Online advertising by attorneys via pay-per-click* is an effective and most likely necessary means of reaching many of the prospective consumers of new normal legal services, as discussed in our previous post on "shouting." 

But before jumping in, what is the regulatory environment?  Simply put, is this allowed?

More than a few of our lawyer colleagues think so because they are already doing it.  Googling "commercial litigation lawyer" returns a slew of attorney  ads along the right side of the search results page, including, for example:

Fletcher Business Law

Supporting Bay Area Businesses
Call for Consultation: 510-709-5435
San Francisco-Oakland-San Jose, CA

www.fletcherlp.com

So far so good, but most of us are going to want better information on the applicable regulations.

The answer is that pay-per-click online services are not prohibited and instead enjoy the same limited First Amendment protection of commercial speech that is afforded other forms of attorney advertising.  However, the regulatory environment is far from settled, as discussed after the jump.

Continue Reading Shouting Via Pay-Per-Click Advertising is OK

The shift in the balance of power towards consumers means less “shouting” (marketing) about your product or service, according to Jeff Bezos, Amazon founder.

"Before if you were making a product, the right business strategy was to put 70% of your attention, energy, and dollars into shouting about a product, and 30% into making a great product. So you could win with a mediocre product, if you were a good enough marketer. That is getting harder to do. The balance of power is shifting toward consumers and away from companies…the individual is empowered… The right way to respond to this if you are a company is to put the vast majority of your energy, attention and dollars into building a great product or service and put a smaller amount into shouting about it, marketing it. If I build a great product or service, my customers will tell each other."

See the Bezos interview and transcript.

The legal services industry has seen a similar shift in power from lawyer to client and a correspondingly greater emphasis on providing better quality legal service for less money, as described, among other places, by author and lawyer Pat Lamb in Alternative Fee Arrangements: Value Fees and the Changing Legal Market.   This is the "new normal" to which most law firms must adapt or die.  But does this mean that the need for shouting by the new normal firm is significantly reduced?  For now at least, the answer is no.

Here’s why.

Continue Reading Marketing New Normal Firm: Shouting Still Necessary

The Federal Circuit’s recent decision affirming the patent jury verdict in Funai v. Daewoo effectively increases the money damages that can be recovered by millions if not tens of millions of dollars.  (Full disclosure: I tried the case and among other things was responsible for the damages evidence introduced at trial.)

Background: The Accounting Period for Patent Damages Does Not Compensate All Economic Harm

In situations where the patent owner sells a product that practices the patented invention and a competitor sells an infringing product, an economist pegs the beginning of the economic harm resulting from infringement (lost sales, reduced prices, etc.) to the date the infringing sales began.

However, the accounting period for patent infringement damages usually begins much later – not until notice is given in compliance with the patent marking statute, see 35 U.S.C. sec. 287(a).  Any and all economic harm that predates notice is excluded from recovery under the statute. 

More Background: The Earlier the Notice, the Earlier the Accounting Period Begins, the Much Larger the Damages

The earlier the statutory notice, the further back in time you can go to collect damages on infringing sales.  We’ve previously demonstrated in The Shifting Sands of Price Erosion that even slight adjustments in how early the accounting period begins can increase by tens of millions of dollars price erosion damages alone.

Funai Relaxes the Notice Requirements and Effectively Expands The Accounting Period to Capture Infringing Sales That Are Earlier In Time

More after the jump.

Continue Reading Patent Marking Ruling Means Bigger Damages

 

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, and warns (“En garde,” he says) that "competitors will undoubtedly" be trying to exploit the ability to deliver legal services from a distributed platform (“cloud computing”).

Jordan Furlong, in Law21, says that law firms are in the “cross-hairs of numerous entities outside of the legal profession” who intend to kill law firms and take some or all of their market by exploiting, among other things, the “virtually zero” effort to develop real competitive intelligence on what it costs to deliver specific services, how much rivals charge and why, what knowledge people and systems collectively possess, and how to apply that knowledge in a systematic way.

The common thread running through these and many posts like them is that law firms’ survival, let alone competitive success, hinge on investing in and effectively employing new management techniques, processes and tactics.

This costs money, lots more money than law firms currently have available to invest, particularly in a market with shrinking gross revenues. Even assuming firms have money available to invest, the high likelihood is that they do not have the institutional incentive to direct the money to longer-term investments and away from the current payments to rainmakers or other senior lawyers who want their share of the pie now (and certainly don’t want the firm to make greater risk investments that might reduce the value of their current ownership interest in the firm).

Even assuming the firm has money and is farsighted enough to want to make long-term and uncertain investments for the good of the enterprise, the new legal services paradigm requires non-legal management expertise, services and systems that are beyond the ken of the great majority of the lawyers who currently manage their firms. As explained by the CFO of a major law firm surveyed by Jim Hassett (LegalBiz Development):

A large number of lawyers do not know how to manage. [In the past], the more hours that got charged, the more money [they] made, and so they’ve never really had to manage [costs].

The solution is outside capital, which not only would provide the money required to fund innovations to the legal delivery model, but also would force firms to bring in the global, nimble, multi-faceted and risk-taking managers without whom it would be impossible to achieve the desired innovations.

The impediment is US ethical rules that bar non-lawyers from owning, investing in or managing a law firm. However, as demonstrated by the above posts, the forces compelling the lifting of the bar grow ever stronger and the calls for this change are increasing.  Anthony Davis, in A New Approach to Law Firm Regulation, calls for replacement of the state-based professional regulatory system with a national, uniform set of regulations that “provid[es] the seamless, efficient and cost-effective service for which clients of every size and level of sophistication are crying out,” by allowing, among other things, lawyers to access outside capital and non-lawyer management expertise.  

The groundswell of support for non-lawyer investment and other regulatory changes hopefully will be reflected in the report of the ABA’s Ethics 20/20 Commission, which was appointed in 2009 and given the mandate of investigating ways to enable US practitioners to compete with legal providers in other countries while continuing to protect the public and core values of the profession. The report is expected sometime in 2011.

In the meantime, we and others continue to press for change.

 

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”

Pat Lamb, in his very good book on value pricing Alternative Fee Arrangements: Value Fees and the Changing Legal Market, says that the fees and costs of a trial should never be built into the fixed fee proposed to a client.  "Never"? Really?

Really, says Pat.  Paraphrasing what he says in his book, virtually all cases settle, so including the cost of trial in the fixed fee is perceived by the client as overpayment, or could dissuade a client from accepting a settlement because they believe they have "already paid" for the trial.  Plus including expensive trial costs and fees might create sticker shock that scares away the client.  Pat also makes the compelling  point that it is not until you are close to trial that lawyer and client appreciate the real costs and risks of trial, such that the determination of the price for taking the case to trial is best left until then.   In other words, carve out trial from the price for your legal services, thereby allowing you to give the client a much lower price than you could if trial was included, and proceed under a fee structure that incents early settlement/resolution of the litigation (the earlier the resolution, the greater the profit made by the lawyer).

I’ve migrated from a first impression rejection of Pat’s recommendation to grudging acceptance of his logic. Check out my thinking process after the jump.

 

Continue Reading Don’t Include Trial in the Price?

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.

 

 

Continue Reading Non-Lawyer Investment Will Happen

The term stalking horse originally derived from the practice of hunters using a horse or other animal to cover their approach to fowl. In business, a stalking horse can be used to describe the practice of a company attracting multiple bids for acquisition by beginning negotiations with a potential purchaser with the intent to flesh out competing, hopefully superior, offers. Companies wishing to acquire a company also use a stalking horse third party to identify the risks in such a takeover while sheltering their reputation. Not surprisingly, “[t]he loser in the exercise appears to be the stalking horse. “
 

What we are finding, somewhat frustratingly, is that CLP’s practice of providing, up front, a firm price and developed litigation strategy, is sometimes used by potential clients as a stalking horse to extract better deals from hourly firms.

Continue Reading Litigation Price: Flat Fee Used as a Stalking Horse.

JED

    [walking away] Numbers, Mrs. Landingham.

MRS. LANDINGHAM

    Excuse me?

JED

   If you want to convince me of something, show me numbers!

THE WEST WING "TWO CATHEDRALS" (2d season finale, 2001)

While clients agree with the criticism of hourly billing, the reality is they still have significant reservations about using an alternative fee agreement (AFA). Like fictional President Jed Barlit in The West Wing, clients aren’t going to tip and truly adopt AFAs until their lawyers can “show me numbers.”

Unfortunately, AFA firms don’t yet have the numbers.  The great bulk of pricing data currently available is based on inefficient hourly billing, and, consequently, is of limited value.   Furthermore, the tools necessary for outside counsel to collect, analyze and present meaningful cost and profit data on AFA cases across clients and markets still need to be developed.

 

Continue Reading Lack of Numbers Holds Up AFAs

A Japanese IP firm has expressed interest in sharing fees with CLP on US-based IP litigation, prompting us to ask ourselves whether this is ethically permissible.

We already knew that here in California or elsewhere around the country the rules of professional conduct permit fee sharing between US based lawyers who are not members of the same law firm.   (Keeping in mind that local requirements can vary as discussed in the postscript below.)

The ABA’s 2009 paper, “Joint Responsibility: Sharing Legal Fees Between Lawyers Not in the Same Firm,” confirms the wide-spread acceptance of fee sharing and provides some good examples of the different state rules.

Fee sharing is part of CLP’s DNA because it allows us to scale with expert patent and IP transaction lawyers without bearing the incredibly high overhead of keeping all this great talent under one roof. We’ve had to become fluent on the applicable ethical rules. Prospective clients are less willing to hire CLP unless they are comfortable, in their words, “with how this [fee sharing] works.”

For example, a recent CLP pitch deck included the following slide explaining how the client enters into one engagement agreement signed by each of the fee sharing attorneys, as well as how the agreement discloses the fee arrangement and otherwise obtains the client’s informed consent in compliance with applicable ethical rules.

 

So CLP gets fee sharing. We use it successfully with other stateside lawyers and firms. Yet could we take it overseas?   We were highly incented to do so based on the big-time benefits of fee sharing for all concerned: the client; the referring Japanese firm; and CLP.

  • The client, a Japanese technology company, would get cost-effective and expert patent trial counsel from CLP, and also would receive continuing advice, counsel and guidance from its trusted Japanese counsel (which, as any US lawyer who has litigated on behalf of an Asian client will tell you, is crucial to enjoying timely and effective communication between US lawyer and their Japanese clients).
  • The Japanese firm would retain a valued client relationship and would capture fee revenue that it otherwise would lose to other firms.
  • CLP would enlarge its pipeline of core IP patent litigation.

We therefore were delighted to learn that yes, we could share fees with our Japanese colleagues.

 

Continue Reading Fee Sharing With Foreign Lawyers