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Through the Legal Looking Glass: Exploring the Concept of Corporate Legal
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EXPLORING THE CONCEPT OF CORPORATE LEGAL STRATEGY [2011] EBLR 51
Through the Legal Looking Glass: Exploring the Concept of

Corporate Legal Strategy
ANTOINE MASSON* AND MARY J. SHARIFF**
I. Introduction
The concept of “legal strategies” has become a very popular topic in legal and busi-
ness circles. Generally speaking, when the term is utilized, it is often referring to a
novel or unexpected use of law or legal process. What however does this expression
precisely mean? What differentiates legal strategies from other strategies or practices
that involve the law? How can legal strategies be analyzed?
The surfacing of these questions demonstrates the emergence of “legal strategy”
as a promising new field of research in the areas of law, business and management
sciences. Indeed, the analysis of legal strategies is a multi- / inter-disciplinary field
of research that can lead to enrichment of knowledge by the cross-fertilization of
differing points of view, experiences and theories. It also implicates profession-spe-
cific considerations – a lawyer can improve competence by taking into account the
problems faced by the managerial sphere, whereas, an entrepreneur can increase the
chance of business success by becoming aware of the relevance of the legal function
as a potential centre of profits capable of creating value. Gaining an appreciation of
legal strategy theory is thus critical to a pro-active understanding of the role that law
plays in advancing or defining business activities and vice versa.
Accordingly, this paper sets out to illustrate and discuss various forms of legal
strategy and legal strategy theory emerging from the areas of litigation, corporate
management and competition. The discussion here is not meant to be exhaustive.
Rather, the goal of this paper is to attempt a classification of current approaches to
legal strategy theory in order to advance the understanding of legal strategy as a dis-
*
Antoine Masson is currently working at the European Court of Justice as a référendaire, man-
aging the “Law, Management and Strategies” research program of the ESSEC European Center for
Law and Economics and collaborating with the University of Luxembourg. He has been a part-time
lecturer at Trinity College, Dublin and a researcher at HEC-Paris. He has edited two books on legal
strategies including Legal Strategies: How Corporations Use Law to Improve Performance (Germany:
2010) with Mary J Shariff. He has published extensively on Law and Management, Business Law and
European Law. The author wishes to thank Hugues Bouthinon-Dumas and Nocella Lauriane for their
help. massona@essec.fr.
**
Mary J Shariff is an Assistant Professor at the Faculty of Law, University of Manitoba and Associ-
ate of the Desautels Centre for Private Enterprise and the Law. She teaches in the areas of contract law,
international business law, natural resources law and bioethics and the law and is currently publishing
and conducting research in Legal Strategies as well as in the intersection of Science, Technology, the
Environment and the Law. The assistance of Kevin Marechal de Carteret is gratefully acknowledged
and was made possible by generous financial support from the Marcel A Desautels Centre for Private
Enterprise and the Law, Winnipeg, Manitoba, Canada. shariff@cc.umanitoba.ca.
51
Electronic copy available at: http://ssrn.com/abstract=1908938

52 ANTOINE MASSON AND MARY J. SHARIFF
crete area of legal study. This in turn should assist with the illumination of the nature
of the relationship between law and business.
It is the authors’ position that such classification can also assist in the development
of a comprehensive and integrated definition of “corporate legal strategy” from a law
perspective.1 Achieving a definition of legal strategy is arguably useful to advancing
the study, development and application of legal strategies generally but such a defini-
tion may also improve the understanding of legal strategy from an ethical perspective
thus allowing for better efficiency in management and a reduction of negative im-
pacts on the integrity of the legal system. Thus, in addition to suggesting a definition
of “corporate legal strategy”, the paper concludes by summarizing broadly, certain
elements that the authors believe ought to be included in any critical study of law and
legal strategy which also has as its aim, the development of an integrated theory of
“legal strategy”. It is hoped these suggestions and the review of the forms of strategy
that precedes them, will assist in expanding debate and discussion regarding the true
definition of legal strategy and further assist in advancing the understanding of legal
strategy with a view to bringing its formal study and acceptance into professional and
academic mainstreams.
II. Approaches Towards Legal Strategy Study
A. Overview
In the media, the term “legal strategy” is often utilized but its meaning is rarely
given.2 However, from law and management literature, two broad perspectives on
the fundamental nature of legal strategies have respectively emerged. The first per-
spective (and also one of the earliest assertions of “legal strategy theory”) is that a
legal strategy is a strategy constructed in order to achieve a desired legal result.3 The
second perspective is that a legal strategy is simply an extension or continuation of
an economic strategy advanced in a legal form.
1
See discussion in Antoine Masson and Mary J Shariff (eds), Legal Strategies: How Corpora-
tions Use Law To Improve Performance (Berlin: Springer, 2010) at 8–9, http://www.springer.com/law/
book/978-3-642-02134-3 [hereinafter Legal Strategies].
2
See eg, Tony Bradley, ‘Apple Continues “Me-Too” Strategy in Patent Battle with Nokia’ PC
World (Jan.18, 2010) <http://www.pcworld.com/businesscenter/article/187146/apple_continues_metoo_
strategy_in_patent_battle_with_nokia.html>; see also THRfeed.com, ‘Conan vs. NBC: Who has the
best legal strategy?’ The Hollywood Reporter (14 Jan. 2010) <http://www.thrfeed.com/2010/01/
conan-vs-nbcs-legal-strategies-.html>; see also David D Kirkpatrick, ‘A Quest to End Spending Rules
for Campaigns’ N.Y. Times (24 Jan. 2010) <http://www.nytimes.com/2010/01/25/us/politics/25bopp.
html>.
3
See eg, Lynn M LoPucki and Walter O Weyrauch, ‘A Theory of Legal Strategy’ (2000) 49 Duke
L. J. 1405, reprinted in Legal Strategies (n 3) 41. For a very early example of legal strategy development
and legal procedure abuses see Richard Harris, Mr. Bumpkin’s Lawsuit: or How to Win your Opponent’s
Case (London: Stevens and Sons, 1883) <http://books.google.ca/books?id=0fUBAAAAQAAJ&printse
c=frontcover&dq=Mr.+Bumpkin’s+Lawsuit&cd=1#v=onepage&q=&f=false>.
Electronic copy available at: http://ssrn.com/abstract=1908938

Figure 1. Two Main Perspectives on the Fundamental Nature of Legal Strategies
The first perspective on legal strategy appears to be grounded on the idea that law
and its processes are utilized in order to produce a consequence with legal impact.
While this would include the more obvious examples of litigation tactics, it would
also include the use of the law in the construction of social policy. For example,
activists for minority interests will bring actions to court solely for the purpose of
changing the law. Because economic gain is not necessarily the primary motivator,
this perspective of the strategic use of law does not appear to apply as readily to
companies, who, by their very nature, are primarily focussed on the maximization
of returns. If a firm however (particularly one not interested in shaping social value)
consciously perceives legal strategies as subordinate to its business objectives, the
numerous possibilities offered by the firm’s legal environment are less likely to be
obscured.
Before the duality of the nature of legal strategies as described above had been
fully contextualized, the concept of legal strategy was primarily explored in the liti-
gation context, that is, in the pursuit of the best strategies for winning lawsuits.4
Depending on the jurisdiction, this approach has also been described as the “judicial”
approach.5 However, as one French author stated in 1989, “Law is also a science of
organization.”6 Thus, the adoption of an organizational approach and methodology
allows for “the creation of better legal organization.”7 Consequently, “legal strategy”,
understood here in the context of the legal policies of a firm, has also been explored
from the perspective of the management sciences. Utilizing methods concerned with
risk or resource management, the management sciences perspective seeks out the
optimal organization that should be assumed by the firm’s legal function.8
Thus, the judicial and managerial approaches concern themselves with how firms
use the law to either enhance litigation results or maximize organization, perfor-
4
Ibid.
5
See LoPucki and Weyrauch (n 3).
6
J Paillusseau, ‘Le droit est aussi une science de l’organisation’ (1989) 42 Rev. trim. de droit
com 1.
7
J Paillusseau, ‘Les apports du droit de l’entreprise au concept de droit’ (1997) 2 Rec. Dalloz 97.
8
R Hall, ‘The Strategic Analysis of Intangible Resources’ (1992) 13 Strategic Mgmt. J. 135–44.
mance and profits, respectively. In addition to these approaches, a third, more recent
approach has also emerged but it differs in the sense that it is not advanced on the
basis of how the law is used. Rather, the “normative” approach, explores the underly-
ing conditions or circumstances that create the opportunity for legal strategy devel-
opment.9 Uncovering or understanding the origins of legal strategy, should, in theory,
increase the ability to develop legal strategies, increase the opportunities for legal
strategies and further enable the construction of more aggressive legal strategies.
Rather than being in conflict, the three basic approaches to legal strategy –judicial,
managerial and normative – when juxtaposed, complement each other. For example,
the managerial approach is aimed at determining which legal choices will be the
most efficient at improving firm performance but is also concerned with aggressive
strategies such as strategies that use a trial as an instrument of destabilization. The
judicial approach applies this latter idea in the litigation arena. The normative ap-
proach attempts to improve our understanding of the origin of legal strategies in
order to detect the legal opportunities that exist in a given legal framework. Thus, the
relationship between these three approaches to legal strategy study might be concep-
tualized as follows:
Figure 2. Three Approaches to the Study of Legal Strategy
Consequently, although these three approaches to the study of legal strategy appear
to diverge with respect to their immediate objectives, it is important to point out that
when examined collectively, a broader concept of legal strategy theory begins to be
illuminated. This observation should in turn assist in the development of the theory of
legal strategy as well as the development of its comprehensive definition.
9
See generally discussion in Antoine Masson, ‘The Origin of Legal Opportunities’ in Legal Strate-
gies (n 3) at 27–39; see also Mary J Shariff, Marlene Pomrenke and Vivian Hilder, ‘Perspectives on
Legal Strategy Through Alternative Dispute Resolution’ in Legal Strategies (n 3) at 201 and examples
of strategies including cataloguing, positioning, oppositioning, flipping and appropriation.
B. The Judicial Approach
1. The LoPucki-Weyrauch Model

The trial environment is the place where legal strategies are the most obvious. Indeed,
when litigation commences, each party develops and implements strategies to obtain
the most advantageous outcome. Litigation tactics include various methods, some of
which involve the manipulation of the judge or jury.10
Following this theme, Lynn LoPucki and Walter O. Weyrauch, provide one defini-
tion of judicial strategies in their article entitled, “A Theory of Legal Strategy”.11 In
this article, LoPucki and Weyrauch state that the law is not just a simple game of writ-
ten rules involving the ability to foresee solutions for each possible situation. These
authors infer that the implementation of norms in a locus necessarily provides for cer-
tain latitude within which legal actors interact to decide how the written law should
be applied. Any trial is therefore the result of strategies aimed at softening the rules
that govern the interactions between the parties in order to orientate the application of
the law in a way that is favourable to them – rather than as a result of the written law.12
In order to achieve the best outcome, an efficient judicial strategy must, according
to LoPucki and Weyrauch, target four components: the legal decision-makers; the
facts; the legal culture; and, as a subsidiary matter, the content of the law i.e. the writ-
ten rules. Indeed, the factors external to the written rules, including culture, modes
of perception and social norms, are at least as important as the actual legal rules
themselves, since external factors can directly influence their content and application.
Building on this premise then, LoPucki and Weyrauch suggest a taxonomy of
existing judicial strategies which distinguishes between: a) strategies that require the
‘willing acceptance’ of judges; b) strategies that aim to force or constrain judges; and
c) strategies that tend to counter the opposing party generally.
a) Strategies that Require the ‘Willing Acceptance’ of Judges

In this first category, the strategies attempt to have the judge adopt a particular line of
reasoning. For instance, the strategic party will try to demonstrate the ambiguities of
the law and of the opposing party’s conclusions in order to challenge the applicability
of the rule advanced or to invoke another rule of law superior to the one used by the
opposing party in order to dismiss or remove some of its arguments.13
10
See eg, Ted A Donner and Richard Gabriel, Jury Selection Strategy & Science (3rd ed West Group,
2009); see also Jerome Frank, Law and the Modern Mind (New Brunswick NJ: Transaction Publishers,
2009) at 108–82 (discussing the judging process).
11
See LoPucki and Weyrauch (n 3).
12
Ibid 1427 (Parties invest resources in a trial, such as argument development in order to attempt
to modify the prevailing representation of what the solution should be and thus gain the acceptance of
the judge).
13
Here, the use of the phrase “rule of law” is used loosely and is to be distinguished from the
concept of the “Rule of Law”.
A strategic party may also try to persuade the judge to add conditions, some ap-
parently implicit, to his or her ruling in order to render the legal principles arising
therefrom inapplicable to a pending case.
b) Strategies that Force or Constrain Judges

In the second category, the strategies attempt to force or constrain the judge by reduc-
ing the leeway or scope available to him or her. Four types of constraint activities can
be elaborated: the selection of cases used in argument (which can also be advanced
through the doctrine of precedent if available); the selection of facts; the implemen-
tation of preventive actions prior to the main court proceeding (for example, at an
evidentiary hearing) to organize facts more favourable to one of the parties (a tech-
nique also known as legal planning); and the use of the media to pressurize judges (a
technique also commonly described as “media spin”).
c) Strategies that Tend to Counter the Opposing Party

In this last category, the strategies aim at preventing the opposing party from winning
its case or from choosing the presiding judge.14 More precisely, the strategies are
directed at: increasing the costs of the opposing party by requiring the appointment
of an expert or obtaining the choice of a court more distant from the domicile of the
other party; extra-legal strategies that allow for, for example, the prevention of dis-
satisfied customers from referring an issue to court;15 delaying the trial in order to
play on the weariness of the opposing party; or preventing the creation of precedents
by settling the dispute through an amicable resolution.16 Contractual strategies, which
also fall into this last category, include: using arbitration to prevent the submission of
the dispute to a public judge; drafting provisions to minimize a firm’s liability or to
locate potential litigation in the most favourable jurisdiction.
2. The Role of Legal Perceptions and Mental Models

In order for judicial strategies to be successful, LoPucki, in a previous article, em-
phasized the role of legal perceptions. Indeed, according to LoPucki, it is critical for
legal practitioners to take local legal culture and representations into account because
these are what ultimately determine the outcome of a trial.17 LoPucki believes that in
their daily practice, legal actors comprehend the law according to their own views –
“mental models” – and rarely resort to written law. Furthermore, the mental models
relied upon by legal actors are simplified and thus contain different versions of writ-
ten law because the human mind is simply incapable of ingesting and fully storing
the colossal details of the law. Accordingly, mental models contain errors, including
14
LoPucki and Weyrauch (n 3) at 1457.
15
Ibid at 1461.
16
Ibid at 1468.
17
Lynn M LoPucki, ‘Legal Culture, Legal Strategy, and the Law in Lawyers’ Heads’ (1996)
90 Nw. U. L. Rev. 1498.
errors that can persist, because once legal representations are established, they are
often very difficult to correct.
In consideration of their simplification, errors and resistance to correction, LoPucki
asserts that it is possible to manipulate mental models in a trial in order to win a case.18
Indeed, mental models are comprised of legal categories. Thus, mental models can
perhaps be described as the most straightforward form of legal strategy – categoriza-
tion – where a dispute is given its most favourable categorization, even though the
category itself may be remote from the written law.19 Furthermore, it would be even
more advantageous to modify or correct these mental models in a way favourable to
the plaintiff. Such manipulation is however difficult because legal actors will only ac-
cept modification of their own models of the existing rules when a new mental model
is presented with sufficient argument and strength at trial. Additionally, strategies for
modifying mental models are ultimately vulnerable to legislative change.
Nevertheless, if a mental model is successfully modified, it is exceptionally bur-
densome for a legislative power to counter its effects since the new model tends to
become absorbed into the legal culture. It will even be considered retrospectively,
as a modernization of the law resulting in the underlying strategy being considered
normal.
3. Procedural Strategies
a) Exploiting the Side-Effects of a Trial

The typology suggested by LoPucki and Weyrauch is not exhaustive. Indeed, there
are numerous strategies aimed at exploiting the corollary effects engendered by a
trial situation, particularly those that misuse certain procedural rules. One frequently
observed example is the use of “discovery” procedures to obtain a rival’s economic
information.20
Among the procedural strategies, the dilatory ones are the most famous. Indeed,
the dilatory effects of trials have been widely commented on, particularly those
18
Ibid at 1522–8.
19
According to LoPucki, the judges’ awareness of the existence of strategic manipulation would
reduce its impact. “For example, provisions of Chapter 13 of the bankruptcy code require that debtors
pay all of their disposable income to unsecured creditors. The requirement is however, vulnerable to
the debtor strategy of buying expensive consumer goods on secured credit before filing and proposing
a plan that devotes the bulk of the debtor’s disposable income to payment of this new debt. The effect
is to avoid the necessity of making payments to unsecured creditors. As courts became aware of this
strategy, they began to inquire into such prepetition purchases and employ the “good faith filing” doc-
trine to combat it.” (n 17) at 1522 [n 119].
20
Robert G Bone, ‘Who Decides? A Critical Look at Procedural Discretion’ (2007) 28 Cardozo L.
Rev. 1961; Compare Charles Sablon, ‘Stupid Lawyer Tricks: an Essay on Discovery Abuse’ (1996)
96 Colum L. Rev. 1618 describing a situation where Philip Morris, forced to comply with a discovery
procedure, produced 25 boxes containing approximately one million documents. These documents were
printed on dark red paper, making them difficult to read and photocopy. They also gave off a nauseating
odour, which, according to the lawyers of the opposing party caused headaches, thus making them even
more difficult to read in detail.
that concern cost management because of delays, limitation periods or emergency

proceedings that limit actions.21 Similarly, procedural strategies can be used to stall
transactions. For example, they might be aimed at freezing stock exchange transac-
tions as the speed required by certain transactions here is hardly reconcilable with
lethargic legal deadlines.22
Other procedural strategies may be implemented to manipulate the outcome of a
dispute.23 Notably, litigation or the threat of litigation can be used as a tool of com-
munication or intimidation.24 Furthermore, even when the outcome is negative, a
harsh judgment can still be utilized by a firm to its advantage. For example, it might
be used to illustrate the inadequacy or unfairness of an existing legal norm and the
necessity for its reform.25
b) Strategic Positioning and Planning

Aside from tactics adopted for a trial and strategies that try to take advantage of the
complex effects of trial procedures, it must be noted that legal strategies can also be
implemented well in advance of a trial. These types of strategies anticipate potential
law-suits and create, for example, legal structures that can be used as a “legal shield”
against possible later demands from an opposing party.26 Examples here include: stra-
tegic planning that passes on legal risks to a specific subsidiary within a group of
21
See Harris (n 3); see also Diarmuid Rossa Phelan, ‘The Effect of Complexity of Law on Litiga-
tion Strategy’ in Legal Strategies (n 3).
22
Time is critical to legal strategists. For example, it can be used to delay a deadline; to create a
debarment or foreclosure; or to void the character of an action. See J-C Woog, La Stratégie du Créan-
cier (Paris: Dalloz, 1997). Moreover, a debtor may benefit from a negotiation period by organizing its
bankruptcy, blurring evidence, or introducing a subversive action in order to paralyze the recovery of
a debt. According to J-C Woog, this is what Karl Von Clausewitz named the “strategy of annihilation”
or Hans de Delbrück, “the strategy of rampant wearing-out”. Time can also be a weapon to lower the
vigilance of the opposing party and then used to better develop a subsequent attack – notably when the
opposing party has accumulated debts which can allow it, as debtor, to be better controlled. Conversely,
anticipation can allow for the prevention of these types of situations, for example, through the collection
of evidence before a dispute has even begun.
23
See for example, discussion concerning government strategy with respect to the order of a criminal
insider trading case and a parallel Securities Exchange Commission case, “the government should not
‘attempt to manufacture the order of its trials solely in a manner that suits its strategic interests.’” Philip
Rubens, ‘United States: Galleon Defendants Plead Not-Guilty – and Argue for New Trial Schedule’
Monday 12 Jan. 2010 <http://www.mondaq.com/unitedstates/article.asp?articleid=92672>.
24
See Massimo Motta and Gregor Langus, ‘The Effect of EU Antitrust Investigations and Fines on
a Firm’s Valuation’ 30 (2007) Center for Economic Policy Research Discussion Paper, No. DP6176;
see also NH Randall and WL Neuman, ‘The Impact of Government Sanctions on the Large Corpora-
tion: The Cost of Antitrust Law Violation’ (1979) (unpublished), University of Wisconsin – Madison;
William Beedles, David Smith and James Strachan, ‘The Price Reaction to (Alleged) Corporate Crime’
(1983) 18 Financial Review 121–32.
25
D Danet and C Collard, ‘Les stratégies judiciaires’ in Antoine Masson (ed), Les strategies juri-
diques des entreprises (Larcier 2009) at 109.
26
Ibid; see also C Champaud and D Danet, ‘Stratégies judiciaires des entreprises’ (Dalloz-Sirey
2006).
companies;27 mechanisms of delegation of powers to protect corporate executives

in their activities;28 and the technique of passing liability to another person, via, for
example, insurance contracts.
Other strategies can be put in place in order to improve the possibility of arriving
at trial in an already dominant position. Notable examples here include the use of
particular contractual provisions related to jurisdiction 29 or limitation of liability.30
Notwithstanding the foregoing however, in order to actually prevent a trial in the
first place, the best method remains efficient management of legal risk.
C. The Managerial Approach: Legal Strategy as Legal Policy 31
As described above, the second approach to emerge with respect to the study of legal
strategies comes from the management sciences. The management approach tends to
appreciate legal strategy as the legal policy of the firm. The analysis here therefore
involves looking at how legal resources are mobilized by firms to achieve their busi-
ness objectives. Indeed, according to this approach, a firm can acquire a competitive
advantage if it has the capacity to reduce legal risks and maximize value by unpack-
ing the legal resources at its disposal.32
1. The Concept of Legal Resources

Under this view, the conception of resources is very broad. It includes all resources
at the firm’s disposal that can be mobilized to achieve its economic objectives. In
the context of legal strategies, resources can be identified as either legal or technical.
For example, C. Roquilly in an article related to Apple’s iPhone strategies, pointed
out that when Apple decided to implement a selective distribution strategy for its
iPhone, a business risk emerged – the development of an international parallel mar-
27
Karl Hofstetter, ‘Parent Responsibility for Subsidiary Corporations: Evaluating European Trends’
(1990) 39 Int’l & Comp. L. Q. 576.
28
See Brian R Cheffins and Bernard S Black, ‘Outside Director Liability Across Countries’ (2006)
84 Texas L. Rev. 1385 <http://ssrn.com/abstract=438321 or doi:10.2139/ssrn.438321>.
29
See Franco Ferrari, ‘‘Forum Shopping’ Despite International Uniform Contract Law Conven-
tions’ (2002) 51 Int’l & Comp. L. Q. 689; see also Louise Ellen Teitz, ‘Where to Sue: Finding the Most
Effective Forum in the World’ in Barton Legum (ed) International Litigation Strategies and Practice,
(American Bar Association, 2005) at 49.
30
Eike von Hippel, ‘The Control of Exemption Clauses a Comparative Study’ (1967) 16 Int’l &
Comp. L. Q. 591; Larry A DiMatteo, ‘Policing Limited Liability Companies Under Contract Law’
(2009) 46 Am. Bus. L.J. 279.
31
The term “Law & Management” is not used but it seems to the authors to be completely appro-
priate to indicate the whole of work using the tools of management to analyze the legal performance
of the companies.
32
Concerning the Resource-based view, see B Wernerfelt, ‘A Resource-based View of the Firm’
(1984) 5 Strategic Mgmt. J. 171; Jay Barney, ‘Firm Resources and Sustained Competitive Advantage’
(1991) 17 Journal of Management 99; and see GJ Siedel, Using Law for Competitive Advantage (San
Francisco : Jossey-Bass, 2002) for a demonstration of its application in law.
ket for unofficially unlocked iPhones.33 In addressing the risk, Apple mobilized both
legal and technical resources. In this case, the legal resource was the implementation
of a clear contractual policy regarding exclusive distribution, permitting the company
to sue any parallel retailers for unfair competition and counterfeiting. The technical
resource involved the development and use of certain technologies to re-block the
unlocked iPhone. Apple then also became faced with a legal risk; the possibility of a
class action lawsuit by consumers for Apple’s refusal to honour contractual guaran-
tees if the iPhone was unlocked unofficially. Its legal resource response to this risk
involved the design and implementation of a clear contractual consumer policy – one
which identified to the consumer that the company would reject the guarantee for an
iPhone that had been unofficially unlocked. Its technical resource response was to
begin selling unlocked iPhones for a different price. This gave the firm the ability
to claim that consumers have been given the option of buying an officially unlocked
phone.34
Because of their broad construction, legal resources can be grouped or classified
in a number of different ways.35
For example, legal resources might be classified according to their origin. For
instance, resources can emerge from the external legal environment in the form of a
regulation (for example, the economic rules of public order or the law allowing selec-
tive distribution provisions),36 or can emerge from the internal company environment
through its actions, contracts, or engineering of legal constructs (for example the use
of the trust or other legal structure).37
Alternatively, legal resources might be classified from the perspective of how
firms gain access to them. For example, is the resource placed at the firm’s disposal
by the legislator in the form of a legal instrument or option (“direct”) or is it the result
of the firm diverting certain legal rules (“diversionary”).38 It is important to point out
that accessibility as a resource is directly connected to the firm’s “capability” which
is discussed in more detail below.
It is also possible to distinguish legal resources according to their overall busi-
ness objectives, namely, according to whether they are aimed at preserving value (for
example, a patent), developing value (for example, a selective network or distribu-
33
C Roquilly, ‘Le cas d’iPhone en tant qu’illustration du rôle des ressources juridiques et de la
capacité juridique dans le management de l’innovation’ (2009) 12 Management 142.
34
Ibid.
35
On the notion of resource, see Wernerfelt (n 32); see also J Boddewyn, ‘Developing A ‘Political
Organizational Economics’ View of Strategy Management’ research paper, Zicklin School of Business,
Baruch College, City University of New York, presented at the “Management Strategy and Business
Environment” conference, Wharton, 15 and 16 September 2000.
36
See discussion in T Buettner and others, ‘Selective Distribution by Luxury Goods Suppliers:
A Response to Kinsella et al’ (2009) 5 European Competition Journal 613.
37
See DL MacPherson, ‘A Legal Strategy Case, Trusts in Securitization’ in Legal Strategies
(n 3) at 267.
38
See Masson (n 9).
tion) or capture39 (for example, the phenomenon of patent sharks which involves the
collecting of patents from, for example, bankruptcy proceedings and research and
development followed by a suit for patent infringement).40
Legal resources might also be grouped according to their particular nature, pat-
tern, or activity. For example:
– object resources: for example, to directly generate economic advantage;41

– knowledge or know-how resources: for example, to identify threats and oppor-
tunities arising out of the legal sphere.42 or
– generative resources: for example, to produce or generate new “object” resources.43
Again, the actual existence and ability to realize the potential of these resources,
depends to a lesser or greater degree on the legal capability of the firm discussed in
more detail immediately below.
Legal Resource Examples

Origin-based – External legal environment
– Internal firm environment
Access-based – Direct
– Diversionary
Objective-based – to generate economic advantage for firm
– to develop/preserve the firm’s economic resources
Nature-based – Object
– Knowledge or know-how
– Generative
Figure 3. Classification of Legal Resources
39
See discussion in Boualem Aliouat, ‘Patents and Trademarks: From Business Law to Legal
Astuteness’ in Legal Strategies (n 3) at 295–6.
40
See Joachim Henkel and Markus Reitzig, ‘Patent Sharks’ in Harvard Business Review (2008) at
<http://www.exed.hbs.edu/assets/intellectual-property.pdf>; see also Case C-306/96 Javico International
and Javico AG v Yves Saint Laurent Parfums SA 1998 ECR I-01983, involving the bringing of a court
action for competition infringement by a firm in order to avoid fulfilling contractual obligations based
on the argument that the contract allowing it to be a distributor of a certain product in a certain area,
violated the EC law, and that consequently, it should be able to sell the product everywhere.
41
C Roquilly, ‘From Legal Monitoring to Legal Core Competency: How to Integrate the Legal
Dimension into Strategic Management’ in Legal Strategies (n 3) at 7; see also Gary Pisano and David
Teece, ‘The Dynamic Capabilities of Firms: an Introduction’ (1994) 3 Indus. Corp. Change 537.
42
Roquilly (n 41).
43
Masson (n 9). Indeed, the mobilization of certain standards is at times an attempt to fulfill certain
conditions. Consequently, to exploit these legal resources, a firm should create a legal situation or place
itself in a factual situation that will allow it to access these resources. For example, in order to invoke
the free movement of goods or a company in EU law to prevent the application of a national law, a
firm must rely on elements external to its business.
2. Legal Capability
The mere accumulation of legal resources is not sufficient to achieve competitive
advantage. A firm that wants to draw advantage out of the legal environment must not
only be able to identify legal resources but must also be able to deploy its resources
in such a way as to achieve its economic objectives. Thus, in order to efficiently and
successfully mobilize its resources in accordance with its economic objectives, the
firm has to possess certain aptitudes, such as expertise.44
The Resource-Based View theory, from which the above considerations have been
taken, advances the idea of “legal capability” (also described as “legal capacity”)45 to
indicate whether a company has the aptitude and ability to:
– detect threats arising out of the legal environment (via evolution paths adopted
or inherited46 by the firm that take into account the local legal culture as well
as the formation and flexibility of cognitive structures involving trial, feedback
and evaluation);47
– manage internal and external flow of legal information (the ability to transfer
any legal problems to the best-placed decision level – which is not always the
legal department – and the dissemination of legal solutions) through the creation
of integrated process and routines;48
– accumulate all legal and non-legal resources along with an ability to deploy
and co-ordinate them.
Hence, legal “capability” will differ from firm to firm even when firms are in the
same sector. Indeed, the existence of different legal capabilities within firms of a
44
DP Baron, ‘Integrated Strategy: Market and Nonmarket Components’ 37 Cal. Mgmt. Rev. (1995)
47–65; Amit and Shoemaker define “capability” as “a firm’s capacity to deploy Resources, usually
in combination, using organizational processes, to effect a desired end.” Raphael Amit and Paul
Shoemaker, ‘Strategic Assets and Organizational Rent’ (1993) 14 Strategic Mgmt J. 33, 37–46.
45
See Constance E Bagley, ‘Winning Legally: the Value of Legal Astuteness’ (2008) 33 Acad.
Mgmt. Rev. 378. Recent advances in the evolution of the idea of “legal capacity”/“legal capability” can
be directly attributed to Bagley’s work and her conception of the notion “legal astuteness” which she
describes as, “the ability of a management team to communicate effectively with counsel and to work
together to solve complex problems and to protect and leverage firm resources.”.
46
See David J Teece and others, ‘Dynamic Capabilities and Strategic Management’ (1997)
18 Strategic Mgmt J. 509–33.
47
In order to follow legal evolution, evaluate the existing legal obstacles or incitements, compa-
nies can set up a legal watch program, that is to say a research, processing and broadcasting system of
information as regards the current legislation and rules. The knowledge of the law, as a creative force
in the implementation of the firm’s strategy, has to be used. Therefore, legal awareness, not being a sole
purpose, is a first step towards more sophisticated approaches. Indeed, legal awareness “precisely allows
lawyers to improve intelligence in situations in which the company finds itself. This intelligence, when
it integrates the constraints and opportunities perceived by the legal environment in the decision-making
process, is resolutely offensive.” B Aliouat and C Roquilly, ‘La veille juridique pour une intelligence
des situations stratégiques’ (1994) 148 LPA 6.
48
David P Lepak and others, ‘Value Creation and Value Capture: a Multilevel Perspective’ (2007)
32 Acad. Mgmt. Rev. 180–94.
given sector explains why a legal strategy cannot be easily copied by a competing
firm and further explains how legal capability can confer economic advantage.49
Constance E. Bagley points out that a legal strategy is the fruit of a kind of legal-
entrepreneurial “astuteness”50 rather than the result of the mere mobilization of legal
or economic expertise. According to Bagley, several elements are key to legal astute-
ness. These include: the managers’ behaviour regarding the legal dimension of busi-
ness; the managers’ involvement in legal issues (for example, contract negotiation
and dispute resolution); the ability developed by non-lawyers to handle legal ques-
tions; the frequency of communication between the legal department and the head
office; as well as the directors’ roles in the firm.51
The corporate legal identity also plays a central role in the setting up of a legal
strategy. Indeed, in order for the firm to address each legal risk with an adequate level
of competency, it is important that the firm’s agents are aware of the existence of the
legal risks and that their vision – their mental model according to Lynn LoPucki – is
aligned with that of the judges or, at the very least, are conscious of the existence of a
more dominant interpretation that differs from their own. Consequently, the concept
of the “legal culture” of a firm can also be defined as being comprised of the set of
legal representations that are shared by the company’s personnel.
It is interesting to note that the legal culture will also determine the success with
which a third party is able to exert pressure on a firm.52 Similarly, commonly shared
legal perceptions can also provide a company with the opportunity to pressurize oth-
ers. For example, a firm could attempt to exploit the fact that malleable law (such as a
code of conduct for example) might be perceived by other companies as a hard line.53
49
The normative approach refers to the notion of legal capital. Legal capacity cannot fully explain
a firm’s capability to efficiently deploy its resources or to misuse some rules. It is indeed necessary to
take into account the tools’ resources, which the firms have to exploit the ‘object’ normative resources.
50
Bagley (n 45).
51
Ibid.
52
See eg, Samuel R Gross and Kent D Syverud, ‘Getting to No: A Study of Settlement Negotiations
and the Selection of Cases for Trial’ (1991) 90 Mich. L. Rev. 319; Robert J Rhee, ‘A Price Theory of
Legal Bargaining: An Inquiry into the Selection of Settlement and Litigation under Uncertainty’ (2006)
56 Emory Law Journal 619; Deepak Malhotra, ‘Making Threats Credible’ (2005) 8 Negotiation <http://
hbswk.hbs.edu/item/4823.html>.
53
A good example here is when a party invokes a foreign legal concept in order to give its argument
the appearance of legality whereas the concept is unknown in the local legal system. For example, in
France ebay invoked the “Good Samaritan” doctrine, even though the doctrine is unknown in France in
order to convince the judge that it should not be held responsible for counter faking. See Bruce Crum-
ley, ‘France Fines eBay over Fake Vuitton’ Time (30 June 2008); see also Davey Winder, ‘French
Fakes Land eBay with AUD $65.8 million Fine’ (30 June 2008) <http://www.itwire.com/information-
technology-news/e-commerce/19126-french-fakes-land-ebay-with-aud-658-million-fine>; see also dis-
cussion in I Hillel. Parness, ‘eBay Victorious (Again), Yahoo Attacked (Again), as the Auction Wars
Continue’ Cyberspace Lawyer, (March 2001) <http://www.morganlewis.com/pubs/3276DFA9-655B-
4E4E-ACCA56E50D7A5328_Publication.pdf>.
Moreover, the simple threat of a legal action for illicit collusion can make the
re-negotiation of a contract easier when the other party is doubtful about its own
compliance with the law.54
3. From Legal Resources to Competitive Advantage

From an organizational perspective, the mobilization of legal resources can only be
effectively achieved by having regard to the nature of the legal activity that is en-
gaged in by the company. This legal activity, from a management perspective, can
be divided into four areas, namely: a) the legal management of risks; b) the manage-
ment of legal risks; c) the management of structural legal constraints; and d) political
activities.
a) The Legal Management of Risks

The legal management of risks concerns itself with the idea that law is primarily an
instrument that can be used by the firm to manage its non-legal risks such as unpaid
debt or breach of commercial relationship, for example. The legal management of
risks is therefore focused on using the law to prevent economic hazards.
For example, a producer (P) and a distributor (D) agree to share the marketing
costs of a product. These marketing services have a cost that distributor D will in-
corporate into his retail price. However, if there is no restrictive clause in the agree-
ment between (P) and (D), a competing distributor (Z) may sell P’s product. Because
distributor (Z) does not bear the same marketing costs, (Z) will be able to sell the
product at the lowest price. Here (Z) will be acting in a parasitic fashion; Z is benefit-
ing from the commercial investment of the first distributor (D) without bearing the
marketing cost. Consequently, because of the lower price, the consumer will tend to
buy the product from distributor (Z). In order to align its prices with Z, D will aban-
don bearing all the marketing costs (exhibition, care instructions, customer service
etc.). However, if the product requires that it be sold for example, with certain infor-
mation, now not available, some customers might withdraw from buying the product.
In order to prevent this type of economic hazard when launching the product, the
use of restrictive distribution clauses is necessary for producer P as well as for the
distributor(s) or the consumer, the latter being able to benefit from the innovation
only when the product reaches its full development.55
b) The Management of Legal Risks

The management of legal risks deals with risk related to the substance and the struc-
ture of the firm’s environment. Two types of legal risks can be identified. The first
involves risks that are related to the legal effects of a choice or non-legal event, for
54
R Preston McAfee and Nicholas V Vakkur, ‘The Strategic Abuse of the Antitrust Laws’ <http://
papers.ssrn.com/sol3/papers.cfm?abstract_id=594581>; For further discussion see Masson (n 9).
55
Henri Lepage, La nouvelle économie industrielle (Hachette Littérature 1998).
example a fraud or an accident. Litigation risks56 are thus implicated here along with
risks of legal sub-optimization, that is, the choice of a legal construct or a set of le-
gal options that will not give the best results and the possibility of a firm becoming
a target of another firm’s legal strategy.57 The second addresses risks that originate
from the law. These will include the risk that law (statutes, precedents) might change,
the risk that a firm isn’t in compliance with legal requirements, or the risk that some
of the legal resources owned by a firm are not valid (for example an unenforceable
contract).
Several other typologies of legal risks have been suggested. For example, negative
legal risks might be distinguished according to their:
– Consequences: for example, criminal risk, indemnity risk, activity risk (when
the activity of the firm itself is at stake because of the possibility of having one
of its products banned for example), the risk of legal sub-optimization;
– Source: for example, criminal law, corporate law, environment law;
– Seriousness; and
– Causes: for example, external risks resulting from the intrinsic behaviour of a
firm, risks resulting from a malfunction of the legal department.58
It is also possible to classify legal risk solely according to its trigger event, which
can be internal or external. For example, legal risk can arise as a result of: unlawful
behaviour (intentional or not); or a change, a trespass or unexpected application of
a rule.59
Whatever the nature of the risks, the management of legal risks attempt to ex-
amine potential sources of risks in the external legal sphere,60 evaluate how internal
firm resources can be used to reduce risks or allocate these risks to third parties, and
incorporate these factors into firm management and policy.61 Identification of the
legal risks faced by the firm allows the firm to control negative risks through the
implementation of an appropriate management strategy aimed at preventing or limit-
ing the impact of these risks. For example, where there is a possibility that one party
to a contract may have paid an illegal commission to an intermediary (unbeknownst
56
The examination here should always involve looking at the risk of potential litigation which also
carries with it a risk of losing due to a failure to consider other elements (independent of the substance
of the litigation) that can be decisive in the outcome.
57
For a summary of the existing studies on this topic in France, see C Collard, ‘Le risque juridique
existe-t-il? Contribution à la définition du risque juridique’, Cahiers de droit de l’entreprise, No. 1
Janvier-Février 2008 at 24–9.
58
H Bidaud, P Bignon and J-P Cailloux, Quelle fonction juridique pour votre entreprise? (Esker
1995).
59
Collard (n 57) This last situation deals with the problems of compliance or conformity of the firm.
60
It is important to appreciate that external legal rules do not necessarily impact firms uniformly,
even when the firms are in the same economic sector, and furthermore, that the content of legal rules
can vary over time. Consequently, the appreciation of potential legal risks will differ from firm to firm
as well as over time.
61
See Roquilly (n 41) at 20.
to the other party), the contracting parties can limit the risk of being accused of collu-
sion by inserting a clause into their contract that expressly stipulates that none of the
parties have paid any commission to an intermediary. This pre-emptive strategy can
allow, should the case arise, a party to allege a contractual wrong on the part of the
other party (assuming the absence of evidence of complicity).62
Not all risks are negative. Positive risks can also occur.63 For example, a change in
the law can open up a market to competition. There are many examples of reforms in
the telecommunications sector aimed at varying objectives which have resulted in the
opening up of the telecommunications market to increased competition.64 Changes in
the law can also create a new market. For example, the new profession of electricity
trader in the EU was created in 2003 with the passing of a new EU directive.65 Thus,
the identification of legal risks also provides the firm with opportunities to increase
its competitive edge through the development of management strategies that can take
advantage of and optimize positive risks. The ability to identify and utilize positive
risks is more fully explored below in d) political activities.
c) The Management of Structural Legal Constraints

The management of structural legal constraints pertains to both conformity and com-
pliance issues. The term conformity is used here to refer to the necessity that a firm
behave adequately within the prescription of the legal environment. The term compli-
ance is used to relate to the obligations that enjoin companies to adopt internal mech-
anisms to facilitate the prevention and control of certain risks (primarily financial or
industrial), while leaving firms to decide on the precise form that these mechanisms
will take in order to achieve their specific objectives. Within both of these constraints,
the company is confronted with uncertainty. In the case of conformity, the firm must
determine which behaviour to adopt in order to conform to its legal obligations. In the
case of compliance, the firm must determine which of its internal resources should be
deployed in order to comply with the regulation(s).
These uncertainties, if they are carrying risk, also provide firms with a further
opportunity to differentiate themselves.66 A company can acquire an advantage if it
adopts behaviour or deploys resources that have fewer negative consequences to its
business but which at the same time enables it to comply with its legal requirements.
This can be described as a strategy of compliance/conformity minimum.
A strategy of compliance/conformity minimum is however, not the only source of
competitive advantage. A strategy that works towards maximizing compliance and
62
J F Prat, ‘Pénalisation de la vie économique et choix de solutions juridiques’ in Marie-Anne
Frison-Roche (ed), Les enjeux de la penalisation de la vie économique (Dalloz 1997).
63
F Verdun, La gestion des risques juridiques (Editions d’Organisation 2006).
64
NERA Economic Consulting, ICT Regulation Toolkit Module 2 Competition and Price Regula-
tion: 1.2 Trends in ICT Regulation <http://www.ictregulationtoolkit.org/en/Section.2197.html>.
65
Directive 2003/54/EC of 26 June 2003 concerning common rules for the internal market in elec-
tricity and repealing Directive 96/92/EC [2003] OJ L176/37.
66
The exposition of a firm to legal risks (or its doubt concerning its legal compliance) can be
exploited by a third firm by threatening it with legal action.
conformity – compliance/conformity maximum – can provide strikingly different

and/or additional forms of advantage.
First, a compliance/conformity maximum strategy can, for example, lead a firm
to build legitimacy and predispose the firm to becoming a contributor to the con-
struction of legal standards67 as well as improve the image of the firm in the opin-
ion of consumers or judges.68 Secondly, it can support the establishment of a strong
corporate-legal culture within the company which can be instrumental in preventing
certain internal risks related to fraud, for example.69 Thirdly, a compliance/confor-
mity maximum strategy is equivalent to a form of organizational learning, which in
turn, can enable firms to improve their legal processes.70 Fourthly, such a strategy can
confer a margin of error within which to apply a regulation or where a hardening of
an obligation can be anticipated, thus serving to reduce the risks attached to potential
changes in the substantive law.71 Indeed, by being able to point out that the firm has
taken all possible measures to fulfil its obligations, a firm may be able to persuade a
judge or regulator that an “obligation of result” is truly only an “obligation of means”
and thus avoid liability. However, this kind of strategy is not easy to conduct. For
example, in European competition law, several companies have tried, though without
much success, to obtain a reduction of fines by asserting that they have set up pro-
grams of compliance.72
A company may also decide to walk the edge and voluntarily place itself in a
situation of uncertainty by not complying with the law because the benefits of with-
drawal from a situation appear to be higher than the benefits of compliance. This can
be viewed as an applied form of efficient breach theory.73 In contract law, the theory
67
Laurence Capron and Olivier Chatain, ‘Competitors’ Resource-Oriented Strategies: Acting upon
Competitors’ Resources through Interventions in Factor Markets and Political Markets’ 33 Acad. Mgmt.
Rev. 97–121 <http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1020273>.
68
Eric Chaffee, ‘Always Do the Right Thing: Ethical Intuitionism and Legal Compliance’ (2008)
85 Wash. U. L. Rev. (Slip Opinion) <http://lawreview.wustl.edu/slip-opinions/always-do-the-right-thing-
ethical-intuitionism-and-legal-compliance/>.
69
Philip Selznick, Philippe Nonet and Howard M Vollmer, Law, Society and Industrial Justice
(Russell Sage Foundation 1969); Christophe Collard, Christophe Roquilly, ‘De la conformité régle-
mentaire à la performance : pour une approche multidimensionnelle du risque juridique’, Publication
Legal Edhec, 2009.
70
Robert A Kagan, Dorothy Thornton and Neil Gunningham, ‘Explaining Corporate Environmental
Performance: How Does Regulation Matter?’ (2003) 37 Law & Soc’y Rev. 51.
71
Michael E Porter and Claas van der Linde, ‘Towards A New Conception Of The Environment-
Competitiveness Relationship’ (1995) 9 J. Econ. Persp. 97.
72
See case T-329/01 Archer Daniels Midland v Commission [2006] ECR II-3255; There exists here
an important difference between the US and most European laws concerning the obligation related
to counterfeiting. Whereas in the US, ebusiness companies only have the obligation to do something
against it (an obligation of means), under French law, for example, they have the obligation to not
sell any counterfeit goods (obligation of result). This was at the origin of a lot of case law concerning
eBay, its VeRO program being only a means but not a guarantee of result; see also William S Laufer,
‘Corporate Liability, Risk Shifting and the Paradox of Compliance’ (1999) 52 Vand. L. Rev. 1343.
73
Efficiency theory suggests that promisors who breach, increase society’s welfare if their benefits
exceed the losses of the promisees. See R Posner, Economic Analysis of Law, § 4.9 at 89–90, (2d ed.
1977).
of the efficient breach has underscored that this behaviour is relatively common.74
However in practice, such a strategy is difficult to set up because of a firm’s limited
ability to rationalize, making it difficult for it to anticipate the possibilities for control
as well as the potential consequences (legal, reputational, organizational) that could
result from a breach of its obligations.75
d) Political Activities
Because the law is not fixed, public participation and political mechanisms like lob-
bying can be mobilized to provoke change in the legal environment.76 Indeed, the
legal environment can itself be viewed as an asset capable of generating profitable
situations at the firm or sector level.77 For example, the influence exercised by Dutch
auditing firms on sector regulations allowed auditing firms to force the legislator to
reinforce companies’ obligations in respect of account certifications which then in
turn, increased demand for auditing firm services.78
It should also be pointed out here, that similar to the management of positive legal
risks, being able to anticipate evolutions in the legal environment is also likely to
74
Ibid; see also Richard Craswell, ‘Contract Remedies, Renegotiation, and the Theory of Efficient
Breach’ (1988) 61 S. Cal. L. Rev. 629; but see Craig S Warkol, ‘Resolving the Paradox between Legal
Theory and Legal Fact: The Judicial Rejection of the Theory of Efficient Breach’ (1998) 20 Cardozo
L. Rev. 321; see also Daniel Friedman, ‘The Efficient Breach Fallacy’ (1989) 18 J. Legal Stud. 1.
75
But see discussion of efficient breach in context of overtime pay and undocumented workers in
Daniel T Ostas, ‘Legal Loopholes and Underenforced Law: Examining the Ethical Dimensions of Cor-
porate Legal Strategy’ (2009) 46 Am. Bus. L. J. 487, 491–9.
76
Currently, a legal optimization strategy is being played out on a global scale under the auspices
of climate change regulation. Numerous examples are being cited whereby companies and states in the
business of or with access to cleaner energy resources are publicly demanding higher emissions reduc-
tions. Many commentators are pointing out, directly and indirectly, that the motivation here may not be
altruism but rather is about gaining a competitive edge. That is, companies who stand to gain from a new
market of clean energy are using the environmental regulation to force out competitors. See Mary J Shar-
iff & Kevin Marechal de Carteret, ‘Regulating Climate Change: Legal Strategy in Action’ (forthcoming);
see also eg, Anita McGahn, ‘Confronting the World’s Most Important Strategic Challenges: The End of
Oil’ in Rotman Magazine: Wicked Problems (Winter 2009) at 22; see also Lawrence Demase and others,
‘United States: Turning your GHG Emission Reductions into an Asset’ MONDAQ, (19 Jan 2010) <http://
www.mondaq.com/unitedstates/article.asp?articleid=92496>; see also the emissions reductions debate
in Canada particularly as framed by Alberta, Ontario and Quebec, Kelly Cryderman, ‘Ontario, Quebec
Say They Won’t Shoulder Oilsands Burden’ Calgary Herald (14 Dec. 2009)<http://www.calgaryherald.
com/business/Ontario+Quebec+they+shoulder+oilsands+burden/2336565/story.html>; see also Jason
Fekete, <Alberta Fires Back at Ontario, Quebec, Over Oilsands Emissions>, Calgary Herald (17 Dec.
2009) <http://www.calgaryherald.com/entertainment/movie-guide/Alberta+fires+back+Ontario+Quebec
+over+oilsands+emissions/2353591/story.html>.
77
See John Kay, Foundations of Corporate Success: How Business Strategies Add Value, (Oxford
University Press 1993); see also Jean J Boddewyn and Thomas L Brewer ‘International Business Politi-
cal Behavior: New Theoretical Directions’ (1994) 19 Acad. Mgmt. Rev. 119; see also Jabril Bensédrine
and Benoît Demil, ‘L’action Collective Des Entreprises Sur La Réglementation: Une Analyse En Termes
De Pouvoir’ presented at the 6th AIMS Annual Conference, 1997 at <http://www.strategie-aims.com/
lille/com0602.pdf>.
78
Steven Maijoor and Arjen Van Witteloostuijn, ‘An Empirical Test of the Resource-Based Theory:
Strategic Regulation in the Dutch Audit Industry’(1996) 17 Strategic Mgmt. J. 549.
Figure 4. Resource-Based View Conceptualization of Legal Strategy
confer an economic advantage upon certain firms. For instance, some firms, antici-
pating the end of the French gambling monopoly owned by la Française des Jeux79
and PMU80, have created websites in countries outside the European Union in order
to penetrate the gambling market without waiting for complete liberalization.
D. The Normative Approach
A third approach to legal strategy theorizing concerns itself with the ways in which
companies misuse or exploit certain legal provisions. Indeed, since a company is
typically among the first to exploit pathologies or weaknesses in law (for example,
gaps, conflicts in standards, and so forth), a company may draw from these, certain
advantages.81
Although it is questionable whether this type of advantage will be durable over the
long term, it can nonetheless enable a firm, particularly if the firm has built a reputa-
tion of aggressiveness, to restrict competitors from entering a market.
1. Origin of Legal Strategies

In order to be able to implement legal strategies generally, companies have potential
recourse to: (i) rules that provide latitude for firms to act; or (ii) resources derived
from the misuse of legal norms, instruments or rules.
79
Literally the “French company for games”.
80
PMU: Paris Mutuel Urbain is a French horse-racing betting firm.
81
This advantage is rarely durable over the long term with the exception of firms that develop a
reputation of aggressiveness. See eg, Masson (n 9).
In situation (i), the resources can only lead to a competitive advantage if the man-
ner in which they are deployed is consistent with the economic aims of the firm. Thus
in this case we are talking about legal performance. For example, the development
of a portfolio of key patents and the implementation of an appropriate distribution
network through contractual arrangements can be instrumental in the marketing of
a new product (Note: these resources have also been analyzed under the managerial
approach discussed above). Under situation (ii), the resources can lead directly lead
to a competitive advantage even though the advantage is unlikely to last.
Expanding on this, under the normative approach to legal strategy theory, in order
to prevent the law from being misused for strategic purposes, all norms should pos-
sess the following neutral characteristics:
– clear, comprehensible, realistic and well-known to all;

– coherent;
– applied objectively, predictably, in a uniform and efficient way;
– impersonal, general and organized into a hierarchy according to interests which
can be organized in such a manner.82
In practice, however, these norms or characteristics are almost never met because
of legislative imperfections caused by legislative “inflation” or by the fluctuation of
political aims. As a result, there are unavoidable zones of opportunity in any given
democratic legal framework which might then be mobilized by firms to develop legal
strategies. These opportunities (which complete the possibilities offered by the legal
resources described under the managerial approach) can be classified into four cat-
egories of origin which come to light upon a consideration of the characteristics that
the rule should have assumed in order to ensure its neutrality. These categories are:
– Hazy Law: undetermined law because of its imprecision;

– Crazy Law: legal incoherence, contradictory or conflicting law;
– Accidental Law: law that produces an effect different from that wanted; this
could mean either that it has not been implemented as it should have been
(whatever its theoretical coercive force is) or it has produced results unexpected
in law;
– Malleable Law: law whose substance can be easily altered.83
In consideration of these areas of opportunities, the following different types of legal

strategies can be implemented:
82
See Masson (n 9) at 28.
83
Ibid 29–31.
a) Interpretative and Cognitive Strategies

The existence of an area of hazy law allows the construction of a particular interpre-
tation of law to prevent the application of the law or allow the law to be used for a
purpose different from that for which the law had been designed.84
For example, in their article entitled “Revisiting the Battle of the Forms: a Case
Study Approach to Legal Strategy Development”, M.J. Shariff and K. Marechal de
Carteret describe how a firm can use the common law approach to the law of con-
tracts to take advantage of the performance doctrine in contractual negotiations by
enhancing the chance that a “first blow” or a “last shot” will be considered as the
binding term.85
b) Strategies of Law Shopping

The existence of situations where several rules might be applicable86 that is to say
areas of crazy law, allows a firm, through a legal framework, to use one rule to avoid
the application of another. Examples of these include resorting to an alternative mode
of dispute resolution in order to avoid certain national courts87 or the creation of a
dummy company in order to avoid liability rules.88
c) Instrumentalization Strategies
Some rules can be instrumentalized through the existence of malleable law. The in-
strumentalization is due to the fact that rules often do not take into account certain
realities or are not applied, consciously or otherwise, as they should be thus engen-
dering other effects than those predicted by the legislator. For example, because the
Food and Drug Administration was not entitled to authorize as long as there were
outstanding unresolved legal issues relating to the original producer, legal proceed-
84
In sum, vagueness is not only caused by the legislator but also by private entities and here again,
whether voluntarily or not. For example, some finance companies intentionally commercialize complex
contracts. They offer credit cards conferring advantages, which can also be converted into an interest-
bearing loan. In the case of payment by card, the owner is not immediately debited but neither can
he reimburse the finance company. He has to wait to receive a payment request, with which he will
have to promptly comply, by completing several formalities, such as sending a recorded delivery letter.
Otherwise, the right to the differed payment will become a loan, subject to a high interest rate, the aim
being that the owner’s negligence will lead him to involuntarily take out a loan. It seems that mobile
phones’ companies also use similar techniques, by imposing voluntarily complex tariff conditions, in
order to limit the opportunity for customers to compare prices.
85
A battle of the forms arises when a buyer and a seller exchange conflicting standard forms and
commence performance of the contract. Each party thinks that have a contract with the other but the
question is on what terms. See Mary J Shariff & Kevin Marechal de Carteret, ‘Revisiting the Battle
of the Forms: A Case Study Approach to Legal Strategy Development’, (2009) IX Asper Review of
International Business and Trade Law 21 <http://works.bepress.com/mary_shariff/1/>.
86
Even although each legal system provides for jurisdiction or conflict rules which, in principle,
prevent the use of crazy law, there will remain for persons subject to the rules, to either make a factual
choice which will determine the application of the conditions of competence for each rule or to interpret
the operation planned as attached to one rule or the other.
87
See discussion in Shariff, Pomrenke and Hilder (n 9) at 205–11.
88
See Hofstetter (n 27).
ings were frequently used by patent holder to the delay the commercialization of
generic drugs.89
d) Normative Tailoring Strategies

The existence of information asymmetry or even mere political considerations makes
the legislator or even the judge, susceptible to influential strategies. As a result, the
law itself is soft. Hence, a firm can resort to lobbying90 for example, in order to gain
economic advantage or more subtly, to create hazy, crazy or malleable law, which
can possibly be mobilized at a later stage.91
2. Offensive Strategies
Within these zones of opportunity, two specific types of offensive strategies can be
distinguished: vertical strategies and horizontal strategies.
Vertical strategies are strategies involving the company and its regulatory environ-
ment. These strategies are aimed at evading the rules that have been developed and
imposed by the state in order to protect a common interest (in financial or social mat-
ters for example). If successful, a vertical strategy can allow a competitive advantage
to be gained over rivals.
Tax avoidance schemes are a typical example of vertical strategies in action. For
example, a company can gain a significant competitive edge by reducing global taxes
payable through the utilization of offshore subsidiaries and the minimization of its
asset base in the domestic jurisdiction.92 In the case of offensive vertical strategies,
it is important to keep in mind that they can remain largely undiscovered for lengthy
periods of time because they are often cloaked with legitimacy through the involve-
ment of a number of players including banks, lawyers and accountancy firms. A good
89
See eg, controversy surrounding the Hatch-Waxman Act, paragraph IV certification (21 U.S.C.
§355(j)(2)(A)(vii)(IV)) where in the year 2001 alone, 32 lawsuits were filed. Robert Pear, ‘Patent Law
Change Urged to Speed Generic Drugs’ The New York Times (30 July 2002) <http://www.nytimes.
com/2002/07/30/politics/30DRUG.html?pagewanted=1>; Matthew Avery, ‘Continuing Abuse of the
Hatch-Waxman Act by Pharmaceutical Patent Holders and the Failure of the 2003 Amendments’ (2009)
60 H.L.J. 160, 177 at n 39; see also European Commission, Pharmaceutical Sector Inquiry Final Report
(8 July 2009) <http://ec.europa.eu/competition/sectors/pharmaceuticals/inquiry/index.html>; E Pfister
and S Campart, ‘Les conflits juridiques liés à la propriété industrielle: le cas de l’industrie pharmaceu-
tique et biotechnologique’ (2002) 99 Revue d’économie industrielle 87–106.
90
See eg, Jill Abramson, ‘The Business of Persuasion Thrives in Nation’s Capital’ New York Times
(29 Sept. 1998); see also Gajan Retnasaba, ‘Do Campaign Contributions and Lobbying Corrupt? Evi-
dence from Public Finance’ (2006) 2 J.L. Econ. & Pol’y 145.
91
See eg, Edward S McCullum III, ‘The Advocate and the Media’ (1991) 42 Mercer L. Rev. 875;
Robert Weider, ‘How to Manipulate the Media’ California Lawyer (Feb. 1994) at 60.
92
See eg, the case of Enron, Anthony J Luppino, ‘Stopping the Enron End-Runs and Other Trick
Plays: The Book-Tax Accounting Conformity Defense’ (2003) Colum. Bus. L. Rev. 35; see also Tax
gap reporting team, ‘How to save a packet: the transfer of Walkers crisps to a foreign subsidiary has
cost the UK Millions’ The Guardian, (5 Feb. 2009) <http://www.guardian.co.uk/business/2009/feb/05/
tax-gap-walkers> (the restructuring of the UK company Walkers Snack Foods in 1999 involving US
parent company Pepsico and Swiss subsidiary, Frito-Law Trading GMBH resulting in a loss of 10 mil-
lion pounds sterling tax revenue in 1999 and 7 million in 2000).
example here is the role played by accounting firms which frequently market tax
avoidance schemes as tax products to corporations and individuals. 93
Horizontal strategies, on the other hand, are aimed at causing direct harm to rivals.
For example, a firm might commence a court action in order to increase costs for a
competitor, or to interfere with or break a contract of cooperation between two com-
petitors.94 A firm can also use a court case to invite itself into a relationship between
other firms on the basis that a refusal to include it will be discriminatory.95 Similarly,
a firm may rely on the concept of “essential facility” under EC competition law,
to permit it to gain access to and take advantage of another company’s technology
developments without itself having to incur the cost of investing in its own research
and development.96
Take for example two firms, A and B, where A invests in research and develop-
ment to develop a new technology but B uses its profit for something else. When A
becomes dominant because of its investments, B claims that it should get access to
the Technology developed by A because the Technology should be considered as an
“essential facility” under EC competition law to which access is required in order to
compete with A. Consequently, although B will pay A for access to its Technology, the
cost will generally be less than the investment that A made to develop the Technology
in the first place and even more significantly, A will have lost its technological lead-
ership.97
Horizontal strategies are not restricted to dispute-oriented strategies. Indeed, they
can be developed through a number of means, including through the use of intel-
lectual property regimes as a general resource and a tool for value capture.98 A good
example here is the use of intellectual property regimes to support rent seeking be-
haviour.99
93
For a discussion of the role of accountancy firms in tax avoidance see Prem Sikka and Mark P
Hampton, ‘The Role of Accountancy Firms in Tax Avoidance: Some Evidence and Issues’ (2005) 29
Accounting Forum 325.
94
See the case of British Digital Broadcasting in, European Commission, XXVIIIth Report on Com-
petition Policy 1998 at 149 <http://ec.europa.eu/competition/publications/annual_report/1998/en.pdf>.
95
See joined cases T-185/00, T-216/00, T-299/00 and T-300/00, Métropole Télévision, Antena 3
de Televisión, Gestevisión Telecinco, Sociedade Independente de Comunicação, v. Commission of the
European Communities [2002] ECR II-03805.
96
See Frédéric Marty and Julien Pillot, ‘L’application de la théorie des facilités essentielles aux
droits de propriété intellectuelle favorise-t-elle des stratégies opportunistes de la part des firmes?’, in
Antoine Masson (ed) Stratégies juridiques des entreprises, (Larcier 2009); see also case C-418/01,
IMS Health GmbH & Co. OHG v NDC Health GmbH & Co. KG. [2004] ECR I-5039; see also joined
cases C-241/91 and C-242/91 RTE and ITP v Commission [1995] E.C.R. I-0743; see also case T-201/04
Microsoft v Commission, [2007] ECR II-3601.
97
See eg, case T-201/04 Microsoft v. Commission, 2007 E.C.R. II-3601in which Microsoft argued
a misuse of competition law in its case against the European Commission.
98
See eg, discussion in Aliouat (n 39).
99
For further discussion see Daryl Lim, ‘Innovation and Access: Legal Strategies at the Intellectual
Property Rights and Competition Law Interface’ in Legal Strategies (n 3) at 403.
Figure 5. Vertical and Horizontal Strategies
V. Conclusion
At least three principal approaches to theorizing legal strategy have emerged: the
judicial, managerial and normative. Their aims appear to be complementary rather
than conflicting. For example, the judicial approaches to legal strategy focus pri-
marily on litigation-related strategies and intersect with the objectives of the mana-
gerial approach. Additionally, the normative approach to legal strategy appears to
be primarily interested in the one-shot aggressive strategies whereas the managerial
approach concentrates more on the development of long-term competitive advan-
tage. Furthermore, the normative approach focuses on the misuse of norms whereas
management concerns itself with the mobilization of legal resources that have been
put at the company’s disposal by the legislator. The judicial approach is concerned
with both. Consequently, despite their differences, these approaches can be seen to
underlie the existence of various strategies based on legal resources arising from both
normal uses and misuses of the Law.
To summarize, firms can deploy their legal resources from within the legal activ-
ity of a firm to: reduce non-legal risks (business, technology risks); anticipate and
prevent legal risks; reduce negative economic impacts on the business from com-
pliance and conformity requirements; and take advantage of the legal environment.
Furthermore, if the resource mobilized exists simply as a result of the legal environ-
ment which has arisen out of lawmaker’s will, the resource can be viewed as “con-
ceded”. On the other hand, if the resource arises because of the misuse of a norm it
might be considered as “polluted”. However, a firm can only ever utilize these poten-
tial resources (conceded or polluted) if it has a sufficient legal capability to efficiently
deploy these resources in accordance with its business objectives.
The foregoing discussion on legal strategy can be comprehensively conceptual-
ized in at least two different ways. Figure 6 sets out a resource-based focus on legal
Figure 6. Legal Strategy Theory: Resource-Based View combined with the Normative
Approach
Figure 7. Legal Strategy Theory: Intersections between Litigation Strategies, Legal Manage-
ment and One-Shot Strategies
strategy theory, while Figure 7 proposes a perspective on legal strategy theory based
on its intersections.
In accordance with both perspectives, the authors propose the following defini-
tions:
Legal Strategy: An intentional use or misuse of legal latitude to improve firm perfor-
mance by minimizing risk, maximizing opportunity and controlling outcomes.
Legal Latitude: A locus for freedom of action derived from the law, its instruments,
norms, perceptions and evolution.
As well as working towards an integrated definition and theory of corporate legal

strategy, the above overview of legal strategies, while concise, can also be seen to
emphasize the importance of four particular elements to the development of a proac-
tive economic approach to law.
First and foremost, there cannot be legal strategies unless the firm also has the
ability to identify legal opportunities. This requires sufficient and efficient legal
awareness.
Secondly, firms must be able to assess their legal capacity and increase their
expertise.
Third, in order to improve the quality of the legal flow circulating within a firm,
the firm should work towards developing a corporate legal culture within the firm
among its lawyers as well as its non-lawyers (operational, managerial).
Fourth, it is important for any company to be proactive, that is, a company must
act before an issue arises in order to be able to: a) mobilize the necessary legal re-
sources at the earliest stage possible; and/or b) put itself into a situation where it will
be able to exploit legal opportunities.
In addition to these elements being significant to a firm’s ability to increase its
competitive edge, these elements are obvious targets for future study in corporate
legal strategy theory. Indeed, the more that the law can be understood by its capac-
ity for economic influence, the more transparent legal strategy will become, thereby
increasing its accessibility and in turn, its legal legitimacy.
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Article in European Business Law Review · February 2011

Mary J Shariff Antoine Masson

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Through the Legal Looking Glass: Exploring the Concept of

ANTOINE MASSON* AND MARY J. SHARIFF**

Electronic copy available at: http://ssrn.com/abstract=1908938

II. Approaches Towards Legal Strategy Study

Electronic copy available at: http://ssrn.com/abstract=1908938

Figure 1. Two Main Perspectives on the Fundamental Nature of Legal Strategies

Figure 2. Three Approaches to the Study of Legal Strategy

B. The Judicial Approach

1. The LoPucki-Weyrauch Model

a) Strategies that Require the ‘Willing Acceptance’ of Judges

b) Strategies that Force or Constrain Judges

c) Strategies that Tend to Counter the Opposing Party

2. The Role of Legal Perceptions and Mental Models

a) Exploiting the Side-Effects of a Trial

that concern cost management because of delays, limitation periods or emergency

b) Strategic Positioning and Planning

companies;27 mechanisms of delegation of powers to protect corporate executives

C. The Managerial Approach: Legal Strategy as Legal Policy 31

1. The Concept of Legal Resources

– object resources: for example, to directly generate economic advantage;41

Legal Resource Examples

Figure 3. Classiﬁcation of Legal Resources

3. From Legal Resources to Competitive Advantage

a) The Legal Management of Risks

b) The Management of Legal Risks

c) The Management of Structural Legal Constraints

conformity – compliance/conformity maximum – can provide strikingly different

Figure 4. Resource-Based View Conceptualization of Legal Strategy

D. The Normative Approach

1. Origin of Legal Strategies

– clear, comprehensible, realistic and well-known to all;

– Hazy Law: undetermined law because of its imprecision;

In consideration of these areas of opportunities, the following different types of legal

a) Interpretative and Cognitive Strategies

b) Strategies of Law Shopping

d) Normative Tailoring Strategies

Figure 5. Vertical and Horizontal Strategies

As well as working towards an integrated deﬁnition and theory of corporate legal

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