Articles Posted in Outside Counsel

Legal Strat. Rev., Spring 2009 at 26, says “The closest thing to a contingency fee in England is a conditional fee arrangement or ‘no-win, no fee’ deal. Solicitors are then allowed a 100% uplift on their hourly rate if they win the case and receive nothing if they lose. However, a party’s liability to pay the other side’s costs in the event of a defeat remains. Conditional fee arrangements tend to be used with specialist insurance products in order for client to minimize the risks further.” What happens if the company settles the case before trial?

I believe that the “100% uplift” means twice the standard fees incurred by the firm (See my post of Oct. 31, 2007: insurance against litigation risks with 7 references; May 13, 2007: municipal insurance; and July 4, 2006: insurance and fixed fees.).
Loser pays rules have gotten attention on this blog (See my post of Oct. 22, 2005: insurance proceeds in a loser-pays jurisdiction; May 31, 2005: insurance where the loser pays the other side’s fees; May 10, 2006: why US litigation hasn’t spread to Europe; Aug. 21, 2006: Florida experience with loser pays; and Jan. 12, 2009 #3: Germany’s rules.).

Wyeth’s corporate legal department employs some 350 law firms, including 90 that submit invoices through the legal department’s e-billing system. My point is that about a quarter of the firms used (90 out of 350 or so) probably accounts for more than three quarters of the department’s spend. More subtly, that group of firms may well account for upwards of 80 percent or more of spend with law firms that serve the company year in and year out. Such selectivity makes sense for law departments that incur costs of their own or their firms for the system – roll out e-billing principally to the law firms that consistently account for the bulk of your spending (See my post of Sept. 5, 2007: whether to require e-billing only of your top firms; and March 5, 2009: use of e-billing with a bit more than half of departments’ law firms.).

We learn also from Met. Corp. Counsel, Vol. 17, May 2009 at 32, that the department has “roughly 140 internal users” of the e-billing system. What percentage of the entire department is that?

Since my last metapost on electronic billing systems, I have accumulated many more posts (See my post of Dec. 14, 2008: e-billing with 45 references.). Three posts concern vendors (See my post of Feb. 15, 2009: perplexing data on e-billing software; Feb. 25, 2009 #3: CSC’s E-Billing module; and May 8, 2009: user-base estimates of leading e-billing providers.).

Legal OnRamp had an interesting piece by Jim Hassett (CEO of LegalBizDev). On April 15, 2009, Hassett moderated a panel discussion on alternative fees at large firms. Rob Fields from Womble Carlyle (a US firm of more than 500 lawyers) described a large project Womble Carlyle recently started in which the firm’s client can choose whether to pay by the hour or to pay one of several predetermined fixed fees. At the end of each matter, the client gets to pick the lowest price.

It reminds me of the choice another law firm gave its clients to use offshore resources or not (See my post of Feb. 17, 2008: law firm gives clients ability to choose offshore resources.). In both instances, and others, to the degree that law firms can offer important clients choices, that goes a long way toward client satisfaction.

PrinceOMC, a UK-based management consultancy providing sourcing consulting to professional services companies, polled over 100 in-house counsel at FTSE100/DJIA30 businesses and leaders in UK and US law firms. According to the press release of PrinceOMC

”The impact of the downturn on law firm’s perceptions of outsourcing or offshoring parts of their business has been mixed. Whilst more than 50% of in-house lawyers think that law firms should use offshoring to cut costs, more than 70% of law firm partners say they have no plans to offshore or outsource any of their legal processes.” Law firms, if this is true, are at risk of being disintermediated: general counsel will seek their own offshore capabilities and bypass law firms that are out of step.

The press release continues: “However, on closer analysis it seems that outsourcing of support services is increasingly in favour, with over 36% of law firms polled having already outsourced, or are currently actively considering outsourcing IT, over 43% word processing and 30% knowledge management. Over 45% said they would be considering their finance function and a highly significant 61% said they would be assessing commoditised legal work.” Law departments will benefit most directly from commoditized legal services being handled overseas (See my post of June 25, 2008: offshore with 27 references.).

Jeff Carr, the General Counsel of FMC Technologies, announced at the SuperConference that he wants to hear from law firms that would like to participate in the FMC Law Litigation Value Challenge. In his email to me afterwards, he wrote “If firms share our objective of pioneering innovative ways to avoid, manage and resolve litigation, we hope firms will download the attached documents, review them and join us to meet the Challenge.”

You can get the attachments from Yvonne Costales. Responses to the Challenge must be submitted to her no later than 6 pm (central time) on May 31.

The terms that a law firm agrees to, such as to accept a 25 percent holdback in return for 10 percent of the difference between a $10 million settlement and a $50 million settlement, tells you what the firm thinks of your chances in the lawsuit. Previous posts on this blog have concentrated on how to manage costs through alternative fee arrangements, but those arrangements also provide valuable insights into how experienced lawyers rate your prospects.

If more than one law firm evaluates (or proposes) payment terms that depend on the outcome of the case, your department can learn quite a bit about what others conclude about the value of your case– a mini-prediction market. Fred Bartlitt, speaking at the Ninth Annual SuperConference, commented on this ancillary benefit of a fee negotiation. It gives a different spin to Early Case Assessment.

Four points occurred to me as I listened to Karen Klein, General Counsel, Kayak.com, during the recent Ninth Annual SuperConference www.insidecounsel.com/superconference.

The first point was her observation that law firms should measure revenue on a per-employee basis, as does her company and many other companies. If law firms did so, they might take more steps to control their overhead costs, reflected inevitably in billing rates, according to Klein. For me, ignorant of the economics of law firms, it is an empirical question whether law firm effective rates rise as firms grow larger because of personnel increases or because of other factors, such as specialization, market recognition, and demand.

Second, Klein observed, tartly, rate freezes by law firms do not mean that if a lawyer moves to a new class year the lawyer’s rate increases. No, no, no: each lawyer sticks with the billing rate in effect for that lawyer during the previous year (See my post of Feb. 9, 2009: rate freezes with 8 references.).

One long-term trend may escape notice: legal departments are steadily stocking more and better data about what it costs outside counsel to handle matters. As David Grumbine, Senior Counsel, Dispute Resolution Group, of Whirlpool Corporation, put it on a panel at the Ninth Annual SuperConference, “Hourly billing rates are irrelevant if data is available for historical measurement.” His point is that the more a legal department knows, from its matter management system, about the costs of previous matters, the more confidently and quickly it can strike a deal with a law firm on a new, similar matter.

Gradually, savvy general counsel will arm themselves with targeted cost knowledge, collecting relevant data for longer periods of time, extracting it efficiently from databases, analyzing it astutely, and applying that knowledge to craft fixed fee arrangements with external counsel (See my post of Jan. 25, 2007 about all processes produce data for mining; July 21, 2005 about a consortium to share legal data for mining; Feb. 19, 2007: fancy term for analyzing data; Feb. 17, 2008 #4: “machine learning” to automating data mining; Feb. 24, 2008: business intelligence efforts by law firms to glean information from their billing records; Jan. 25, 2007: business intelligence and data mining; May 25, 2008: who do law firms not mine their own records; Jan. 20, 2009: data mining software available for five years, but little use; Feb. 7, 2009: huge store of data on patent cases; April 28, 2009: pick a firm to help you dig through your data). Data mining, over time and without much recognition, may transform the pricing of matters assigned to outside counsel.

At the Ninth Annual SuperConference, David Grumbine, Senior Counsel, Dispute Resolution Group, of Whirlpool Corporation spoke. “A world without billable hours is our mantra,” Grumbine announced, so he and his 30-person defense team pursue fixed fees whenever they can (See my post of March 1, 2008: fixed or flat fees with 36 references.).

Grumbine made a subtle point. “Hourly rates affect communications between a client and a law firm,” he said. When the lawyer at the firm bills in tenths of an hour, the ever-present charge may deter a cost-conscious in-house attorney, with consequences that are undesirable for both the firm and the legal department. Over the longer term, a law firm partner wants close and early communication with the client. Sure, fretful partners can lose sleep about abuse from too many calls if they have agreed to a fixed fee, but on the other hand a useful and timely call may save much effort.

Recently, when Chalco boosted its stake in the Rio Tinto Group, Rio Tinto turned to that Australian firm of Allens Arthur Robinson in the firm’s capacity as legal advisors. As reported in Asian Legal Bus., Vol. 7, April 2009 at 8. Not surprisingly …

“The relationship between Allens as external advisors and the in-house team at Rio is one which the firm had developed over the course of their role as counsel to the company for over 100 years. ‘We are able to bring a lot of corporate memory to the table,’ said one of the Allens partners.”

Indeed. A century of representation!