Articles Posted in Productivity

A post on William Heinze’s blog, I/P Updates, (Dec. 29, 2005) refers to another blog’s explanation of an article by an economist. The economist, Carlos Serrano, used data about patents traded (about 2.5% of all patents at their start, dropping over time) and renewed to estimate values of US patents.

Serrano “estimates that the median value of a freshly-issued patent in his data set is about $21,000 and the mean value is $58,000 (in 2003 dollars).” (See my post of Jan. 3, 2006 about the value of patents.)

Let’s use that median figure and combine it with some admittedly broad figures from elsewhere. Experienced patent counsel have estimated that an in-house patent lawyer can prepare and prosecute about 30 patents a year, which averages about 50 hours per patent (assuming those lawyers spend some time on other kinds of work, and log about 1,850 hours per year). If those preparation and prosecution lawyers average $150 an hour with a full load of costs (See my post of Oct. 18, 2005 on calculating that figure.), then their cost per patent comes to about $7,500; add some costs for the inventor, other corporate costs, plus application fees in the US, and the cost per patent according to these directional estimates would near $10,000 – as compared to a median value of $21,000.

Deryl Earson, Vice President Legal Services of Environmental Management Corp., part of the BOC Group, spoke at the ACC 2005 Annual Meeting on the subject of law department benchmarks. His slides state that EEOC data indicates one claim per 512 full- and part-time employees (0.2 per 100). By that ratio, a company with 10,000 on the payroll would experience in a typical year 20 EEOC claims. What staffing in the legal department and what spending on outside counsel does that require? (See my post of Jan. 3, 2005 on training HR clients to handle such claims.)

Later, Earson states as a benchmark 0.05 (one in 20) “contract claims per major account.” Here, too, if a company completes 500 major contracts a year, that cohort will give rise according to the benchmark to 25 contract claims, thus justifying what level of legal staff and spending?

I have a funny feeling that this clunky term resembles more a bird on the wing than a bird in hand. It “involves applying technology to the contract process from letter of intent through negotiation and execution to performance, amendment and contract renewal (Law Tech. News, Vol. 12, Dec. 2005 at 22 renholm@fensterstock.com). Cradle to grave contract software; but swaddled in words, and no killer applications cited.

My unease stems from the absence in this article of any products or users or vendors. It’s so easy to write, for example, “that ’document assembly software’ is coming to be seen as merely one link in the chain of the contract management process,” and in the next breath “that ’contract process software’ is perhaps an apt label for the products that bridge document assembly and contract management.”

If software is “coming to be seen,” then give a couple of examples to prove the trend. If there are “products,” why not give some credibility to a large claim by listing one or two examples?

I referred to my recent article, describing 30 techniques for improving contract activities (Legal Times, Nov. 21, 2005), and added three more ideas in my post of Dec. 3, 2005.

In 2003, according to a piece in Corp. Legal Times, Vol. 13, July 2003, that cited Lawrence Kaplan, the general counsel of Navigation Technologies, his company’s law department upgraded how it handled the flood of licensing agreements.

The law department (1) evaluated the company’s entire contract-management process, (2) revised its standard license agreements to be “short, simple, and easy to read and negotiate,” (3) adapted them to be useful internationally without much redrafting, (4) created opportunities for the legal department to give guidance early in the contracting process, and (5) pushed salespeople to seek formalized approvals before agreeing to changes from standard pricing models.

A lawyer I know, responsible for mergers and acquisitions at a growing financial services company, offered some comments that deserve passing on.

This lawyer has concluded that international M&A deals, compared to domestic US deals, take three times as much time and five times as much money. The linguistic, cultural, and legal complexities of acquisitions outside the US pump up both hours and dollars.

His second rule of thumb holds that a billion-dollar deal requires a good in-house lawyer full time. Strikes me as a plausible benchmark for staffing. Not that the benchmark is linear: a two-billion-dollar deal does not need two FTE lawyers. Look at the size of deals, consummated and not, that your company undertook over the past few years, and test these experienced estimates.

Industries vary in the degree to which they face regulation (See my post of Dec. 14, 2005 on McKinsey’s rough cut at regulatory intensity.)

For companies operating in a highly-regulated industry, some sizeable chunk of their general counsel’s time must go to developing relationships with regulators, staying abreast of regulatory requirements, and pushing forward-thinking activities that assuage regulators. (top of mind, Vol. 4, at 10). (See my post of Dec. 19, 2005 on the unusual demands of GCs for foreign-based owners.)

The eight inside lawyers of Ascential Software, according to a summary in top of mind, Vol. 4, at 13, combine geographic coverage and substantive coverage. Each one serves as the general lawyer for a business unit or region – you can think of it as their “major” – and also as the responsible lawyer for an area of excellence, such as data privacy and protection, securities law, and export compliance – their “minor.”

This combination of structural elements makes sense: breadth of coverage for a business unit and depth of knowledge for the entire company.

Companies that spend proportionately greater sums than their industry peers on R&D don’t enjoy greater revenue gains or better profits. Since IP lawyers and spending probably paces R&D spending, this counter-intuitive – and controversial – finding by Booz Allen Hamilton, as reported in the Wall. St. J., Vol. 246, Oct. 11, 2005 at A2, suggests that IP legal spending also reaches diminishing returns.

The study looked at data from 1,000 publicly-traded companies responsible for the bulk of global R&D spending over a six year period. Within an industry, comparing middle-of-the-pack spenders on R&D to spenders in the top 10 percent, the study looked at sales growth, gross profit, operating profit, market capitalization, and total shareholder results.

What this means to law departments that have IP lawyers is that benchmarks of lawyers per R&D dollar spent could lead to flawed conclusions, if R&D spending is not a reliable marker of corporate fitness. (See my post of July 20, 2005 on practice-area benchmarks.)

Lawyers should participate on crisis-management teams, but they should not be put in charge. Corporate traumas – think Tylenol, Exxon-Valdes, Vioxx – always spawn legal risks, but the gashes in a company’s reputation are much broader than those suffered judicially.

Lawyers too often resort to words, and carefully crafted words. Crises may require nimbleness and candor. Lawyers are too often conservative, fearing the lawsuit down the road. A crisis may require dramatic action. Lawyers have a partial view of the company, with less sensitivity to consumer confidence and bottom-line considerations. Crises clobber the entire company

Without the benefit of any survey metrics, but based on my 18 years of consulting to law departments, I believe general counsel, as a group; devote their time to four areas. Here are my estimates of the allocation of their time by area.

Providing counsel to the Board, CEO, and C-Suite executives – 30 percent.

Setting legal direction and policies for the company, by working with others in the law department – 30 percent.