Articles Posted in Showing Value

Fortune, Sept. 27, 2010 at 76, states that 3M owns 40,000 patents and patent applications, with only about a quarter of them in the US. A number that massive and scattered helps you appreciate the crucial role of inside patent lawyers.

In that vein, their role may be changing. A head of IP recently made a passionate argument for patent lawyers who don’t even prepare and prosecute applications for patents. More contributory than procurement (patent preparation and prosecution) are transactional IP advice. Having delegated the traditional function to boutique firms at fixed fees, he sees his staff’s higher value from commercial nous, such as licensing, strategic analysis of the company’s patent landscape, and guidance of R&D (See my post of May 18, 2010: at Electrolux, maximizing the value of a portfolio rather than its size.).

To determine the strategic contours of a patent portfolio presents a challenging, never-ending puzzle. It influences the profitability of the company more than drafting a patent application. So too does client counseling of what research to work on and what to avoid. Patent lawyers can be more involved with litigation than before. They set up strategic alliances and research projects. Inside patent lawyers of the world unite! You have nothing to lose but your chains of prep and prosc.

Cassandra’s dominated the past year in terms of predicting layoffs by legal departments, doing more with less, marginalization by cost cutting. But a contrary view peeked through the clouds in an interview from Legal Strat. Rev., Summer 2010 at 20. Sony Ericsson’s general counsel, Jonathan Pearl, feels that economic decline and “generally enhanced risk factors” have benefited corporate law departments. “The increased heat in the boardroom has focused attention on the valued added by corporate counsel and the role they play in protecting their businesses.” In times of trouble, the lawyers move to the speed dials of their clients.

“When things are fine and everyone is making money, then frankly people don’t tend to run to the lawyers as often.” I wish there were a way to test that proposition with empirical research. Perhaps with some time lags built in, benchmark metrics will show that law departments hold up better than other functions during recessions in terms of headcount and budget?

Should a legal department that supports or runs patent licensing count revenue from it and talk about being a profit center? Consider Microsoft, as described in Corp. Counsel, June 2010 at 76. The company’s intellectual property and licensing group manages nearly 23,000 issued and 38,000 pending patents around the world (See my post of Aug. 3, 2005: Microsoft and benchmarks of patents per billion of revenue; May 13, 2007: Microsoft’s patent management practices; Dec. 11, 2007: Microsoft’s software to classify large portfolios of patents; and May 13, 2007: Microsoft’s litigation against trolls.).

The law department “is developing a system to track the unit’s licensing programs and income more closely.” Clearly, a general counsel could seek to maximize patent revenue without trying to claim credit for that revenue. Still, the temptation would be strong to say, “Through our efforts, the company reaped $10 million in patent revenue – and, oh by the way, our total legal budget was $9 million.”

It is completely appropriate for a legal department to publicize its efforts to bring in revenue from the company’s patent portfolio (See my post of Jan. 16, 2006: patent auctions and value ratings of Ocean Tomo; and Nov. 28, 2005: another IP auction service.). It is not right to claim the revenue from patents when much of the work and infrastructure costs that enabled those patents were borne by the company.

Koans are verbal paradoxes contemplated by Buddhists on the path to enlightenment. My homemade koans have more modest goals: to convey some thoughts about the risks grappled with by legal departments. In a few days I will post my explanation of each koan.

1. Risk flirts with dollars but marries reputation.

2. Up the line can mean end of the line.

The initiative of Hewlett-Packard to hire four first-year associates to start in September has deservedly gotten much play. One aspect of the article in the Recorder, June 21, 2010 at 5, however, may have been overlooked and deserves comment.

The Deputy General Counsel who led the recruitment effort remarked in his interview about a downside when you add fifth-to seventh-year law firm associates. “You spend a fair bit of time getting them to transition from risk avoidance to risk management.”

He means that external lawyers do everything they can to uncover all the potential legal risks of something and to stamp out any embers. Once inside a company, however, lawyers have to change and accept that business must move forward, that some level of risk can smolder that is an acceptable tradeoff for profit, and that the goal of an effective lawyer changes from risk elimination to risk balancing. Pick your risks and suggest practical solutions that manage that risk even if you can’t douse every glowing coal of potential legal trouble.

An article in the Acad. Mgt. Exec., Feb. 2005 at 9, concerns incivility in the work place. It gives two statistics that are at least five years old that can help a law department justify its cost and value its contribution to the client.

“Among the Fortune 500, the annual cost of sexual harassment has been estimated to exceed $6 million per company in absenteeism, lost productivity, and turnover alone.” The article notes that this figure does not include “the great financial burdens of settlement costs, lawsuits and legal fees,” or other expenditures and losses. A law department that trains clients to reduce the incidence of sexual harassment could draw on such estimates to justify its work.

The same article adds a second metric later. “Fully loaded costs of turnover [are] estimated at 1.5 to 2.5 times the salary paid for the job.” To the extent training reduces turnover, the department can perhaps claim a contribution to these savings (See my post of March 8, 2009: attrition in law departments with 16 references and one metapost.)

The most recent statistics from the Law Society of Britain are as of 31 July 2008. The Society tallied 139,666 solicitors on its rolls. The number of those with practicing certificates was less, at 112,433.

The number of solicitors employed outside of private practice grew considerably, to 29,104. That does not mean that 29,000 British solicitors work in corporate legal departments, I believe, since many might not be practicing law. But at least we have another data point in the sporadic quest for the number of legal departments worldwide (See my post of April 13, 2006: estimates in the UK of 14.5% inside solicitors; and Feb. 8, 2010: UK had approximately 130,000 lawyers; Commerce & Industry has 11,000 members.).

One of the many powerful ideas clearly expressed in Amartya Sen, The Idea of Justice (Harvard Univ. 2009) at 15, is the “plurality of competing principles” put forth to explain different notions of justice. Sen believes that no single value will ever be recognized widely as the ultimate for purposes of defining and dispensing justice. As Sen concludes, “There may not indeed exist any identifiable perfectly just social arrangement on which impartial agreement would emerge.”

Likewise, I believe, we will never settle on a definitive value to choose which law department is “best” if only because those who care will never agree to a single litmus test for best. Consider some of the contenders.

Someone will say that the best law department delivers the most shareholder value. Another disagrees, and puts forward the advancement of law as the right measure. A third person argues for productivity and quality while a fourth would base the judgment on personnel self realization of members of the department or advancement of corporate social responsibility. Sen’s point is that we will never reach agreement on which of these or other values stands above the others as the measure of legal department quality.