The Japanese Solution: Kill All The Lawsuits

When IBM sued Hitachi Ltd. for industrial spying in 1982, the Japanese company got a shocking introduction to legal battles, American-style: Hitachi's first bill from its U.S. law firm exceeded its total payments for legal services in Japan since the company was founded in 1920.

No wonder legal reformers in the U.S. look wistfully at Japan. Its courts aren't cluttered with liability suits, and lawyers are about as scarce as American cars. While the U.S. prides itself on individual rights and equal access to the courts, critics charge that the Japanese legal system discourages litigation. Perhaps. But the culture's distaste for direct confrontation helps ensure that most legal disputes are resolved privately and more efficiently than in the U.S. "In Japan, a litigious person is not welcome," says Toshiro Nishimura, senior partner at Nishimura & Sanada, a top international law firm in Tokyo.

Barriers to litigation in Japan start with legal education (table). To become a bengoshi, or lawyer, one must win a spot in the Legal Training & Research Institute. But the government-run school admits 2% of its 35,000 applicants annually. So Japan's exclusive legal club has just 14,336 lawyers--and grows by only 400 bengoshi per year. There are 780,000 lawyers in the U.S., which has twice Japan's population.

COSTLY RECOURSE. Those who can find a lawyer to take their case encounter other roadblocks. Critics of the U.S. legal system complain that parties abuse discovery, which grants access before trial to potential evidence held by an opponent. Japan is at the other extreme: It has no discovery at all. And the difficulty of obtaining evidence makes it especially tough for consumers to win product-liability suits (BW--Mar. 9). "I have often said to clients that I am 100% certain that they would win their case--but where's the evidence?" says Nishimura. "You can't force the other side to disclose."

Plaintiffs also must have deep pockets. Japan bars two key methods of sharing the cost of litigation: class actions and contingency-fee arrangements. At the same time, plaintiffs must pay an up-front fee to their lawyers of up to 8% of the damages sought in liability suits, plus a nonrefundable filing fee to the courts of one-half of 1% of the damages. In 1991, a small Seattle-based log-home maker provided a Japanese customer with $240,000 worth of materials and labor for which the company claims it was never paid. To file a $240,000 suit, it must pay its lawyers $20,204, including the filing fee of $1,200. "It's too expensive for us to pursue that course," sighs a top manager at the company. "We've already lost a lot of money."

Damage awards in Japan don't come close to the estimated average of $1.5 million per case paid last year in U.S. product-liability suits in state courts. On Feb. 7, the Tokyo District Court ordered Chisso Corp., a chemical company responsible for one of Japan's best-known industrial poisoning cases, to compensate 42 victims. The award: $1.3 million, or $31,000 per victim.

When disputes arise between companies, attorneys often are the last to get involved. Salesmen and front-line managers are the chief problem-solvers. In part, that's to avoid spoiling a long-term relationship. "We may lose $1 million," says NEC Corp. legal chief Satoshi Nakaichi, "but the idea is to coexist and win that money back on the future deals."

`NEVER SUE.' Rarely do companies battle in court. Nissan Motor Co. is involved in 10 cases in Japan, only one of which involves another company. The rest concern labor and consumer disputes, which make up most of the suits against companies in Japan. "We would never sue a company like our own," says Nissan legal department manager Kenji Toriumi. Only when a case seems headed for court will companies call in a bengoshi. But to keep matters quiet, some companies may opt for arbitrated settlements, where three bengoshi arbitrators weigh the case privately and issue a binding decision. Nissan recently insisted on a 15% discount on faulty factory equipment supplied by an affiliate. Rather than sue, Nissan settled for half that. "It was an amicable agreement," says Toriumi, "and it saved us time, money, and the relationship."

That attitude keeps costs down. Most of Nissan's legal expenses go not for pricey outside legal help but for a modestly paid staff of a dozen tax sleuths, 50 patent experts, and 30 legal specialists. Lower bills free up cash for research and other areas, and enable more competitive pricing than U.S. companies can afford.

Suits are few, but some experts argue that Japan has more legal practitioners than the statistics reveal. Japan's corporate halls are stocked with non-bengoshi legal experts. Sony Corp. employs 120, for example. Japan also has about 50,000 licensed tax practitioners who offer services similar to those of U.S. tax lawyers. About the same number of scriveners draft court papers and give legal advice, while 5,000 non-bengoshi patent specialists perform services similar to those of U.S. patent attorneys. Add them all up, and Japan has more legal practitioners per capita than the U.S., or 42 per 10,000 people vs. 29, says Raymond August, assistant professor at Washington State University.

Some Japanese argue that Japan should have more lawyers and that certain laws should be rewritten to favor consumers. Critics also say it should be easier for the Japanese to redress clear wrongdoing. Still, the bias against courtroom solutions remains strong. "I work in the legal department," says Nissan's Toriumi, "but I would never ask a lawyer to resolve a problem in my own life." The belief that disputes should be settled amicably is something American legal reformers only now are beginning to embrace.

       -- Limits the number of attorneys passing the bar exam to 2% of 35,000 
       -- Forces would-be plaintiffs to pay an up-front fee to their lawyers of up to 
      8% of damages sought
       -- Bars contingency fees, class actions, and other
          fee-sharing devices that make it easier to sue
       -- Lets judges, not juries, set damage awards, which rarely exceed $150,000, 
      even when the victim has been killed
       -- Bans discovery so that plaintiffs are denied access
          before trial to an opponent's potential evidence
       -- Nurtures a strong cultural attitude that confrontration is to be avoided 
      and looks down upon those who sue
      DATA: BW
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