Firms count cost of doing business stateside

Serono has set aside funds to deal with litigation in the US Keystone

The United States is known as the land of opportunity and many household names in Switzerland have established a major presence there.

But the US is also considered to be a land of litigation – something which many Swiss firms have learnt to their cost.

Over the past seven years Swiss firms or their insurers have had to pay out a total of more than SFr10 billion ($7.9 billion) in legal fees, fines or out-of-court settlements.

The most famous legal settlement – which made headlines around the world as much for the acrimony surrounding it as the amount of money involved – came in 1998.

In that year Switzerland’s two largest banks, UBS and Credit Suisse, reached a $1.25 billion settlement with Holocaust survivors whose assets were lost during the Second World War.

Other companies which have ended up spending large sums of money in and out of US courtrooms in recent years include Geneva-based biotechnology firm Serono, engineering group ABB and recruitment firm Adecco.

Earlier this year Serono – Europe’s largest biotech firm – announced it was putting aside $725 million to cover legal action in the US. The provision relates to an investigation into the marketing of its Serostim Aids drug.

Four former Serono sales and marketing executives had been charged in connection with a conspiracy to offer and pay kickbacks to doctors in return for writing prescriptions for Serostim.

Basel-based pharmaceutical giants Roche and Novartis have also come under investigation in the US.

Roche, along with other drugs firms, was found guilty of rigging the prices of its vitamin-based products between 1990 and 1999.

The company was ordered to pay fines of $500 million in the US and €462 million in the European Union.

Roche has also put aside SFr1 billion to cover the costs of pending legal cases around the world. At the end of 2004 rival Novartis had set aside reserves of around SFr600 million for the same purpose.

Angry investors

Away from the world of pharmaceuticals, Adecco – the world’s largest employment agency – faced the wrath of US investors in the aftermath of an accounting scandal which revealed major control weaknesses in the firm’s North American operations.

Last year Adecco delayed publication of its 2003 results, which led to a collapse in the company’s share price and wiped around SFr7 billion off the firm’s value.

Investors lost billions and the chairman, finance chief and the head of Adecco’s North American operations all lost their jobs.

To make matters worse, investors took out class-action suits against the firm. The cases have since been thrown out of a California court, but an appeal against the ruling could still be launched.

One of the most high-profile cases of US litigation involving a Swiss firm is that of ABB.

The company, which was on the brink of bankruptcy in 2002, has had to spend vast sums of money to settle asbestos-related claims in the US.

ABB’s problems date back to 1990 when the company acquired its Combustion Engineering subsidiary, which made industrial boilers lined with asbestos. Two other divisions in the US also made products containing asbestos.

The firm is in the process of settling claims from former employees who made products containing asbestos.

ABB executives moved to resolve the asbestos problems in March by offering to pay an additional $232 million to claimants on top of the $1.2 billion ABB had already agreed to contribute under an earlier settlement plan which was thrown out of a US court last year.

Faulty implants

Another firm which lost millions of dollars during years of legal wrangling in the US was Swiss medical-devices company Sulzer Medica.

The firm – which was later reborn as Centrepulse and taken over by US-based Zimmer – became locked in a lengthy litigation battle over faulty hip and knee implants.

In 2002 it transferred more than SFr1 billion to a trust representing victims of faulty implants in the US.

Thousands of mainly elderly people were affected by the implants, denting the company’s image in the US and weakening its share value.

More recently UBS found itself hauled in front of a US court, where in 2004 it was fined $100 million for violating trade sanctions by issuing dollars to countries on a Washington blacklist – including Iran, Libya and Cuba.

At the time UBS admitted “very serious mistakes” had been made and said it would stop banknote trading outside Switzerland.

Despite the spate of investigations, legal cases and settlement plans, a recent study revealed that Swiss firms still enjoy a relatively good reputation in the US and elsewhere.

Presence Switzerland – the government agency charged with promoting Switzerland around the world – says all the indications are that “the image of the country and of Swiss firms abroad is generally good”.

But the agency warns that Switzerland’s reputation should not be taken for granted and that “repeated cases of bad news” would almost certainly have an impact on how the country is viewed overseas.

swissinfo

Key facts

Companies which have faced legal action in the United States include:

ABB – asbestos litigation. The firm is hoping to reach a final out-of-court settlement with former employees.
Roche – one of a number of drugs firms found guilty of rigging the prices of its vitamin-based products from 1990 to 1999.
Sulzer Medica – spent more than SFr1 billion in compensation to victims of faulty hip and knee implants in the US.