Legal fees out of hand? Go ‘in-house’

For most companies, the decision to hire staff counsel is a matter of cost and efficiency

For most companies, the decision to hire in-house counsel is a matter of cost and efficiency, said Julie Reed, a patent attorney with Marger, Johnson & McCollom PC. She should know – she was the first in-house attorney at Sharp Labs of America. Before her arrival at Sharp Labs, the president was the main contact person for the numerous outside patent attorneys the company dealt with.

"When it’s less expensive to have someone on staff than to go see an attorney all the time," said Reed, then it makes sense to make the move to in-house counsel.

Of course, the financial equation is not simple. Outside attorneys tend to make at least $150 per hour, according to Reed. Companies have to balance that against the cost of having an attorney on staff, including overhead, benefits, etc. Then too, there is the matter of efficiency. Even if having in-house counsel costs a little more, it may be worth it to have the attorney on-site and available more or less around the clock. For example, according to Reed, the president of Sharp Labs hired her precisely because he wanted to spend less time dealing with patent legalities, and concentrate more on other aspects of running the business.

According to the American Corporate Counsel Association, cost control is the most pressing strategic issue when companies choose in-house counsel. Closely following that are the issues of efficient access to legal information, increased productivity, and application of new technology in law. In-house counsel solves cost control concerns by providing more predictable legal costs. When using an outside attorney, the company may know the attorney’s hourly rate, but not how long the task will take, or what expenses may be charged on top of that rate. With in-house counsel, the lawyer is an employee and the company can set policies to cover expenses.

Some businesses tend to have in-house counsel, no matter what the cost, said Patsy Eby, president of Vancouver accounting firm Peterson & Associates PS. Eby, who is also an attorney, stated that insurance companies, financial institutions, and title companies prefer to have in-house counsel for confidentiality reasons.

"There are advantages to exclusivity," agreed Reed.

Another category of businesses that tend to have in-house counsel more often than not are publicly traded companies, said Eby, due to the nature of the beast – share offerings, shareholder meetings and other legal matters that go hand in hand with going public make it difficult to have anything other than in-house counsel.

The development of an in-house legal department pretty much follows the evolution of the company itself. According to Reed, startup firms tend to hire corporate lawyers, who can assist with business formation, incorporation, share allocation, and so on. Then, as most of these issues morph into maintenance mode, the corporate law attorney may not be the best choice, and may be replaced with an attorney with a different professional focus.

For example, high-tech companies who deal with intellectual property (IP), such as numerous nondisclosure agreements, license agreements and patents, tend to hire patent attorneys as their first in-house attorney. There are also what are called "soft IP attorneys," who can do all IP work except patents. On the other hand, high-tech companies that don’t generate very many patents, or who don’t license their patents to third parties, may not need in-house counsel at all. In contrast, firms that concentrate on sales may hire a transactional attorney, who knows the ins and outs of sales contracts. A staffing agency would be more likely to hire an employment law attorney.

The first in-house attorney may find him or herself in a dual role, said Reed. Obviously they need to do the legal work they were hired to do, but they may also find themselves in administrative and education roles, as well. For example, when Reed first came to Sharp Labs, she found that they had no case management system. Before she could begin her "real" work, she needed to audit all the outside counsel attorneys to ensure their work was efficient and up to snuff, and create a database to track dockets and other documents associated with each patent application.

In addition, Reed had to educate both upper management and the researchers. The patent managers at Sharp Lab’s Japanese parent company weren’t attorneys – and they didn’t understand what Reed was hired to do. She said she spend quite some time explaining her primary role and getting them to understand it. She also presented procedural and substantive law classes to the Sharp Labs researchers, educating them about what was involved in a patent application, what information was required, what was patentable and what was not, etc. This was necessary, she said, to make the patent application process "as efficient and effective as possible."

Companies don’t have to make a cold-turkey decision to have in-house counsel. Reed reported that during her time at Sharp Labs, although she was in-house, she continued to deal with many outside attorneys because there was too much IP work for a single person. A company’s choice to have in-house counsel, and what type of in-house counsel, said Reed, really depends on "what they do and how often they use an attorney."

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Choosing a Lawyer

Choosing an in-house lawyer is subject to the same criteria as selecting any employee, but can be fraught with even more decisions and problems. First of all, said Patsy Eby, president of Peterson & Associates, talk with acquaintances with businesses similar to yours, and see what has worked for them. Other sources include accountants, friends, other attorneys and legal search firms.

Sometimes, said patent attorney Julie Reed, companies that have regularly used an outside attorney try to hire that attorney away from the law firm when they decide they need in-house counsel. Of course, this practice is not too popular with the law firm, but can result in a good fit for the lawyer and the company, since they have already been working together for some time.

When interviewing a possible candidate for in-house counsel, Reed cautions that simply examining the lawyer’s legal skills in insufficient.

"Law practice is completely different from what else goes on in a company – you need to be able to trust the lawyer, because no else knows what lawyers do all day," said Reed.

Therefore, it is important that the candidate’s work ethic and modus operandi match those of the company. Some companies prefer a teamwork environment, and management gets upset if an employee – even the in-house counsel – goes off and does their own thing. Other companies fully expect everyone to be self-motivated and capable of making progress without a lot of direction. For an in-house attorney to work out, he or she must be a good cultural fit.

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