Modern-day corporations have to battle competitors to get ahead. They have to contend with price wars and, occasionally, the rapidly rising cost of materials and fickle consumers who can leave them with inventory stacked in warehouses. It's tough. And here's another headache: legal fees.
For instance, according to Michelle Leder at Footnoted.org, UnitedHealth Group (NYSE: UNH), which has largely put an options-backdating scandal behind it, is still paying for the affair. Since 2006, UnitedHealth has spent close to $50 million on legal fees, with almost $17 million spent in 2008. That's a lot of money, and worth noting, but let's put it in perspective: The health-care services company raked in almost $3 billion in profits in the past year.
Legal fees can be somewhat more consequential for other companies, though. For example, Qualcomm (Nasdaq: QCOM) and Broadcom (Nasdaq: BRCM) recently buried a legal hatchet, with Qualcomm agreeing to pay an $891 million settlement. Qualcomm had reportedly paid up to $100 million annually for several years to defend itself against both a patent dispute from Broadcom as well as an antitrust kerfuffle that also brought several competitors, including Nokia (NYSE: NOK) and Texas Instruments (NYSE: TXN), into the mix.
Even those more extensive legal fees didn't look like they'd sink Qualcomm, but they were certainly pressuring the company. Of perhaps greatest interest to Qualcomm investors is an agreement with Broadcom that they won't sue each other in the future. That erases much uncertainty surrounding the company, and it means Qualcomm can focus more on growing its business and less on defending it.
A more stark effect can be seen at RealNetworks (Nasdaq: RNWK), which has reportedly spent some $6 million in legal fees defending its RealDVD software since 2008. That money hasn't been easy for RealNetworks to part with, given that the company has suffered net losses for four consecutive quarters now.
What to do
So, as you look for investment candidates, keep an eye out for legal fees. Be ready to see patent fights, antitrust claims, class action suits, and a host of other issues being litigated in a costly manner. Then make your decision accordingly, with your eyes open.
More about companies and their legal troubles:
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