TEN COMMANDMENTS TO KEEPING DOWN LEGAL COSTS
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Commandment #1.
Get the right lawyer for the job
Get the lawyer whose practice focuses on the narrow area of law in which you need help and this means you need more than one law firm doing your legal work.
When your large law firm says “We can do it” - ask yourself three questions:
Choosing the right lawyer can save you big money in the long run and boutiques usually run at the same hourly rates as mid-level law firms but operate much more efficiently. They have to!
The focus of our practice is intellectual technology - covering intellectual property in the technology field. Many times, we’re involved at the last minute in a mad rush when the earlier paperwork hasn’t been put in place and the damage is already done. Where contracts have been used, they’re often purloined from other deals which are entirely different and have a difficulty of not covering the Commandment difficulties which arise in the particular case because they weren't written by a lawyer who understood that technology. In some cases, I'm only brought in as the specialist to do damage control long after the agreement is executed.
In a recent case we had a multi-million dollar licence deal in dispute but the wording of the provisions meant that the client could recover a little over £5,000. The clear intent of the heads of terms and the pre-agreement correspondence was that licensing would work in a particular way. Unfortunately the client used their usual big law firm, which in turn used associate lawyers who were too inexperienced to ask the right questions and drafted an original licence proposal that reflected the usual licensing for software and not for the particular technology. The counterparty must have jumped for joy. My client may have saved a few hundred pounds at hourly by having his regular lawyers draft the contract, using associate power, but it probably cost them over a million pounds (two million dollars) in the long run.
Specialists save money in the short term. If I tried to do a conveyancing, it would cost thousands of pounds as I have absolutely no real estate background nor the appropriate systems. A conveyancing specialist is set up just to do conveyancing and can do it for £199+VAT. But … beware the firm offering everything to everyone – they’ll have the specialists but they’ll also have the overheads!
Commandment #2:
Involve early and Stay in constant communication with your lawyer
It may seem completely counter-intuitive that constantly communicating with your lawyer will save you money, but it almost surely will. Staying in good communication with your lawyer is like changing the oil in your car, it costs money but a blown gearbox or engine or (in the case of legal services, a big lawsuit) is going to cost you a lot more.
Commandment #3:
Know your real goals and tell your lawyer what they are
This is a "hit-me" item. you won’t get what you want if you don't know what you want to achieve through legal representation. Your lawyer will explain various possible outcomes of a case or transaction, but it's your job to know what your goals are as youknow your business better than your lawyer.
Many years ago, a client came to me about six months into developing a telecoms device. There were already all sorts of issues of disclosures, initial ownership and a whole host of other items, as well as clear issues between the parties already. After some 15 hours of discussions about whether the original idea was sufficient to allow one of the parties to be “an inventor” I managed to drag it out of my clients (the other 3 people) that the other inventor gave them more than 50% of their work and simply wanted to be listed as inventor and was quite happy to transfer all rights to the JV owned by my 3 clients for £1 plus a 20% discount on all machines produced (where trade discount was 15% anyway) plus a reduced revenue share for machines purchased (and we’re talking about 2% in a 30% revenue deal!) The alternative to listing as an investor was a risk of litigation AND a complete loss of all other business.
One four page assignment and a signature later, everyone was happy, but their internal costs of the dispute were over £75,000. Their regular lawyer had never though to ask the right questions and hadn’t understood the implications of the assignment.
Commandment #4:
Avoid Litigation
Being sued or finding yourself in a position where you have no real choice but to sue should almost always be avoided. Make sure you have great legal expenses insurance and that you can choose your own lawyer under the policy.
Avoidance is easier said than done, but clear precise agreements in writing, plus spending a little up-front in legal fees and consulting with lawyers, goes a long way in avoiding most lawsuits.
However, litigation is often necessary and should even sometimes be employed to further broad strategic business objectives. Nonetheless, once litigation has begun it is time consuming, difficult to control, and very expensive.
Commandment #5:
Use a law firm that appropriately outsources
The big firms are usually set up in such a way that the profits of the partners come from the work of their associates. These associates are often recent law graduates who are likely to be far less efficient than a more senior lawyer. Put simply, 20 hours at £200 will cost you more than 10 hours at £300 and, do yourself a favour, avoid trainee lawyers at all costs even though they’re cheap. Law firms pay them very low salaries and charge trainees out at £75 or more per hour when their value is almost nil at best and at worst can end up costing you hours and hours of time later down the line.
For example, we outsource 100% of our company law and 100% of our real-estate and financial services work to other boutique specialists as it is in the clients interest as they’re able to do the work for a great deal less than we would charge.
Over the years I have seen hundreds of clients charged thousands of pounds for research and other steps carried out by trainees which was almost worthless and completely unfocused where a partner specialist in the area could have given tightly focused advice specific to the client in about 2 hours.
Very Junior Associate time is often also lousy value. Big Law firms love having their associates doing legal research. The associate conducts highly profitable legal research and the law firm avoids having an inexperienced lawyer making strategic decisions. In the meantime you are paying to help train that associate. In seven years or so, he'll be ready to become a senior associate and in ten years a partner and use a new associate to do the same thing to some other client.
In another case, our client asked us to review their former lawyers’ bill. £15,000 for registering domains worldwide, plus registration fees. As we guessed, it was a trainee lawyer who had gone to about 4 major registration sites (via a google search) and then approached all the other registries individually. No wonder it cost so much. We knew the specialists to go to in order to register at every worldwide registry where we only needed to complete one form and tick a few boxes. We’d have charged just over £200 because we knew which outsourced service to go to. We also pointed out that £4800 of the additional domain registration costs were for domains which were so obscure that they should be ignored and not renewed.
Commandment #6:
Explore alternative fee arrangements
It almost always makes sense to at least discuss with your lawyer billing arrangements other than straight hourly fees. We often use fixed fees for recurrent or easily defined work.
We don’t have to worry about timesheets and simply get on with the job and where we can find faster ways of doing things we do and the real advantage in this arrangement, for both counsel and the client, is the ability to budget in advance and so limit billing "surprises" for both of you.
Most lawyers complete timesheets at the end of the day – and estimate the time that they have spent on each case and then
Contingent fees are another alternative option, but these are not particularly attractive in the UK jurisdiction.
There are also a number of hourly billing variations to consider. One common option is to negotiate a reduced hourly rate plus bonus.
Here, an agreement can put your counsel at a reduced hourly rate plus bonuses to be paid for meeting or exceeding deadlines you agree upon. For example, if the case is settled early (according to certain milestones) the lawyer gets a bonus – so often we see lawyers drag out hopeless claims under a “so-what, we’re still being paid” ethos.
Commandment #7: Have your lawyer give you an estimate of the fees and costs
An estimate is just that: an estimate. Legal fees are often difficult to predict, particularly in litigation where the opposing party's tactics greatly influence what your lawyer is required to do. However, you still need an idea of the legal costs you're about to encounter.
From my perspective as counsel, I have learned that it is always a good idea to give an estimate because sometimes clients truly have no idea exactly what is involved in handling a particular matter. Fixed fees force you to properly consider the steps.
Commandment #8:
Don't focus too much on the attorneys' hourly rate An in-house counsel for one of the largest corporations in America once told me that, no matter what the hourly fees were at the various firms used by her company, in the end, most of the firms tended to charge similar amounts. According to her, the firm whose partner billed out at $250 per hour simply billed more time than the firm whose partners billed out at $350. At the $350 per hour firm, more work would go to associates and the bills were therefore the same. She said that over 15 years she had found that the key differentiator on fees was the degree of overhead. Specialist firms who handled about 4 specialist areas and outsourced everything else had least overheads and best billing rates. The principle is to focus on efficient representation - and on lowering your total bill, not on the hourly fee charged by individual lawyers.
Commandment #9:
Don't forget about insurance
One of the best investments against monumental legal fees is insurance. Carry liability insurance, legal defence insurance, IP insurance and directors' and officers' liability insurance.
If you do get sued for any reason, have your lawyer check your policy to see if you have coverage if the insurer denies cover. When your lawyer says your covered, get your lawyer to talk to them - 99 times out of 100 you’ll find they suddenly agree with your lawyer’s take on events.
Too many times, companies have assumed their policy could never cover a particular matter when in fact it either might or it does.
And get legal expenses insurance before things arise as it’s too expensive in practical terms to get “after the event insurance” in most cases.
Commandment #10: File with your lawyer
File every signed contract with your lawyer and put a summary at the front of each. This has three advantages.
Firstly it means that you have a readily available backup of every contract and you’ll never lose them.
Secondly it means your lawyer will probably glance at the summary free as they cross his desk before marking them for filing. A good lawyer won’t charge for this as you haven’t asked for a review - and he won’t want to risk his liability cover by passing comment unless its a proper review - but he does get a subconscious picture of your entire business and will therefore be much more efficient. If you’ve many contracts, you’ll probably pay an annual escrow fee but believe me- if you have a fire, its worth it.
Thirdly, if there is a challenge to when a contract was agreed or an accusation of tampering, your lawyer can provide the timestamped version.
We provide some clients with an e-mail account at lexist.net where they can simply bcc all contract e-mails - then there’s independent proof of valid sent externally and also proof of content.
Also…. If you need to instruct your lawyer in relation to a contract, he already has it!
............ and please ..... change your e-mail subject line so that it identifies the e-mail in a meaningful manner. This way your lawyer doesn’t have to open 30 e-mails to find the right e-mail from you! It’s the easiest and most efficient way to save money with a lawyer.
First Published in IT Business World Today Magazine, June 2004