On average, corporate law departments source intellectual property-related work to outside counsel and alternative service providers (ASPs) more often than when compared to their sourcing strategy for all legal matters in aggregate, according to the results of the spring edition of ALM Intelligence and Morrison & Foerster’s General Counsel Up-at-Night survey and report (Figures 1 and 2 below). And if the sentiment expressed by the survey respondents continues to hold, increased economic and political uncertainty across the globe could result in even more IP work being sent to outside providers.

More than ever before, corporate legal departments have become integral to crucial decision making across their enterprises. With great power, however, comes great responsibility. General counsel must fill many roles for their organizations and master the intricacies of the evolution of traditional substantive issues like intellectual property and emerging ones like privacy, data security, and crisis management.

Moreover, in-house leaders need to also concern themselves with being effective resource managers as they face corporate pressure to do more with less. Legal department sourcing strategies are always being re-examined as a result.

Currently, on average, when compared to how all department work is sourced, there is a 19 percentage point difference in the amount of intellectual property work insourced to law departments with an attendant increase of 14 percentage points in the amount of IP work outsourced to law firms and five percentage points for that sent to ASPs.

Will this sourcing strategy for intellectual property continue in the near term? In the main, outsourcing work to law firms is much more expensive when compared to either insourcing to the department or outsourcing to an ASP. While data like that collected in the GC Up-at-Night survey show that, with some exceptions, most work is insourced, it is widely understood that an out-sized portion of the in-house legal department budget still goes to outsourcing, namely to outside counsel law firms.

This would appear to lead to the conclusion that in the age of doing more with less that corporate legal departments would look to move more of the IP work in-house; however, the survey data may suggest otherwise. GC Up-at-Night survey respondents were asked to identify how important various factors are in determining how work is sourced (Figure 3).

Though these sourcing justifications may have been predictable, for each category of legal services provider, the significance of seeing its perceived value proposition stated so clearly in black and white should not be underestimated.

In-house leaders turn to outside counsel, not for reasons of cost or efficiency, for example (though law firms should not totally ignore the value of those things), but when they need legal experts to help them navigate complex, high stakes issues. Law firms leaders would be wise to take a hard look at how they stack up to their competition in terms of expertise and experience.

Whether patents, copyrights, trademarks, or trade secrets, intellectual property is emerging as the most valuable asset for many companies in today’s knowledge and information economy. Nearly 70% of survey respondents identified the enforcement of IP rights as a challenge for their in-house departments, making it the most frequently cited concern with respect to intellectual property.

Working with limited resources under increased scrutiny, the legal department is no longer a budgetary black box. It must account for its spending, but that doesn’t mean it won’t spend for services it deems valuable.

The fact that businesses are finding it difficult to enforce their ownership rights in what is in many cases their most valuable asset poses an existential threat. From China, to the United States, and points in-between, the volatile political and global economic environment compounds the problem by adding an extra layer of complexity. Managing cross-border regulatory differences means intellectual property legal knowledge and expertise are at a premium.

The results of the fall edition of the GC Up-at-Night survey are scheduled to be published in December, and future editions are planned for 2018 as well. How law departments approach sourcing generally and for individual categories of work like intellectual property is a trend that ALM Intelligence will continue to watch.

ALM Intelligence Notes:

  • Subprime Credibility Score: With so many red flags, it may be years before Equifax can repair its credit… errr, I mean, credibility. Equifax has faced widespread criticism for its slow and poorly executed response in notifying the general public of the recent data security incident potentially impacting nearly 150 million U.S. customers and hundreds of thousands of others across the globe. And as new details emerge, the company’s decision making is appearing worse, not better, as it has been revealed that its board of directors was kept in the dark as the crisis unfolded. We’ve known that Equifax waited until September 7th, six weeks, to notify the public of the incident it discovered on July 29th. We also have known that on August 1st and 2nd members of the company’s executive leadership, including its CFO, president of U.S. information solutions, and president of workforce solutions, exercised options selling company stock totaling approximately $1.8 million (a move that is now the subject of a criminal investigation). Now, we are learning that though the company found the situation to be serious enough that on August 2nd it retained King & Spalding as outside counsel and notified the FBI of the incident, Equifax continued to keep its board of directors out of the loop. According to R. Robin McDonald’s Legaltech News report on the startling congressional testimony of Equifax CEO Richard Smith (who retired last week), Smith waited until late August, August 22nd to be exact, to formally notify Mark L. Fielder, the presiding director of the Equifax board of directors of the incident which the company had just then classified as a “major breach.” Moreover, the remaining members of the board were not included in the communication with the presiding director, rather they received formal notice at a meeting that took place two days later.
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Steve Kovalan is a Senior Analyst at ALM Intelligence. A member of the District of Columbia Bar, he holds a JD from the West Virginia University College of Law and a BA (summa cum laude) in History and Political Science from West Virginia University. He can be reached via email, Twitter, or LinkedIn.