Articles Posted in Non-Law Firm Costs

Do rank-and-file lawyers in corporations have much enthusiasm for cutting the cost of outside counsel?

I doubt it. I doubt it because they want the best lawyers they can find to help them succeed in their careers and lighten their work and worry loads (See my post of June 30, 2007: lack of individual incentives for cost control.). Sometimes, to be sure, clients who bear the costs of counsel fees charged them exert much pressure on the lawyers managing those dollars. More times a general counsel pounds the shoe on the table about profligacy. I still suspect that psychology undermines external cost-control efforts – willing spirit, weak flesh. In my article of about a year ago, I suggested several ways to give individual lawyers reason to try to reduce outside counsel costs.

Line lawyers want the best law firms other people’s money can buy. They do not want to waste their time on “fly-specking” bills and then confronting the partner they trust, like, and rely on with “nickel and dime” bill reductions. In public they may applaud fiscal discipline, but at their desk they want “no stone left unturned” and no associate idle on their matters.

An article by Ben Heineman, Jr., in Corp. Counsel, Vol. 15, Nov. 2008 at 92, explains that under new accounting rules that will take effect in 2009, legal costs incurred as part of deals will have to be expensed immediately, not capitalized over a period of years.

Financial Accounting Standards Board rule (FAS 141(R)) will force general counsel to manage outside counsel costs even more closely, because they will not be able to say, “Oh, the fees don’t matter since they are rolled into the transaction.”

Costs of litigation counsel, the largest external expense of law departments, causes constant worry among general counsel (See my post of Feb. 26, 2008: total cost of litigation for Fortune 500; June 6, 2006: more detail on Fortune 500 litigation costs; June 22, 2008: litigation ranks highly among management challenges in law departments; and Aug. 12, 2008: rank of litigation as a concern in European law departments.). I have already collected various sub-topics related to litigation (See my post of Oct. 2, 2008: 12 topics in metaposts; and Oct. 2, 2008: 9 more savings techniques for litigators.)

Costs especially hit the headlines in large and expensive law suits or clusters of law suits (See my post of Feb. 20, 2006: major litigation’s characteristics; Nov. 15, 2005: definition of major litigation; Feb. 28, 2006: bet-the-company litigation; Nov. 25, 2006: massive coordinated defense; June 6, 2006: most litigation and costs are not frivolous; and Aug. 27, 2005: how to gauge complexity of litigation.). Patent cases especially have garnered a number of postings (See my post of Oct. 2, 2008: the costs incurred during patent suits, with 13 references.).

This blog has covered many tactics to control litigation costs (See my post of Aug. 13, 2008: cost controls over motions, depositions, and attendees at conferences or depositions; Aug. 15, 2008: eleven blunt suggestions to reduce litigation costs; Sept. 28, 2007: cycle time and costs; Aug. 31, 2005: litigation burn rates; Feb. 20, 2006: burn-rate calculations; Aug. 5, 2005: share some costs with adverse parties; and March 29, 2005: weed-wacking litigation costs.). Other savings techniques apply to litigation just as well as they do to other expenditures on outside counsel (See my post of Aug. 21, 2008: techniques to save costs with 24 references.).

An ad for the upcoming conference of the Minority Corporate Counsel Association lists 31 sponsors (as of July 18, 2008). Among the many law firms and other service providers to firms and law departments are three companies: Intel, American Airlines, and Walmart. My supposition is that the law departments of those companies signed up as sponsors. I also noticed that Wal Mart sponsors the National Association of Women Lawyers will host the Fourth Annual General Counsel Institute in early November.

It is unknown to me whether these law departments pay sponsorship fees, or whether their prestigious names are so desired by the conference organizers that no payment is needed

So many posts on Law Department Management have had something to say about the costliness of patent litigation that I decided to corral them here (See my post of March 10, 2005: IP litigation costs; March 29, 2005: patent litigation costs; May 1, 2005: patent costs when litigated; May 4, 2005: patent litigation costs; Oct. 2, 2006: IP = incredibly pricey; Feb. 7, 2007: patent litigation costs in England; and Feb. 13, 2008: costs of patent lawsuits.).

Other dimensions of IP litigation costs have shown up (See my post of Dec. 31, 2006: frequent reductions of patent awards; May 13, 2007: Microsoft’s IP litigation spend; Nov. 11, 2005: $100 million for patent litigation at Microsoft; June 11, 2007: US data on patent litigation; June 14, 2007: average legal fees and numbers of filings; and May 4, 2007: event studies with patent lawsuits.)

One economic concept that applies to law departments is opportunity costs. As explained throughout Richard B. McKenzie, Why Popcorn Costs so Much at the Movies (Copernicus Books 2008), opportunity costs are the benefits you forego when you take an action. Most frequently the term refers to the income someone could have earned if they had not done something else, such as how much a person could have earned while attending law school.

Other examples of opportunity costs apply in a legal department. If an in-house lawyer costs $200 an hour fully loaded, the opportunity cost to the company of the lawyer spending five hours to find and select a law firm is $1,000. Lawyers who rotate through positions incur opportunity costs to the degree the lawyer would have been more productive in the former position. Pro bono time incurs opportunity costs.

Opportunity costs are the economist’s way to measure and describe trade-offs (See my post of April 12, 2006: opportunity costs with e-discovery and activity-based costing; Dec. 17, 2006: all practices have tradeoffs; Dec. 19, 2006: the tradeoff between tight management and the quality of law firm advice; July 27, 2007: risk and productivity tradeoff; and July 10, 2007: tradeoffs and unintended consequences.).

To my earlier post on internal budget components (See my post of Sept. 9, 2008: budget elements.), I have added other posts that consider the mechanics and timing of law department budgets (See my post of May 30, 2005: accounts outside the normal budget; Sept. 27, 2005: outside counsel budget variance year to year; Oct. 14, 2005: allocating budget cuts to divisions; Oct. 20, 2005: budgets should extend to practice groups; Nov. 25, 2005: top down or bottom up; March 9, 2007: rolling forecasts; July 16, 2007: zero-based budgets; and Jan. 25, 2006: lead time for submission of budgets.).

Your financial group needs to understand your budget, especially accruals (See my post of Oct.1, 2006: keep executives and CFO advised; Aug. 24, 2005: accruals; Sept. 17, 2005 #4: accruals; Jan. 27, 2006: internal budgets and client satisfaction; and Nov. 13, 2007: procurement’s involvement at Dell with legal budgets.).

The specific budgets of a few legal departments or groups found there way into this blog (See my post of Nov. 24, 2005: Florida’s Department of Legal Affairs and its $135 million budget; March 28, 2006: EMC’s operating budget of $25 million; May 3, 2006: UPS and estimates of budget; Nov. 2, 2006: budget to actual metrics; April 13, 2007: dashboards to display budget information; and Dec. 10, 2007: and Gates Foundation internal budget of $2.1 million.).

The internal budget for a legal department covers all its costs other than what are paid to or through outside counsel. Since approximately 40 percent of a typical general counsel’s budget falls into the internal bucket, how the top lawyer manages those amounts makes a major difference (See my post of July 16, 2005: GCs and their business acumen regarding budgets.).

Law departments differ somewhat on the expenditures they include in their internal budgets (See my post of July 20, 2005: lists several funds in internal budget; July 25, 2005: costs of independent directors; Sept. 20, 2005: legal research; Aug. 3, 2005: value of equity awards; April 23, 2006: survey data on equity awards in budgets; Aug. 5, 2005: facilities charges or imputed costs; Nov. 8, 2005: ex pat expenses; Dec. 3, 2005: settlements and judgments; Feb. 1, 2006 # 6: directors’ compensation; May 30, 2006: views on settlements and judgments; June 27, 2006: at Cisco, 3% on technology; Oct. 18, 2006: depreciation charges; Jan. 27, 2006: three unusual items covered by some inside budgets; May 3, 2007: executive search fees; Oct. 25, 2007: paralegal training; Nov. 27, 2006: different treatments of costs; Dec. 19, 2007: compensation is about three-quarters; Jan. 27, 2008: comp is 75%; July 21, 2008: survey data on compensation; March 22, 2006: GC compensation on executive budget; Feb. 20, 2008: Internet surveys on brand confusion; April 8, 2008: relocation costs; May 25, 2008: GC relocation costs; April 23, 2008: filing cabinets; July 13, 2008: costs of law department retreats; Sept. 9, 2008: example of budget lines; Sept. 9, 2008: patent and trademark filing and renewal fees.).

Yes, assuming the staff who handle the protection of patents and trademarks are part of the legal department, the costs of filing and renewing protection of those assets ought to be in the legal department’s budget (See my posts of Aug. 7, 2007: many international matters involve patents and trademark local counsel; April 10, 2006: total law firms retained ought to exclude local IP counsel; and Nov. 30, 2005: Computer Patent Annuities (CPA) and its services.).

Related expenditures, which are not as closely connected to originating and registering intellectual property assets, are investigation costs and “buys” to prove counterfeiting. Those costs are primarily business costs, with only occasional legal issues, so they should not be charged to the budget of the general counsel.

Thirty-four general ledger accounts handle the spending of a law department of a manufacturing company I assisted. The accounts seem generic for the most part, one exception being patents and another auto leases and operational expenses. I have embellished some of the accounts with prior posts on this blog.

Monthly or semi-monthly salary (See my post of Aug. 21, 2008: compensation elements with 19 references.)

Weekly salary