Patently Reforming the American Stance on Legal Offshoring

by Anthony J. DeJohn, Esq.

It might just be a case of media over-hype, but I honestly can't remember a time when Congress wasn't reforming the United States patent system. This year is certainly no exception. Hot topics of the 2007 Reform Act are old favorites like post-grant examination proceedings and the "BCS vs. Playoffs" debate of the IP world, first-to-file seniority. You can get up to speed on anything you might have missed at the official website (courtesy Rep. Berman).

From an outsourcing perspective, the initially proposed reform was of little consequence (personally, I was holding out for a little clarity on KSR, but I think Congress will abstain for the time being). Just when I almost stopped paying attention, the most notable proposal to the Bill (for LPO's) came along in the form of the 2^nd Manager's Amendment:

35 U.S.C. Section 123 (in part)
"The Director shall, by regulation, require that applicants submit a search report and other information and analysis relevant to patentability. An application shall be regarded as abandoned if the applicant fails to submit the required search report, information, and analysis in the manner and within the time period prescribed by the Director."

(click here for the full-text of the Amendment)

This language may look familiar. The USPTO first introduced the "required pre-examination search" concept about two years ago when it started providing accelerated examinations (petition to make special). I have my own suspicions as to why this has made its way into the Bill. Obviously, there is a huge amount of potential for freeing up USPTO overhead by eliminating a portion of Examiner labor. If nothing else, meeting this requirement certainly encourages inventors to take advantage of the accelerated track.

The real question here isn't "Why?" but "Who?" Who will handle this enormous influx of patent searches? Agents? Engineers? Virginians? Not likely. The cost for quality domestic searching is already painfully high at around $100-$250 per hour. Automated searching and sub-qualified employees have allowed some organizations to offer appealing flat rates hovering around $500, but quality is suffering as a result. Try explaining these "shortcuts" to a client who just invested $10 million in a new eco-fuel system or DNA sequence. There is simply no substitute for an intensive human search performed by an engineer in the field - and the last time I checked, a $2,000+ novelty search is not on most inventors' wish lists.

Another reason to balk at the inevitably escalating cost of patent searching is the currently declining cost of patent drafting. Thanks to Hewlett Packard, et al., big corporate players have lowered the cap on the application process to $3,500-$4,000. Joe Inventor will certainly pay a bit more, but that doesn't change the fact that we are looking at a future where the required pre-examination search could account for almost 33% of the total cost to file.

Enter the offshore marketplace.

In 2005, India graduated over 200,000 engineers - more than the United States and all of Europe combined. That same year, freshman enrollment in 4-year Indian engineering colleges rose to 450,000. These engineers are currently expecting a starting salary of approximately $10,000 - about 17% of what their American counterparts expect to earn.

I am the first to admit that not all members of the Indian workforce are ready for the American marketplace. But when considering a hybrid industry like patents, what recent engineering graduate, U.S. or otherwise, is ready to perform at a high level? All engineers entering the world of patents must be (thoroughly) trained by experienced professionals, regardless of their location. There can be very little disparity between two individuals who are equally inexperienced. Once adequate training is complete, the industry is left with a simple choice between two equally qualified participants with one distinct difference: about $50,000 per year.

In the coming years, the American legal industry will be outsourcing patent searches and drafting projects overseas in exponential fashion. The 2007 Patent Reform Amendment, if adopted, will only expedite this transition - not simply because of the obvious profitability, but because of raw necessity. There just isn't enough qualified searchers in North America and Europe that can operate at cost-effective levels. Stay ahead of the game - develop a solid relationship with an offshore vendor before it becomes necessity. Change is good, embrace it.

Guest author, Anthony J. DeJohn, is an intellectual property attorney and LawScribe's acting Director of Operations in Los Angeles, California. You can contact Anthony at adejohn@law-scribe.com.

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Liberalization of India’s legal services market and the impact on the Legal Process Outsourcing Industry

I recently returned from the North American South Asian Bar Association (NASABA) conference. Out of all the sessions I attended over the course of the three day event by far and away the most thought provoking and certainly the one that sparked the most intense and combative question and answer session focused on the pros and cons of the opening up of the Indian legal services sector to foreign law firms. The position as it stands as of now is that the practice of law in India is governed by the Advocates Act of 1961. Foreign law firms are simply not allowed to engage in the practice of law in India.

Over the last decade we have seen the Western legal community look to find increasingly creative ways to circumvent these restrictions. A number of large multi-national accounting firms have set up offices in India and are clearly providing legal services to their clients, employing large numbers of Indian lawyers. Several foreign law firms have “Liaison” offices (permitted under current legislation) in India while others have developed affiliations with Indian law firms. We have also seen over the last couple of years the dramatic emergence of the Legal Process Outsourcing industry. Offshore Legal Process Outsourcing companies work alongside U.S. and U.K. law firms ensuring strict compliance with the restrictions on the unauthorized practice of law by providing “legal support services” to their clients which the U.S. and U.K. Law Firms ultimately take full responsibility for.

The esteemed panel of speakers at this fascinating session included one of the founders of the NASABA organization, Mukesh Advani of Zenith India Lawyers, Jaipat Jain, Partner at Lazare Potter Giacovas & Kranjac LLP and Yusuf H. Safdari of Pillsbury Winthrop Shaw and Pittman LLP.

I have personally been intrigued by the offshore legal process outsourcing industry now for the last 4 years, initially during my time as a solicitor and then partner at Underwoods solicitors and subsequently since joining LawScribe here in the U.S. It has been essential that I keep up to date on the developments within the Indian Legal sector and there have been numerous articles written in relation to this particular issue over the last few years.

There have been fact finding trips to the U.K. by eminent organizations including the All India Bar Association, Memorandums of Understanding entered into between the Bar Association of India and the Law Societies of the U.K., Australia and China and a bilateral working group on legal services set up by the respective governments of the U.S. and India. The Times of India even commented on Friday, March 9th 2007 that “India’s lucrative legal services market may finally be opened up to foreign law firms by the end of the year.”

At first glance the pressure mounting on the Indian government to open up the market to foreign law firms appears to be increasingly exponentially. To the untrained eye the liberalization of the market is imminent. It is clear to me that this is a somewhat naïve viewpoint and that there will need to be some substantial “in-house” changes before foreign law firms are allowed to formally set up shop in India.

The major reason why there are regulatory barriers in place is because of the perceived inability of the domestic Indian firms to compete with the major foreign firms that would enter the market once liberalized. The consensus among those reluctant to open up the market is that the best talent will be swallowed up by foreign firms. This will then have disastrous consequences on domestic firms who simply do not have the financial muscle to compete.

Is this an accurate picture of the state of the Indian Legal market? To answer this question it is important to have an understanding of the restrictions placed on domestic firms and why there is this perception that they are unable to compete with their U.S. and U.K. counterparts.

Currently Indian law firms are not permitted to have more than 20 partners. Indian law firms are also prohibited from engaging in any form of advertising whatsoever. This includes a ban on websites, brochures, television, radio etc. Furthermore law firms are also not allowed to obtain any form of financial assistance by way of bank loans. Due to these restrictions there is a feeling among many that Indian law firms will simply be unable to compete with the major U.S. and U.K. firms because they are not operating on a level playing field.

Mukesh Advani advocated a gradual liberalization of the market by initially persuading the Indian government to relax the restrictions on domestic firms. This would allow domestic firms time to increase in size and revenue in readiness for an opening up of the market to foreign firms.

The problem as I see it is that this line of argument assumes that foreign firms are standing still when we know this is clearly not the case. The firms that are investigating setting up liaison offices in India right now, or those that have already done so, are magic circle firms from the U.K. and AM Law top 50 firms from the U.S. These firms are growing at an exponential rate and will continue to do so. The other difficulty with Mukesh’s argument is that according to the many domestic based Indian attorneys I spoke to at the convention the reality of the Indian legal sector is somewhat different from what you might anticipate given the restrictions they are currently operating under. Lawyers across the globe are inevitably trained to both initially locate and then work through loopholes. This is what they are doing in India. Domestic firms are structuring themselves in a traditionally “Western” fashion, with trainees, junior associates, salaried partners and equity partners. Not only are they doing this but they are also associating with other domestic firms, and entering into relationships with firms in the U.S.

There was also a heated discussion around the point that the pool of highly qualified and talented attorneys capable of working on U.S. and U.K. related matters was somewhat limited. My experience with LawScribe and the Offshore Legal Process industry in general contradicts this point of view and I was vociferous in putting forward my own position in the question and answer session that followed. India is second only to the US in the number of qualified attorneys at around 600,000 with approximately 75,000 newly qualified attorneys emerging every year. Now I do agree that by no means all of this number have come from the country’s best law schools or are of a suitably high standard to work on U.S. and U.K. related matters. However, not all law-school graduates here in the U.S. or the U.K. are of the highest caliber. I worked at times, in utter exasperation alongside trainee solicitors and fully qualified solicitors in the U.K. wondering where on earth they had “developed” their legal writing skills. I believe that there is a substantial pool of highly talented individuals, graduating from top tier law schools in India, who with the right training and supervision are more than capable of working on U.S. and U.K. related matters within the offshore legal process outsourcing industry. When the market is eventually opened up these attorneys will be familiar with U.S. and U.K. law and able to work for these firms directly should they so desire.

What I came away with was an overriding impression that despite the plethora of articles, the Memorandums of Understanding and the agreements between governments that this is not something that is going to happen overnight. What I believe will happen is that U.S. and U.K. firms will continue to enter into relationships with Indian law firms and legal outsourcing companies. The Indian government in due course will relax the legislation on domestic firms however this will take time.

During some brief research I undertook prior to attending the session I came across an article entitled: “India may open the door to foreign practices under licensing agreement”. Given my reference earlier to the Times of India article from March 2007 one would be forgiven for assuming that this second quote was taken from another article written this year or possibly last year. This article was in fact published in the U.K. Law Society Gazette on July 6th 2001. For at least 6 years now we have seen articles being written, fact finding trips undertaken by important parties, Memorandums of Understanding and agreements being entered into between India and the U.S. and U.K.

Are we really any closer at all to the legislative liberalization of this huge market? What I do know is that the provision of offshore legal support services from Indian attorneys to U.S. and U.K. law firms and corporations will continue to flourish. Indian Law firms will only increase exploring methods of getting around the restrictions on their practices and U.S. and U.K. law firms will continue to enter into a wide variety of relationships both captive and contractual with their Indian counterparts, and Legal Process Outsourcing companies.

Although the legislation has not yet changed we are seeing right before our eyes the true liberalization of the Indian Legal market. The legal landscape in India is vastly different to what it looked like 5 years ago, and with or without legislative changes it will look vastly different in another 5 years.

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LawScribe ranked 4th in list of Legal Process Outsourcing Companies

I'm pleased to inform readers of my blog that LawScribe has been named as the number four ranked company worldwide in the provision of Legal Process Outsourcing services. The authors of the highly acclaimed “Black Book of Outsourcing,” Douglas Brown and Scott Wilson released last week the Brown-Wilson Group’s prestigious annual survey of outsourcing vendors. Brown-Wilson’s 2007 Survey also ranks LawScribe ninth in their list of legal document process outsourcing providers.

See the following press release for further information: http://www.prweb.com/releases/LawScribe/Legal-process-outsourcing/prweb537650.htm

The Black Book on Outsourcing is recognized as being the leading publication within the Outsourcing industry offering a detailed overview of the world of outsourcing. The following are just a couple of examples from the plethora of endorsements the book has received from highly respected industry leaders.

“This is, without question, the most comprehensive publication on outsourcing. It’s destined to become the most regarded source of essential outsourcing information and practice..” Ward Holland, Vice President, Strategic Initiatives and Corporate Development, Wachovia.

“The Black Book of Outsourcing moves beyond the rhetoric and offers specific strategies for those choosing to outsource and for those whose careers have been impacted by outsourcing. Outsourcing is a reality. This book shows companies and workers alike how to turn it into an opportunity.” - Thomas J. Donohue, President and CEO, United States Chamber of Commerce.

The 2007 survey was compiled using information received from more than 22,000 purchasers of outsourcing services, decision makers, consultants and other interested parties.

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