Justice Must Not Be for Sale: The Case of Mass Litigation

This blog post is based on an article published in El País on the 13th of April 2025. The original article can be found here.

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Julia Roberts won an Oscar for her leading role in Erin Brockovich, portraying a legal assistant who takes on a powerful energy company. The film came to symbolise the fight of ordinary citizens against corporate abuse through collective actions – a form of litigation that enables individuals who have suffered similar harm to join forces in a single case. Yet far from the cinematic ideal, collective actions, while valuable in principle, must be carefully designed and targeted to avoid unnecessary economic costs.

In the United States, where this type of litigation is deeply entrenched, legal expenses for the country’s largest companies have doubled in less than a decade. Altogether, the cost of collective actions is estimated to represent 1.6 percent of US GDP. Across the Atlantic, the United Kingdom – Europe’s most active jurisdiction for such claims – is also feeling the effects. Santander’s British subsidiary, for instance, has set aside nearly €350 million to cover potential compensation payouts. This burden has not only weighed heavily on its profits but has also fuelled speculation about a possible withdrawal from the UK market.

Beyond their direct impact on investment, collective actions can also undermine spending on innovation. These lawsuits tend to hit the most innovative firms the hardest – companies that operate in sectors marked by higher regulatory uncertainty. A study conducted in the United States found that the market value of such firms can drop by as much as 3 percent within three days of a collective action being filed. These losses are rarely recovered, even when the case is ultimately dismissed.

In contrast to the American model, the European Union has adopted an approach grounded in clear rules and close cooperation between companies and regulators. Under this system, firms are typically required to obtain prior authorisation before bringing new products to market. This ex-ante framework allows regulators to step in and facilitate compensation for consumers when something goes wrong.

In Spain, the government has introduced a draft law on collective actions aimed at modernising the legal framework governing this type of litigation. In principle, collective actions offer an effective means of addressing widespread harm and ensuring access to justice for individuals who would otherwise be unable to pursue a claim on their own. The risk, however, is that if the new legislation makes it too easy to bring such cases, it could ultimately undermine the country’s competitiveness.

The economic bill for such proceedings in Spain could be significant. A recent study by the European Centre for International Political Economy (ECIPE) estimates that if collective actions were to generate an impact equivalent to just 30 percent of that observed in the United States, Spanish companies could face costs of up to €7.28 billion, roughly equivalent to 11 percent of the total annual public spending on education. In addition, the country’s most innovative firms could suffer stock market losses of up to €2.03 billion, equivalent to one fifth of the annual private-sector R&D expenditure in Spain.

Proponents of collective actions put forward two main arguments in their favour: that such mechanisms deter companies from breaching regulations without increasing the regulatory burden, and that they enable consumers to be compensated for the harm they have suffered.

On the first point, it is important to clarify that this type of litigation does not replace existing regulation. It is layered on top of it, adding further complexity and additional costs. The result is a hybrid system that combines already high regulatory burdens with increased legal uncertainty stemming from the potential activation of collective actions.

As for the second point, the problem is that a significant share of the compensation awarded often ends up in the hands of lawyers and other intermediaries. A key factor behind the international rise of this type of litigation has been the emergence of entities that finance lawsuits in exchange for a portion of the compensation. In theory, their involvement broadens access to justice for those unable to afford legal representation. In practice, however, these entities treat collective actions as an investment opportunity. Their interest lies in financial return, not in the merits of the case. In Germany, for instance, the platforms that bundle such claims can retain up to 40 percent of the total compensation awarded to claimants. In the United States, just over 10 percent of those eligible for compensation in a collective action actually receive what they are owed.

Shifting regulatory compliance into the realm of the courts can have consequences that extend well beyond the legal sphere. For many companies, complying with the rules risks becoming merely a form of risk management. There is a growing concern that justice is being turned into a financial product, where claims are assessed not on their legal merit but on their commercial return. Along this path, businesses may choose not to uphold legal and ethical standards proactively, but instead focus on minimising the risk of being sued, or simply take out insurance to cover potential litigation costs. Compliance ceases to be an obligation, or a matter of doing the right thing, and is reduced to just another line item on the balance sheet.

For this reason, the Spanish Parliament must adopt a regulatory framework that recognises the potential of collective actions without overlooking their risks. The aim should be to build a system that avoids the excesses seen in Anglo-Saxon countries, where this type of litigation has evolved into a costly – and at times abusive – industry. Spain must introduce effective safeguards to filter out frivolous claims and establish clear limits on third-party funding to prevent the commercialisation of justice. The question is not whether to allow collective actions, but how to regulate them wisely.