Our client, a cigarette manufacturer on sovereign land with sales in multiple North American Free Trade Agreement (NAFTA) member countries, filed suit under NAFTA against a member federal government over the actions of individual states within the member country.  Our client claimed damages to its cigarette brand through a legislatively forced expropriation of markets where the clients’ products were banned due to changes in state law.

Protiviti’s professionals helped the client analyze the available data and utilized the information to frame a damages calculation.  In this matter, NAFTA protection could be afforded to our client subject to two specific requirements.  The first requirement is that the client had made an investment in the member country in question and, second, that the treatment afforded the client must be “no less favorable” than treatment afforded any other manufacturer or participant in the market in the member country at suit.

Protiviti determined that the investment in the NAFTA territory was the Intellectual Property (IP) investment in the manufacturer’s brand.  This approach resulted in the use of the lost sales of these products as the measurement of the value of the impairment of the brand “but for” the forced expropriation of our clients’ markets.  Second, Protiviti applied an approach similar to that utilized by the government during the prior change in legislation in order to value the benefit of treatment “no less favorable.”  Specifically, our team:

1. Gathered and analyzed data from the manufacturer and their distributors in order to gain an overall understanding of the sales volumes relevant to our analysis.
2. Normalized data and identified outliers for further client investigation.
3. Forecasted sales in individual markets that were impacted by the legislatively forced expropriation.
4. Created models to calculate the net present value of the impact of the relevant legislation on sales of our clients’ products in the impacted markets, both on and off sovereign land.
5. Calculated damages specific to locations where sovereign rights were impugned by the member government’s acts.
6. Contrasted impact in damaged locations to the success of the brand in specific markets where the brand grew without the influence of the legislation under suit.

As a result of Protiviti’s insights, our client was able to claim damages on a localized basis as opposed to the global basis desired by the member government.  Further, our client was able to demonstrate sufficient investment in the member country to be heard before the Tribunal.

How We Help Companies Succeed

In the past decade, there has been a nearly 74 percent increase in the number of international arbitration filings across most courts.  Today, 90 percent of U.S. companies are involved in litigation.  Annual litigation and regulatory inquiry costs for these companies have increased to an average of $12 million.  Given these statistics, arbitration and litigation pose real risks to the fiscal health and public image of our clients.

Protiviti’s Litigation Consulting team works with our clients from the onset of potential litigation by providing a litigation risk assessment.  Our goal is to help those clients determine the cost/benefit of litigation early on in the decision-making process.  From a “back of the envelope” quantification of potential damages to mitigation planning, our team can help clients prepare for the risks ahead.

Once litigation is underway, be it in a domestic state or Federal forum, or an international court of arbitration, Protiviti’s Litigation Consulting practice covers our client needs in disputes related to contracts, regulatory changes, natural disasters, force majeure events, failed M&A efforts, and asset valuations; nationalizations and/or seizures of assets; accounting malpractice and related corporate and officer issues; expropriations, devaluations and currency fluctuations, limitations on repatriation of profit or dividends; SEC investigations; and more.

Protiviti (www.protiviti.com) is a global business consulting and internal audit firm composed of experts specializing in risk, advisory and transaction services. The firm helps solve problems in finance and transactions, operations, technology, litigation, governance, risk, and compliance. Protiviti’s highly trained, results-oriented professionals provide a unique perspective on a wide range of critical business issues for clients in the Americas, Asia-Pacific, Europe and the Middle East.

Protiviti has more than 60 locations worldwide and is a wholly owned subsidiary of Robert Half International Inc. (NYSE symbol: RHI). Founded in 1948, Robert Half International is a member of the S&P 500 index.