Category Archives: Legal

Shared Legal Services: Risk vs. Reward

The Shared Services & Outsourcing Network recently ran a great article by Leland Forst of The Amherst Group Ltd on mitigating risk when implementing legal shared services that I see as a must read for anyone considering the consolidation of their legal function into a shared service organization.

Most organizations outsource traditional back office functions like Human Resources, Office Management, Accounts Payable, and even invoice management because a specialist organization, that can leverage expertise and shared services, can often do these tactically-focussed functions better, faster, and cheaper when the right processes and controls are in place. Well, unless your primary revenue stream is litigation or IP licensing, these days, legal is also a back office function and one that should be considered as eligible for a shared-services outsourcing model because, as the author points, out, it can:

  • provide lower fees through economies of scale,
  • provide volume leverage to negotiate lower hourly rates with external experts,
  • allow you to scale up or down as required without expensive recruiting or severance costs,
  • provide you access to more subject matter expertise,
  • improve case management,
  • provide alternative methods of dispute resolution (such as negotiation, mediation, and arbitration) with a large pool of personnel, and
  • provide you access to better legal service management systems at a significantly reduced cost.

Especially when you focus on outsourcing your discretionary, and leverageable, legal services. While the following governance services are non-discretionary for most large corporations, and not good candidates for outsourcing (as you often need to keep these functions within your control to insure regulatory compliance and/or trade secret protection):

  • corporate annual meeting preparation and board resolutions,
  • political action committee management, and
  • mergers, acquisitions, divestitures, and joint venture legal support

The following discretionary, and leverageable, law services are great candidates for a shared services organization:

  • litigation / arbitration that is being considered,
  • trademarks, copyrights, and patents are being pursued, and
  • anti-trust/competition scenarios that are perceived.

As the author points out, as long as any risks are properly identified, and dealt with up-front, this model can prove very profitable for some organizations. So if your firm spends a lot on legal, internally or externally, take the bell off that sacred cow, determine whether or not your really getting value for money in the current model, identify any confidentiality requirements or situations which would require a quick response, define key performance metrics, and go to the market. You might just save your organization a few million in the process.

Is Your Legal Team Ready (for Supply Chain Litigation)?

A recent CFO article on The Next Wave did a great job of pointing out that litigation is likely to spike again this year, starting next quarter. Noting that recession-related litigation last spiked in 2001 when the dot-com bubble burst, the wounds of recession often encounter a particularly painful form of salt as corporate attorneys stand ready to pour it on if they sense weakness in a rival, or a way to compensate for their own economic woes. Legal wrangling is already erupting across the board as aggrieved plaintiffs battle over breached labor contracts, unwarranted (executive) layoffs, dubious financial disclosures, broken supply chains, ailing strategic partnerships, ravaged 401(k) plans, unjust competitive practices, intellectual-property infringements, and curtailed credit lines. And as the article notes, that’s only a starting list.

Furthermore, the experts are expecting an avalanche in legal activity, starting as early as next quarter, with electronic discovery, intellectual property rights, anti-trust initiatives, and foreign corrupt practices leading the way, even though large companies are already spending millions a year on litigation. (In 2007, one in five large U.S. companies spent $10 Million or more on litigation, and the number of smaller companies spending more than $1 Million on litigation increased threefold.) As such, companies should expect their rivals to dust off their patents, pull out all the stops against perceived monopolies and their acquisition activity (under the “anti-trust” umbrella), report them on any practice that could be considered a foreign corrupt practice (in hopes that a resultant fine will bankrupt them), and challenge any e-discovery initiative as violating client-attorney privilege.

So what can you do to mitigate the risk?

  • Legal Team Readiness
    Make sure your legal team is primed and ready for unexpected, unwarranted, and ill-conceived litigation. They should be fully staffed; up-to-date on corporate policies, practices, and promotions; and supported by legal experts and support firms already on retainer.
  • Patent Perception
    Make sure that your legal team is well versed in the patents owned by your competitors and the usual patent trolls in your industry and that preliminary arguments as to why they don’t apply and / or why they are invalid (proof of prior art) are already drafted. In addition, they should be ready with counter-arguments as to potential violations of your patents by your competitors. Sometimes, nothing quashes a patent suit faster than the threat of a valid counter-suit.
  • Acquisition Acuity
    Avoid any acquisitions not already under way that could be seen as contributing to a monopoly, and insure that you have lots of facts, figures, and expert opinions ready to go as to why your current merger and acquisition plans will not result in a monopoly. If you do your homework, you just might be able to get the case thrown out before it ever gets to trial.
  • Practice Proofing
    Make sure your legal team has an expert (on retainer) on the laws with each country you are doing business with as well as the foreign corrupt practices act, alien tort claims act, and other laws that could be used to bring charges against your firm on home soil. Have that expert review all of your proposed dealings before any contracts are signed, before any money changes hand, and before any new operations are initiatied.
  • e-Discovery Deftness
    Have your legal and IT teams do a thorough review of the e-Discovery service(s) that you plan to use and insure that their processes are sufficient to prevent disclosure of attorney-client privileged information at least 99.999% of the time. (If you expect that from your SaaS offerings, you should expect it from your e-Discovery offerings! There’s no way that 800 documents should slip through in a batch of only 78,000, as that’s an error rate of 1.02%.) After all, every attorney-client privileged document that slips through is a piece of key evidence that you could be denied.
  • Quality Quest
    If you’re linked to a salmonella, melamine, or other food safety scandal in any way, shape, or form, you’re pretty much guaranteed to be a defendant in a class-action lawsuit these days. Your only defense (against criminal / federal action) is to prove that you exceeded every federal regulation and quality standard and were methodical and religious in your quality testing.
  • Security Strafing
    With the recent changes to the IEEPA that increase the civil penalty for a “person to violate, attempt to violate, or cause a[n export] violation to “an amount not to exceed the greater
    of (1) $250,000; or (2) an amount that is twice the amount of the transaction that is the basis of the violation    “, the introduction of 10+2 where an importer importers can be charged with fines equal to the shipment value if they fail to
    file and face charges of $5,000 per transaction with missing or inaccurate data    , and an increasing number of customs audits (especially against those companies without a solid C-TPAT history), it’s only a matter of time before your weak links are discovered … and if those weak links including non-compliance with one or more regulations, you could be risking a multi-million dollar fine. Do a security compliance audit before the fact, and if you find any discrepancies, voluntarily report them (under the guidance of external legal council) immediately.

A Supply Manager’s Introduction to e-Discovery

Although I’ve blogged about how procurement can help marketing in The Creative Challenge (I and II) by way of a bit of Magic & Logic (I and II), I’ve yet to tackle the subject of e-Discovery, even though David Bush has a great 3-part series on e-Discovery last year (I, II, and III) over on e-Sourcing Forum.

However, a recent article over on SIG by Ted Ardelean of Oce’ Business Services, which was the first part of a three part series reminded me that this is an important topic and one that Sourcing Innovation needs to cover because, when bids for a given project can often range by as much as a factor of 10, this is one cost that a business really needs to get under control and one area where you have to understand the needs of legal in order for them to accept your help, which they obviously are in desperate need of in many companies.

So what is e-discovery? As per Wikipedia, “e-discovery”, refers to discovery in civil litigation which deals with information in electronic form. And as per e-Sourcing Forum, in recent years, the everyday use of e-mail and other forms of electronically stored information (“ESI”) has radically changed the discovery process, materially increasing its scope, complexity, and expense which has resulted in e-Discovery muschrooming into a multi-billion dollar a year industry. It’s important because amendments to the Federal Rules of Civil Procedure (FRCP), effective 12/01/06, move the adversarial discussion of E-Discovery right up to the preliminary stages of these cases. One emerging byproduct of this clarity from the Courts is the potential for E-Discovery costs to almost immediately dwarf the cost of whatever it is that is in dispute. Needless to say, this is quite troubling for corporate legal departments which can potentially have thousands of these cases going on at any point in time as per a Fulbright Survery.

And it’s not an easy process, especially if you want to be involved (and you do want to be involved, because it represents a huge saving opportunity, and gives you a chance to be an even bigger savings superstar than you already are), but if you follow the basic rules (laid out on e-Sourcing forum) and follow a good process, it is a manageable process. The basic rules are:

  1. You must be as non-disruptive as possible to Legal’s deliberative process and you must demonstrate complete and utter discretion.
  2. You need to understand how the e-Discovery market works.
  3. You need to know what questions you need to ask of Legal.
  4. You need to know how to communicate with the principals of Legal in a way that is meaningful to them.

In addition, as pointed out in Ted Ardelean’s article, you should also:

  • familiarize yourself with the FRCP
  • familiarize yourself with the EDRM (Electronic Discovery Reference Model) that standardizes the process of exchanging ESI in a manner that reduces associated costs
  • start a dialog with your in-house council early, and communicate often

And you should review the case study detailed by David Bush in parts II and III of his series. It contains a basic process that you can use as a starting point for building the in-house process that’s right for you.

Free Content for Fair Use

As many of you know, the doctor is not your average blogger, but as many of you might not know, he is one of the few independent bloggers in the space that makes his living off of content generation, which include the blog posts created and published on this site (as well as the results of his content generation services). As a result, copyright, “fair use”, and “fair dealing” are very important to him and he gets quite upset when he finds content that is being used in a manner that flies in the face of “fair use” and “fair dealing“, such as when entire posts and articles are being copied without permission and passed off by another individual as their own or when big companies try to prevent “fair use” and either demand payment or threaten ridiculous legal action in situations that any reasonable person should deem “fair use”. Both of these have happened in the last week, and needless to say the doctor is not very happy. (Especially since he’s had to personally file two complaints with Google in four business days.)

In the first case, thanks to a tip from a fellow blogger, the doctor discovered the purchasing.org.ua blog which had no less than 15 posts which were copied, in their entirety, from works of the doctor here on Sourcing Innovation or on e-Sourcing Forum, where the doctor guest posts regularly, without citation, reference, or link. Now, it doesn’t appear that this individual was trying to profit off of this blog (as many individuals who copy content in this manner often try to do), but a number of searches for content that should bring up Sourcing Innovation were bringing up that blog instead, on content I had written. But it didn’t stop there! After extensive research, I found posts that contained content, usually in its entirety, that appeared to have been originally published on over a dozen different blogs or in a dozen different publications, all without citation, reference, or link – on a blog where the author was remaining anonymous. To date, I have verified, through conversations, that at least six other bloggers and three editors at leading publications believe that their content has been republished without their consent in a manner that, in their opinion and mine, violates “fair use”. Of what was almost 300 posts, I was able to track down all but 40 to other sites, which had the same content with an earlier publication date! Needless to say, for-profit or not, when I find sites like this, I get very annoyed … especially when I am usually more than happy to allow others, who provide me the courtesy of a simple request (when required), to re-use my content, in full, for educational and non-profit purposes.

In the second case, the doctor heard that not only was the Associated Press filing a lawsuit (hat tip to Susan’s Web Logs Blog) against The Drudge Retort on claims that the blog violated fair use for publishing entries that contained fewer than 30 words from cited Associated Press articles, but that they were trying to force bloggers to pay them a fee if they quoted a mere 5 words! (Again, hat tip to Susan’s Web Logs Blog). the doctor writes sentences longer than that! It’s bloody ridiculous. I hope that someone, with the willingness to defend your rights just like the Electronic Frontier Foundation does on a regular basis, takes them to court over this (as my thoughts on the issue aren’t fit to print)!

It’s true that the doctor regularly covers works generated by third parties, including those published in third party publications, but anytime the doctor quotes content, whether or not it constitutes a significant amount of material with respect to “fair dealing” or “fair use”, he does his best to not only credit and reference the source, but to also provide a link to the original material, when available. And if he directly quotes an amount of material that some parties might consider significant, he does his best to ensure that he adds to the work considerably himself or keeps the total content to less than a small percentage of the overall work being referenced. Furthermore, he doesn’t make ridiculous complaints when he finds a large part of his material quoted on other blogs when the author has taken care to properly reference and cite the work at issue and to add to it in some way, even if he disagrees with the contents of the posting (just like he won’t delete any comment that follows the comment rules). (Summary: the doctor does his best not to be a hypocrite.)

Thus, even though the doctor gets very annoyed when content is used in a manner that flies in the face of “fair use” and “fair dealing”, the doctor believes that content should be free for “fair use”, and that those who create content should make an effort to insure that their content is free for “fair use”. To this end, the doctor will not only not bother you if you use his content in a way consistent with “fair use” and “fair dealing”, but is extending the following offer to almost anyone who wants it:

FIVE FREE POSTS FOR FAIR USE

the doctor will seriously consider granting to almost anyone, on request, the right to reprint, or repost, up to five posts (authored by the doctor and posted on the Sourcing Innovation blog) in their entirety for educational purposes, regardless of whether or not you are an accredited public institution or a private for-profit company, as long as:

  • the posts you request are at least 30 days old (and authored by the doctor)
  • no fee of any kind will be charged for the reprints or reposts
  • the posts will not be used with the express intent of commercial gain
  • the posts are reprinted in whole or in contiguous, unaltered, part
  • full credit for authorship is attributed to the doctor
  • a permalink to the original post is included

To make your request, simply send an e-mail to the doctor at (thedoctor <at> sourcinginnovation <dot> com) and specify the following:

  • the posts (up to 5) that you are requesting to reprint or repost,
  • your name and contact information (company, e-mail, and telephone number),
  • the method in which you plan to reprint/republish the posts,
  • the audience you are hoping to educate, and
  • an assurance that no fee of any kind will be charged for the distribution of the reprints/reposts.

I will get back to you as soon as I can, but please allow up to five business days for a reply before resending your request. Thank you.

Legal Cooperation

Last month, the ISM awarded a number of individuals and organizations the R. Gene Richter Award for Leadership and Innovation in Supply Management. The recipients were primarily organizations that had demonstrated massive improvements in their sourcing and procurement functions which came about through concentrated improvement efforts. These improvements were the direct result of the adoption and consistent implementation of best practices across the sourcing and procurement functions in the organization. This week we are discussing the best practices that helped one or more of the recipients transform their organizations and win these coveted awards.

Today we are going to talk about how legal sourcing can revolutionize sourcing as it did for Johnson & Johnson, as described in the article Odd Couple in the latest issue of Inside Supply Management.

In 2004, the World Headquarters Law and Procurement Departments at J&J formed the legal sourcing group with the initial objectives of

  • identifying where sourcing support could add the most value,
  • implement several “quick win” projects to demonstrate sourcing’s value,
  • optimize law department processes and integrate sourcing, and
  • build a sustainable support structure and knowledge base.

This partnership resulted in a database that provided detailed information to support analyses, process design, and negotiations as well as advanced reporting capabilities not previously available. This improved the quality of information available to the law department. It also helped identify 3rd party services such as copying, coding, and reporting that could benefit from sourcing expertise. As a result of new policies and the involvement of sourcing in identification, competitive negotiation, and preferred suppliers to support litigation, sourcing has saved over 3M in third party services.

As a result of this success, the legal sourcing group moved on to assisting litigation in rate change requests, case budgeting, and discovery management. As a result of the partnership, the litigation group has saved 8.7M in the first year of the partnership.

The reality is that if procurement is willing to

  • listen to the needs of organizational units and learn,
  • adapt sourcing tools and process to the environment (and not vice versa),
  • focus on the customer’s needs and respond to them,
  • establish credibility before approaching sensitive areas, and
  • realize that the success of the case is paramount, in some cases costs or standard processes might have to come second,

then procurement can help legal become a more efficient and cost effective organization. Procurement: It’s not just for materials anymore!