Articles Posted in Non-Law Firm Costs

Some say litigation accounts for about 60 percent of outside counsel costs; others say that discovery accounts for about 60% of litigation costs; I wonder whether electronic discovery accounts for 60% of discovery costs!

Two practices worth noting: “Pfizer Inc. has hired a senior counsel [Laura Kibbe] to work full time with consultants [George Socha] to build a new e-discovery system from the ground up.” (Legal Times, Sept. 19, 2005 at 23) If a law department faces significant discovery costs for several years, investing in a saving oversight lawyer makes sense.

Second, Marathon Oil’s law department is placing a dedicated e-discovery coordinator at every subsidiary. I assume this means that the department christens and trains a client person to be the focal point for discovery requests and production from each participating subsidiary. (See my post of Aug. 5 about Sears and its discovery management and Sept.21, 2005 about Cisco and its e-discovery investment.)

“A major U.S. firm usually quotes the cost of $10,000 to $15,000 to prepare and file a patent application; that patent application can be prepared for $2,500 to $3,500 in India.” (Nat. L. J. Sept. 12, 2005 at 14). The domestic charge is thus four to five times higher than the outsource charge.

If this cost differential holds for preparing leases and subleases, searching and registering trademarks, summarizing Suspicious Activity Reports, and other generally routine tasks, it presents an irresistible opportunity for law departments.

The Arizona Attorney published a 2003 roundtable discussion among six senior corporate lawyers in Arizona (40 AZ Attorney 12 (Nov. 2003)). One lawyer at the round-tabler was the General Counsel of Arizona Electric Power Cooperative, Patricia Cooper, who oversees its two lawyers and one paralegal.

Cooper said that the outside counsel spending “may be anything from [$750,000] one year to maybe $3 million another year.” I am surprised at a swing of four to one. In my consulting experience, law departments have a reasonably stable expenditure level for outside counsel – barring the lightning bolts of a major acquisition or life-threatening litigation.

A piece in the National Law Journal (Sept. 5, 2005 at pg. 11) said that “about two years ago [Wal-Mart] had 50 law lawyers,” based on remarks at a conference by the company’s general counsel. The journalist added that in 2004 the department hired 39 lawyers. Even if the baseline in about 2002 were somewhat higher than 50, the growth in 2004 astonishes me (about 78 percent growth from the baseline figure).

I think mergers did not account for the hiring binge, and maybe Wal-Mart a couple of years ago was legally anorexic. My hunch is that the company has tried to stem its enormous outside counsel bills by in-sourcing in-house counsel (See my post of September 22, 2005 stating Wal-Mart’s external spend of $200 million.)

Companies doing business around the world often have lawyers located in various international locations. Some of those lawyers, fully competent and handling significant legal work, receive pay at local levels – often levels far below those of equivalent lawyers in the U.S. or U.K. Such a compensation differential allows a law department to arbitrage work internally to those lower cost lawyers.

I know a pharmaceutical company that kept a contingent of patent lawyers in Sweden, in part because they cost a fraction of what their U.S. patent counterparts were paid. To pull off this cost-of-living legerdemain, the law department must focus on total costs, not on total headcount.

Cisco System’s law department invested $1.5 million in a “discovery lab” that has helped it find, store, and handle documents that might be subject to discovery. (ABA Journal, Sept. 2005 at pg. 57). That investment, plus $900,000 spent in responding to discovery requests in a recent case, let Cisco avoid a proposed vendor cost of $9 million to set up a discovery database – a 10:1 savings that fully amortized the investment costs.

If the savings are anywhere in that stratospheric range, might Cisco license its tool to other law departments, or even spin off and run such a cost-saver for other corporate defendants?

I am reminded of Equitable Life, which paid the costs of developing CompInfo’s LawPack in return for some license fees paid CompInfo thereafter. Likewise, the matter management system developed at Unisys became the starting system for TriPoint.

Even as some signs indicate outside counsel spending in the US might be coming under control, rumblings from Europe suggest that external legal costs over there will rise more rapidly. (See the Financial Times, June 16, 2005 at 9.)

A study by the UK law firm Ashurst, reported in the ABA Journal (Sept. 2005 at pg. 49), found that since 1960 antitrust lawsuits filed in the 25 nations that make up the European Union reached a total of 60. That 60 in 45 years compares to 752 antitrust suits filed in US courts in one year, 2004.

The article then states, ominously, that “more than 700 judges in various EU member nations are being trained this year to handle antitrust matters.” Expect legal costs for companies doing business in Europe to make up for some of the US reductions.

A major manufacturer’s law department has committed to its 250 or so law firms that it will pay their invoices within 30 days. While longer than the usual prompt-payment commitments, for which some firms grant small discounts so long as they are paid within ten days or less, the 30 day threshold is probably quicker than most departments achieve.

The commitment lacks passion, and I doubt it makes a whit of difference to the law firms. The more law firms run themselves like businesses, though, the more punctual payments may sway them.

Speaking at a panel discussion published by Metropolitan Corporate Counsel (Sept. 2005 at 36), Blane Erwin of Bridgeway Software cited as an effective tool “on-line early case assessment systems.” Erwin added that ECA systems “optimize [a defense team’s] pre-trial options, including motion[s] for summary judgment, which judges are increasingly willing to support. Studies show litigation costs can be cut by more than 20 percent as a result.”

I wish we had citations for those studies, because slicing a fifth off a law department’s litigation budget “’tis a consummation devoutly to be wish’d.” I also wish there were less ambiguity in the quote’s second sentence. Does the 20 percent plus saving come from seeking summary judgments more frequently or from employing ECA in general, i.e., what does “as a result” refer to? Finally, what data proves that judges are increasingly willing to grant defense motions for summary judgment?

Metropolitan Corporate Counsel interviewed the CEO of a leading e-billing company, DataCert (Sept. 2005 at 33). The CEO gave an example of one benefit of electronic review of law firm invoices: “if a company does not pay for online research, we will flag any line items with that description.”

Whoa! What law department would bar its outside counsel from using Lexis/Nexis or WestLaw or Thomson & Thomson or other online databases that charge fees? For the firm to have to get permission for online research above a certain amount, that could be expected. But to ignore the manifest need for law firms to sometimes research the law seems a bizarre example of e-billing’s powers or law department’s myopic views.