. Graphic, Image, Audio, and Video Material

EDGAR does not accommodate electronic submission of graphic, image, audio, or video material in ASCII filings. EDGAR does, however, accommodate graphic and image material, but not audio or video material, in HTML documents. Rule 304 of Regulation S-T governs the treatment of graphic, image, audio, and video information that is used in the version of the document disseminated to investors but omitted from the electronic filing. This rule requires that fair and accurate descriptions or transcripts of omitted material be included either at the point in the text where the omission occurs or in an appendix to the electronic filing. A note to Rule 304(a) provides that, if the omitted material includes data, filers must include a tabular representation or other appropriate representation of that data in the electronically filed version of the document. Rule 304 applies only to official filings, not to unofficial PDF copies, which may contain graphic and image material (but not animated graphics, audio or video material).

The graphic, image, audio, and video material in the version of the document distributed to investors is deemed part of the filing and is subject to the liability and antifraud provisions of the federal securities laws. Filers do not need to describe immaterial differences between the distributed and electronically filed versions of a document, such as type size or font, pagination or corporate logos. A safe harbor provides that, to the extent such descriptions or transcripts represent a good faith effort to fairly and accurately describe omitted material, they will not be subject to the civil liability and antifraud provisions of the federal securities laws.

The filer must retain any document containing graphic, image, audio, or video material that is omitted from an electronic filing for five years after the filing date of the document or the date appearing on the document, whichever is later. Filers must make such documents available to the Commission staff upon request.

Rule 304(d) of Regulation S-T gives special treatment to the performance line graph required by Regulation S-K (Release No. 33-8732A, August 29, 2006) moves the performance line graph requirement from Item 402(l) to Item 201(e) of Regulation S-K) and the line graph required by Item 22(b)(7)(ii) of Form N-1A for investment companies. ASCII filers must present the numerical data from which these graphs are created in the body of the electronic document in tabular or chart form. Of course, the paper version of the document disseminated to security holders must include the prescribed line graph. See Release No. 33-7427 (July 1, 1997).

Although the EDGAR system permits graphic or image material in HTML documents, filers are not required to submit graphics in HTML documents, except in the limited instances when our rules require graphics. Under Rule 304(e), filers submitting HTML documents must use graphics for the performance graph required by Regulation S-K (Release No. 33-8732A (August 29, 2006) moves the performance line graph requirement from Item 402(l) to Item 201(e) of Regulation S-K) and the line graph required by Item 22(b)(7)(ii) of Form N-1A.

Rule 304(e) prohibits filers from using graphic or image material to submit information, such as text or tables, that users must be able to search and/or download into spreadsheet form (for example, financial statements). Instead, filers must submit such information as text in an ASCII document, or as text or an HTML table in an HTML document.

The EDGAR system does not support animated graphics (e.g., files with moving corporate logos or other animation), either in any official document or any unofficial PDF copy or XBRL-related document.

Please note that filers should not place non-public information in graphic files associated with non-public documents within a public submission, since these graphic files are disseminated, even if the associated HTML or unofficial PDF document is non-public and not disseminated.

9. Annual Reports to Security Holders and Certain Proxy Materials

The treatment of annual reports differs for Corporation Finance and investment company filers.

Annual reports to security holders (”glossy” reports) for Corporation Finance filers frequently contain extensive graphic information that is difficult to prepare in electronic format. Accordingly, the rules provide special treatment for these documents. As discussed above, Rule 101 of Regulation S-T provides that filers may furnish glossy reports for the Commission’s information as required by the proxy and information statement rules (e.g., Exchange Act Rule 14a-3(c)) in either paper or electronic format. In contrast, Rule 303 of Regulation S-T states that if the glossy report is incorporated by reference into any filing — for example, a Form 10-K — filers must file the portions incorporated by reference in electronic format as an exhibit. The same is true for a quarterly report to security holders incorporated by reference into a filing.

Investment company filers are required to file all annual and semi-annual reports to security holders electronically.

Form 10-K and Form 10-KSB both require issuers reporting under Section 15(d) of the Exchange Act to furnish to the Commission for its information any annual report to security holders covering the registrant’s last fiscal year and every proxy statement, form of proxy or other proxy soliciting material sent to more than ten of the registrant’s security holders with respect to any annual or other meeting of security holders. When these issuers submit this information with their Exchange Act annual reports, it is not deemed filed with the Commission unless it is incorporated by reference into the report itself. Filers should submit these proxy materials electronically. Consistent with the requirements to furnish annual reports to security holders under the proxy rules, registrants have the option to submit their annual report to security holders under these annual reporting provisions either in paper or in electronic format.

10. Schedules 13D and 13G

As noted above, Rules 100 and 101 of Regulation S-T require third party filers to transmit their Schedules 13D and 13G via EDGAR. In addition, Rule 101 of Regulation S-T provides that, where these schedules originally were filed in paper, the first electronic amendment must restate the entire text of the schedule, as amended. Where the amendment is made to report a transaction that would allow the filer to exit the reporting system, the filer need only file the amendment. Consistent with the general treatment of exhibits filed electronically, if any exhibit to a Schedule 13D or 13G is amended, the filer need only file the text of the amendment.

Filers filing Schedules 13D and 13G with respect to foreign private issuers should include in the EDGAR submission header all zeroes (i.e., 00-0000000) for the IRS tax identification number. See the note to paragraph (a)(1)(iii) of Rule 101 of Regulation S-T.

11. Foreign Issuers

On May 14, 2002, the Commission issued Release No. 33-8099 to require foreign private issuers and foreign governments to make their filings via EDGAR. The rules became effective on November 4, 2002. The rules require the electronic filing of:

• Foreign private issuers’ Securities Act registration statements and Exchange Act registration statements and reports;
• Foreign governments’ Securities Act registration statements and Exchange Act registration statements and reports;
• Multijurisdictional Disclosure System (MJDS) forms filed by Canadian issuers;
• Statements of beneficial ownership on Schedules 13D and 13G and tender offer schedules that pertain to the securities of a foreign issuer, whether filed by a foreign or domestic person;
• Form CB, the form used for cross-border rights offers, exchange offers and business combinations that are exempt from the tender offer rules or Securities Act registration, if the filer is an Exchange Act reporting company;
• Form 6-K reports, except as noted below; and
• Most Trust Indenture Act forms.

The amendments also:

• Permit, but do not require, the electronic filing of Forms 6-K used to submit a company’s “glossy” annual report to security holders, or used to provide information that has not been furnished to the press or the company’s security holders and does not contain new material information;
• Generally require all filings to be in the English language, but permit specified information in foreign language exhibits to be summarized in English instead of fully translated, and provide guidance regarding what constitutes an adequate summary;
• Permit, but do not require, supranational entities such as the World Bank to file their reports electronically; and
• Continue to require documents submitted under Exchange Act Rule 12g3-2(b) to be in paper only.

12. Modular Submissions/Segmented Filings

The EDGAR system and Rule 501 of Regulation S-T are designed to facilitate electronic filing by allowing filers to submit in advance of an intended filing information intended to become part of that filed document by its subsequent inclusion in the electronic filing. A modular submission feature allows a filer to submit information, such as financial statements, to a non-public EDGAR database for inclusion in as many filings as the filer designates, so long as the information remains current.

A similar feature is segmented filing, in which a filer may submit various segments of a document to be filed with the Commission to the EDGAR non-public data storage area up to six business days in advance of the anticipated filing date. For example, filers may submit voluminous exhibits in advance of a filing. On the anticipated filing date, the electronic filer may submit a master segment instructing EDGAR to assemble the desired filing from the previously submitted segments and file it. Filers may use segments only once.

Regulation S-T provides that neither modular submissions nor segments will be deemed “filed” or subject to liability under the federal securities laws until the filer includes the information in an electronic filing.

13. EDGAR Forms

There are three forms used in connection with EDGAR filings. (A fourth, Form ET, was rescinded effective June 30, 2003.)

• Form ID is used to request access codes to file on EDGAR. Effective April 26, 2004, this form must be filed electronically through a new on-line system accessed through the EDGAR Filer Management website. For verification purposes, the requestor also must file in paper by fax within two business days before or after filing Form ID a notarized document, manually signed by the requestor over its typed signature, that includes the information contained in the Form ID filed or to be filed and confirms the authenticity of the Form ID.
• Electronic filers must use Form SE as a paper cover sheet attached to any paper format exhibit, including exhibits filed under a temporary or continuing hardship exemption.
• Filers use Form TH as a paper cover sheet accompanying documents filed in paper under a temporary hardship exemption, as described in Section 5 above. If the subject of a temporary hardship exemption is an exhibit only, a filer must file the exhibit and the Form TH under cover of Form SE. (See Release No. 33-8590 (July 18, 2005).)

14. Filing Fees; Lockbox

Rule 3a of the Commission’s rules governing Informal and Other Procedures requires all electronic filers to pay fees via the lockbox at the U.S. Treasury designated lockbox depository maintained by the Commission at the Mellon Bank in Pittsburgh, Pennsylvania. Filers may pay by direct wire transfer or by mailing or delivering a check or cash to the lockbox. Rule 13(c) of Regulation S-T requires electronic filers to pay filing fees in accordance with the lockbox procedures, including those pertaining to documents filed in paper under a hardship exemption. Thus, persons subject to electronic filing must tender all fees to the lockbox at Mellon Bank — not to the Commission’s filing desk — even when physically filing a paper document at the Commission’s filing desk.

The Commission will deem a Securities Act registration statement (including a Securities Act filing by an investment company) filed as of its date of receipt, provided that all of the conditions of acceptance are satisfied, including verification of any fee payment required. If payment is not confirmed until the day following receipt by the Commission, the Commission will assign the filing a filing date as of the date of confirmation of payment, not the date of receipt. For information relating to fee confirmation with respect to registration statements filed for the purpose of increasing the number of shares, as provided under Securities Act Rule 462(b), see Release No. 33-7168 (May 11, 1995). If the Commission staff cannot verify payment, EDGAR will place the filing in a suspense file for up to six business days, and the staff will so notify the filer. Since EDGAR verifies fee payments made via wire transfer on a near real-time basis (every 15 minutes), while it verifies those made by check on a daily basis, a filer may wish to pay fees with respect to a time-sensitive Securities Act registration statement by wire transfer to expedite acceptance processing.

Filers should direct questions concerning fee payment to Filer Support at (202) 551-8900.

15. Other Electronic Document Issues

The EDGAR rules apply only to filings made with the Commission; the rules do not affect the obligation of filers to deliver to security holders or potential investors documents such as prospectuses, tender offer materials and proxy or information statements. As the ability to send and receive information in electronic form has become more prevalent, issuers and other market participants have requested interpretive guidance regarding the electronic delivery of these documents. Currently, many issuers provide information through electronic means, primarily through the Internet.

• On October 6, 1995, the Commission issued an interpretive release (1995 Interpretive Release) more fully addressing electronic delivery issues. See Release No. 33-7233. The 1995 Interpretive Release is based on the determination that information distributed through electronic means may be viewed as satisfying the delivery or transmission requirements of the federal securities laws if such distribution results in the delivery to the intended recipients of substantially equivalent information as these recipients would have had if the information were delivered to them in paper form. The use of electronic media should be at least an equal alternative to the use of paper delivery. However, until such time as electronic media becomes more universally accessible and accepted, paper delivery of information will continue to be available. The release provides guidance regarding the manner in which filers may achieve electronic delivery and includes many illustrative examples.
• To facilitate electronic delivery, the Commission adopted rule changes to codify some of the interpretations regarding Commission rules that are premised on the distribution of paper documents. See Release No. 33-7289 (May 9, 1996). The Commission has revised the rules to make it clear that filers may modify paper-based requirements relating to font size, bold-face type, red ink, graphics, and mailing as appropriate for documents delivered in electronic format. These rule changes are not intended to affect any substantive requirement. On the same date, the Commission issued an interpretive release primarily addressing issues relating to the use of electronic media by broker-dealers, transfer agents and investment advisers for delivery of information, but also expanding on some issues addressed in the 1995 Interpretive Release. See Release No. 33-7288 (May 9, 1996).
• The Commission also issued an interpretive release relating to the use of Internet websites to offer securities, solicit securities transactions, or advertise investment services offshore. See Release No. 33-7516 (March 23, 1998).
• On April 28, 2000, the Commission issued an interpretive release (2000 Interpretive Release) addressing the use of electronic media in three areas. See Release No. 33-7856. First, the Commission updated the 1995 Interpretive Release. Second, the Commission discussed an issuer’s liability for website content. Third, the Commission outlined basic legal principles that issuers and market intermediaries should consider in conducting online offerings.
• To facilitate electronic delivery, the 2000 Interpretive Release clarifies the following: investors may consent to electronic delivery telephonically; intermediaries may request consent to electronic delivery on a “global,” multiple-issuer basis; and issuers and intermediaries may deliver documents in portable document format, or PDF, with appropriate measures to assure that investors can easily access the documents. It also clarifies that an embedded hyperlink within a Section 10 prospectus or any other document required to be filed or delivered under the federal securities laws causes the hyperlinked information to be part of the document. (The Commission issued a further clarification that this view does not extend to a mutual fund’s responsibility for hyperlinks to third-party websites from fund advertisements or sales literature. See Release No. 33-7877 (July 27, 2000).) The 2000 Interpretive Release also clarifies that the close proximity of information on a website to a Section 10 prospectus does not, by itself, make that information an “offer to sell,” “offer for sale” or “offer” within the meaning of Section 2(a)(3) of the Securities Act.
• The 2000 Interpretive Release clarifies some of the facts and circumstances that may result in an issuer having adopted information on a third-party website to which the issuer has established a hyperlink for purposes of the antifraud provisions of the federal securities laws. Also, it clarifies the general legal principles that govern permissible website communications by issuers when in registration.
• To facilitate online offerings, the 2000 Interpretive Release clarifies the general legal principles that broker-dealers should consider when developing and implementing procedures for online public offerings. Also, it clarifies the circumstances under which a third-party service provider may establish a website to facilitate online private offerings.
• On July 19, 2005, the Commission issued a release adopting amendments to facilitate the securities offering process. The release generally reaffirms the 2000 Interpretive Release regarding information on an issuer’s website and provides further related guidance. See Release No. 33-8591 at Part III.D.3.b.iii.(E).

One of the most common questions I get asked working for Vintage Filings is: What are EDGAR filings?

Well, EDGAR, the Electronic Data-Gathering, Analysis, and Retrieval system, performs automated collection, validation, indexing, acceptance, and forwarding of submissions by companies and others who are required by law to file forms with the U.S. Securities and Exchange Commission (the “SEC”). The database is freely available to the public via Web or FTP, typically posting in excess of 3,000 filings per day.

Not all SEC filings by public companies are available on EDGAR. Companies were phased in to EDGAR filing over a three-year period, ending 6 May 1996. As of that date, all public domestic companies were required to make their filings on EDGAR, except for filings made in paper because of a hardship exemption. Third-party filings with respect to these companies, such as tender offers and Schedule 13D filings, are also filed on EDGAR.

The vast majority of documents are now filed electronically. As of 4 November 2002, the SEC required all foreign companies and foreign governments to file their documents on EDGAR. Prior to that time, electronic filing by foreign companies also was voluntary.(1)

Shareholder lawsuits can be difficult to go through for companies, however they are an all too common occurrence.  Which is why I always am happy to see longstanding disputes get resolved. Take as a case study the Xethanol Corporation, a renewable energy company, announces that on October 6, 2008, the United States District Court for the Southern District of New York approved the settlement agreement negotiated between Xethanol and a class of plaintiff shareholders who had sued the company on October 24, 2006. The Final Approval Order also dismisses the action, which is now concluded.

The settlement agreement was reached on November 28, 2007 during a mediation overseen by a retired United States District Court Judge in West Palm Beach, Florida, and attended by counsel for plaintiffs, counsel for the company and the individual defendants and counsel for the company’s insurance carriers.

David Ames, President and CEO of Xethanol stated, “We are very pleased that the court has approved the settlement and that this matter is now behind us.”