In a case that appears to have gone largely unreported outside of the US, last week (31 August 2022 – reported on Bloomberg’s website) Ohio’s Supreme Court rejected an appeal by international law firm Dentons to a relatively long running case that could, possibly, shake-up the accepted business model of many similarly structured international law firms – including some with a presence here in Australia, such as: DLA Piper, Squire Patton Boggs, Baker McKenzie, Norton Rose Fulbright and King Wood Mallesons.
So what is this all about?
Core to this case was an actually or potential conflict of interest, with a specific twist on the way law firms are structured under the Swiss Verein business model.
Before we jump into why this might be an issue though: What the Hell is a Swiss Verein?
The Swiss Verein business model
Wikipedia – which anyone who knows me well will be able to tell you I do not see as being the font of all knowledge, does a good job in this case of defining a ‘Swiss Verein‘:
“The association can also be used as a legal form for a business organization consisting of a number of independent offices, each of which has limited liability vis-à-vis the others. The form is often used by multinational professional firms so they can operate globally under one brand whilst maintaining separate profit pools (and ring-fencing liability) in each country in which they operate.
Pretty cool, but how can a problem arise now 20 years after Baker & McKenzie became the first major law firm to use the Swiss Verein structure in 2004?
Well, let’s take a look at the issues in this matter…
At the heart of this matter..
Core to this whole dispute was that:
RevoLaze argued that Dentons shouldn’t have taken on the company’s patent case in 2015 because one of the firm’s Swiss verein affiliates in Canada had represented Gap Inc., which RevoLaze sued for patent infringement.
The verein structure lets law operations affiliate to market services under one brand while avoiding a full-on merger. Affiliates limit liability between offices and keep separate on matters such as profits, pay and taxes.
Okay, so now I’m starting to see why this might be an issue.
But who really cares?
As the Bloomberg article states:
The RevoLaze case tests whether firms using the Swiss verein model must do conflicts checks with all affiliates in their networks before deciding to take on a client.
Can you imagine that – over a 24 hour global time line! What would an “urgent” conflict check look like?
Or, maybe, get an integrated conflict check system – but that goes against the Swiss Verein model, so how about we take on board this (in the Bloomberg article):
Verein firms risk losing business if they’re required to disclose conflicts related to affiliates’ work. Existing clients may balk at other representations, and potential clients could decide to go elsewhere.
So what does the future hold for the Swiss Verein?
The answer – I have no idea. It’s one court decision – pretty influential though.
On the other hand, how long is it going to take to unwind any Swiss Verein structured law firm – in my view a project that will likely take 10 years!
As usual, comments are my own.
Image credit to Ronnie Schmutz on Unsplash.com
“must do conflicts checks with all affiliates in their networks”
I’m just old enough to remember that in Canada, a few decades back, an alleged conflict was brought against two independent firms who were members of and belonging to the same law firm Alliance / Network / Club (think: Lex Mundi), stating that their practice group leaders and firm leaders gathered together on a regular basis, openly sharing information. I’ve been waiting for that one to resurface and perhaps this is the catalyst!
Great point Patrick!