To curb legal costs

Companies get creative to cut legal costs

Under pressure to curb legal costs, Microsoft and Hewlett-Packard have turned to outsourcing work to India, giving work to solo practitioners rather than mega-firms and eschewing hefty hourly fees in favor of alternative and fixed fees.

As a result, both Fortune 500 companies have saved millions of dollars in legal fees. HP shaved 25% off its legal budget in four years and Microsoft 4% annually in the last few years, according to deputy general counsel for both companies.

Speaking at a conference of the South Florida Group of Regional Counsel, Gabriel Buigas of Palo Alto, Calif.-based Hewlett-Packard, and Horacio Gutierrez of Redmond, Wash.-based Microsoft, spoke on the challenges facing in-house lawyers.

The Miami event last week was sponsored by Morgan Lewis & Bockius and the University of Miami School of Law.

HP spent four years trying to figure out how to rebalance in-house and outside legal work to save money, ultimately hiring more senior litigation counsel, bringing more patent work in-house and taking all commercial work in-house, doing billion-dollar deals with its own attorneys.

"In the old days, legal costs were what they were," Buigas said. "Now the question is how can you drive cost savings? What do you use outside and inside counsel for? We can get very creative. For a company like HP, shaving 25% off our legal budget is considerable."

Microsoft, which has an annual legal budget of $130m, identified "routine and repetitive" legal tasks that in-house lawyers weren't excited about and outsourced them to 80 legal vendors in India who work exclusively for the company. This move did not result in any layoffs but boosted the ability of in-house counsel to research patent conflicts.

"Our own people now are able to spend time on higher value work," Gutierrez said.

Microsoft also launched a preferred provider program with about 50 American attorneys. Microsoft wanted to reduce the legal costs associated with obtaining patents, which previously ran $20,000 per patent, and looked to hire solo practitioners who charged less than mega-firms in metropolitan areas. The company negotiated alternative and fixed fees and has been able to reduce its outside legal fees considerably, Gutierrez said.

"These success stories show you can be innovative," he said.

Emphasis on diversity

Both companies also are under pressure to diversify their outside counsel as their business increasingly moves beyond the U.S.

"When I started, everything I did ... all the regulatory work ... was centered in Washington," Gutierrez said. "Now the centers of power are Asia, Sao Paulo and Moscow. The majority of our revenue comes from outside the United States."

That drives corporate counsel to hire lawyers who are multilingual and understand the cultural sensitivities of other countries, Gutierrez said. For example, the company needs attorneys in China and India, where the piracy rates are sky-high.

"If we could get the piracy rate in China to drop to the piracy rate in India, that would be a 12% drop and it would represent $2bn to Microsoft," he said. "All the complex legal issues these days are outside the US, so maintaining a diverse work force is paramount."

Buigas said he spends half his time on China issues, particularly piracy.

When asked why the companies outsource legal work to India and not Panama, Gutierrez explained India is a prime area because the country graduates 300,000 engineers annually so has a large supply of patent experts willing to work at low rates.

Latin America and China, which could conceivably become an outsourcing market, have language barriers, Gutierrez said. He has trouble finding legal talent in the Middle East because many prospects go to London law firms.

"There's an abundance of riches in Latin America, but the supply is much more limited in the Middle East," he said.

The legal industry, both in-house and at law firms, has done a poor job of achieving diversity, Gutierrez said. Microsoft started encouraging its outside counsel by offering economic incentives for diversity hiring, such as awarding bonuses to firms that increase the number of hours billed by diverse lawyers by 2% annually and increase attorney diversity by 0.5 of a percent annually.

The company also is pushing its own executives by tying 5% of its bonus pool to diversity benchmarks. The company did not meet its goals last year, and the bonus pool worth hundreds of thousands of dollars was donated to minority scholarships, Gutierrez said.

(Published by Lawjobs.com - April 12, 2011)