Articles Posted in Non-Law Firm Costs

A Stamford, CT-based company, WhitServe LLC, is aggressively targeting firms it believes have infringed its patents relating to the delivery of professional services over the Internet, including methods for online patent and trademark renewals. One of the targets is a prominent service provider to the legal community. Computer Packages, Inc. (CPi) of Rockville, Maryland, was recently ordered by a Connecticut jury to pay nearly $8.4 million in damages for infringing WhitServe’s patents. Legal departments that rely on CPi, of which there are many that rely on its software to track their patent portfolio and annuity payments, should be worried about the condition of their service provider.

More worrying, in a filing June 18, WhitServe sued CPi clients for alleged infringement. The complaint named General Electric, Intel and EMC Corp., as defendants, along with a number of notable law firms, including Wilmer Hale, Edwards Angell, and Brinks Hofer. The add-on case, filed in Maryland district court, is seeking substantial monetary damages as well as an injunction from further use of CPi’s products based on WhitServe’s patents.

This information came to me by email with a blog citation, June 21, 2010, at Docket Report.

A piece in the redoubtable Economist, June 26, 2010 at 69, concludes that cost-saving efforts in the West and systemic improvements in the East continue to favor the Indian legal process outsourcing industry (LPO). They cite a study by ValueNotes that “estimated that India’s LPO revenues will grow from $146 million in 2006 to $440 million this year and $1.1 billion in 2014. The LPO activities in all of the rest of the world are but a fraction of these amounts, I would venture to add.

While specifically referring to CPA Global and Integreon for massive agreements those two firms have signed of late, the article estimates that the number of Indian firms offering LPO services “has swelled from 50 in 2005 to more than 140 today.”

The article also states that in February Actis, a British private-equity firm, invested $50 million in Integreon and recently Intermediate Capital Group, also based in Britain, “bought an undisclosed chunk of CPA Global.” You have to wonder, as LPO providers move up the value chain of legal-related work, whether this will lead to “law firms” financed not through the stock market just yet but through third-party financing.

Up-to-date detail on two third-party funders of litigation comes from ALM’s Litigation 2010, Spring 2010 at 23. The article traces the background, start-up, and current operations of two of the best-known funders: Burford Capital Limited and Juridica. Juridica has raised a total of $180 million dollars on London’s Alternative Investment Market (AIM) while Buford has raised about $130 million. Both investment funds have very selectively invested in a few dozen situations, mostly US litigation but some arbitrations.

The RAND Corporation last month published a study of third-party financing of disputes. The article does not venture an opinion on whether the field will remain small, a niche, or will transform litigation (See my post of May 21, 2009: lawsuit financing by groups with 8 references.).

Of particular interest to this blogger is that one of the two founders of Buford Capital, Christopher Bogart, is not only a former partner at Cravath but also a former Deputy General Counsel at Time Warner. So an in-house lawyer is part of the new field of litigation funding by investors.

The report just issued by Eversheds, “Law firm of the 21st century: The clients’ revolution,” is based on questions asked of 130 general counsel. One finding regarding the post-recession world suggests a vigorous uptake of outsourcing. “Just over a third (38%) of General Counsel were actively implementing or considering outsourcing low-level work to low-cost jurisdictions and a further 29% were receptive to the idea of outsourcing provided they had suitable work.”

It is not possible to judge this claim. The report says nothing about the general counsel in the survey group – size of department, industry, location of legal department, clients of Eversheds or not, which handicaps how much we can interpret of this quote. Even if we knew the demographics, we can’t parse out “implementers” from “considerers.” Even if we could, we don’t know the scale or specifics of those who said they had implemented outsourcing. If a law department instructs a firm that uses document reviewers in India, does that count as “implemented”?

My header and methodological point, however, goes to the well-known weakness that people often answer surveys in a way that may or may not be accurate but makes them feel good about themselves. No self-respecting general counsel of a global company would ever admit to a survey that “I will never, ever, ship my precious legal work to overseas coolies.” Instead, they will all check off that they are “considering” this new-fangled, much publicized (but ill-advised) management trick. Likewise on surveys, they are “considering” diversity, telecommuting, as well as environmental actions and heightened pro bono and corporate social responsibility and gay/lesbian/transgender equality and removal of land mines, and cleft palates in Africa and oil spills in the Gulf ….

A consultant in France, Hélène Trink,recently teamed with a legal search firm (Equiteam) to publish a survey of French legal departments. The survey asked questions about budgets and management of outside counsel counsel. It obtained responses from 81 general counsel (Directeurs juridiques) in the fall of 2009.

From a list of nine cost-saving measures the respondents might have taken for 2009, the leading choices for reductions were outside counsel fees (honoraries des conseils, 80% selected), freezes on headcount replacement (frais de deplacement des jurists, 77%), bringing more work in-house (internalization des prestations juridiques, 51%), and terminations (nombre de jurists internes, 44%). The translations to English are mine.

Selected less frequently than those four budget trimmers were work longer hours inside (reunion/animation de l’equipe, 41%), train in-house lawyers (formation technique des juristes, 33%), cut salaries (remuneration des jurists internes, 33%), and delay technology investments (decalage dans le temps de projects informatiques, 26%).

When Merck bought Schering-Plough in late 2009, Schering-Plough’s general counsel, Thomas Sabatino, lost his job but gained a healthy dose of termination benefits. As summarized by Corp. Counsel, June 2010 at 35, “he would be eligible for just over $12 million in severance payments, pension and medical benefits, and stock options.”

The lucrative departure package, a so-called “change of corporate control” right of some general counsel as an executive officer, became public in the proxy statement of the acquired company. It is likely that only the top lawyer has such a golden parachute, not the lawyers who report to him or her.

It is also likely that the dollar value of severance payments of that magnitude are not treated as expenses under the legal budget. Even so, if you try to assess the total cost to a company of maintaining a legal department, severance payments to lawyers should be included.

Four times I have assembled posts on this blog about offshore providers and Legal Process Outsourcing (LPO). They cite 78 posts (See my post of Nov. 14, 2005: offshoring with 4 references; Dec. 16, 2007: offshoring with 18 references; June 25, 2008: offshore with 27 references; and Sept. 1, 2009: offshoring and LPO with 29 references.).

Even so, 15 more blog posts have appeared since the last of those accumulations (See my post of Sept. 21, 2009: offshore staff to untangle contracts; Sept. 21, 2009: overlooked benefits include better work retained and technology funding; Sept. 21, 2009: more detail on the Rio Tinto blockbuster; Sept. 21, 2009: HSBC and its offshore facilities; Oct. 25, 2009: estimate that the industry is $4 billion in revenue; Nov. 6, 2009: CSC’s offshore decision; Nov. 10, 2009: New Zealand LPO providers; Dec. 1, 2009: growth of number of Indian LPOs in 4 years; Dec. 30, 2009: different goals of offshoring, outsourcing, and unbundling; Jan. 18, 2010: London to Israel; Feb. 2, 2010: bring IT and security on a site visit; Feb. 9, 2010: the meaning of “process” in LPO; Feb. 9, 2010: languages favor different LPO locations; Feb. 23, 2010: five blogs that cover LPOs; and March 31, 2010: broad-based effort of BT.).

Four times I have assembled posts on this blog about offshore providers and Legal Process Outsourcing (LPO). They cite 78 posts (See my post of Nov. 14, 2005: offshoring with 4 references; Dec. 16, 2007: offshoring with 18 references; June 25, 2008: offshore with 27 references; and Sept. 1, 2009: offshoring and LPO with 29 references.).

Even so, 15 more blog posts have appeared since the last of those accumulations (See my post of Sept. 21, 2009: offshore staff to untangle contracts; Sept. 21, 2009: overlooked benefits include better work retained and technology funding; Sept. 21, 2009: more detail on the Rio Tinto blockbuster; Sept. 21, 2009: HSBC and its offshore facilities; Oct. 25, 2009: estimate that the industry is $4 billion in revenue; Nov. 6, 2009: CSC’s offshore decision; Nov. 10, 2009: New Zealand LPO providers; Dec. 1, 2009: growth of number of Indian LPOs in 4 years; Dec. 30, 2009: different goals of offshoring, outsourcing, and unbundling; Jan. 18, 2010: London to Israel; Feb. 2, 2010: bring IT and security on a site visit; Feb. 9, 2010: the meaning of “process” in LPO; Feb. 9, 2010: languages favor different LPO locations; Feb. 23, 2010: five blogs that cover LPOs; and March 31, 2010: broad-based effort of BT.).

Data collected by the General Counsel Roundtable reveals where its members cut costs in 2009. The top six reductions, based on responses from 124 departments, were law firm expenditures (70%), travel (59%), vendors and consultants (21%), IT spend (14%), law department staff (8%), and employee compliance training (6%).

“Travel” probably means cancellations of conferences and more reliance on phone calls and videoconferencing than on flights. The reductions in “vendors and consultants” (gasp!) include deferral of software licensing and other expenditures on management initiatives. “IT spend” probably means such steps as not upgrading laptops, putting off buying Blackberries, and renegotiating maintenance contracts on equipment. The largest savings, by far, I am sure, came from the hides of law firm partners.

An article in Law Practice, May/June 2010 at 18, describes six ways a legal department might squeeze some savings out of its support services. As examples of support services, think of legal research, subscription management, trademark renewals, bulk photocopying, shredding, and travel expenses as targets of these techniques.

The second tip on the list is to select vendors through RFPs. The author, Rob Mattern of Mattern & Associates, writes that “the average renewal by a vendor offers a discount of 4 to 6 percent while a competitive process can mean a savings of 12 to 22 percent – often with much improved terms.”

Many legal departments do not spend enough or regularly enough on external support services to justify the effort of an RFP or their company’s procurement function leads the way. True, but even a slight nod to competitive bids can save money.