A year ago today, a class action was filed against CPA Global in the US alleging a "systematic practice of overbilling and inflating fees". In March this year I reported on the settlement deal struck by CPA Global involving payment of $5.6m to deal with claims of overcharging. On June 2, documents were filed on behalf of CPA Global in support of the proposed settlement which was given preliminary approval by the court on June 9; a hearing for final approval is due to take place in October.

Who is in the class?

The settlement terms are understood to benefit US patent holders with 20 or fewer non-US patent renewals within any one year and a maximum of 40 non-US patents in any one year, between 1 January 2012 and 31 December 2016*. The CPA declaration, made by a consultant who used to work with CPA North America rather than by a CPA employee, refers to a total of 3,059 contracts that break down as follows:

1,800 governed by Jersey law and courts
800 governed by English law and courts
400 governed by Virginia law and courts
50 governed by New York law and courts
8 governed by Delaware law and courts
1 governed by Washington D.C. law and courts

What puzzles me, and may do others, is that the US court (Virginia) in this case can approve a deal between the parties in an action involving contracts over which they do not have jurisdiction; namely, at least, those governed by Jersey or English law and courts. Perhaps such class members will, in effect, be agreeing to amend the governing law provisions of their contracts.

* In a supplemental briefing filed by the Plaintiff in support of the settlement, is stated:
"Settlement class members will not be releasing claims for years in which they have more than 20 foreign patent renewals."

What might class members receive?

Here are some simple assumptions, made necessary because so much important information is deliberately kept out of public records:

an average patent holder within the class had 10 non-US renewals per year for each year of the five years – total 50 annuities paid; and
the net settlement fund, after deductions including the claimant’s lawyers’ entitlement, may be only $4m assuming the lawyers get 25% (the settlement allows them 33%, amounting to $1,864,800 according to the draft notice to Class members) and there are other costs of $200,000 including $25,000 for the Plaintiff; and
there are 3059 claimants within in the class (one per contract) producing a total of 152,950 annuities paid over the five-year period (an average of 30,590 annuities per year); and so
each claimant receives $26.15 per annuity

The two annuity payments pleaded in the class action claim were alleged to be $294.52 and $311.40 more than they should have been; a total of $605.92 and an average of $302.96. If you round down the average overcharge to $300 then claimants within the class, based on the assumptions made above and the average level of overcharges claimed, would receive 8.74% of what they might have overpaid; not a great deal if my assumptions are correct.

Is a bad deal better than no deal?

It is clearly in the interests of the Plaintiff and Defendants to settle this action. The Plaintiff (who will get $25,000) and Plaintiff’s lawyers (who will get $1,864,800 or less) will be well rewarded and CPA Global will, on the basis of assumptions which I am happy to be shown to be incorrect, have settled 3,059 claims very cheaply indeed.

The Virginia Court has apparently decided, at least on a preliminary basis, that it has jurisdiction over contracts that the parties agreed should be governed by the laws of other countries. Is anyone, I wonder, going to address this issue and will any of the class members be willing to question the deal offered to them?

where does this leave referrers?

In the CPA Global declaration, it is stated that all clients covered by the 3,059 contracts were referred to CPA Global by law firms and patent agents (this is in fact part of the definition of the class). Where does this settlement leave such firms? Should they not be looking into this case, in detail, advising their existing and prospective referral clients of the issues and risks?

Those who receive referral fees will presumably have to weigh up the reputational consequences and potential liabilities arising if the individuals they referred to CPA Global were found to have been overcharged.

Note: this post has undergone some minor corrective and supplemental amendments since first published.

I examine unethical behaviour in business and professional services.

Hardly a day goes by but we read of another corporate scandal involving dishonesty of one form or another. Major banks, as well as household names such as Rolls Royce, VW and Tesco, are reported as paying settlements running into hundreds of millions. The legal sector is no exception and the latest scandal involving former human rights lawyer Phil Shiner is one example. So why does this keep happening and what can be done about it?

SUSCEPTIBILITY TO INFLUENCE

I have just finished Professor Robert Cialdini’s new book, Pre-suasion – a revolutionary way to influence and persuade. It is an astonishing catalogue of our susceptibility to cues that have been proven to influence our subsequent choices and actions. For example, simply being asked whether you consider yourself an adventurous person before answering questions put by a street survey agent makes it vastly more likely that you will willingly hand over your email and phone number. They are unsettling revelations, not least because this knowledge in the hands of the unscrupulous can be used against us for profit.

AI IN THE WRONG HANDS

Perhaps because references to the accelerating impact of AI in our working and personal lives are so prevalent, at least in my spheres of interest, my first thought was how Cialdini’s evidence-based methods could be put into use on a mass scale using AI. My conclusion is that all it needs is a business with targets to reach and investors to please. While dystopian projections of the impact of technology abound, exemplified by Channel 4’s ‘Black Mirror’ series, we should not sleep walk into the insidious infiltration of influence techniques designed to divert us from truly free choice.

UNETHICAL CONDUCT

Professor Cialdini acknowledges the possibility that what he has revealed will be misused and addresses it head on; though in doing so confronts another human factor in play, namely the predisposition to act unethically for financial gain. He refers, among other sources, to Ernst & Young Global Fraud Surveys (2013, 2014) ‘documenting that many senior business leaders know the heavy reputational costs of recognised unethical conduct but are willing to enact or permit such conduct when it raises company fiscal outcomes’.

Cialdini refers to the VW diesel emissions debacle which led to the company’s largest loss in its history and its reputation going from 70% favourable to 80% unfavourable. He offers some possible explanations as to why senior business leaders persist in such behaviour and concludes that they simply don’t think they will get caught.

THE ‘POWER PARADOX’ AND REWARD BIAS

I find myself saying ‘surely not’; surely such things could not be allowed to happen in a major organisation that must be subject to controls that prevent such behaviour. Another book I have read recently is The Power Paradox – how we gain and lose influence by Dr Dacher Keltner, who demonstrates that those who are afforded power tend to believe that the rules that apply to others don’t apply to them. Regrettably this thesis also rings true.

Reward bias is one of 25 cognitive biases explored by Charlie Munger, Warren Buffet’s long-time business partner, in a paper entitled ‘The psychology of human misjudgement’. The proposition is that when there is a reward incentive most people will do whatever it takes to obtain it, including behaving unethically. When the power paradox is combined with reward bias it is easy to see how business leaders might behave unethically and so, surely, we should expect it and be ready to deal with it.

THE CONSISTENCY TRAP

In his earlier bestseller, Influence – The Psychology of Persuasion, Robert Cialdini explained our tendency to act in consistency with our choices. This may explain the otherwise puzzling fact that unethical conduct can be suspected, or even known, and yet nothing is done to investigate or address it until, for example, a whistle-blower sounds an alarm that cannot be ignored. When that happens, many will express outrage despite having previously turned a blind eye to the situation. The explanation may be that it is safer to act in accordance with existing choices, for example by staying with an existing supplier, than it is to take affirmative action in consistency with commonly stated values.

WHAT IS THE CURE?

Human nature being what it is, the answer must be that deterrence rather than cure is all that is achievable. Bribery, corruption, fraud, and dishonesty in general are corrosive and can be addressed by law, provided there is a willingness to report and bring offenders to account. Too many are ‘getting away with it’ right under the noses of those who prefer the counsel of the three wise monkeys (hear no evil; speak no evil; see no evil). Corporate responsibility includes being prepared to deal with dishonesty decisively.

PROFESSIONAL STANDARDS

My sense is that professional standards and sanctions have a real impact on legal professionals because, having worked to obtain a professional qualification, the majority are not willing to risk being prevented from practising and so lose their livelihood. Company directors are far less likely to be prevented from working, or being appointed as a director, because they have bent the rules.

Reputation is all-important in professional services and when it is lost the consequences can, and should be, catastrophic. Some providers of professional services have been, and will continue to be, drawn into unethical conduct and their clients must be prepared to subject even the most established relationships to scrutiny. Unethical conduct is a zero-sum game in which both clients and the profession are losers until the perpetrator is brought to account.

US class action against CPA Global: latest developments