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The engineers who toil away at Cisco Systems Inc. do more than design routers and switches. For the last decade they’ve also helped the company build an intellectual property fortress. Engineers routinely log onto Cisco’s internal Web site and submit ideas for patents. Since Cisco launched this automated system — dubbed Cisco Patents Online — in 1996, the number of annual patent application filings has grown from 43 to more than 800 last year. It’s one of two dozen tools Cisco has put in place to improve efficiency and productivity of the legal department. While other corporations have developed similar systems, Cisco says it has one of the most comprehensive. “I don’t know of any other company that has the breadth of tools,” said Mark Chandler, Cisco’s general counsel. “We invest over 10 percent of our annual budget in technology in the legal department.” The investment has paid off. Chandler calculates that Cisco’s legal costs per billion dollars of revenue are close to half the average of other technology companies. Cisco has a team of 25 information technology specialists devoted exclusively to the legal department. “We’re really trying to change and improve the way legal services are provided, not just within Cisco but the industry at large,” said Michael Stevens, manager of legal business services. “A lot of what we’re doing is trying to make legal [work] self-service,” so customers can access documents without going through Cisco staff. Stevens, an electrical engineer, developed one of the most popular legal tools: an automated contract agreement launched last year that enables employees to go online, pull up an appropriate contract and have a customer or vendor click through and accept it electronically. “We’ve accepted about 1.5 million contracts through this tool, saving about $20 per contract at a minimum,” he said. Cisco also has a tool for electronic discovery that parses information relevant to particular litigation. Stevens said it has cut the cost of discovery by about 80 percent. The company’s outside counsel has been impressed with the technology. Chandler said a number of firms recently submitted bids to handle a piece of patent litigation. When they saw what Cisco had done to improve electronic discovery, they lowered their bids by 33 percent. Earlier this month Stevens discussed Cisco’s technology at the company’s San Jose, Calif., headquarters. Clicking through a PowerPoint presentation, he said the automated contract system and online patent software have generated the most interest among Cisco competitors. “Every time I demonstrate [these tools] to a peer company they say, ‘Where is the CD for us to get and the software to load up?’” Stevens said. Cisco is not the only company to institute an automated patent system. Hewlett-Packard, for example, has its technologists submit invention disclosures online as well. But Cisco’s program has some unique features. The company’s engineers initially fill out an invention disclosure form, describing the problem the invention would solve, prior art, whether the idea came out of a formal discussion with a patent attorney and what product line it would go into. The form then goes to one of several review committees that decide whether to pursue a patent application. If they give the green light, the document is forwarded to one of Cisco’s 30 outside counsel who prosecute patents. About half of the invention disclosures are rejected. Cisco received more than 2,000 invention disclosures during its last fiscal year — 90 percent from engineers, others from sales, marketing, HR and other groups — and filed 1,100 patent applications. The engineers are given an incentive to submit their ideas. They receive $3,000 if the review committee decides to pursue an application and an additional $2,000 if a patent is issued. In order to get the cash, though, they have to answer a questionnaire that’s used to rate the law firms that handle the patent prosecution. They are asked about 20 questions, such as how knowledgeable the attorney was about the technology and whether the attorney was efficient and responsive. “Engineers like it because it gives them an opportunity to tell us who they like to work with and who they don’t like to work with,” said Guy Ellis, Cisco’s manager of IP. “We also get positive feedback from lawyers who use the [questionnaires] to evaluate their associates.” Hewlett-Packard launched its online patent filing system in 2000. Prior to that, its technologists submitted invention disclosures as paper documents. The forms go to one of 50 review committees, and if they decide to pursue a patent, the company asks its outside counsel for a quote on the work. “We’ll send 30 disclosures to 10 outside counsel and [tell them], ‘You can bid on as many or as few as you want,’” said Stephen Fox, Hewlett-Packard’s deputy general counsel of IP. The company’s attorneys also solicit feedback from the inventors about their experience with outside counsel, which is taken into account when HP divvies up work. Fox said moving to an electronic format has quadrupled the number of disclosure applications the company has received and doubled the number of patent applications filed. Other companies have not yet developed online patent systems. While Microsoft Corp. has numerous tools for improving productivity in its legal department — including those related to electronic discovery, tracking work documents and figuring out if an attorney needs to review a particular document — it has not yet implemented an online system to solicit patent ideas. Chandler said he is working with other Fortune 100 companies, including Microsoft, to get law firms to develop common platforms and interfaces to automate legal services. “I think the legal industry is on the cusp of transformation because of the legal tools that are available,” Chandler said. “I want firms to maintain high levels of profitability,” he added, “but in a way that is efficient and brings greater productivity and at lower costs.”

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