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Legal service models are fast evolving, and trademark and brand lawyers must adapt—understanding the changes and how to best add value is key. Saman Javed reports.
As company needs continue to evolve, the role of outside legal counsel is changing. Budget models have shifted drastically over time, particularly since the 2008 recession; service providers are becoming more sophisticated; new players—including the Big 4 accounting firms, Deloitte, Ernst & Young, PwC, and KPMG—are entering the legal market; and companies are demanding more flexible, strategic, and business-oriented approaches to legal advice than that offered by the traditional models.
More recently, technologies like artificial intelligence (AI) have made the stakes even higher. On February 18, Ernst & Young announced that it will partner with Luminance, an AI platform founded in 2016 that “uses pattern recognition and machine learning algorithms to read legal documents, making contract review processes more efficient.” Such tools are helping external providers to provide cheaper, higher-quality work than previously possible.
All of the Big 4 are now in the legal business, many with larger legal teams than most law firms. They focus on practice areas as diverse as corporate; labor and employment; transactional; digital; merger and acquisitions; governance and compliance; and immigration. So what does all of this mean for intellectual property (IP) and brand lawyers?
Clearly, the game is changing across the board. But as IP and innovation increasingly form the bedrock of the global economy, IP specialists still have a critical role to play, if they are willing to adapt.
Change Is Here
The Thomson Reuters Legal Executive Institute, in partnership with the Georgetown Law Center on Ethics and the Legal Profession, Acritas, and the University of Oxford Saïd Business School, published a report earlier this year that cites the rapid growth of alternative legal service providers (ALSPs). The report, which was based on responses in 2018 from 517 decision makers representing 335 law firms and 182 corporations in Australia, Canada, the United States, and the United Kingdom, finds that ALSPs are now broadly used for tasks traditionally done by law firms, including:
- Litigation and Investigation Support;
- Legal Research;
- Document Review;
- eDiscovery; and
- Regulatory Risk and Compliance.
In comparison to an earlier version of the report (which was released in 2017 and based on surveys conducted in 2016 with U.S. respondents) corporations have embraced ALSPs at levels that have “already exceeded or approached the usage levels earlier predicted for 2021, and expectations for future use remain high,” says the latest study. In 2018, 25 percent of corporations said they planned to increase their spending on ALSPs, compared to only five percent that expected spending to decrease, and the global ALSP market was worth an estimated US $10.7 billion in 2017, an increase of US $2.3 billion from the 2015 global estimate. Driving usage is access to specialized expertise, more efficient and strategic use of existing resources, and cost.
Among U.S. law firms of all sizes, the percentage using ALSPs “is up significantly from just two years ago, and in a few cases, they have doubled,” says the report. For example, around 65 percent are using ALSPs for e-discovery purposes, compared to 42 percent; and half are using them for legal research, up from 21 percent.
The threat to law firms from ALSPs is evident, with, according to the report, 23 percent of large law firms and 21 percent of mid-size firms noting that have lost business to one of the Big Four. Also of note, about one-third of law firms say they plan to establish their own ALSP affiliate within the next five years.
Another survey, “2018 Law Firms in Transition, An Altman Weil Flash Survey,” came to similar conclusions. The survey polled managing partners and chairs at 801 U.S. law firms with 50 or more lawyers and received 398 firm responses. Among other findings, the survey showed that law firms see themselves losing business most rapidly to three main sources: (1) corporate legal departments in-sourcing more legal work (69%); (2) client use of technology (25.6%); and (3) ALSPs provider (16.4%).
Further, a global survey of senior in-house legal practitioners conducted in late 2018 by Ernst & Young, indicated that 82 percent of businesses planned to reduce legal function costs during the next 24 months—primarily businesses in North America. It also found that most in-house counsel see a greater need to capitalize on technology, which they felt other departments, such as finance and human resources, had done more effectively.
These results should put law firms on alert: as technological solutions emerge to make traditional law firm services more easily deliverable, at much lower cost, firms must reimagine their approach.
“It’s safe to say that ALSPs have gone from a new and somewhat unknown phenomenon a few years ago to a well-established segment that is an integral part of the legal services industry today,” concluded the Thomson Reuters’ 2019 report. “Clearly, law firms are intrigued and perhaps a little alarmed by the growth and prominence of ALSPs. As the traditional law firm business model continues to come under pressure from a variety of forces, law firms will continue to investigate new ways to partner with, imitate, and leverage these legal service innovators.”
Meeting the Challenge
Daniel Zohny, Head of Intellectual Property at FIFA (Switzerland), admits that, as some service providers have “evolved dramatically and expanded their services,” he has shifted some work—like trademark searching, renewals, and at times Uniform Domain-Name Dispute Resolution Policy (UDRP) proceedings, for example—away from more expensive outside lawyers to ALSPs.
“UDRP work can be done a lot cheaper by service providers than a law firm, and service providers are well-versed. Also, for searching, the service providers are sometimes better at processing and presenting the data to us,” Mr. Zohny adds.
But overall, Mr. Zohny says that IP work is too important for FIFA to compromise on. “I’m still in the very comfortable position of being able to choose our IP counsel as I deem fit,” he says. “For FIFA, a large percentage of our revenue is generated by brand assets. You do not interfere with that just to cut costs for the sake of it.”
While lower pricing can be an attractive lure of service providers for certain kinds of work, Mr. Zohny says that he worries about transparency issues. Many service providers are trying to offer a one-stop-shop model and prices can be attractive. “However, you often don’t know who else they’re working with, and sometimes the providers try to limit their liability concerning negligence of their subcontractors, which is too big of a risk for the client, in my opinion. So, I still see the value in paying more for outside counsel,” he says.
Another advantage of outside counsel can be institutional knowledge, he adds: “Firms often will have worked with us for years and years and have insights I may not even have because it was before my time with FIFA.”
Yet, he acknowledges that firms do need to evolve in order to keep up with the growing sophistication of other providers. The key is adaptation, Mr. Zohny says, noting: “Listen to what your client really wants, even if it’s not how you normally do things.” This can especially be problematic for larger firms, where rigid protocols meant to minimize risk can sometimes make it difficult to adapt.
Julia Talke, Global Lead Counsel, Trademarks and Branding, at Lumileds Holding, B.V. (Germany), a spinoff of Philips, notes that large law firms have their advantages, too, though. For Ms. Talke, a global view is crucial when it comes to hiring outside counsel. Lumileds’ legal department comprises just 16 staff in total,including legal, IP, paralegals, and assistants,so “it really helps if I have outside counsel who can anticipate the issues and think globally,” she says. For this reason, Ms. Talke works with Baker McKenzie, which has 78 offices worldwide.
“I rely on outside counsel to take an ever more global approach to anything and everything they do,” she adds. “I really want them to give me the big picture.”
As far as outsourcing to service providers, however, Ms. Talke says that, except for a few specific tasks, like renewal work and screening and monitoring of counterfeits, she relies on her outside counsel—or better yet, herself. “Strategic decisions need to be led by someone in-house,” she suggests.
Ranjan Narula, Founder of RNA Technology and IP Attorneys (India), says that the pressure placed on in-house counsel by upper management to do more for less has been shifted to firms for some time, so firms have had to find ways to be cost-effective. “Then, you add technology to the mix, and the demands are completely different now,” he says. “People expect that the run-of-the-mill services can be managed with technology, so you shouldn’t be charging for it. You have to focus instead on ways that you add value.”
The shift from hourly to flat fees is a global change that began many years ago, but the push for firms to add value in emerging areas is more recent—and poses a big challenge. “Technology is bringing new issues to the table, such as privacy, how to manage data, confidential information, trade secrets, use of social media platforms, and even how to keep employment agreements in tune with the time,” Mr. Narula says. “You have to think more broadly and be more aware of what’s going on––all of those issues are being raised by clients now.”
Becoming a client’s go-to source on issues like these is one key to remaining relevant, says Mr. Narula—and based on past experience, it’s possible, he says: “When the UDRP came along, everyone had to learn the rules on how to do enforcement online. It’s a steep learning curve on both sides, and there are no real surefire answers because new technology is always emerging. It’s a challenge, but it makes it more interesting.”
In Mr. Narula's view, service providers fill a gap for companies that firms have not been able to, and maybe never will. “They have their own edge on how they manage the problems and they have broader capabilities as far as tech knowledge goes. The legal industry isn’t geared up to take this on,” he says.
But Mr. Narula still sees ALSPs as being largely “project management oriented” and less able to deliver on substantive work. “When we’re doing trade secrets work, for example, the Big 4 firms or service providers can do the forensic analysis. But someone has to then lay down a short- and long-term legal strategy for what’s next—that’s where there’s still scope for the legal industry,” he says. ‘They are rapidly trying to fill that gap, and perhaps eventually they will have the legal teams in place, but it will take some time.”
Alan Adcock, Partner and Deputy Director, Intellectual Property at Tilleke & Gibbins (Thailand), agrees. He believes that service providers are still not sophisticated enough for some kinds of work.
Overall, Mr. Adcock has noticed the biggest change in the type of client seeking help, rather than the IP work per se: “There is large growth in more entrepreneurial and tech-heavy startup clients,” he says. “Disruption of more traditional businesses by entrepreneurs with new technologies and business models means more need for realistic and focused IP protection and commercialization plans.”
Responsiveness, Transparency, Moving Beyond Trademarks
At the end of the day, says Mr. Zohny, clients are chiefly looking for outside counsel who are “responsive and transparent.” Developing a reputation for such qualities is vital, particularly since many in-house counsel hire outside firms based on peer recommendations.
“I may look at [legal directory] lists, but mostly I’ll go for direct recommendations via networking. Then the next most important factor is the pricing scheme, and finally, I’ll do a test run of their work,” he says. Once hired, the responsiveness and transparency qualities that won the job must be maintained. “If you realize you can’t do something for the price you promised, say something,” he says.
For her part, Ms. Talke says that taking a global view, effective communication, and learning about clients’ products are the main factors she weighs when judging outside counsel—the latter being particularly important for a tech-heavy company like hers. “Even if I only hire you to do trademark work, you need to understand the technologies and products, because each product has its own unique issues and challenges. I don’t want to get an office action on a list of goods and services we don’t even use,” she says.
In Mr. Narula’s experience, firms need to up their game even more than that. “Every IP counsel is looking for someone who understands their business and particular challenges,” he says. This means that, if a company’s bottom line is changing to encompass new platforms and strategies, firms must move beyond protocols to deliver. “The traditional model is gone,” he adds. “Even for a small thing like clearing a brand, you can’t stop at the trademark register anymore; you have to think about domains, company names, e-commerce, and social media portals and products. You have to look at things from a media and advertising perspective too; you need to become more of a brand lawyer.”
Legal services, artificial intelligence, Ersnt & Young, accounting, Deloitte, PwC, KPMG, UDRP, FIFA