Thursday, July 2, 2009

U.K. Law Society Pressures ABA to Allow Alternative Business Structures

I have blogged on several occasions about the implications of the U.K.’s Legal Services Act on the legal profession on both sides of the Atlantic, and also the wider repercussions on the legal outsourcing and offshoring industry. To recap, the Legal Services Act permits through the formation of Alternative Business Structures, external investment in law firms. The House of Commons website review of the key benefits of the Legal Services Act defines Alternative Business Structures:

“Alternative Business Structures (ABS) …….. enable lawyers and non-lawyers to work together on an equal footing to deliver legal and other services in ways that better meet the needs of consumers. External investment will be possible, and new business structures will give legal providers greater flexibility to respond to market demands.”

Almost a year ago to the day, I asked the question, Are Magic Circle Firms Set for outside Investment? I wrote at the time;

“I have been convinced for a number of years now that the profit margins routinely enjoyed by the world's leading law firms would prove to be extremely enticing to the private equity market and that once the legislative restrictions on external investment were lifted, it was inevitable what would follow.”


Eight months earlier, in my November 2007 piece, The Legal Services Bill and its Impact on the Legal Process Outsourcing Industry, I discussed the passing of the bill in tandem with an overview of an article written by Tony Jomati, former Clifford Chance Managing Partner. He wrote at the time about a number of trends impacting on the U.K. legal profession.

Trend number 6 stated: “High Street legal services will be fundamentally transformed by the Legal Services Act. A number of major brands will dominate the provision of retail legal services. Will that be law firms, or outsiders such as supermarkets or banks? It is too soon to tell whether existing law firms will be able to develop strong enough retail brands.”

At trend number 7, he went on to say that, “If the Clementi reforms (the forerunner to the Legal Services Bill) are broadly successful, one can expect firms higher up the chain to take in outside capital and float on the market.”

To the best of my knowledge this concept of external investment in law firms remained firmly entrenched within the UK’s legal borders, that is until I came across the following Law Society Gazette article dated June 25th - New-Model Law Firms Face Barriers in the U.S.

On the surface, the article appears to reaffirm the position that the U.S. has some distance to go before the concept of alternative business structures could ever take off over here. However, this is the first occasion of which I am aware that senior figures from within the ABA have publicly acknowledged the concept and its implications on the practice of law here in the U.S.

Tommy Wells, ABA President is quoted as saying that the concept of ABSs raises,

“important regulatory and ethical issues that must be examined and addressed”.

The article goes on to state that if the ABA does not change its stance by the time ABSs are permitted in 2011, U.K. law firms that choose to become ABSs will be barred from practicing in the U.S. From a practical perspective, this stance is clearly operationally unworkable for any of the U.K. magic and silver circle firms, with a U.S. presence, contemplating external investment.

What is perhaps even more illuminating is the public stance displayed by the U.K. Law Society who will “work hard” to persuade the ABA and the U.S. regulatory authorities that ABSs are viable business models. Bob Heslett, Law Society vice-president, said:

“We will work hard to seek to persuade the Americans on this, but we will only be likely to succeed if we can demonstrate that ABSs are just another law firm, subject to the same requirements and regulated by the same regulators as existing law firms, and in particular that client confidentiality is fully preserved and protected.”

My personal belief is that the pace of change within the legal professions on both sides of the Atlantic has picked up dramatically over the course of the last couple of years. The financial crisis is acting as a further catalyst of change across numerous sectors of the profession. Clearly, if one reads between the lines, the U.K. Law Society believes that the ABA position is not a static, immovable one. Although the first step may be a modification of the relevant rules to permit U.K. firms with external investment to practice in the U.S., I predict that it is only a matter of time before external investment in U.S. law firms is also permitted. Once such investment is common place within both the U.K. and U.S. legal professions, this in turn will only spur the growth towards legal outsourcing and alternative and more efficient law firm operating models.
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Thursday, June 25, 2009

Register for MCLE Ethics Course: "Legal Outsourcing, the Ethical Implications"

On July 15, at 11:00am PST, I’m hosting an updated version of LawScribe’s MCLE Ethics accredited webinar: Legal Outsourcing, the Ethical Implications.

Only last week the ABA released their Summer issue of The International Lawyer. Offshore Legal Outsourcing was identified as a "hot topic". The International Lawyer comments that 6 Bar Association Opinions have concluded that,

“a lawyer could satisfy her ethical obligations and outsource work offshore."

However, the ABA publication goes on to address four general issues associated with legal outsourcing, namely;

1. duty of care in selection and supervision (which relates to the issue of unauthorized practice)
2. duty to maintain confidentiality
3. duty to avoid conflicts of interest
4. duty to inform the client that the delegating lawyer is outsourcing the work

All the above, and more, will be covered in my webinar.

To reserve your Webinar seat, click here.

The webinar provides attorneys with practical advice relating to the ethical implications of offshore legal outsourcing. The webinar materials have been updated to include a look at the ethical implications associated with a real large-scale document review project. The session also provides analysis of the July and August 2008 USPTO Notice re Foreign Filing Licenses and the ABA Ethics Opinion.

Attorneys from the following States will be entitled to 1 hour of MCLE Ethics credit - CA, NY, CO, FL, MO, TX, WA, WI. For those not able to attend, I will be posting the audio and slides on my blog and the LawScribe website, where the course will be available for self-study.

The following issues will be covered:

• Avoiding the Unauthorized Practice of Law
• U.S. Attorney's Supervisory Responsibilities
• Duty to Act Competently
• Client Confidentiality
• Duty to Disclose
• Conflict of Interest Implications and Risks
• Billing Appropriately for Outsourced Legal Support
• USPTO Notice re Scope of Foreign Filing Licenses
• Large scale offshore document review case study

Joining me on the faculty for the webinar is Spyros James Lazaris, head of Zuber & Taillieu LLP’s patent and trademark prosecution department. Mr. Lazaris will be providing the large scale document review case study. I’ve detailed his biography below.

Mr. Lazaris practices intellectual property litigation and counseling, and is the head of Zuber & Taillieu LLP’s patent and trademark prosecution department. He has extensive experience in all phases of patent infringement litigation. He has successfully drafted and prosecuted patents for Fortune 500 companies in diverse areas of industry and technology, both here in the U.S. and internationally. Mr. Lazaris also focuses his practice on electronic discovery issues, and assists his patent litigation clients in managing discovery obligations in the complex world of electronically-maintained corporate data. Prior to joining Zuber & Taillieu LLP, Mr. Lazaris oversaw the patent prosecution practice of the Los Angeles office of Sidley Austin LLP, one of the 20 largest law firms in the world as ranked by The American Lawyer.
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Monday, June 22, 2009

ABA Identifies Offshore Legal Outsourcing and Litigation Funding as "Hot Topics"

Less than one month ago I wrote a blog piece entitled: Litigation Funding and Legal Outsourcing – A Marriage of Convenience and a Glimpse into the Future. I discussed the rise to prominence of the Litigation Funding industry, during a time when the number of litigations as well as the potential cost of such litigation is rising. The gist of my piece was that by working in tandem, LPO and litigation funding possess synergistic solutions to this dilemma.

This weekend I perused with great interest the Summer issue of the ABA publication the International Lawyer (TIL). The Summer issue always contains a review of significant developments in international law over the past year (the Year-in-Review) and is prepared by the responsible Section committees. Well, in addition to the global implications of the UK’s Legal Services Act (which I have discussed numerous times, specifically in my article The Legal Services Bill and its Impact on the Legal Process Outsourcing Industry), two further subjects were identified as transnational legal practice “Hot Topics”. What might those topics be, I hear you ask?

I quote directly from TIL:

"In addition to the UK Legal Services Act the topics of litigation financing and offshore legal outsourcing were frequent topics of discussion."

The article goes on to discuss the 6 Bar Associations that have released Opinions on the subject of LPO, as well as of course the ABA Opinion from August 2008. The author comments correctly that each opinion concludes that a “lawyer could satisfy her ethical obligations and outsource work offshore." The author does go on to identify four key areas of concern, namely:

1. Duty of Care in Selection in Supervision (which relates to the issue of unauthorized practice)
2. Duty to Maintain Confidentiality
3. Duty to Avoid Conflicts of Interest
4. Duty to Inform the Client


I will be hosting another MCLE Ethics accredited webinar on July 15th. The webinar, “Offshore Legal Outsourcing, the Ethical Implications”, will cover all of the issues raised by the ABA in above referenced International Lawyer Summer edition. If you are interested in signing up for the webinar please email me directly.
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Tuesday, June 16, 2009

LawScribe Proud to Continue ProBono Sponsorship

With LawScribe being proud sponsors of ProBono Net, Kunoor Chopra and I were delighted to be invited to both Mannatt Phelps & Phillips and Orrick Herrington & Sutcliffes' downtown LA offices on 10th and 11th June respectively, to celebrate the official launch of the SoCal Pro Bono Center.

The center provides a new website that supports pro bono legal services by linking private attorneys, law students and other advocates with legal services providers throughout Southern California. Coordinators of the new venture include the Southern California Pro Bono Managers and Pro Bono Directors at the Alliance for Children's Rights, the Legal Aid Foundation of Los Angeles, the HIV & AIDS Legal Services Alliance, Mental Health Advocacy Services, Inc., Neighborhood Legal Services of Los Angeles County, and Public Counsel. The website is located at http://www.probono.net/ca/socal/.

The SoCal Pro Bono Center is part of the national Pro Bono Net network. Pro Bono Net is a national nonprofit organization dedicated to increasing access to justice through innovative uses of technology and increased volunteer lawyer participation. More than 50,000 lawyers and other advocates are registered members of Pro Bono Net websites.

At LawScribe we are committed to continuing our ongoing support and sponsorship of Probono.net. We have always strived to be at the forefront of innovative initiatives across the LPO industry. Increasing our own involvement within Probono.net, and in turn calling upon other LPOs to do the same is merely an extension of these initiatives. Probono.net announced LawScribe's sponsorship earlier this year with the following linked press release.

"At a time when the need for legal aid is increasing tremendously, we truly appreciate LawScribe's support," said Mark O'Brien, Executive Director of Pro Bono Net. "The commitment of LawScribe and our other sponsors enables Pro Bono Net to continue connecting people in need with free legal assistance, and to develop new programs that allow pro bono and legal aid organizations to respond to emergent needs."

If any of my peers within the industry would like to find out more about how they can support Probono.net feel free to email me.



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Friday, June 12, 2009

Managing Partners on Outsourcing, Cost Control, Indian Liberalization, and Law Firms of the Future

The annual Global Managing Partners Summit in London, chaired by Law Society vice-president Robert Heslett and Law Society Gazette editor Paul Rogerson, revealed a staggering reduction in the demand for legal services among leading US law firms. In the first quarter of this year demand shrank by 6% compared with the first quarter of 2008, while the average hours billed per lawyer fell 8.2%.

Managing partners from the world’s leading law firms were responding to the challenge by embracing outsourcing and cost control. Check out the excellent review of proceedings in the Law Gazette article “Global Managing Partners Summit”.

I’ve highlighted below a handful of the most relevant quotes.

‘I see no reason why fee-earners shouldn’t have a secretary based in India,’ .......‘If it’s not high value, we will move it to another location,’ …….Indian lawyers are often as good as, if not better, than English lawyers.’ David Childs (global managing partner at magic circle firm Clifford Chance).

‘Outsourcing will play an increasing role in removing aspects of front-office, not just back-office, work,’ ........‘Some general counsel at investment banks carry out 80% of their equity research in India. This makes them well aware of the potential for outsourcing legal work.’ Tony Williams, (principal at legal management consultancy Jomati).

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Who Said Clients Can Be Demanding?

I rarely, if ever post "funnies" on this blog, however the video linked here, is well worth a look. I'm sure LawScribe isn't the only outsourcing provider for whom this skit will raise a wry smile.
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Thursday, June 4, 2009

Quality is Key - the Message at Lexis Legal Outsourcing Event

Today saw the conclusion of LexisNexis’s two day Delhi LPO conference. The overriding message emanating from some of LPOs most recognized figures was one of quality without compromise. There was broad consensus for a necessity to avoid a race to the bottom in terms of price, at least for any legal task that requires a degree of subjective analytical input. I agree with this wholeheartedly.

There are only two possible scenarios when one hears of document review projects being bid for at $10 per hour. First, as a loss leader, under the forlorn hope that this course of action will build up a client base, and that at an indeterminate point in the future, the price can subsequently be raised to one that leads to profitability. Given both the sophistication and risk aversion of the buyers of legal outsourcing services, I maintain that the likelihood of long term success with this course of action is negligible. Or second, and arguably of more concern for the legal outsourcing industry as a whole, and for the naïve client who signs on the dotted line, that ultimately the client is going to get what they pay for, that is basement quality labor. Although highly automated, document review still requires (and will do in my opinion for the foreseeable future) human beings to perform repeated subjective analysis of key documents. I for one would not want $10 per hour (or less if one assumes some level of margin) reviewers coming within a country mile of reviewing documents in any case that I was a party to.

The argument against commodity pricing is unsustainable though, where through technological advances, systematization and standardization have effectively turned what was previously a bespoke legal service into a task akin to data entry. At the conference I highlighted the example of the UK conveyancing market, once the realm of solicitors, and specifically at the costs generated for handling remortgage work. Over the course of the last 20 years, the fees generated from such work have decreased from circa £1,000 to £30. Clearly here, where the margins are so low, and the volumes so high, every penny saved makes a major difference to the bottom line.

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Sunday, May 31, 2009

Change Afoot Within India's Law Ministry

Opinion appears to be divided as to whether the unexpected dropping of H R Bhardwaj, from the post of India’s Law Minister, in Prime Minister Manmohan Singh's new Cabinet, will have a detrimental impact on the pace of liberalization reform for India’s legal profession. In Legally India.com’s coverage, one Delhi lawyer, discussing the likely pace of change had Bhardwaj been invited into the new cabinet, commented:

"If he had come in, we would probably be looking at a December opening."

The dichotomy of views was highlighted by Mulla & Mulla & Blunt & Caroe partner, Shardul Thacker:

"This change will not in any manner hamper the legal liberalization of entry of foreign law firms."

According to Legally India.com, Bhardwaj’s replacement, Veerappa Moily is something of an unknown quantity. With the caveat that I am simply an interested observer, and a million miles away from being an expert on the issue, from a personal perspective, bar the recent passing of the Limited Liability Partnership (LLP) Act, little progress has been made over the course of the last decade. I discuss the LLP Act’s passing in my earlier blog piece, LPO and India News Roundup.

Perhaps a fresh face is just what the doctor (or should I say lawyer?) ordered. Liberalization of India’s legal profession has been tantalizingly just around the corner now for approaching a decade. I first covered the issue in July 2007, in my blog piece Liberalization of India’s legal services market and the impact on the Legal Process Outsourcing Industry. The UK Law Society, however, carried a piece back as far back as 2001 entitled, “India may open the door to foreign practices under licensing agreement”.
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Tuesday, May 26, 2009

Litigation Funding and Legal Outsourcing – A Marriage of Convenience and a Glimpse into the Future

While reading an article in the U.K. Gazette, entitled "Litigation funding: an overview of a contentious area of growth", I experienced one of those rare revelatory flashes one hopes to encounter regularly but which in reality come along all too rarely.

To set the scene, let us revert for a moment to the recent ValueNotes report, "Legal Services Outsourcing- What do Law Firms Think?", and contemplate both the drivers and the barriers to entry impacting on law firms considering or rejecting legal outsourcing. Despite valiant attempts within the LPO industry to downplay its significance, cost remains the ultimate driving force. While it has become almost de rigueur to ignore the labor arbitrage differential as an attraction, I however embrace this. Simply identifying cost as the clear frontrunner in the driving forces does not equate to a disregard of quality and efficiency as being essential alternate drivers, but rather, to an accurate comprehension of our clients’ and potential clients’ motivations.

In my blog piece discussing the report’s findings, I commented that unsurprisingly data security was rated as the top concern among those that had previously offshored legal work, whereas the perceived lower quality of work was the top rated barrier to entry for those yet to dip their toes in the offshore waters.

What if there was an option that accelerated a potential litigant’s legal representation to embrace cost control, and concurrently shifted at least part of the risk burden associated with the legal outsourcing relationship on to another party’s shoulders?

That option exists in the emerging litigation funding industry. Litigation funding, a private equity and investment industry active already in the UK, is now rising in prominence in the U.S. On June 2nd, RAND Institute for Civil Justice and UCLA School of Law are hosting a conference entitled Third Party Litigation Funding and Claim Transfer at Rand Corporation’s offices in Santa Monica.

Through litigation funding, companies and organizations can seek funding to support their litigation and arbitration claims. If a claim is approved for funding because of its merit and other factors, it receives funding for legal fees and other litigation costs through to resolution and hopefully to recovery. If there is a recovery, the Funder receives out of the proceeds, the money it spent to pursue the case, and in addition, a negotiated share of the proceeds.

Funders offering funds to support claims have widely varying requirements and criteria. Some, for example, generally favor matters where the potential recovery is between about $25 million and $50 million or more, in claimed damages, and expected costs between $3 million and $10 million. Others have much lower thresholds and favored claim/cost zones. Obviously, the specifics vary depending on the case. Historically, according to unverified information in this mostly private industry, Funds have in the past generally approved 1 out of 10 applications. Today, with the surge in litigations and applications for funding, the approval rating could well be lower than before. Of course, at all stages, crucial threshold requirements come into play, including having a strong case in terms of liability, with the potential of significant damages recovery. What is especially significant to the legal outsourcing industry, is that in addition to the importance of these requirements, the level of litigation fees and costs potentially on the line for the Funder is clearly also of central importance.

Let us now turn our focus back for a moment to LPO. According to the 2007 Socha-Gelbmann 5th Annual Electronic Discovery Survey, attorney document review accounts for 24% of entire legal spend. This figure relates to the entire legal spend, not merely the costs associated with litigation. Of course those within the LPO industry have all referenced many times the much vaunted KPMG estimate that first level document review encompasses anywhere between 58% and 90% of total litigation costs.

Specifically pertaining to document review, conservative estimates identify cost savings of 50% achievable through the utilization of offshore legal process outsourcing. If we hypothesize a case with anticipated pre-LPO legal fees in the region of $2 million, and if we base our calculations on the KPMG figures, with LPO, those anticipated legal fees for our hypothesis now come down to $1.1 million to $1.42 million. How many more applications for funding would be approved if the level of fees for which the funder could potentially be on the hook was reduced by such margins?

Now let us return to those main law firm concerns i.e. security and client confidentiality and of course quality of work. Clearly any application for funding requires due diligence and investigation of the suitability of any expert, professional body and of course, if an LPO is involved or recommended, the LPO involved in the incurrence of legal fees and costs. It is not even beyond the realm of possibility that in addition to the extra layer of vetting of the LPO carried out by the Funder, that the same Funder could take on an element of the risk burden associated with the contracting for LPO services. Of course this would likely necessitate recognition of an as yet unidentified uplift in the Claimant’s costs, namely the agreed percentage of the recovery going to the Funder.

So to recap, on the client side there is the ongoing pressure to reduce legal spend; during a time when the number of litigations as well as the potential costs of litigation are rising. Both LPO and litigation funding possess synergistic solutions to this dilemma. In addition, the very existence of LPO as an option can increase the likelihood of a litigation funder to commit to funding a particular matter, whereas the involvement of the funding company might help assuage some of the main barriers to entry into LPO on the part of the client’s outside counsel representation. In an LPO world where innovative and forward thinking providers are continuously striving to identify synergistic partnerships that can provide clients with cost-effective solutions right across the legal vertical, I anticipate that over time we will witness significant collaboration with the Litigation Funding industry.
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Tuesday, May 19, 2009

LPO News and Articles of Interest Roundup

Lovells are reportedly extending an outsourcing programme for document production work across its London office. The firm is also in the process of piloting the scheme in several international offices. According to Legalweek.com the top 10 City law firm is planning to send document production work from all practice areas to Exigent in Cape Town, following a pilot scheme launched in its London real estate practice last year.

The potential impact of the UK’s Legal Service Act on the structure of the law firm of the future was highlighted in another Legalweek.com piece. The article discusses how external investment will radically alter the traditional operating method for the delivery of legal services. Lyceum Capital have made no secret of their intention to target the legal sector ahead of the Act’s full implementation.

The Daily Telegraph also stirred the hornets nest on this particular issue with their headline piece, “High Street Shops will Sell Legal Services within Two Years.”

Offshoring legal work is clearly flavour of the month at the Legalweek.com reporting desk. The article “Offshoring-outside the box?” provides an eloquent roundup of recent happenings in the UK’s LPO space.

For those readers wanting further information on the upcoming LexisNexis LPO event, being held in Delhi, June 3-4, the updated brochure can be accessed by clicking here.

In last month’s issue of Corporate Secretary magazine, Gwen Moran provides a detailed consideration of the growth of LPO to date in her article “Cutting Legal Down to Size”. Contributors to the article include both myself and John Croft of Integreon.

Finally it’s rare to find a gem of an article dealing with e-discovery, from the UK side of the pond. But in the article Voyage of Discovery, Reza Alexander, Lee Gluyas and Emma Hogwood, of DLA Piper UK, provide a step by step guide to effective e-discovery litigation management and readiness.
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Blog Information Mark Ross