Part 59 (2/2)

It sounds crazy, and only time will tell whether it proves to be sustainable. But the founder of the strategy, Landon Kettlewell, has struck gold for his investors more than once -- witness the legendary rise and fall of Kodacell, the ent.i.ty that emerged from the merger of Kodak and Duracell. Investors in the first two rounds and the IPO on Kodacell brought home 30X returns in three years (of course, investors who stayed in too long came away with nothing).

Meanwhile, Kettlewell's bid to take down Disney Parks looks good -- the legal a.n.a.lysis of the vexatious litigation and unfair compet.i.tion charges have legal scholars arguing and adding up the zeros. Most d.a.m.ning is the number of former Disney Parks employees (or ”castmembers” in the treacly dialect of the Magic Kingdom) who've posted information about the company's long-term plan to sabotage Kettlewell's clients.

Likewise fascinating is the question of whether the jury will be able to distinguish between Disney Parks, whose corporate citizens.h.i.+p is actually pretty good, from Disney Products, whose record has been tainted by a string of disastrous child-labor, safety, and design flaws (astute readers will be thinking of the ”flammable pajamas” flap of last year, and CEO Robert Montague's memorable words, ”Parents who can't keep their kids away from matches have no business complaining about *our* irresponsibility”). Punitive jury awards are a wild-card in this kind of litigation, but given the trends in recent years, things look bad for Disney Parks.

Bottom line: should your portfolio include a litigation-investment component? Yes, unequivocally. While risky and slow to mature, litigation-investments promise a staggering return on investment not seen in decades. A million or two carefully placed with the right litigation fund could pay off enough to make it all worthwhile. This is creative destruction at its finest: the old dinosaurs like Disney Parks are like rich seams of locked-away capital begging to be liquidated and put to work at nimbler firms.

How can you tell if you've got the right fund? Come back next week, when we'll have a Q&A with a litigation specialist at Credit Suisse/First Boston.

”There's litigation specialists at Credit Suisse?”

He was big, Hackelberg, though he often gave the impression of being smaller through his habitual slouch. But when he pulled himself up, it was like a string in the center of the top of his head was holding him erect, like he was hovering off the ground, like he was about to leap across the desk and go for your throat. His lower jaw rocked from side to side.

”They do now, Sammy. Every investment bank has one, including the one that the chairman of our board is a majority shareholder in.”

Sammy swallowed. ”But they've got just as deep pockets as we do -- can't we just fight these battles out and take the money off of them when we win?”

”If we win.”

Sammy saw his opportunity to s.h.i.+ft the blame. ”If we've been acting on good legal advice, why wouldn't we win?”

Hackelberg inhaled slowly, his chest filling and filling until his ice-cream suit looked like it might pop. His jaw clicked from side to side. But he didn't say anything. Sammy tried to meet that cool gaze, but he couldn't out-stare the man. The silence stretched. Sammy got the message: this was not a problem that originated in the legal department. This was a problem that originated with him.

He looked away. ”How do we solve this?”

”We need to raise the cost of litigation, Samuel. The only reason this is viable is that it's cost-effective to sue us. When we raise the cost of litigation, we reduce its profitability.”

”How do we raise the cost of litigation?”

”You have a fertile imagination, Sammy. I have no doubt that you will be able to conceive of innumerable means of accomplis.h.i.+ng this goal.”

”I see.”

”I hope you do. I really hope you do. Because we have an alternative to raising the cost of litigation.”

”Yes?”

”We could sacrifice an employee or two.”

Sammy picked up his water-gla.s.s and discovered that it was empty. He turned away from his desk to refill it from his filter and when he turned back, the lawyer had gone. His mouth was dry as cotton and his hands were shaking.

Raise the cost of litigation, huh?

He grabbed his laptop. There were ways to establish anonymous email accounts, but he didn't know them. Figuring that out would take up the rest of the afternoon, he realized, as he called up a couple of FAQs.

In the course of a career as varied and ambitious as Sammy's, it was often the case that you ran across an email address for someone you never planned on contacting, but you never knew, and a wise planner makes s.p.a.ce for lots of outlier contingencies.

<script>