Tuesday, July 21, 2009

Corporate IP Managers: There are Bargains Galore Available at Some of the Most Prestigious Law Firms

With corporate legal budgets being cut more than 10% in 2009 it might seem like challenging times to manage a corporate IP department. To add to the difficulties, such reductions are occurring even while many corporations are increasing the focus placed on creation of value using strategic IP management. Corporate IP managers must therefore obtain more valuable IP with smaller budgets.

Fortunately for corporate IP managers, the current economic climate has forced many prestigious law firms to, perhaps for the first time, to develop innovative billing and practice models. This has not only resulted in the effective billable rates of these law firms effectively dropping more than 10%, but many law firms have or are developing more efficient ways to deliver legal services to their clients. Smart law firms will pass these cost savings on to their clients to build loyalty.

It should first be noted that there will always be some law firms and lawyers who think they are "above" bargaining. Such legal service providers may agree to shave a few percent off their billable rates, but corporate clients may not obtain additional concessions. In addition, some prestigious law firms may possess management structures that do not allow partners to cut rates and fees to individual clients in order to "chase business." For example, I recently heard of a prestigious Atlanta law firm where partners have not been paid since early 2009 in large part because individual attorneys have not been permitted to pursue or maintain clients by lowering hourly rates.

If your longstanding IP legal service provider is one of these that will not or cannot significantly modify their rate or practice structure, then your company will not be able to capitalize on the new legal service environment. Also, even if your lawyer or law firm does offer deep discounts, it is likely that they will not call you up and say "We would like to significantly reduce your legal fees." And, why should they--if you have not complained, why should your legal service provider believe that you might leave after all of these years? As a result, in order to benefit from the new climate of cost reductions from prestigious lawyer and law firms, corporate IP managers must undertake the effort to present their company's work out for bid to multiple law firms and to recognize that they may need to ultimately change IP legal service providers.

That being said, I am pleased to report that I have seen a number of well-known and high quality law firms respond to their client's concerns about IP legal costs, and a sampling is reproduced below. The response of each of these law firms to the current legal services environment is different, but each is innovative and client-focused in its own regard. Readers who manage corporate IP departments would be well-served to discuss these models with their existing lawyers or law firms. At a minimum, such discussions can be used to start a non-confrontational dialogue that could result in significant cost reductions. If your law firm or lawyer is not willing or able to bargain, then you need to know that also, and act accordingly. There are many reasons why your company may not wish to leave a long-standing IP law firm, but you certainly want to know whether you can get the same service for significantly lower cost.

Top 5 US IP Law Firm Reduces Client Costs by Developing Efficiencies in Delivering Services
Fish & Richardson PC (Nationwide)

Tina McKeon is one of my oldest friends in the IP business--we have also been law firm partners and I have been her client while a corporate IP lawyer, which allows me to speak frankly with her about the IP legal business. Tina's hourly rate is well above $500 an hour, which puts her out of the reach of many potential clients. However, Tina has worked to reduce the need for clients to actually need her services and, as such, the need for them to pay her rate on a regular basis. Instead, she has assembled an efficient team of professionals with rates from about $175 an hour and up. At the low end of the rate scale, Tina's team includes patent engineers (i.e., people with science degrees effectively working as "super patent paralegals") and technical specialists (i.e., typically Ph.D. graduates tasked with working on the scientific details of an invention. Each member of her team provides clients services at the level of her ability and the project is passed up to a someone with a higher level of skills as appropriate. This approach results in the blended hourly rate for Tina's team being $310 an hour, which is the hourly fee of a 2nd or 3rd year associate at other prestigious IP law firms.

What Tina has realized is that she can provide better client service by applying basic business concepts to her legal practice. As related by Tina:
I tell my clients: "My rate is my rate--I can't do much about that." What I can do is modify the standard way IP legal services are provided to clients to provide as much value to them as possible. By treating my legal practice like a business, I can provide better value to my clients so they can afford to bring their IP issues to me and my team even while their budgets are being drastically cut.
Small IP Boutique Drops Rates Across the Board (Without Being Asked!)
Gardner, Groff, Greenwald and Villanueva PC (Marietta, GA)

I asked my long-time acquaintance Brad Groff of Gardner, Groff how his IP boutique law firm has responded to his clients' budgeting concerns. My thought was that his firm might be feeling the pinch of client cuts because they are smaller and likely have smaller IP portfolios where cuts would be more apparent. I was surprised to see that they have actually gained business this year. Here is what Brad had to say:
We listened to our clients last fall, and heard loud and clear that their budgets would not tolerate "business as usual" annual rate increases from their outside counsel. It's standard practice for lawyers' rates to increase every year because a firm's overall rate structure inflates, and because each lawyer moves up another rung on the years-in-practice ladder of that rate structure. So clients effectively get hit with a double-whammy.

We took a close look at the numbers and decided to implement a complete freeze on hourly rates for 2009 (no change to the 2008 rate structure, and no moving up the ladder). But what really got people's attention was that we actually reduced many of the charges on our flat fee schedule--some by as much as 12% compared to 2008. Since a lot of the work we do is billed on a fixed-fee basis, this allowed our clients to avoid cutting back on their patent and trademark filings even if their IP budgets had been reduced.

The strategy seems to have worked. We're busier than we've ever been, and we have added two lawyers and a patent engineer in a time when other firms have been laying people off.
Century-old IP Law Firm Stays Viable by Changing with the Times
Merchant & Gould (Nationwide)

Kent Stier, a partner at Merchant & Gould's Atlanta office, serves as Chair of the GSU Corporate IP Roundtable (on which I am co-Chair). In developing topics to discuss with our Atlanta IP colleagues, we have discussed the changing nature of IP law firm practice. In this regard, I have discovered that Kent understands that the old-way of billing and servicing clients will not suffice today. As Kent states:
We have been in the intellectual property business for well over 100 years and we fully intend to continue to be a key provider of high quality intellectual property legal service. In order to do this we know we must continue to evolve along side our clients and potential clients. We know that this evolution must include creative cost solutions including, for example, blended fee work, fixed or capped fee work, and levelized annual billing arrangements to name a few. Notwithstanding, we are open to any arrangement that creates a win-win partnership with our clients and potential clients.
UK Law Firm Promotes Innovative Litigation Funding Model (Where "1 Size Doesn't Fit All)
Addleshaw Goddard (UK)

Via Jeremy Phillips, proprietor of the great IPKat blog, we find out that innovative legal service models are being tried outside of the US. This website of Addleshaw Goodard provides an overview of this UK law firm's novel solutions for funding litigation.

What I find interesting about this law firm's solutions is understanding that it can be highly desirable to share or shift the risk of litigation. Specifically, Addleshaw Goddard purports to reduce the financial risk of litigation:
through sharing or transferring some of the risk to Addleshaw Goddard, to insurers, or to specialist third party litigation funders with no connection to the claim or its management. Our litigation funding package offers an integrated solution that will help you to retain control of litigation costs and reduce the financial exposure you face.
While the risk issues are certainly heightened in the "loser pays" UK system, such innovative risk shifting idea could no doubt be useful to address the high costs of IP litigation. With the average cost of patent litigation per side often amounting to several million dollars through trial, I think that US law firms would be well-served to investigate how they might help their clients identify innovative ways to fund such costs. Those law firms that develop partnerships with their clients instead of viewing them as litigation "cash cows" will be better able to convince their clients that litigation is an appropriate business risk.

1 comment:

kk said...

Thanks for the post. It is good to see law firms doing more to keep down costs.

However, with regard to your description of Ms. McKeon's billing structure, I am not sure what is different. Isn't this generally how most law firms work? I.e., a partner has one or more associates who bill at a lower rate working on the client matter such that the client gets a lesser fee than if the partner did all of the work.

Maybe what is new is using non-legal types to do the bulk of the work and drive costs even lower. However, the structure itself is the same old pyramid structure.

 
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