Articles Posted in Outside Counsel

If your law department sends a substantial amount of work to a firm, and expects to do so for several years, that firm should appoint a relationship partner. The relationship partner makes it her business to know about how the firm is serving you, what problems have arisen, how to pull together the experiences and learning of the firm’s lawyers who serve you. The role should be one of ombudsperson and facilitator, in addition to providing legal services.

Also, your law department should approve the designated relationship partner. It would be even better to hammer out guidelines and mutual expectations regarding the role of the relationship partner. See my posts of Oct. 8, 2005 on successor relationship partners and Sept. 22, 2005 about Wal-Mart and diversity of relationship partners.

For some years corporate managers of IP litigation debated whether to use IP boutiques or full-service firms. Given the results of research by IP Law & Bus., July 2005 iplawandbusiness.com, mergers of boutiques may be mooting that question. Of the 16 law firms that filed or defended the most patent cases in 2004, eleven were large, multi-line law firms.

The large firms handled 60 percent of the plaintiff cases (185 of the 307) but 54 percent of the defendant cases (185 of 342), although I should note that the firms were not completely the same in each category.

The same piece stated that a 2003 report by the American Intellectual Property Law Association reported the average cost of a case with over $25 million of damages at stake was about $3.9 million. Patent cases with damages of $1 million to $25 million averaged about $2 million. (See my 2005 posts about patent litigation costs on March 6, 10, 29, and May 1, 2005.)

If a law firm agrees to give a law department a larger discount when the fees paid to the firm exceed a certain level (for instance, 5% up to $500,000 and then 7% for fees paid over that amount), does the higher discount apply retroactively to the initial payments? Obviously, the two parties need to anticipate and clearly state the answer.

With a step discount, a law department might push to send more work to the firm, to reach the higher discount level. On the other side, the law firm – if it faces a rebate for earlier fees paid so that the overall discount on all fees billed hits the agreed figure – may not want to go so high. (See my posts of March 24, 2005 criticizing step discounts, July 30, 2005 on 5-10% discounts being routinely granted and yet my post of Sept. 10, 2005 about infrequent discounts in the case of one major law department.)

A major company in the southeast has all of its law firms that handle appeals provide their services at a fixed rate. Not the same fixed rate for each appeal, but each appeal is handled on its own negotiated fixed fee.

A UK-based law department has negotiated flat fees for its firms that help prepare positions statements in employment matters. (By the way, is a “fixed” fee one that a firm and department agree to in advance, whereas a “flat” fee is one that a law department decides on and mandates for whichever law firms take on a certain kind of work?)

A third fee arrangement establish some clear-cut difference between types of similar matters, and sets a different fee for each type. Let’s apply this idea. Obtaining a zoning variance for residential might be one tier (and fee), for commercial might be a second tier/fee, and for mixed use a third.

A term I learned consulting to an aerospace company’s law department – “competimates” – captures the duality of law departments competing with law firms. A company could outsource much or all of its legal work to external counsel, or could bring work inside, so law firms have to pick up their tents and steal away.

Both sides jockey for advantage (compete to handle work) while they simultaneously build loyalty and institutional knowledge (mate). through such measures as reducing the number of firms paid the majority of the fees.

Competitive partners may be an oxymoron, but as in business with its joint initiatives with erstwhile opponents, that is the reality of these Janus relationships between law departments and law firms. Departments and firms look ahead to close and profitable collaboration, while at the same time glance over their shoulders at the risks of losing jobs to the other (See my post of May 1, 2005 about the dark side of partnering.).

When law departments know that their companies have very little ability to raise prices, it galls their in-house lawyers to watch outside counsel raise their billing rates, where it seems to those in-house that the rate raises are almost as a matter of expectation – one more year, another six percent – and an entitlement.

How can a law firm prove that the lawyer whose rate has jumped six percent can accomplish as much in six percent less time or with six percent better quality? A portion of the bump up can be attributed to higher costs, but companies selling to powerful buyers cannot automatically pass on higher costs.

In the same way that more time in grade, on its own, should not justify a raise or promotion in a law department, law firms ought to figure out ways to show that their raises – fee increases – result from an increased ability to bring value to clients.

During a recent webinar, a law firm partner rued the difficulty of assuring clients “our best rates,” especially when discounting is rampant. Within a large law firm, it is nigh unto impossible to know the different permutations of rate cutting – and then how do you handle amounts written off after discussions?

Even more fundamentally, since the quality of lawyers working on matters of various clients differs, and the consistency of the team, what does it assure a client if billing rates are as low as any comparable client is offered (See my post of Oct. 30, 2005 on other difficulties.)?

In mid-2005, Bottomline Technologies surveyed the Fortune 1000 companies and AM Best 200 insurers. Of the 1,892 individuals sent e-mail surveys, close to 200 responded. Bottomline’s Thomas Gaillard reported some of the results at ACC’s 2005 Annual Meeting.

Given five tools for measuring law firm performance, the respondents indicated the following percentages: “Financial analysis” (64%), “anecdotal (55%), “staff survey” (43%), “interviews” (34%) and “audit” (34%).

Let’s consider each of these. The most common choice could simply mean that the law departments keep track of their spending on each law firm. So what? The informality of chatting around the water cooler about different firms leaves huge amounts to be desired. I am very surprised at the indicated prevalence of surveys to measure law firm performance. No department I have consulted to has done such a survey. “Interviews” might mean that someone in a law department calls up others who have worked with a firm and asks them to appraise the firm; that’s only a tic better than anecdotal, and again I doubt the level of frequency indicated. Who knows what “audit” means. In short, an unsatisfactory set of metricoids (numeric factoids).

A previous post (Sept. 5, 2005) explained Citigroup’s view that the number of timekeepers at a firm makes a major difference in the firm’s cost effectiveness.

Based on data presented at ACC’s 2005 Annual Meeting for its 100,000 North American property and casualty claims, AIG used 2,000 law firms and 34,000 timekeepers (17 timekeepers per firm on average). At the same talk, the General Counsel of Concentra, a provider of healthcare and related services, said that his company retains 100 law firms and 350 timekeepers (3.5 timekeepers per firm on average).

I haven’t seen data on timekeepers per firm, but Concentra’s twangs the reality cord more than AIG’s. (See also my post of March 28, 2005 about a rule of thumb of one lawyer and one paralegal tracking time on a matter.)

In mid-2005, Bottomline Technologies, the provider of eXchange, surveyed the Fortune 1000 companies and AM Best 200 insurers. Of the 1,892 individuals sent e-mail invitations to participate, close to 200 responded. Thomas Gaillard of Bottomline reported some of the results at ACC’s 2005 Annual Meeting.

Asked to rate their company’s current law firm measurement process or system (See my post of Nov. 15, 2005 on some uses of that data.), 37% of the respondents selected “rudimentary,” the same percentage selected “pretty good,” 18 percent chose “robust,” and 5% described their arrangements as “exceptional.”

In terms of methodology, note that three of the four choices were better than average, which skews the results to the positive side. It was also not apparent from the slides the exact question asked, such as rating the arrangements with what goal in mind.