Articles Posted in Non-Law Firm Costs

IP Law & Business recently published some background on Microsoft, its patents, and the litigation related to those patents (See my post of Nov. 11, 2005 about Microsoft’s goal to move from 2,000 to 3,000 patents applied for a year, and references cite.). The following summary of that article comes from Pete Zura’s patent blog and I have shortened it somewhat and interpolated my comments.

Microsoft owns more than 5,000 patents. Over the past five years, Microsoft has been a defendant in 96 patent cases, mostly against what it derides as “patent trolls.” Meanwhile, Microsoft was a plaintiff in 11 cases. [RWM: Don’t we wish there were a metric on the median ratio of defendant to plaintiff cases to compare to this 9:1 example?] It currently has 40 pending patent cases. [RWM: since the company averaged about 20 cases per year for the past five years, it suggests that with this backlog the average case lasts roughly two years.]

Patent litigation is approaching half of Microsoft’s legal fees (somewhat more than 40% is antitrust litigation, and all the rest in dribs and drabs, relatively speaking). [RWM: With annual revenue of approximately $44 billion, if its outside spend were 60% of 0.4% of that revenue, it would be in the region of $110 million – so patent litigation might be $40-to-$60 million a year.] Microsoft’s in-house patent litigation team has three patent trial lawyers and three paralegals.

By contributing author Brad Blickstein, Blickstein Group, on legal service providers:

Legal/financial printer RR Donnelley announced that it has partnered with Tursi Law Marketing Management to create the Women in Law Empowerment Forum, to “create a dialogue for women in law on fostering leadership in [the] workplace and community.” The press release says they have more than 350 registrants for the first program, scheduled for May 17 in New York City. The release also listed an advisory board with a dozen attorneys from top NY firms and companies, including Donnelley’s own general counsel, Sue Bettman.

It’s clear that Donnelley has hit the sweet spot with this. More than 350 attorneys will attend and look kindly on Donnelley. Their team will have the opportunity to spend time with a lot of powerful attorneys. All they had to give up in order to put together such an event? The willingness to talk directly about the company and its services.

The League of Minnesota Cities Insurance Trust (LMCIT) coverage to its members for “litigation relating to land use regulation, development or redevelopment, franchising, or enterprise operations” even if there is no claim for damages. An “enterprise operation” means any arrangement under which the city offers goods or services for a fee, such as utilities, telecommunications services, etc.

The coverage includes legal fees, most damages the city might be required to pay, and some supplementary payments, including up to $200,000 of statutory attorney fees. (See my post of June 19, 2006 on collective action by the legal functions of several Midland (UK) cities.). The law departments of these cities, if the cities have one, will benefit from this collective insurance coverage.

As reported in the Wall St. J., May 2, 2007, at B2, around 2005 Pitney Bowes “arranged for its ‘procurement’ department to work with the legal department on managing costs.”

Perhaps I read too much into it, but the verb “arranged” cloaks whether the strategic sourcing group (procurement) was thrust upon the lawyers or whether the lawyers on their own invited them in.

Be that as it may, this blog has mentioned at least six law departments that have worked with their internal purchasing/procurement/sourcing groups (See my posts of Aug. 14, 2005 [Oracle]; April 7, 2006 [GE Consumer Finance and FT Group]; April 30, 2006 #5 [Microsoft]; Aug. 2, 2006 [Sears]; and June 16, 2006 [Bank of Ireland]). In my consulting, I have worked with four other law departments that have drawn on the skills and disciplines of their procurement colleagues.

By contributing author Brad Blickstein, Blickstein Group, on legal service providers:

The U.S. Chamber of Commerce recently released its annual Lawsuit Climate study, where they ask in-house counsel to rank the states based on “how reasonable and balanced the tort liability systems is perceived to be by U.S. business.”

Not surprisingly, Delaware came out on top and Mississippi and West Virginia brought up the rear. For legal service providers hoping to better understand their clients’ biggest concerns—as opposed to the tactical issues usually supported by service providers—there is a wealth of information in this study. Especially useful is the companion PowerPoint presentation, which tells us, “Nearly six out of 10 (senior attorneys) report that the litigation environment in a state could affect important business decisions…”

The issue of Corp. Counsel, May 2006, announced the winner of its best-law-department contest. One reason for its victory was Ford’s policy to try as many as 100 cases annually, and typically it has won three-quarters of them. A Ford lawyer explained that “the business decision to litigate means that settlements are usually 20-50 percent lower than they would be if they paid plaintiffs’ lowest demands.” Even as to the one-quarter of the cases Ford loses in the trial court, “many verdicts are slashed by trial judges and appellate courts, or settled for even less.” Then comes the quote in the header. Hardball about going to trial can save money.

Note also that as part of the Ford litigation effort the law department has a discovery team, “which handles most of the work in-house,” as well as an appeals group, which consists of two in-house lawyers and several outside firms (See my post of Nov. 25, 2005 about appeals handled on a fixed fee; and April 22, 2007 on appeals of wrongful-termination cases.). Ford, with 300 lawyers worldwide and slew of litigation, can maintain these specialty contributors.

A previous post describes the return on investment of the law department of Holcim (US) (See my post of May 4, 2007.). In the article cited there, from the Mich. B.J., Jan. 2007 at 35, the company’s general counsel describes very briefly one of the objectives her team achieved.

“With an overall goal of reducing outside counsel spending, our team set an initiative for the year to reduce the number of cases pending by net 10 percent, without exceeding appropriate settlement ranges.” Having concluded that lawsuits weren’t getting enough attention, “we decided to meet bimonthly as a team to review all pending litigation and to track statistics that were predictive of our costs, such as the length of time a case was open.”

Success was had! “Within three years, the number of pending cases was less than 50 percent of the number existing at the start of the tracking. We then mapped the process to preserve institutional knowledge, which brings value to the organization.” As to process mapping, see my post of Aug. 28, 2005.).

A survey by PriceWaterhouseCoopers at 19 found that “nearly two thirds (65%) of the respondents perceive international arbitration to be more expensive than transnational litigation and 23% believe it is about as costly as transnational litigation.”

It was unclear to me what the survey defines as international arbitration. Is it between two companies which are based in different countries? Is it arbitration that involves the laws of two countries? Is it arbitration that takes place in a country where neither disputant has significant operations?

As to the actual costs of the 103 respondents’ most recent international arbitration, they were significant. Just over half of them incurred costs between $100,000 and $500,000. Another 14 percent fell between $500,000 and $1 million, 22 percent between $1 million and $5 million, and a whopping 12 percent of the international arbitrations cost more than $5 million. If you take the midpoint of each range, and $6 million for the top range, the overall expected cost of this set of most recent arbitrations is $1.6 million.

In the winter of 2003, ACE Group, working with the insurance broker Willis, introduced a “Contract Enforcement” Insurance Policy. As described in Transnational Dispute Mgt., Vol. 1, Feb. 2004, either side to a contract can purchase a policy at the time they sign the contract. The insurers “will review the contract in question with their legal advisors to ensure that the terms of the contract are fair and appropriate.” The policy will insure them for the litigation costs incurred in court or arbitral proceedings to enforce the contract. Those costs can be “pursuit costs” by an aggrieved party or “defense costs.”

The article also describes “after the event” contract insurance. With these policies, a law department may be able to obtain coverage when litigation over a contract is contemplated. Other forms of insurance are available to protect against the costs of litigation (See my posts of July 25, 2005 and July 20, 2005 — patent litigation; March 23, 2006 #5 – employment practices litigation; and April 23, 2006 – after a lawsuit is filed.).

Why don’t law departments purchase insurance policies to hedge them and their budgets against the vagaries of legal actions?

By contributing author Brad Blickstein, Blickstein Group, on legal service providers:

It’s become clear that more and more legal work in areas such as document review is going to be outsourced. The economics are too good for routine legal work. There are a number of legal service providers set up to do this type of work in India (NovusLaw, Office Tiger), the Philippines (SPi) and now Israel (PowerLegal).

One important distinction is the difference between outsourcing and offshoring. Offshoring means “moving business processes or services to another country to reduce costs.” Outsourcing is obtaining “services from an outside supplier or source”. (Both definitions from dictionary.com.) They are not synonymous. Technically, most legal work is already outsourced—to law firms.