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The slugfest of patent litigation unleashed by Apple related to Google’s Android operating system has proved to be frightfully expensive. Samsung, HTC and other companies are up in arms. Quoting Prof. Mark Lemley of Stanford Law School, Bloomberg BusinessWeek, April 2, 2012 at 63 said “these companies have paid their lawyers more than $400 million” over the past several years.

The hundreds of millions paid law firms represent only part of the legal department costs, to be sure. For this blog post, however, the exorbitant cost is not the point. The point is that when CEOs decide to pursue high-stakes business strategy with many tools, including litigation, the general counsel carries part of the water, extremely costly water. How can anyone hold a general counsel to a “budget” if crucial decisions depend less on legal analysis of rights and potential recoveries than on multi-front competition that transcends mere litigation?

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Last summer, Legal Suite, a French powerhouse of matter management software for legal departments, conducted a survey. Legal Suite invited visitors to Village de Justice, an online site for lawyers in France, to answer questions about their legal technology use. They collected 58 responses and published the findings.

One question asked about what blocks investment in law department software (“les freins à l’informatisation du départment juridique”). I translated the responses as laid out on page 4. Of the five choices available, no one selected the internal IT department; about 10% chose time to invest; 20% chose “my manager” and 30% chose cost. The most significant obstacle, however, at 40% was the culture of the company (“La culture de votre enterprise”).

To blame lack of technology on your company’s “culture” seems wimpish. If you have a need, the budget, and IT support, it’s your fault if you don’t install software and hardware that helps your legal department. If you would like to see the report, write Legal Suite and mention this post.

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Nonlinear systems occur when “outputs of a system cannot be expressed in terms of a sum of inputs, each multiplied by a simple constant.” The quote comes from John Brockman, Ed., This Will Make You Smarter (Harper Collins 2012) at 184, a piece on scale analysis. If a formula could capture the output of law departments, life and management would be so much simpler: X times number of lawyers plus Y times number of paralegals and Z times other staff plus A times the dollars spent on outside counsel equals output! For any given law department, its four inputs multiplied by their respective constants would capture it all. Not so, of course.

Law departments are non-linear, with complexity the dominant characteristic: “Unpredictable variability, tipping points, sudden changes in behavior, hysteresis – all are frequent symptoms of a nonlinear world.” We can hold out no hope for a linear function that describes law departments.

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This humble, but practical bit of advice comes from the ACC Docket, March 2012 at 32. E-mail serves best to transmit information that doesn’t need discussion. Long threads of e-mails, especially if there are multiple people copied and they weigh in, become unwieldy quickly. It is much more effective to call someone and talk about the situation rather than take time to write possibilities and explanations.

It feels to me, as I indulge is some curmudgeonly kvetching, that many people nowadays hide behind e-mail. Real time talk scares them, or else they are so used to endless text messages and quick replies that they are not comfortable with the directness of facts exchanged and decisions made..

So, when it is clear that e-mail has bogged down, go to someone’s office or call them. Three’s the charm.

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A point-counterpoint in Lit. Mgt., Spring 2012 at 56, presents the case for and against staff counsel in insurance companies. Favoring staff counsel are “predictability of fees, decreased cycle time and increased trust between claims staff and attorneys handling their suits.” The proponent of staff counsel also argues for them due to their accessibility, depth of knowledge, and cost effectiveness.

Reasons to oppose staff counsel include objections to the unauthorized practice of law – but the proponent says that “most states have rejected these arguments” – and to the ethics of an employee representing an insured – but again, “virtually all tribunals finding that the use of staff counsel is ethically permissible.”

The opponent of staff counsel basically revives the “inherent conflict of interest” between serving the employer insurance company and serving the insured premium payer. Additional arguments in favor of independent trial counsel include breadth of experience, more resources available, and more favorable perceptions by courts and opponents.

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In the ACC Docket, March 2012 at 24, the general counsel of NetScout Systems holds high the banner that that the “legal team should be an active participant in all critical corporate decisions.” Unless “critical corporate decisions” is deemed synonymous with “decisions where legal input must be had,” in which case the sentence is a tautology, this is a mischievous assertion. It would have law departments step far beyond the bounds of where in-house lawyers have skills and should be actively devoting chunks of time.

A decision to sell a major business unit certainly ought to involve in-house counsel at some stage, but the decisions that precede legal input have everything to do with business concerns like competition, corporate resources, fit, growth markets and nothing to do with laws and statutes. Decisions to locate manufacturing or distribution sites are likewise primarily based on revenue, costs, logistics, and taxes, not on statutes, cases, regulations, or the common law.

The legal department is not and should not be the hub of the company. It should not try to stick its thumb into every pie.

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In MIT Sloan Mgt. Rev., Spring 2012, at 19, as a co-author the Director of the USPTO states that “intellectual capital and intangible assets – including technology, brands and strategic competencies – comprise more than 50 percent of the business outputs in the U.S. economy.” If so, wouldn’t you expect IP lawyers to become more crucial and therefore more common? I am not aware that the proportion of all law department lawyers accounted for by IP lawyers has risen. Instead, much of what the article refers to as intellectual capital is dealt with by generalist commercial lawyers.

Elsewhere the authors state that the World Intellectual Property Organization estimated in 2008 that there were 6.7 million patents in force around the world. Wow! The average annuity for a patent could be much more than $1,000, but if it were only that much holders of patents would spend nearly $7 billion a year simply keeping those patents current!

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A survey of more than 50 function heads of European companies found that “fewer than one in 10 function heads felt they had received sufficient guidance on how their function should contribute to the company’s overall strategy.” Reported in MIT Sloan Mgt. Rev., Spring 2012, at 12, the research by the Ashridge Strategic Management Centre found that the functions often had KPIs but “these rarely assess the overall contribution of their function.”

The thesis of the article is that without CEO guidance, a legal department, for example, can under-perform and disappoint clients. They can become self-serving. They fall short of helping the business divisions with “the practical support they want and need.” Instead, “corporate functions measure themselves against industrywide best practices or implement initiatives that increase their influence or simplify their own work”

The article suggests that CEOs fail to direct functions because either (1) they focus on business units or (2) they feel they lack enough technical knowledge to give direction to the staff group.

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The general counsel of NetScout Systems co-wrote a piece in the ACC Docket, March 2012 at 22. Early on, a sidebar sketches how general counsel over the past century have been perceived. The early 20th century, was the “golden age” of corporate counsel, “where the majority of corporate executives were lawyers, and the general counsel was often one of the three highest paid individuals in the company.”

The picture darkened in the second half the 20th century, “when large law firms became dominant, and the focus of commercial activity shifted to marketing and finance accounting.” So far did esteem for general counsel decline that their legal written opinions “were generally not deemed acceptable for various transactions.”

Today, “the pendulum is swinging back in the direction of corporate counsel as vital and influential members of the executive team.”

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An article with this title appears in Claims Mgt., March 2012 at 14. Metrics fan that I am, I read with interest about the six. Not much to say on the first two, except to agree that time to close and average defense cost per claim make sense to track. “Lawyers per indemnity dollar” comes from dividing the fees paid outside counsel by the number of lawyers who recorded time on the matter. All law departments could look at this measure since stray timekeepers don’t add commensurate value.

The fourth metric, “Predictability of verdicts and settlements” from the first forecast to the final result sounds plausible. It might break down, however, because of the variability of when the first forecast is made and the inclination to high-ball it.

“Alternative fees compared to hourly billing” is partly about the balance of hourly and non-hourly fees and partly about the overall costs that result from each variation. This metric adds value if your department has enough matters of each kind and assigns them randomly. Few departments meet the former test; none the latter.

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