Articles Posted in Benchmarks

Previous posts have noted that among law department benchmarks, total legal spending – inside plus outside counsel costs – is the first among equals (See my post of Sept. 4, 2005 on this gold-standard metric.). Ben Heineman, GE’s former general counsel, proudly notes that “In the past decade, GE generally has been at the bottom in the second-lowest quartile of large companies surveyed annually by … Hildebrandt International” on what he describes as this “key cost metric.”

He then adds, in Corp. Counsel, Vol. 13, April 2006 at 88, that for General Electric the figure is “about one-third of 1 percent.” With the revenue of GE running at close to $150 billion, the legal spend would be in the vicinity of $500 million.

Now, tell me: isn’t management of those people, about 1,100 lawyers, and that amount important?

Few law departments shepherd workers’-compensation (WC) claims, yet sometimes those departments must defend lawsuits that evolve from them (See my posts of Oct. 27, 2005 on whether WC claims were in certain benchmark reports and Jan. 25, 2006 on whether law departments count WC in their reported litigation.) Law departments (and companies) do not see the legal component of WC – routine, highly-regulated, and viewed as claims management – as important enough to alter the reporting and responsibility structure (See my post of April 4, 2006 about the specialist company, AHC, Inc. that has resident WC experts.). In this regard, some data from Marsh & McLennan’s Viewpoint, Vol. 33, No. 1 of 2004, at 24 caught my eye.

“And although the workers’ compensation system is supposed to reduce litigation, 30 percent of California’s open and closed [workers’ comp] indemnity claims from 1992 to 1999 ended in litigation – compared with just 14 percent nationally.” No surprise that California leads that derby, but if you apply the 14 percent national figure against the hundreds of thousands of WC claims in the rest of the country, it speaks to quite a litigation burden. Perhaps third party administrators siphon off much of the litigation management.

In a recent benchmarking project, we asked whether the participating law departments include in their inside budget the value of stock options and restricted stock they grant their lawyers. Only one company includes the value of stock options, which accounted for about eight percent of its inside budget.

Law departments ought to include in their inside budget the value of stock options and restricted stock that they grant. Those equity awards, which can be valued (See my post of Jan. 17, 2006 about Black-Scholes) are part of the total cost to the company of sustaining a law department.

Whether or not your law department includes this cost, your should keep the possibility in mind when you compare benchmark figures.

In a 2005 post entitled Top 10 Hidden Employment Costs, the iCatchIT site included three statements that troubled me.

1) “150,000 lawsuits related to the workplace are currently pending against U.S. businesses.”

2) “Employees prevail in 60% to 70% of cases that go to trial or hearings (Kiplinger Letter).”

An article, ABA J., Vol. 92, April 2006 at 54, gives a good overview of the three general methods to value intellectual property: income, market, or cost. Companies – more accurately their forensic experts – use those methods about evenly, according to a survey cited in the article for such things as acquisitions and divestiture and litigation.

One might ask whether there could be a benchmark that looks at spending on a portfolio of patents, trademarks, copyrights and other intellectual property in proportion to the value of that portfolio. Even better, one would look at a three-to-five year total investment and compare that to the current value of the portfolio (See my post of May 10, 2005 about Sarbanes-Oxley and its requirement that companies value their IP.).

Whenever law departments respond to survey questions that ask, “How many law firms did you retain last year?” I wonder whether the numbers they give are somewhat inflated or misleading. Two kinds of law firms that departments might add in give me pause on such metrics.

In many countries, a patent applicant must hire a firm admitted to practice before the country’s patent agency. A company with a widespread patent portfolio could easily add 100 or more firms for that reason alone (See my post of July 31, 2005 about European trademark applications and electronic filing.).

The number of external counsel on a law department’s roster often includes small firms that serve as mail drops and local contacts in litigation. But those firms are pro forma, paid little, and may be used for only a single case.

An interview of Sun Microsystem’s general counsel, Mike Dillon, published on Law.com (Scott Martin), struck a spark about convergence (See my post of April 2, 2006 that challenges convergence and my article cited.). Dillon says that “probably five years ago we were using between 300 to 400 firms.” That number has dropped: “Currently in the United States we are probably down to about 100 firms, maybe 150.” Note “in the United States.”

Just before that comment, Dillon noted that “probably a little more than half our revenue now is outside of the United States.”

The spark came from my matching the decline by half in US law firms used with the doubling of foreign revenue earned. Perhaps some part of convergence in this country reflects a shift from US to foreign firms as revenue generation shifts from domestic to overseas markets?

This blog has splashed posts everywhere about patents (at least 20 of them on costs, litigation, auctions, productivity, incentives and more – e-mail Rees Morrison if you would like the compilation), but it has been dry on trademarks and copyrights. I slighted trademarks and copyrights because I thought litigation, costs, and key corporate assets were primarily in the patent pool.

Wrong. The table below shows data compiled by Chief Legal Executive in the fall of 2003 for the period 1992 through Sept. 2003. That magazine drew on LexisNexis CourtLink data from Federal District Courts.

Industry Total Patent% TM% Copyright%

The member firms of Lex Mundi (See my posts of May 30, 2005 and Dec. 19, 2005 about it and other associations of law firms) assembled a “country-by-country overview of the availability of protection from disclosure of communications between in-house counsel and the officers, directors, or employees of the companies they serve.”

With the analysis effective as of Oct. 1, 2004, the report lays out the privilege, limitations to it, and alternative methods of protecting the information flow between employee-lawyer and client (See my posts of July 25, 2005 about European views and Oct. 31, 2005 about the attorney-client privilege as it applies to corporate attorneys.).

I glimpsed the future when I read a piece by Jill Schachner Chanen, ABA J., Vol. 92, April 2006 at 22. The article discusses surveys by law firms, and singled out Kirkpatrick & Lockhart Nicholson Graham’s surveys of law departments (See my posts of March 6, 2005, and Aug. 5, 2005 on the firm’s 2002 survey and two posts on Jan. 30, 2006 on the most recent survey). I foresee that huge law firms will increasingly invest in research surveys and reports of their key market – law departments (See my post of April 9, 2005 on Shearman & Sterling’s survey; Oct. 23, 2005 on Dickstein Shapiro’s; and Aug. 27, 2005 on Fulbright & Jaworski’s.).

With complementary goals at each firm – to market their services, to show they are smart and thoughtful, to guide their own practices, and to gain penetrate law departments – law firms will set up research centers and will increasingly rely on data gathered from the marketplace, from law departments.

Many entities already solicit data from law departments (See my post of Oct. 17, 2005 and Nov. 21, 2005 for “focusing illusion”.), and law firms will compete to innovate content, methodology, analysis and reach.