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Enterprise Strategy Group (ESG) recently surveyed 48 law departments (about a quarter of the respondents were general counsel) representing midmarket organizations (500 to 999 employees, 17%), larger companies (1,000 to 2,499 employees, 10%) and enterprise-class (2,500 employees or more, the remainder).

ESG was dismayed to find that in 2010 almost two out of three of those law departments did not “track e-discovery related expenses (i.e., document review fees, outside counsel fees, technology investments, etc.).” Perhaps they should be less surprised given who responded and the size of many of the companies – and thus their volume of lawsuits that justify tracking discovery expenses.

One out of three respondents was in a company with less than $1 billion of revenue, which would suggest less than four or five lawyers. Indeed, one quarter of the law departments had 1-10 total employees and a third had 11-24, which translates typically into 5 to 13 lawyers. Since it is fairly common to have one-to-two lawyers per 1,000 employees, even the largest midmarket respondents might have only a single lawyer (See my post of Dec. 2, 2010: lawyers per thousand employees.).

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“Regulatory proceedings” and “regulatory investigations” are terms used in the most recent Annual Litigation Trends Survey Report of Fulbright & Jaworski. No distinction is made between them, but one feels adversarial (investigations) whereas the other could be an administrative hearing like a rate increase proceeding.

Sixty percent of their 405 respondents (U.S. and UK) did not have a single regulatory proceeding commenced against them during 2010. That means forty percent did. The next page of the report (pg. 27) states that 55 percent of the U.S. respondents had retained outside counsel during 2010 for assistance in any governmental or regulatory investigation. The two figures mesh reasonably well.

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The Eighth Annual Litigation Trends Survey Report of Fulbright & Jaworski found (at 13) that 18 percent of its 405 responding companies faced at least one lawsuit with more than $20 million at issue (5% of the respondents faced 6 or more). There is no breakdown given for U.S. and UK participants. A page later, the Report says that four percent of the U.S. respondents were involved in at least one arbitration of that size (12% among the UK participants).

If all we knew were those figures, is it plausible to bump up the percentage for the U.S. group, a country presumably more litigious and profligate than the UK, so that major lawsuits involve 20 percent of them? That would leave something like a ratio of one out of five with a $20 million+ lawsuit for each one out of 25 with one or more such major arbitrations. Hence, I put forward the 5-to-1 ratio of major lawsuits to major arbitrations.

A bit of corroboration appears later in the Report. The ratio of companies initiating at least one lawsuit during 2010 to those initiating at least one arbitration was 52 to 19, or about three lawsuits for each arbitration initiated.

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My writings on over-hyped “bet the company” litigation mostly has made the point that they are black swans (See my post of Oct. 27, 2011: bet-the-company with 8 references.). Which rare lawsuits fall into that cataclysmic category, where expense management flees, general counsel quake, and corporate futures hang in the gavel, is a journalist’s favorite joust, but a bit like defining obscenity.

Then I read in a two-part definition of “material cases,” (1) those that your company would consider significant – too loose a definition for me, or (2) those that would “impact an investor’s decision to buy, sell, or hold the company’s securities.” That second definition creates a standard that resonates with lawyers, at least with securities lawyers, makes sense, and pitches the significance of a case at the right level of major fiscal risk (or gain).

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During the past one-thousand posts, litigation that involves patents accounts for several of my posts (See my post of Dec. 17, 2010 #3: patent trolls and lawsuits; Jan. 14, 2011: patent litigation costs; Jan. 22, 2011: low percentage of chip patents in litigation; June 19, 2011 #4: LITAlert database of patent litigation; July 19, 2011: patent litigation metrics in France; Aug. 23, 2011: patent awards to trolls compared to operating companies; and Sept. 13, 2011: $7 billion cost of NPE litigation.).

From the same set of posts, workload for patent lawyers shows up in several (See my post of Jan. 10, 2011: competitive monitoring; Jan. 10, 2011: R&D staff numbers compared to patent lawyers; Jan. 28, 2011: reporting lines in French law departments; Jan. 28, 2011: EADS encourages patentable research; June 8, 2011: executives value IP increasingly so more work incurred; June 19, 2011: consequences if a company’s patents are deemed industry standards; April 14, 2011 #5: American Express’ redesigned patent program; Aug. 10, 2011: ratio of patents applied for to granted regarding cell phones; and Oct. 16, 2011: defensive publication.).

Given my fondness for metrics, a number of posts refer to benchmarks and calculations regarding patents (See my post of Jan. 3, 2011: swarms of patents from China; Jan. 11, 2011: synthetic indices; and June 13, 2011: two common KPIs in patent management.).

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For a typical U.S. company, the percentage of patents held outside the country might approximate its percentage of international revenue. Stated differently and with an illustration, if a third of its patents are ex-U.S., then its revenue from overseas might also be expected to be around a third. Companies pay to protect their patents in countries where they sell or manufacture their goods.

If my hunch is correct, international patent holdings could serve as a proxy for global trade. It would not only create a benchmark metric to be compared but would also give some insight into globalization and its effects on law department operations. Additionally, patent-related costs, ranging from lawsuits to headcount to disbursements for annuity fees account for a significant element of law department budgets. Patents also intrude on structure (chief patent officer) and leverage and technology.

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An article in New England In-House, Nov. 2011 at 11, discusses how to prevent runaway legal fees. Most of the article contains plain-vanilla ideas, but the author does mention a confection new to me. He first trundles out the well-accepted technique of a collar on a fixed fee such that if the firm’s actual fees exceed the fee it agreed to (or drop below), such as by 20 percent, the legal department will absorb part of the excess (or receive a rebate). The rationale for a collar is that something happened that at the start neither the firm nor the department could have reasonably expected.

Then appears the new idea: “And, if the risk is truly great, you can even use a second band at, perhaps, 40 or 50 percent.” The higher band is akin to excess insurance coverage – low cost and very unlikely to be dipped into. This second layer is a commendable improvement for very volatile matters.

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Any comments by me on insurance coverage tread dangerously close to a topic where my total ignorance almost outweighs my desire to write about topics of law department management. Almost. In Executive Counsel, Dec. 2011/Jan. 2012 at 20, Peter Selvin pselvin@rainselaw.com describes a number of ways that comprehensive general liability insurance as well as D&O insurance might provide coverage in patent infringement suits. The article goes beyond patent suits, covering misappropriation of trade secrets and some statutory claims, for example. It also covers several kinds of insurance products that might soften the courtroom blows.

My point is not about arcane insurance laws, policies, and rights, but about the role of in-house counsel to find insurance coverage that saves the corporate client money. The law department can tangibly benefit its client if it uncovers Rembrandts in the attic or insurance to claim against should the Rembrandt be damaged or lost.

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“Whatever does not add tangible value to client projects is overhead that clients should not be directly or indirectly paying for.” That was the aggressive tagline on a slide by Lee Cheng, the general counsel of Newegg. I did not hear his presentation when Cheng spoke at the most recent Consero Corporate Counsel Forum but he included on his slide pictures of fancy offices, towering high-rises, elegant artwork, and pedigreed associates.

Cheng doesn’t want his invoices to be swollen by mahogany walls, splendid views, Old Masters, and Ivied Orders of the Coif. If so, and given how hourly rates are established, he will be hard-pressed to retain what most general counsel regard as an A-level firm. Copy charges and internal messengers are one thing; the trappings of success are another.

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This blog has acknowledged a handful of maturity models that pertain to law departments (See my post of May 15, 2009: for compliance; May 12, 2010: for attention to intellectual property; May 12, 2010: for legal departments overall; Aug. 10, 2011: for outside counsel management; and Aug. 10, 2011: for leadership development.). A maturity model attempts to describe different levels of sophistication of some practice or process.

In Met. Corp. Counsel, Dec. 2011 at 16, an article refers to a maturity model for e-discovery promulgated by the Gartner Group. A maturity model puts law departments on a nominal scale (one that shows only differences between positions). Law department A is further along in its development than law department B. The maturity models cited above content themselves with nominal scales.

Whereas, an ordinal scale shows both differences and magnitude. Law department A is at level six; while B is at level 4. The most sophisticated maturity models offer a progression where each step is equivalent between each level. Such an interval model shows difference, magnitude and equal intervals.