The Disconnect Between IP Business Value and IP Legal Services and How Business Leaders Can Do a Better Job Choosing Their IP Counsel

Fancy law firm offices rarely create business value for clients.

Last week, I did what I these days rarely ever do:  live in the world of corporate and law firm IP lawyers.   I traveled to Minneapolis to speak at the Midwest IP Institute and, while there, I was treated to a baseball game in a luxury box, a high end hotel room with cocktails and hors d’oeuvres, a fabulous steak dinner and various other fringe benefits that I have not seen recently.  It was clear to me that even in these trying economic times when law firms have folded and merged and lawyers have been laid off in droves from all sorts of law firms, many lawyers are still living the high life.  I must say, I was somewhat surprised, because I thought business people were getting smarter about how they spent their money these days and, as a result, would not be impressed with fancy law offices and “bling” provided by their lawyers.  And, I also thought that lawyers who saw their colleagues lose their jobs and long-standing law firms collapse would express more humility and caution in their spending habits, but apparently their “near death experiences” had little effect on the way law firms operate.  But, the more things change, the more things stay the same in the law firm business, apparently, just with fewer law firms and lawyers to fill them.

A confession is first in order—I was one of these lawyers who received and valued the “bling” accompanying the world of a successful lawyer.  I had an obscenely high salary (as least it seems this way now), a fabulous downtown office with a free parking spot, a seemingly bottomless expense account and so on and so on.  What I didn’t realize at the time was that none of these accoutrements did anything to  create value for my clients.  To the contrary, these features only add to the overhead of legal services, and the price I charged.  A company hiring one of these law firms pays for these lawyer fringe benefits in the form of higher hourly rates and increased “administrative fees.”  These fringe benefits did not do anything to make my work product better and, in reality, likely made it harder to do the right thing for my clients because I needed to fill up my and my associates’ hours to continue “feeding the beast”–that is, pay for the high overhead accompanying my high end legal practice.

I started to realize the disconnect between lawyer fees and value provided when I left life as a law firm shareholder to become a corporate IP lawyer at a multi-national corporation.   In this environment, we were required to keep costs low, but there was still a push to hire “appropriate” law firms due to a perception that the level of difficulty of our corporate matters required a level of skill that was only available from law firms.  This made little sense from an economic perspective:  we were encouraged to hire lawyers who were the legal practice equivalents of Neiman Marcus or Bloomingdales, but we were asking them to charge us Macys or even Walmart prices.  Certainly, the salespeople at the high end locations do not appreciate being asked to charge discount prices but, unlike high end shopping establishments, lawyers at high end IP law firms rarely have the ability or desire to let corporate clients take their business elsewhere.  We then ended up in an endless cycle of negotiation—and often even conflict–between client and lawyer about legal fees.  In other words, clients and lawyers often sat on opposite sides of the table when dealing with their respective financial interests and, as a result, trust is invariably reduced.

The fundamental problem with how lawyers practice in the US, whether IP law or otherwise, centers on the failure of clients and lawyers to put at the forefront  of any hiring decision the value that will lawyers provide in a particular situation.  For example, as an IP law firm partner, when a client asked me for a confidentiality agreement, I typically would put a first or second year associate on the project so he or she could learn how to draft such a document, and so I could keep them busy.  When undertaken in this manner, the final agreement typically took several hours (at a minimum) and often was not legally correct.   When I was a corporate IP lawyer, I could not handle matters in this way as I was responsible for doing confidentiality agreements myself.  I learned quickly that the best way to create confidentiality agreements was to find a good one and change the parties.  Ironically, if I had done this in private practice, I would have lost money, but I would have provided much more value to my client when I used an agreement that had been vetted for legal quality over and over again, as opposed to being drafted by a “green” young attorney.

So, why can US lawyers continue to practice in a manner that ignores the value provided by their efforts?  I think the issue historically boils down to the information asymmetry:  clients generally possess no real way to collect and analyze information related to the quality and value of legal services provided by an attorney or a law firm.  Clients dealt with this information asymmetry in one way by looking at the environment that the lawyer lived in:  “of course this lawyer is worth all the money because look at how much money others pay her.”   The ridiculousness of this premise should be readily apparent.

But the inanity of a business person’s hiring a lawyer based upon how nice her office is (or how many lawyers the firm employs or what law school the firm hires from or what country club the lawyers belong to etc.) begs the question of how a client should go about selecting an IP lawyer (or any other lawyer for that matter) when he cannot reasonably judge her professional competence.  The good news is that today it is becoming easier to for clients to identify and select IP counsel on the basis of matters other than fancy offices and ownership of luxury sporting boxes.  Moreover, in these days of tightened corporate budgets and remotely located employees, I submit that corporate decision makers should make such features a reason NOT to select a law firm unless they are sure that that the specific lawyer who will be doing their work possesses the skill set they need to perform their company’s work.

The best advice I can give to business people who know their IP is a critical aspect of their business, but who do not really understand how to judge quality and competence of the myriad of IP professionals who want their business is to read one of the three books that have come out in the last couple of years that discuss how companies can create business value from development and execution of IP and intangible asset strategies aligned with their business strategies.  These books are:

These books present in a business context how IP and intangible assets can be utilized to create and sustain business value, and present these typically complex topics in a way that makes it accessible to people without legal training and do not require a background in IP management to understand the concepts.  I have recommended one or more of these books to business people recently with great feedback.

(What I find interesting about the above books is that none was written by a “real lawyer;” that is, someone who makes his or her living creating IP-related work product for clients.  Indeed, only one was written by someone with a law degree—Burning the Ships—but Marshall Phelps cannot be said to be a “lawyer” in the traditional sense of the term.  Rather, he is a corporate business person who just happens to have an early career in IP law.  The dearth of books by lawyers about IP in how to create business value from IP and intangible should be a clear signal that IP lawyers do not share the same view of the reason for their efforts as their business clients. But this is a subject for another post . . . .)

As business continues to elevate the importance of IP to creation of business success, I have no doubt that those making IP-related hiring decisions will be less impressed with the visual cues that designate to the outside world a “successful” legal  career but which have nothing to do with the quality and value of the lawyer’s work product.  I am hopeful that my legal peers recognize that this change in coming and that they begin developing the skills and tools that will make them viable in the changing world of IP practice.  If they do not change and become more relevant to business, I believe that business will make many—if not most—of them irrelevant.   At a minimum, I hope that my peers start reading the books that their clients are increasingly starting to read.

5 thoughts on “The Disconnect Between IP Business Value and IP Legal Services and How Business Leaders Can Do a Better Job Choosing Their IP Counsel

  1. Thank You Jackie for spreading your message. Another great book that can be used as a primer for the non-attorney, but technology-business savvy, and IP focused professional is “The Secret Circuit: the little-known court where the rules of the information age unfold” by Bruce D. Abramson (He is a lawyer). It is a treatise describing the workings of United States Court of Appeals for the Federal Circuit. The only court, of thirteen court of appeals, that deals with patents [and trade, government contracting, takings, veteran affairs, and government employment].

    One more comment, I was wondering how much resistance to change you find within the ranks of companies or organizations you see as your clients? From my experience they, some employees (non-attorneys) at this companies, also persist in seeing the world and performing their jobs with the old mindset.

    If we are trying to change their mindset and teach them the new dawn of the IP frontier is very likely one will also be doing some organizational behavior and some process development at the same time.

  2. Great comment, Eduardo. To answer your question, I don’t waste time with companies or organizations who resist my message. I have given up trying to change the belief systems of people who are stuck in the “old model.” There are enough people seeking a better way to keep me busy, so I have the ability to be patient about getting the message out. Here is something I wrote about organizational management and IP a while back

  3. Indeed, a system that creates and encourages such a disparity between the clients’ best interests and their attorney’s best interests makes little sense. IP/patent law is no different from any other field in this respect. Now that more companies are increasingly viewing IP as an essential business asset (rather than as some exotic luxury item), hopefully they will begin demanding more value from their IP attorneys, as they demand from their other service providers.

  4. VentureHacks made the point in a post titled “Lawyers are Referees, not Coaches”. As such they are (if have been boning up on subject matter) extremely competent at risk management or spotting when the IP ball is out of bounds. However, unless they’ve done the business themselves (aka player as indicated by authors of the recommended books), they’re unlikely to figure out the imaginative end-runs. It takes a rare blend of skills, domain expertise, knowledge of applicable law (often international) and understanding how IP creates and captures intangible value. Otherwise as one noteworthy publisher commented, lawyers are like pitdogs … you need to keep enough of them on hand to unleash on competitors. It didn’t surprise me when a study of patent law (need to find citation) computed that the settlement from litigation vastly outnumbered the total value of an industry subsector in US.

    My current bet? As law tends to be heavily codified, it is a ripe candidate for IT disintermediation. Lawyers should not be reimbursed for time spent (waste, but in providing solutions to problems. Most of legal practice is filling out forms … but the real value is knowing which forms to fill out. However, there are a number of barriers, institutional or otherwise which holds back transformation
    a) each jurisdiction has enough variations to require separate licenses to practice,
    b) as legislative drafters, lawyers tend to automagically write themselves into business (witness the fight in Australia allowing non-lawyers to do property conveyancing)
    c) viable alternatives are few (but see CreativeCommons license generators) so it is hard to accurately judge value for money.

    It will be an interesting decade.

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