Legal Process Outsourcing of Intellectual Property Work
Tim Wright and Craig Wolff, partners in Pillsbury’s Global Sourcing practice and Rafi Azim-Khan and Jack Barufka, both partners in the IP practice, explain Legal Process Outsourcing.
Whatever your viewpoint, there’s no denying that Legal Process Outsourcing (LPO) is undergoing a boom, with regular reports in the legal press of its use by law firms and corporate clients alike. Companies, as well as law firms themselves are now looking to outsource legal processes for many of the same reasons that saw them already outsource an increasingly wide array of other corporate functions previously performed in-house – to achieve compelling cost reductions and faster turnaround times, to free up scarce in-house resources to focus on more strategic and higher value activities, and to refocus the company’s energies on its core business activities.
As a result of this phenomenon, a rapidly growing cadre of LPO service providers has sprung up in countries that are able to offer the right mix of a suitably educated workforce with good English language skills, modern telecommunications capabilities, a substantially lower wage structure than Western industrialised countries, and a reasonably well developed legal system which is typically based on English law. Favoured LPO destinations currently include India, the Philippines, Sri Lanka, South Africa, Singapore and Canada.
To date, the kinds of legal processes that are being regularly outsourced are primarily legal support services at the lower end of the legal service value chain – services that are often performed by paralegals and other non-lawyers, such as due diligence in M&A and capital markets transactions, contract management, document review, e-discovery, legal research and writing, and related administrative functions.
Within the LPO sector generally, the contracting models typically employed are (a) a direct contract between the company and the LPO provider; (b) a managed service model, where the company retains a law firm who in turn contacts with the LPO provider, coordinates the LPO provider’s activities and has responsibility for the performance and quality of the provider’s services; and (c) multi-sourcing, where the outsourced work is divided up and passed out to a number of different LPO providers (either directly or as a managed service), taking advantage of each provider’s different strengths and reducing the concentration risk (ie having ‘all your eggs in one basket’).
A growing sub-discipline within LPO is the outsourcing by companies of their intellectual property work – everything from routine maintenance and management of their existing copyright and trademark portfolios to preparing and filing new patent applications and handling adversarial proceedings, including IP litigation. Not surprisingly, the traditional LPO service providers are ill-equipped (at least at present) to take on the responsibility for performing IP or other legal functions that require highly specialised legal skills, training and qualifications. Hence, the outsourcing of higher-end IP legal processes has thus far tended to be to law firms with established IP practices, good skill set matches and the geographic reach to adequately service the client company’s needs, either within the law firm itself or through its network of foreign law firms.
This, however, is under challenge as LPO providers are themselves increasingly utilising licensed attorneys as part of their offerings. Law firms are also responding and adapting with the deployment of new service delivery models, building out both captive and outsourced ‘LPOstyle’ offerings capable of delivering lower value simple, repeatable and standardised activities alongside their ‘traditional-style’ legal practices.
Special issues and challenges presented by the outsourcing of IP legal work
Once a company has made the decision to outsource its IP legal functions, it faces several interesting threshold questions including the following:
- Should the work be bid out competitively or awarded to a law firm or LPO provider which the company already uses, knows and trusts?
- Is there work which by its nature falls within a regulator’s ambit as a “reserved legal activity” or similar, and thus must be handled, or at least supervised, by a licensed attorney in the relevant jurisdiction?
- If the company has operations in multiple countries, which country should be the location of the LPO service provider’s lead office, and what role and responsibility (technically, operationally, financially and legally) should the LPO service provider have for work that needs to be performed in countries in which its lawyers are not admitted to practice.
- What should become of the company’s in-house staff whose positions will be displaced by the outsourcing, taking into consideration that the answer to this question will be driven to a large extent in EU countries by the Acquired Rights Directive and national legislation implementing it?
- Considering the degree to which the conduct of law firms and lawyers is already regulated by national codes of professional conduct, should the contracting model for such an engagement be a traditional form of legal engagement letter, a full-blown outsourcing contract with its attendant annexes governing everything from
- employee background screening to privacy, data protection and service levels, or some hybrid form of contract developed specifically for legal process outsourcing?
- If something other than a traditional form of legal engagement agreement is used to document the terms of the LPO arrangement, how should conflicts between the contract’s terms and applicable codes of professional conduct be mediated and resolved?
- How shall conflicts of interest be handled in the event that the law firm cannot handle a particular matter for the client because the matter is adverse to another client of the firm?
It is not difficult to understand why a company that has decided to outsource its IP legal work might decide to conduct the transaction in much the same way it would go about outsourcing any other company function. After all, the company probably has a supply chain organisation that has substantial experience and expertise in how to conduct an efficient and effective outsourcing process. However, the company may discover some of the challenges that following a traditional outsourcing process will pose for an IP LPO transaction, ultimately leading the company to conclude that specialised processes and contracting models must be developed that are purpose-built for the outsourcing of functions performed by lawyers.
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This article first appeared in the December/January issue of Intellectual Property Magazine.