Outsourcing In-House Counsel: The Case of Litigation Management
Previously I discussed the business case for engaging outsourced in-house counsel when a company is facing legal challenges related to standard essential patent (SEP) assertions and in the context of trade secret services. In this article I discuss how outsourced in-house counsel can provide significant value-add when engaging outside litigation counsel. Where a company does not have in-house counsel, or where in-house counsel is not familiar with a specialized area like Intellectual Property (IP) litigation, outsourced, in-house counsel can both help the company engage the best outside counsel and manage them more effectively.
Unlike outside counsel, but like in-house counsel, outsourced, in-house counsel is more likely to develop a global picture of a company’s business. They are also more likely to have a long-term relationship with the company. This allows them to better understand the issues facing the company and even anticipate and possible resolve issues before they arise. Moreover, they will know all the various personalities with the company and be better able to navigate their needs, desires and preferences.
On the other hand, unlike in-house counsel, in many litigations outsourced, in-house counsel will be able to more easily get access to confidential information under the relevant protective order. This can prove invaluable. Finally, unlike most outside AND in-house counsel, outsourced, in-house counsel tend to have both very broad and very deep experience in all manners of litigation across multiple jurisdictions around the world. Access to such experience is very hard to come by and can provide valuable perspective when developing and executing an overall litigation strategy.
Please do not get the wrong idea. In the event of litigation, hire outside counsel. Other than a few specialized businesses (such as insurance companies) when facing litigation most companies wisely engage counsel. The reasons for so doing are simple and powerful. First, most courts around the world require advocates to be locally barred and is simply not possible to have in-house lawyers who are barred in all relevant jurisdictions. Second, lawyers in private practice are (more or less) free agents and have tremendous opportunities to work for a variety of clients. This allows them to develop broad expertise in their chosen areas of litigation. Third outside counsel serve as an important strategic buffer between the ultimate client and the court.
Unfortunately, the same factors that make outside counsel essential tools in litigation are also the reason behind the many frustrations business people have with lawyers. Because of outside counsel’s broad experience, they typically don’t have deep exposure to the specific facts and legal issues facing the company. Outside counsel have many clients. As a result, they don’t typically develop the kind of longstanding relationships that allow them to anticipate a client’s concerns, needs, and preferences. Finally, the economic incentives outside counsel face – including overwhelming pressure to stack up “wins” and generate large billables – can create (at least the impression) of a significant tension between the client and the law firm. This tension is often exacerbated when a business does not have significant exposure to lawyers, let alone litigation.
Despite many depictions in popular culture few people really understand what happens in a litigation and what to look for when hiring and managing outside counsel. This problem is even worse when dealing with specialty areas such as intellectual property, securities laws, anti-trust and other kinds of litigation that the average person has little exposure to in their day-to-day life.
Quality in-house counsel can help significantly. The importance to a business of effectively managing outside counsel cannot be underestimated. Business types almost uniformly hate to have their work disrupted by litigation – even where the litigation could result in significant revenue. Not only do they hate disruption, they tend to blame their own outside counsel for the disruption – and they will let them know it. There are any number of ways that litigation can cause disruptions and general unpleasantness to companies and executives including: depositions, document requests, subpoenas, customs raids, diligence interviews, hearings, strategy sessions, interviews by government regulators, settlement meetings, etc. Outside counsel do not often appreciate how disruptive litigation can be. Moreover, outside counsel do not generally have a sense of the internal patterns and rhythms of activity within the company. As a result, they always seem to make schedule litigation-related requests and activities at the worst possible time. On the other hand, counsel who are attuned to how things work within a company and who is incented to take the longer view of the company’s business, will be able to work to develop a workable process that can satisfy (for the most part) both the needs of the business and outside counsel.
Early in my in-house career I learned the importance of actively managing outside counsel. Of course, we managed counsel’s budgets and invoicing – making sure that work was performed as promised and was justified. We created all manner of creative ways of getting more work for our money in a way that minimized the ultimate financial hit for outside counsel. In litigation the fate of the company – in whole or in part – is in the hands of outside counsel. I strongly believe that it is very important to keep counsel on their toes and keep track of their invoices and not let them (unjustifiably) break the budget. However, there is nothing more dispiriting to outside counsel than a penny-pinching client who constantly hacks bills and endlessly delays payment, and then – even worse – waits until the end of the year when partner compensation is determined for the year – to suggest that the firm write off a large portion of the long past invoices. (Some of the more egregious clients that I have seen did this and suggested a 60% write-off).
My friends, there is no better way that this to demoralize counsel and reduce their effectiveness. That said, there are ways to find the right balance between incenting counsel to perform and keeping the bill low and predictable. It is more of an art, than a science, however.
A large part of that art involves gaining outside counsel’s respect as a lawyer. This is not always as easy as it seems. Sometimes it involves establishing a simple personal connection (and taking the trouble to meet them in their offices and learn their concerns). Often it requires showing that you can provide real and useful input not just to high level strategy and tactics but to briefs, arguments, and presentations. To do this, every filing and every presentation made by outside counsel must be reviewed and aligned across the company’s legal and intellectual property strategy. Then that strategy must be distilled into constructive comments and feedback to counsel. Learning how to provide that feedback to oft-times prickly and cocksure outside counsel is no mean task. Luckily, throughout my career I have been surrounded by very talented in-house teams who have been on all sides of the legal issues at hand. And while outside counsel sometimes grumbled that we made them work harder – and did not like when there was a heavy hand guiding them – we made them work better and often much less. The result was superior work product and ultimately better results. This led to a strong sense of respect and ultimately lower costs and greater flexibility in the kinds of financial arrangements a law firm will offer the company.
Another challenge with outside counsel, is that they tend to privilege their own area of expertise. If they are patent lawyers, everything is a patent problem, if they are a Texas-barred lawyer, then everything has a Texas focus, and so on. As noted above there are very few counsel – either outside or in-house – that have a truly global view on litigation. In fact, such counsel typically are found (if at all) at large, multinational companies in litigation prone fields. (For a distillation of some of my key learnings from global litigation and things to consider, check out an article I wrote in the 2017 IAM Yearbook.) Those experts are not often available for hire.
What should companies do? They may recognize the need for competent counsel, but perhaps cannot afford a full-time hire; do not want to make a mistake when they hire a new person; or want to build up its legal department organically and not in one fell swoop. Such companies could hire in-house attorneys and hope that additional justifications for their employment will surface. That may happen, or not. If it does not, a company will find itself in the tricky situation of needing to let staff go. That is far from an ideal outcome in the best of circumstances. For small to mid-sized companies any downsizing can be demoralizing beyond the legal department. It may also be that it is impossible to hire such specialized skills at any price. There may not be enough people out there with the relevant skills and experience. Alternatively, the company could rely on outside counsel, but that could become extremely expensive and disruptive. The company would also lose many of the benefits of in-house counsel discussed above. The use of highly skilled, outsourced in-house counsel can be an elegant solution.
As in most things, the best way to engage counsel is a matter of balance and the result of informed and objective analyses. The key issue of determining whether outsourced in-house counsel services are proper for a company is a question of balancing the delivery of the company’s needs for legal services between inside and outside legal providers to ensure an ultimate advantage for the company. The important thing is to have resources of the correct caliber in the right place to deliver each aspect of the company’s legal requirements.
David L. Cohen, president and founder of David L. Cohen, P.C. was former in-house counsel at Nokia and former Chief Legal IP Officer at Vringo. His law firm focuses on outsourced IP counsel services including: SEP licensing; F/RAND and anti-trust compliance; offensive and defensive patent licensing and litigation management; IP and public markets concerns; outside counsel management; agreements; and trade secret auditing and protection. Through Kidon IP corp., David also offers: IP and standards white-spacing to guide R&D, patent brokering, patent review and valuation services, IP services for M&A, and global IP portfolio building.