Articles Posted in Non-Law Firm Costs

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Here’s a gedanken experiment (a thought experiment).

Take a large group of law departments that have between 20 and 30 lawyers each (to control for differences in size of companies). Figure out the gap between each law department’s fully-loaded cost per lawyer hour and the blended billing rates of all their law firms for a five-year period. (See my posts of Sept. 25, 2005 and Oct. 18, 2005 on figuring out the gap.)

Now, for those same law departments and five years, count how much they recovered from the firms for malpractice. I have never seen data on malpractice recoveries, but let’s assume there is some amount.

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A roundtable last year discussed infringement actions where one general counsel, a litigator who had protected the Mercedes brand name for several years, remarked that the “principle was that over time, with damages, actions brought to defend the brand would fund our costs.” .

Another lawyer ran over that idea. If the campaign aims to fund itself, “there is a danger that you target the easiest cases, rather than the ones that are most important to the business to fight.” (See my post of Feb. 8, 2006 concerning DuPont’s recovery initiative.)

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Document discovery, especially electronic document discovery, has exploded in the past few years. Vendors in that space dominated LegalTechs booths. A quantophrenic tally of vendors by categories at LegalTech tells how much the market has reached terminal velocity (See my post of Feb. 8, 2006 defining quantophrenia as metrics mania.)

Consider these categories and the numbers of vendors at LegalTech who classified themselves in it:

Under Software: “Document Management” 38; “Imaging Scanning” 17; “Information Management” 23; “Electronic Discovery” 31; and “Litigation Support” 37.

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An article in Executive Legal Adviser, Nov./Dec. 2005 at 22 (by Michael Maslanka and Theresa Gegen) discusses several ideas that sound pragmatic (or controversial) for when you prepare for mediation.

(1) You want the other side to accept and relate to the mediator, so if possible “develop a profile of the type of mediator who’ll bond with the other side, pick three mediators who fit the profile and let the other side make the final decision as to who will be the mediator.”

(2) When you interview prospective lawyers or mediators, ask them: “If I don’t pick you, whom should I pick?”

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The managing attorney for claims and litigation at Johns Hopkins attributed the hospital’s 30 percent reduction in expense payments for malpractice in 2003 at least in part to the new policy it adopted in 2001. The new policy, as described in Constance E. Bagley, Winning Legally: How to Use the Law to Create Value, Marshall Resources, and Manage Risks (Harv. Bus. School Press 2005) at 61, was to “encourage doctors to be candid about their errors and to apologize to injured parties.”

Please let me know if “We’re real sorry” reduces your legal costs.

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Legal Times, Jan. 27, 2006, published my article on different forms of auctions law departments should know about. Meanwhile, I continued to collect ideas.

Double auctions. In this auction all the sellers and all the buyers submit bids, which are then ranked highest to lowest to generate demand and supply profiles. From the profiles, the maximum quantity exchanged can be determined by matching selling offers (starting with the lowest price and moving up) with demand bids (starting with the highest price and moving down). This format allows buyers to make offers and sellers to accept those offers at any particular moment.

Suppose four law departments (A, B, C, and D) offer to “sell” their patent preparation work at $4,000, $5,000, $6,000 and $7,000 per patent, respectively. Suppose four law firms (1, 2, 3, and 4) offer to do that work on a unit (per patent application) basis at $8,000, $6,000, $5,500 and $5,000 dollars, respectively. Supply and demand are met at two price points. It might take a specialist intermediary to match the bids. (This material was drawn from Agorics, Inc.)

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Clobbered by a wave of lawsuits against its key product, OxyContin, and revenue pressure from a generics competitor, the law department of Purdue Pharma turned to contract lawyers.

Then, inspired by layoffs the company had made, the law department hired 18 former employees and trained them to do work that junior lawyers and paralegals normally handle. “Within a few weeks these employees were conducting research, reviewing and analyzing medical records, summarizing depositions and reviewing and summarizing discovery documents,” Corp Legal Times, Vol. 15, Sept. 2005 at 42. (See my post of July 14, 2005 about hiring former lawyers of a department.)

Started sometime in early 2004, within the next 12-15 months the new system saved the law department $1.5 million in legal expenses.

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I worked on the consulting project in 1990 that famously resulted in Continental Bank closing down its 70+ lawyer department and by outsourcing satisfying its legal needs with Mayer, Brown & Platt. That decision was the page-one headline on the inaugural issue of Corporate Legal Times, and it triggered much controversy.

Dramatic, but still old hat since it turns out that in 1920, Karl Llewellyn “joined the legal department of the National City Bank, which at the time was transferring its legal department to the Wall Street law firm of Shearman and Sterling [Cited in Ajay K. Mehrotra, “Law and the ‘Other’: Karl N. Llewellyn, Cultural Anthropology, and the Legacy of The Cheyenne Way (Law and Social Inquiry, Vol. 26, Summer, 2001 at 748)].

Probably the Greeks invented law department outsourcing.

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A piece on offshoring, BusinessWeek, Iss. 3969, Jan. 30, 2006 at 56-57, did not specifically concern itself with legal work, but among its many examples of services provided US companies from India, I noted these three:

(1) as part of its market research, Evalueserve “will, within a day, assemble a team of Indian patent attorneys, engineers, and business analysts”;

(2) for those who want to market “a new mutual fund or insurance policy,” Tata Consultancy Services “are building software platforms that furnish every business process needed and secure all regulatory approvals”; and

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In 2003, Accenture’s 30-lawyer UK legal department set up a legal service center in Mauritius. Accenture chose Mauritius because its population speaks Dutch, French and English and its lawyers are schooled in both civil code and common law, Legal Week, Jan. 20, 2006 (Ed Thornton). The article explains that the service center has seven staff, “freeing up in-house lawyers to focus on the more creative and demanding work.” (See my post of Oct. 18, 2005 about lawyers not necessarily wanting more creative and demanding work.)

Much has been written about offshoring legal services to India, but here is a dramatic variation (See my meta-post of Nov. 14, 2005 on offshoring.)