Outsourced In-House Counsel: Is It for You?

Not everyone can have full-time legal staff. While there are many advantages to internal lawyers, hiring in-house counsel may not always be possible. Moreover, hiring traditional outside counsel is often expensive and inefficient and can sometime ineffective. Outsourced, in-house counsel can be an elegant solution.

Below are some of situations when outsourced, in-house counsel can help. They include when a company:

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Outsourcing In-House Counsel: IP Department Creation

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,[1] in the context of trade secret services,[2] and when engaging outside litigation counsel.[3] In this article I discuss a slightly counter-intuitive use for outsourced in-house counsel: intellectual property (IP) department creation.

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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[1] and in the context of trade secret services.[2] 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.

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The future of patent monetization is … outsourcing?

BlackBerry announced the outsourcing of a significant part of its patent licensing efforts on Wednesday to a unit of the U.S.-based Marconi Group.  I guess with the privateering model under attack around the world, legal process outsourcing or LPO monetization is the next steps in evolution.   I wonder, though, in practice how safe Blackberry will be from being dragged into litigation as a necessary party or collaterally attacked by licensees.  It will be interesting to watch how this evolves.

http://www.reuters.com/article/us-blackberry-licensing/blackberry-shifts-patent-strategy-through-outsourcing-deal-idUSKBN1DF345?il=0

 

 

Outsourced In-House Counsel: Is It for You?

Not everyone can have full-time legal staff.  While there are many advantages to internal lawyers, hiring in-house counsel may not always be possible.  Moreover, hiring traditional outside counsel is often expensive and inefficient and can sometime ineffective.  Outsourced, in-house counsel can be an elegant solution.

Below are some of situations when outsourced, in-house counsel can help.  They include when a company:

  • Has a long or short-term need for legal advice where budget constraints make a full-time hire challenging;
  • Has periodic needs for legal advice but is concerned about keeping a traditional law firm on retainer to handle the company’s occasional, low cost questions;
  • Has a need to grow a legal department organically but is facing immediate needs and concerned about hiring expensive or untested staff;
  • Has a need to develop an intellectual property portfolio effectively, but is concerned with inefficiencies;
  • Is facing complex, multiple and/or unfamiliar litigations and needs a person to manage and explain the situation to the business;
  • Is facing multifaced legal challenges and needs a person to manage and translate the issues into terms the business understands;
  • Is engaging multiple law firms across diverse matters and needs a person to rationalize the engagement process and ensure effective representation;
  • Needs an audit of the company’s processes and procedures to ensure legal compliance, but wants it overseen by someone who understands how companies work and isn’t simply interested in generating large billables;

and

  • Is facing legal issues in distinctive legal realms, such standard essential patent assertions, where most qualified people are locked into situations and are unwilling to leave.

How do companies typically engage outsourced, in-house counsel?  Most typically offer a range of flexible approaches to best meet the business, transaction or project specific requirements of their clients.   These include fixed, retainer, and incentive-based pricing.  While outsourced, in-house counsel can offer their services on an hourly basis most prefer to establish a long term and set pricing structure.

With fixed pricing, counsel will invest in project management to ensure the scope of work is clearly defined and articulated before price is agreed. The price may be fixed flat pricing for the entire project; fixed range pricing (where the range is a function of a number of variables); or fixed stage pricing where each stage of a project has distinct price.

Retainer structures can be limited to specific workflows or be temporary or permanent depending based on client needs. The retainer model allows for greater certainty and is typically calculated to equate to the average value of the legal work over a prolonged period, thereby smoothing out the peaks and troughs.   Retainers models may include: a retainer for an outsourced, in-house Counsel – a fixed price to a lawyer, payable monthly, to act as a company’s outsourced in-house counsel; or a retainer for an insourced (secondee) lawyer, where a senior lawyer works directly within the company for a designated period of time.

Success pricing is the most flexible of the arrangements and is really only limited by the clients desires and any constraints imposed by the pertinent ethical rules.  Thus, for example, it may combine the fixed or retainer fee with an upside component payable only for a successful result maximizing the alignment of incentives.

In sum, outsourced, in-house counsel is flexible arrangement that can provides companies the legal advice it needs in a cost-effective, and efficient way.

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[1] and in the context of trade secret services.[2]  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 litigations 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.[3])  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.

[1] https://www.linkedin.com/pulse/outsourcing-in-house-counsel-case-standard-essential-patent-cohen/

[2] https://www.linkedin.com/pulse/outsourcing-in-house-counsel-case-trade-secret-services-david-l-cohen/

[3] https://www.linkedin.com/in/davidlevycohen/detail/treasury/position:807765081/?entityUrn=urn%3Ali%3Afs_treasuryMedia%3A(ACoAAAC-Z4cBGKJbAPDiF8nPpLWJyVQjSw4RBZo%2C1476733936752)

Outsourcing In-House Counsel: IP Department Creation

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,[1] in the context of trade secret services,[2]  and when engaging outside litigation counsel.[3]  In this article I discuss a slightly counter-intuitive use for outsourced in-house counsel:  intellectual property (IP) department creation.

When companies find themselves facing increased IP risk and an acknowledged need for long-term, specialized advice they traditionally perceived a binary choice.  They could either go on a hiring spree and take a chance on new in-house staff who might turn out to be experienced but expensive and set in their ways (for good or ill), or very inexperienced and needing to be trained by outside counsel at no small cost to their employer.  Alternatively, companies could hire a law firm to handle the relevant work while they figure out who to hire in-house.  Relying on outside counsel for traditional in-house counsel work, as I wrote previously, can get to be very expensive, to say the least.   There is a third approach worth considering: hire outsourced in-house counsel to handle your short-term IP needs and help you to hire and train a more permanent in-house IP team.

Large companies in sectors where patents[4] have traditionally played a large role in shaping how that industry develops (e.g., telecommunication and pharmaceuticals) typically have had the luxury of organically developing both their patent portfolios and their legal and IP departments.   Sometimes a company in those sectors finds that it has transformed from a start-up to a giant seemingly overnight and is in a rush to build up its IP portfolio and an internal team to manage it.  Most of the time, however, such companies can carefully vet potential hires, and once hired slowly train them in the company’s culture and ways of working.  Additionally, these companies’ in-house teams slowly nurture their intellectual property development as they harvest the best innovations to patent from their research and development.

Most companies, whether large, a start-up, or something in between, on the other hand, do not typically have a large legal or IP department.  Even where there is a robust legal group, few companies have IP specialists.  And even when they do have specialists, it is typically one or two patent prosecutors who are tasked with collecting invention disclosures and managing outside counsels’ patent prosecution.  Such arrangements can work rather well.  The challenge is when the landscape changes and a company that has been previously insulated from serious IP threats (an opportunities) now faces them.

In our tumultuous times, a company’s business landscapes can change rather quickly and change more frequently than most people appreciate.   Without preparation, a company can be quickly caught flat-footed.  A classic example, is the foreign company that experiences tremendous growth in their home market and wishes to expand abroad to places like the US or Germany where litigation (of often staggering complexity) is more common.   Similarly, a company (start-up or established) could be affirmatively interested in diving into a patent-contentious sector but is concerned with the IP assertions it may face.  More recently, with the explosion of Chinese patent litigation, increased IP risk can even happen in the reverse of the traditional model.  For example, a US or European company that had traditionally not considered patent assertion to be a concern, can now very easily find itself at the mercy of Chinese “patent cockroaches”[5] and unsure how to defend its interests.

Increased IP risk can happen to entire business sectors as well.  For example, with the advent of the internet of things (IoT) companies in sectors like white goods, home monitoring devices, and automobile parts manufacturing will soon find themselves colliding with the telecommunications industry, who have a very different (and overall far more aggressive) approach to patent assertions.   Such companies may find themselves very quickly in a hot legal mess from which it can be extremely difficult to extricate themselves effectively.

As noted in my prior articles, most legal professionals who have faced complicated legal problems on the inside are locked into companies and not easily hired away.  Moreover, most lawyer-managers who have themselves hired and nurtured top quality legal departments are also working for large companies and unavailable for hire.   Outsourced in-house counsel can provide an elegant solution.

Typically, outsourced in house counsel have held senior positions in top in-house IP groups and may have even built those groups themselves (often from nothing).  They may have also been instrumental in developing their former employers’ successful IP harvesting and generation efforts and/or their licensing and litigation strategies.  They are thus very much aware of how to build a well-functioning group.  Moreover, having worked in-house they are experts at navigating the complex interplay that can occur between legal, intellectual property and business interests.

Engaging outsourced in-house counsel allows companies with acute needs to access top tier talent on a short-term basis.   This gives companies the breathing room to take the right amount of time to acquire the best in-house team it can.  But if it cannot easily find top talent ready to join, companies can utilize outsourced in-house counsel to help find new hires.  They can then train the junior talent to reach their potential.  As the old saying has it, “give a man a fish, you feed him for a day; teach a man to fish you feed him for a lifetime.”  So too here.  Outsourced in-house counsel not only will have resolved the company’s short-term needs, it will have developed a top tier in-house team ready and able to handle the company’s future IP needs.

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.

[1] https://www.linkedin.com/pulse/outsourcing-in-house-counsel-case-standard-essential-patent-cohen/

[2] https://www.linkedin.com/pulse/outsourcing-in-house-counsel-case-trade-secret-services-david-l-cohen/

[3] https://www.linkedin.com/pulse/outsourcing-in-house-counsel-case-litigation-management-david-l-cohen/

[4] Industries where trade secrets, trademarks and copyrights are the prime IP driver (e.g., brands and media content) can have a very different business dynamic, which while also amenable to this model are not discussed here.

[5] http://www.iam-media.com/blog/Detail.aspx?g=8602e91e-7ef4-4037-8c14-e0ebf8ba5377

Outsourcing In-House Counsel: The Case of Litigation Management

I just posted a new article on LinkedIn:  https://www.linkedin.com/pulse/outsourcing-in-house-counsel-case-litigation-management-david-l-cohen/?published=t

Outsourcing In-House Counsel: The Case of Trade Secret Services

Check out my new article on LinkedIn: https://www.linkedin.com/pulse/outsourcing-in-house-counsel-case-trade-secret-services-david-l-cohen/