Articles Posted in Non-Law Firm Costs

Someday we may find that better run companies – whatever that means and however that is measured – tend to have better run law departments – at least as evidenced by their comparative benchmarks. Among mature companies competing in mature industries, it seems likely that their well-honed HR practices, technology infrastructures, management training and disciplines, and physical facilities percolate through to the benefit of the legal team. Good companies to that degree are more likely to have good legal teams.

Much like successful professionals give too little credit to their firm, general counsel who are lauded for their management prowess may to a considerable degree be beneficiaries of the surrounding, taken-for-granted corporate strengths. Nor do their budges reflect fully the ambient advantages.

Data on high costs to obtain patents of small, high-technology companies

A recent article by Gillian Hadfield cited an in-depth empirical study of patent activity by small technology companies. The excellent study compiled data and explanations about patent costs for those companies. “The average out-of-pocket cost for a respondent firm to acquire its most recent patent was over $38,000. This figure is significantly higher than the averages for patent prosecution reported in the literature, which vary from a low of $10,000 to a high of $30,000.”

The study, published in the Berkeley Tech. L.J., Vol. 24, No. 4, pp. 255-327 (2009) by four authors cites the “literature” as AM. INTELLECTUAL PROP. LAW ASS’N, REPORT OF THE ECONOMIC SURVEY 2007 78–81 (2007) (reporting average attorneys’ fees for prosecuting an original patent application, filing one amendment, and issuing an allowed application as between $10,000 and $20,000, depending on the complexity of the technology); Mark A. Lemley, Rational Ignorance at the Patent Office, 95 NW. U. L. REV. 1495, 1498 (2001) (estimating the cost of prosecuting a patent to issuance as between $10,000 and $30,000).

A Washington, DC virtual firm called Clearspire has 20 or so lawyers and an unorthodox business model. The Economist, Aug. 13, 2011 at 64, says that its lawyers offer cost estimates for each phase of their work. If the lawyer exceeds the estimate, too bad for the Clearspire lawyer. “But if a lawyer finishes his work faster than promised, he gets a third of the savings. The client also gets a third, as does Clearspire.”

If I understand this correctly, only of the client negotiates a competitive and reasonably accurate estimate (budget) does “This give[s] everyone a stake in making the process more efficient and predictable.” Otherwise, if the lawyer estimates $60,000 and comes in at $51,000, why is the client better off “saving” $3,000 when the lawyer gets the same amount and Clearspire does. The temptation at Clearspire to inflate the estimate would be irresistible. In fact, the inside lawyer might conspire in the same direction so that she can claim a “savings.”

Among the arguments in a solid book that disagrees with the current worries about America losing its competitive edge, Amar Bhidé, The Venturesome Economy: how innovation sustains prosperity in a more connected world (Princeton Univ. 2008) at 162-179, puts forth seven concerns with off-shoring. Each of them resonates with some general counsel.

1. Communications problems that are very hard to overcome at long distance. Nothing beats sitting at a table to cut through explanations and promote shared thinking.
2. Partitioning problems,” by which Bhidé means whether a project’s tasks can be divided up and parts done somewhere else, then integrated together successfully.

The lead story in Met. Corp. Counsel, July 2011, prints an address delivered to the Atlantic Legal Foundation. It slams litigation funders for (1) high interest rates and (2) the “perverse financial incentives funding creates when settlement discussions happen.” The story cites Counsel Financial, which it says is backed by Citigroup, as well as the “Litigation Risk Strategies” division of Credit Suisse Group and Allianz ProzessFinanz GmbH.

The writer, Kirby Griffis, a partner with Hollingsworth LLP in Washington, DC, takes particular aim at the American Legal Finance Association (ALFA), the lobbying arm for those who fund litigation. ALFA was founded in 2004 and operates from 228 Park Avenue South in New York City. Griffis minces no words: “The litigation funding industry is a powerful force that will distort and, most importantly, increase U.S. litigation.”

IMF (Australia) Ltd. Is a publicly-traded investor in litigation. A long profile from The Asian Lawyer, Summer 2011 at 17, explains how its founder, Hug McLernon started funding cases in 1989 and took his company public in 2001. It currently has around $1.7 billion in active claims under management (See my post of May 21, 2009: lawsuit financing with 8 references; and April 11, 2011: hedge funds and investors in litigation with 9 references.).

The Australian legal system differs significantly from the U.S. legal system in several respects that matter to third-party funders of litigation. Contingency fees are restricted, class actions have less formality and scope, there are no punitive or exemplary damages, discovery has less burden, and losers may have to pay the winner’s legal fees. Even so, IMF has thrived, in part by being very picky. McLernon estimates IMF funds less than five percent of the 350 cases it studies each year. Once it puts in money, IMF gains, and exercises, a considerable amount of control over the litigation.

Although much smaller than IMF, other Australian firms invest in litigation. The article mentions Quantum Litigation Funding and Litigation Lending Services Limited. It also mentions Harbor Litigation Funding, active in Europe.

The point of this post is the increasing availability at low cost of legal guidance and work product on the Internet. The trend toward even more cloud law is inexorable. Bloomberg Bus. Week, July 11 at 41, describes LawPivot as a Q&A website that allows cash-strapped entrepreneurs to ask questions of lawyers. “LawPivot’s algorithms funnel the questions to its roster of lawyers based on expertise and quality of past responses.” Currently free for up to three questions per month, LawPivot plans to charge a subscription fee of $80 per month. The article says that more than 800 lawyers and 1,200 startups have used the site.

This site doesn’t offer form agreements, but that would be a logical extension (See my post of Jan. 21, 2009: YourFreeLegalForms.com; Jan. 22, 2009: free online forms and their quality; Jan. 23, 2009: US Legal Forms; April 19, 2011: Fenwick & West offers standard corporate forms; April 25, 2011: Goodwin Proctor offers forms; and June 19, 2011: Standardforms.org.).

Given the cost and complexity of e-discovery – defined by me as the steps necessary to locate electronic files, preserve them, review them and produce them – some law departments work with their information technology counterparts to do the job internally. They pick which cases to do in-house and turn to consultants and vendors for the rest.

A piece in InsideCounsel, May 2011 at 64, describes different criteria for that decision. Size may serve, such as all cases where the electronic files amount to less than 50 gigabytes. Or the amount in controversy may draw the line, such as anything under $200,000. Some companies make the decision by type of case, such as all civil lawsuits. Obviously, mixtures of these three characteristics of volume, value, and variety could also make the decision, as might existing workload of the in-house discovery team.

While I wrote the above, I checked for my recent posts about e-discovery. Even though I know little about this area, it turns out that I write about it with some consistency (See my post of Oct. 13, 2010: drawbacks to reliance on law-firm discovery centers; Nov. 30, 2010: touted e-discovery costs by big US companies; Dec. 21, 2010: predictive coding as a tool to reduce the costs of e-discovery review; Dec. 30, 2010: analytical discovery tools; Jan. 12, 2011 #2: accounts for 80% of litigation costs; Jan. 23, 2011: online training for e-discovery; Jan. 26, 2011: data from 2008 on discovery costs; April 14, 2011: Academy of Court-Appointed Masters; April 15, 2011: formula to determine what documents were not found; May 16, 2011: in-house experts decamp for vendors; May 20, 2011: ACC chooses a preferred vendor; and May 25, 2011: Google comments on e-discovery approach.).

The latest newsletter of executive recruiters Laurence Simons mentioned ProcureLaw.com, “an online tendering platform for legal services.” Misys General Counsel, Tom Kilroy, tells us that he saved around 50 per cent on legal fees after running a tender to select a law firm to carry out an employment law project. Forty nine law firms took part in the process over 14 jurisdictions. According to Tom, ProcureLaw enabled the global IT company to “run a genuine and fair price comparison between competing bids” and the legal department would be using it “more extensively in the future.

To cut legal fees in half astonishes me, but there you have the quote. To invite 49 law firms to propose on work also astonishes me. To put so much emphasis on “price competition” – well, you get my point.

In Fortune, June 13, 2011 at 69, Roger Parloff plunges deep into the secretive world of third-party litigation financing. Mostly he drills down on the Chevron case in Ecuador and one major financer. What he finds is not pretty and it is certainly far from transparent. Along the way he mentions two hedge funds that invest in big-ticket lawsuits: Reservoir Capital of New York and Eton Park of London. Parloff also states that “England and Australia have embraced litigation financing even more enthusiastically than America has.”

Parloff makes much of two points: (1) “whether the funder should get actively involved in legal strategy,” and (2) whether lawyers and funders, as they deal with each other repeatedly, might respond to pressures that are not what the plaintiff cares about. At the end, he concludes that “The confidentiality-secrecy that currently envelops investments in litigation is what’s so intolerable. Deals behind closed doors, conflicts of interest, undisclosed influences – those are circumstances that will lead to regulation” (See my post of May 21, 2009: lawsuit financing by groups with 8 references; and April 11, 2011: hedge funds and investors in litigation with 9 references.).