“Orrick, Herrington & Sutcliffe is earning a flat fee to handle all of the legal work worldwide for Levi Strauss & Co., other than its brand protection work, the Recorder reports. If work needs to be done where Orrick doesn’t have an office, it will hire an outside law firm at its own expense. Orrick wouldn’t disclose how much the Levi’s deal is worth, but the story calls the deal a “multimillion-dollar arrangement.” Twenty-five percent of its fees comes from alternative billing.” This news comes from the ABA Journal’s website.

Since Levi Strauss’s revenue for 2008 was $4.36 billion, at typical ratios its total legal spending would have been about 0.3 percent, of which 60 percent or so would have been spent on outside vendors. On those figures and estimates, the company would have spent approximately $7.8 million on external legal costs. Taking away ten percent from that for non-law firm expenditures, and guessing that brand protection work for such an important brand is substantial, the deal with Orrick could well be in the $4-to-$6 million dollar per year range. The next step would be a reprise of Continental Bank in 1991 – a wholesale transfer of the internal legal department to the law firm.

“Experience teaches us that if you conduct a very good early case assessment that looks at the facts and the law and the witnesses and the documents that you will know when you complete your ECA, 80 percent of all you will ever know about this case.” Coming from PD Villarreal, the head of litigation for Schering-Plough, that quote packs a wallop.

If it is true, after the initial investigation most general counsel would be excellently positioned to figure out what needs to be done in the case, what the case’s likely settlement value is, what kind of firm and other service providers are needed, and perhaps an alternative fee deal (See my post of Feb. 23, 2008: early case assessment with 8 references.). http://lawdepartmentmanagement.typepad.com/law_department_management/2008/02/the-average-for.html. Although 80 percent is not omniscience, Villarreal maintains that “it is adequate and sufficient knowledge upon which to make decisions about the direction in which you want to go to resolve most controversies.” The interview of Villarreal is in Met. Corp. Counsel, Vol. 17, Nov. 2009 at 11.

I can imagine litigation partners at law firms not all that enthusiastic about short-circuiting what might be a long-running and lucrative matter, but for the ECA analysis they do at the start. A conflict of interest? Somewhat like settlement efforts by a pit-bull litigation partner?

Many law departments specify in their outside counsel guidelines that if a law firm anticipates an external expenditure above a certain amount -- perhaps $10,000, such as for an expert witness or storage on servers, the law firm should have the vendor bill the law department directly. Whether those payments to third parties that might otherwise flow through a law firm bill are treated as internal law department expenses or as external expenses is an open question.

I submit that the law department should treat those expenditures as external expenses.

I have this belief, quite possibly fallacious, that lower-cost firms have less margin to cut, so discounts across the board along the lines of “10% from the standard rates of each of our firms” hurt them more than higher-cost, fatter margin firms. Perhaps that belief is unfounded hooey, since lower rates may be possible because they pay their lawyers less and have lower operating costs such as rent and services. In other words, margins stay comparable regardless of overall billing rates.

But assume that high-rate firms can absorb higher discounts and not suffer as much as a lower-rate firms. Why not emulate the progressive tax code and raise the discount levels faster for law firms with higher rates?

To illustrate, one combination could be that for every $50 of difference in effective billing rates, the threshold for when a higher tier of a rate discount applies drops $500,000. By that rule and for a given number of hours of work, a law firm with an effective billing rate of $300 an hour would hit the higher discount rate later than a firm with a $350 an hour rate. Alternatively, since $50 is one-sixth higher than the $300 an hour of the lower-cost firm, the threshold for the discount to rise would be one-sixth lower for the more costly firm.

Possibly, the underlying premise is flawed or the approach too complicated. But a decent matter management or e-billing system could handle the computation and tracking and you would only do it for a handful of firms. Savings could be greater and the law department would thereby drive law firms toward more similar effective hourly rates.

I smile when I read all the survey results about what law department attorneys look for in outside counsel (See my post of Oct. 22, 2008: law firm attributes for selection with 12 references.). In the abstract, anyone can reel off desiderata.

The nitty-gritty chore, however, of rating a specific firm too often gets shunted aside or done poorly (See my post of Nov. 16, 2005: evaluations of law firms with 9 references; and Nov. 6, 2009: law firm assessments with 19 references.).

Sergey Brin’s technique to test a candidate for an in-house law position. Ordinary people interview in the traditional mode (See my post of Sept. 3, 2008: techniques for those who interview.). Not Brin, one of Google’s billionaire co-founders. According to the Economist, Nov. 14, 2009 at 103, he “asks a candidate for a senior legal position to draw up a contract for the sale of Mr Brin’s soul to the devil.” Hellish indemnification and warranty provisions!

Path dependency in legal departments, especially for management innovation. The process of accumulating innovative knowledge is usually highly path (history) dependent and firm specific. “Path dependency” reeks of academic jargon but it means the commonsense idea that the way in which a legal department arrived at a particular practice depends greatly on its people, the work they did, its relations with its clients, and much more. For another department to crib from it is to risk failure, because the “path” of the cribber is very different (See my post of Feb.14, 2009: best practices with 24 references and one metapost.).

Synecdoche – lumping a large firm based on the work of a few of its lawyers. “Dechert does a good job for us,” “We like Cravath,” “Shea & Gould had irregular quality.” Every day, in-house lawyers generalize about hundreds of lawyers in one fell swoop, with broad conclusions based on no overall evidence or basis. Sporadic and individualistic evaluations done inside don’t justify such broad descriptions.

ISO 9001 certification. Novus Law announced that it has “received an ISO 9001:2008 global quality management certification from Underwriters Laboratories ("UL"), which is also a first in the legal profession.” The interview of Raymond Bayley, CEO of Novus Law, can be found in Met. Corp. Counsel, Vol. 17, Nov. 2009 at 47 (See my post of April 28, 2009: ISO and other certifications in the legal industry.).

Empsight International compiles benchmarks from large law departments as a competitor to Thomson Hildebrandt’s survey. Empsight’s website states that its most recent CLCM Law covers 170 companies, which had median revenue of $12.9 billion dollars, and covers 7,748 lawyers out of 13,558 overall incumbents.

Although I could criticize myself for the calculations that follow, let me squeeze some juice from those numbers. First, lawyers as a percentage of total staff comes to 57 percent, which is quite close to the typical ratio of lawyers per support staff (See my post of Oct. 27, 2009: one-to-one ratio of lawyers to support staff with 9 references.).

With a further squeeze what comes out is that the survey cohort averages 45.5 lawyers per department. At the median revenue of $12.9 billion, division of average lawyers by median revenue leads to 3.5 lawyers per billion, which is a quite plausible ratio (See my post of Feb. 25, 2009: lawyers per billion with 22 references and one metapost.).

Just as all supervisors should praise their staff, all in-house lawyers who are responsible for the delivery of external services should commend good work by a law firm.

If you think that simply giving a firm more work percolates as kudos down to the associates and paralegals in the pit, you are mistaken. At the least, an email note of thanks, copied to the partner in charge of the matter, goes a huge way toward building associate loyalty and extra effort. Flowers, chocolates, theater tickets and gift certificates, with a handwritten card for gratitude, helps hold the better associates and staff and creates loyalty. Even if the hats off is not instrumental, it is simply the right thing for a manager to do. Appreciate openly expressed works wonders.

“Libel law in England is not just expensive and wide-ranging …; it also is one of the most claimant-friendly systems in the world” notes the Economist, Nov. 14, 2009 at 18. Lawsuits with miniscule connections to England are filed there. Somewhat like the Eastern District of Texas, infamous for its friendliness to patent plaintiffs, or the specialized business court of Delaware designed to attract corporate litigants, or the Southern District of New York and its well-oiled courts for bankruptcies and massive reorganizations, jurisdictions around the world might come to vie to attract claimants. Perhaps some already do.

The frequency, cost, and inconvenience of lawsuits will rise if tort missiles are launched from jurisdictions that are the litigation equivalent of tax havens or financial intermediaries, “playgrounds for lawyers sparring on behalf of the powerful.”

Law firms try hard to get the work done when their inside counterpart asks for it. A hallmark of service to a client is to bust your chops, as the saying goes, to pull an all-nighter, to mobilize all the associates and paralegals the task demands, to meet the deadline and deliver on time. Your client’s clock admits no slippage.

Within the company, some lawyers can move back the hands on the clock. They can decide to continue due diligence another week, or to put off the negotiating session until next Tuesday, or tell the other side they need more time, until Thursday, to come back with a counter-proposal. Inside lawyers have a fair amount of control over the clock, and often decide what time it is. Outside counsel are mostly slaves to the clock.