Some recent posts highlight why it is inevitable that the ethical rule barring non-lawyers from investing in and managing US law firms will be lifted. See our 6/11 post.
Bruce MacEwen, in Adam Smith, Esq., characterizes as “managerial malpractice” the failure by lawyers to analyze data on such things as client spending patterns
I’ve had the pleasure of speaking with Andrew Moore and Sam Sweet about using their company NCC Group as a neutral “escrow” site for producing highly confidential source code in IP litigations. Andrew and Sam made a good case for using NCC’s services, which we’ll get to after the jump. First a more general insight:
The discussion highlighted how important it is for legal departments buying the services of “value pricing” litigation firms to ask a lot of questions about the firm’s "subs" – referring to the bevy of independent subcontractors or "subs" that the lead trial firm, acting as a general contractor, engages on behalf of the client. (Note-"value pricing" refers generally to restructuring the attorney-client relationship in a way that reduces costs, provides greater cost predictability, and cuts out the fat in the delivery of legal services. The use of non-hourly based fees is viewed by many, yours truly included, as a necessary component of the restructuring effort. Check out the ACC’s blog for more and better background on this new business model.)
The subs which potentially could be used on a litigation encompass a large number of different types of service providers: lawyers, e.g., basic research, document review, specific technical expertise or other relevant patent expertise; non-lawyers, e.g., technical experts, e-discovery vendors, jury consultants, graphic artists, special document production vendors; and/or the vendors involved in legal process outsourcing (LPOs), a very hot topic of late. Some of the subs don’t cost very much, while a significant number of other subs can cost tens of thousands of dollars or more.
The value pricing firm, due to its non-hourly fee structure, is far more incented to outsource both legal and non-legal services to outside vendors than is the firm billing by the hour. The former’s price is fixed and therefore it increases profit by lowering the cost of production. This is a good thing. This places the burden of finding the most efficient and effective means of delivering a legal service on the persons best positioned to do so – lead trial counsel. There is a lot of fat in the current delivery system and therefore a lot of room for the more enlightened firms to lower their price while still making a fair profit. (Check out Pat Lamb’s new book, "Value Fee Arrangements: Value Fees and the Changing Legal Market for his excellent presentation on these points.)
In other words, as a result of the changed behaviors incented by the new fee structures, the buyer of legal services is going to see both a wider variety and a larger number of outside service providers on their matters. Whether the buyer is going to get a good result, and whether the buyer’s law firm is operating from a sustainable platform (no buyer wants to be saddled with a law firm that is losing money providing services to that buyer), therefore depends much more on whether the lead trial firm is bringing the right subs to the matter.
The smart buyer should therefore ask up front:Continue Reading Smart Buyers Ask if Subs are “For Real”
Earlier this week, I was asked whether I had considered approaching venture capital firms to take a stake in my business [Confluence Law Partners (CLP)] large enough to cover our "burn rate" for a year or two. Apparently, what makes CLP an attractive investment is that we are, in VC-speak, "post-revenue," i.e., in addition to having a business model that conceptually makes a lot of sense, we have an actual business that is generating revenues, and we could significantly increase profit by using outside investment to increase the scale of our delivery system.
The key assumption made by the person asking the question (who is a non-lawyer investment fund manager) was that non-lawyers like themselves could invest in, own or manage a law firm. Of course, this is prohibited under US regulations known as professional ethics.
However, not only is non-lawyer investment allowed elsewhere in the world, as explained after the jump, this change is coming to the US.