Articles Posted in Outside Counsel

Harvard Pilgrim’s general counsel, Laura Peabody, explained her law department’s retainer agreements. Speaking at a panel covered by the Nat’l Law J., Dec. 12, 2008, Peabodyexplains that “she has a labor and employment boutique and an Employee Retirement Income Security Act (ERISA) boutique on a monthly retainer so that her legal staff can call and ask those firms questions anytime. At the end of each year, all the firms and Harvard Pilgrim evaluate the firms’ work for the contracts that need adjustment.”

Retainers such as Peabody’s make sense (See my post of Aug. 26, 2005: yawns from law departments on retainers paid quarterly in advance; Oct. 14, 2005: retainers and prompt payment; Aug. 26, 2005: retainer billing and budget control; May 11, 2008: monthly flat fees for major litigation; Oct. 30, 2006: historical use of retainers to conflict out firms; and Nov. 15, 2005: retainer compared to fixed or flat fee.).

Law departments may establish budgets for specific matters handled by outside counsel. However, many times in-house counsel call a partner for short or general advice. Those calls can mount up to significant bills and it makes sense to budget them.

Doing so, however, raises issues of whom to hold accountable for the budget if many lawyers can pick up the phone for the firm. Further, there can be several general accounts for a large law firm if several practice groups call it for advice.

One solution places accountability for the budget on the relationship lawyer in the department who oversees that firm (See my post of May 18, 2007: inside lawyer appointed for each major firm.). That person should monitor use of the firm on general questions and the retainer agreement (See my post of Jan. 7, 2008: retainer billing at Harvard Pilgrim; and May 21, 2007: matter budgets with 9 references.).

Jane Genova a writer/marketer and host of the blog Law and More, misconstrued a recent post by me (See my post of Jan. 2, 2009: oblique discounts.). There I cited a study that suggested quality brand companies might be reluctant to discount their prices, but might indirectly give customers economic benefits. I extrapolated the parallel possibility that law firms might discount directly. Genova wrote a day later:

Therefore, I find it baffling that some are still struggling with branding issues within conventional frameworks. For instance, in the Law Department Management Blog, Rees Morrison argues that discounting in elite branding can only be done indirectly. Otherwise, the brand identity could take a hit. Even more puzzling, at least to me, Morrison cites two sources to reinforce his contention.

I did not argue that discounts by well-known law firms can only be done directly. Manifestly, many firms agree to requests for discounts off their standard rates. What I did posit was that law firms might try the same kind of oblique discounts as the two examples I included.

According to IP Law & Business’ research last year, “IP specialty firms accounted for only four of the 31 firms that handled three or more IP litigation matters in the U.S. for the world’s 50 most innovative companies.” Research this year confirms the pattern: “of the 22 firms that handled three matters are more coming only three were IP specialists.” The trend is that for patent litigation law departments favor general practice firms, which might be more experienced with e-discovery, more stocked with software for discovery, and packed with more litigation depth and experience.

By contrast, IP specialists firms are preeminent in patent prosecution. The article that cites this data, IP Law & Bus., Vol. 6, Nov. 2008 at 43, attributes this dominance to the increasing technical expertise that is needed for effective patent prosecution.

Law departments recognize specialized expertise, and in the intellectual property world the two practice areas have clearly diverged by type of law firm (See my post of Nov. 30, 2005: IP litigation with what type of firm.).

“The price of something is often an important determinant of its perceived value, as Dan Ariely points out in Predictably Irrational.” Two writers add in the Harv. Bus. Rev., Vol., Vol. 86, Dec. 2008 at 31, “If you discount prices purely to boost sales, buyers may begin to question that value.”

Those who set billing rates at law firms recognize the brand message their hourly rates signal. They are reluctant to debase the brand by discounting the rates. Oblique ways to lower prices exist. For instance, Chrysler held to its sticker price but subsidized the gasoline a new car would use. Another company kept prices the same but discounted its financing terms. Smart marketing, perhaps, for a law firm would be if it “couples the appeal of a discount with an implicit message about the value of the core product.” An astute law department might ask for non-discount discounts.

A law firm might offer a substantial chunk of CLE training for free, with the training increasing as the hours worked by the firm increase. Or, it might throw in some measurable value of technology support or joint knowledge development for free. Perhaps rates stay firm, but a secondee is made available at a loss-making rate.

Regular visitors to this blog know that I periodically collect posts on a similar topic into what I call metaposts. With some 220 of them in hand, I venture here to raise mere metaposts to hyperposts level. Is the blogging world ready for another neologism: hyperpost?

This hyperpost collects eight metaposts and two articles on billing by law firms.

Bill auditors (See my post of Dec. 27, 2008: bill auditors with 15 references.).

Many posts have appeared on this blog about guidelines for outside counsel

(See my post of July 11, 2008: guidelines for outside counsel with 16 references; and Aug. 5, 2008: reservation of rights to review bills.).

Those musings and my recent consulting projects led me to write about five problematic issues in the standards set for outside counsel.

General counsel have squeezed to wring out law firm expenses, but new data suggests the sponge will keep expanding. The American Lawyer obtained survey responses from managing partners and firm leaders at 112 US law firms, Am. Law., Vol. 30, Dec. 2008 at 93. “Ninety-eight percent of respondents to our survey said that their rates will be higher next year, though 63 percent said the rise will be 5 percent or less.” Who knows if the ravages of the economy will temper those higher charges.

One managing partner defended the rate increases on the basis of service and value: “The raw rate issue is lower on the scale than what kind of service and value the firm is providing.” Translated: “Our clients may wring their hands, but not us.”

A final note. “Seventy-five percent who responded to the survey said that their clients are requesting discounts.” That flaccid statement helps very little. I wish there were data on the level of discounts sought, the percentage of fees that might be subject to the discounts, and the percentage of fees actually subject to discounts at different levels. Am I greedy for data or what?

“Firm partners are commonly consulted when a company is considering shipping tasks overseas because, whether it’s patent research or litigation support, they have to work with the product that offshore shops like UnitedLex Corp. or Pangea3 LLC deliver.” The quote comes from an article of Corp. Counsel, Dec. 22, 2008 (David Hechler)

I have not heard that law department lawyers “consult” with partners at firms if the in-house group decides to use legal research firms, consultants, litigation support vendors, legal writing specialists, forensic experts, or other services. Ultimately, an in-house lawyer has to vouch for the quality of the work done by the unbundled service provider, including offshore legal-service providers. Outside counsel may have views about any of those resources, but I certainly hope they do not feel they must routinely and duplicatively review their work for quality.

Nothing good for general counsel can come from retained firms that set billable hour minimums (See my post of Nov. 8, 2005: Altria and its 200-hour monthly maximum; Oct. 20, 2005: ask for total hours billed in a month by key lawyers; June 22, 2008: in the office 60 hours to bill 40; Aug. 22, 2006: law firms that impose billable hour requirements; Oct. 25, 2007: abusive billing across multiple matters; Dec. 14, 2008: three tiers of billable hours; and April 26, 2006: pick busy lawyers if you want efficiency.).

At the least, know which of your firms set billing bars for their lawyers. Further, if possible test whether the number of hours recorded by firms on similar matters differ statistically according to whether the firms set bars or don’t.