The Complete Lawyer

MS: Exploring other ways to do things that may have been done differently in the past.

JS: That’s correct. The patent office continues to increase fees as well. We’re seeing that effect within our organization, and we’ve seen the effect of the foreign exchange rate as well. This is one of the biggest issues that most corporations face today: how to handle and properly manage filing outside the US because those costs get out of control very quickly. To give you some idea, some UK lawyers are getting paid on the order of £500-£600 pounds an hour. The average equivalent US lawyer is maybe getting $350-$450 an hour. A U.S. office action might cost $3,000 to file, whereas a European office action, with the strength of the US dollar, could be $6,000-$7,000. In addition much of the cost of filing outside the U.S. is attributable to translation costs, these costs again have been dramatically affected by foreign exchange rates.

MS: Globally, this impact is being seen more immediately than not.

JS: That’s correct. I don’t see the end in sight. It’s not something that’s going to resolve itself very quickly. At the same time you worry that once people become accustomed to the higher costs, they will remain. We’ve all heard this debate—maybe oil should stay at $100 a barrel or gasoline should stay at $4 a gallon because people were paying it; perhaps that way we can pay for the bailout with the extra tax money. I’m not a believer in that and we have to be careful that it doesn’t happen.

MS: With this decrease in budgets among corporations, have you or your legal department made any specific changes or strategies in light of the economy or new administration?

JS: We have implemented a new budgetary control process and have a new electronic billing system in place. All the bills and invoices from all over the world must be entered through this system. Within that system, we’ve set up a tracking and monitoring mechanism that allows us to properly manage our budgets and understand where our costs are going. It’s been very difficult in the past because bills and invoices come in from all over the place, particularly in the Patent and Trademark arena. We receive something on the order of 4,000-5,000 separate invoices a year. None of them is significantly high—most are in the $1,000-$3,000 range or less—but we have to have a system for managing them.

At the same time, businesses are now taking a much more serious look at what’s being spent with respect to their Intellectual Property. We have to, as a legal function, report to them on a regular basis the status of their budgets, because they, rightfully so, want to understand where the dollars they are spending are going. This has become an increasingly more important part of my job. Often, businesses don’t know what happens to the money they spend on legal services: they just pay the bill and don’t understand what value they get in return. For example, they may call me and ask, “We would like to know whether or not we can sell this brand-new product that we plan to manufacture in the U.S. and sell in China or Canada.” I say, “Yes, you probably can, but I need to do a search and an analysis to make sure there are not any patents that cover this product. The search is going to cost $5,000. I’m going to have to review the search and it will take x amount of time.” Then, we may need to provide you with an opinion, and depending on our resources and other legal factors, we may have to get an opinion from outside counsel which could cost x dollars. At the end of the day, when I tell them that their question is going to cost $15,000-$20,000 to answer, they think more carefully about it, and make sure they have their manager’s approval before requesting me to do the work.

MS: So they really weigh the value when they hear and see the numbers?

JS: Yes, but at the same time they can’t just go out and do what they want to do without having proper legal review. Businesses are more cautious and careful about what they request their legal departments to do. Sometimes a scientist calls you up requesting all kinds of studies be done that cost quite a bit of money. Nowadays, more supervisors are involved in those requests, and the supervisors are scrutinized by their managers in turn because the businesses ultimately end up paying for our services. We have not gotten to the point yet where our internal time is being billed out or allocated to businesses, but I can see that happening in the future. It’s an important part of budget analysis because if you’re hiring inside counsel, you need to be able to have some sort of metric that the businesses understand. It’s very hard to do when you’re not billing your time out because essentially the entire legal department that doesn’t get allocated out to the businesses is free to them, albeit most companys have some allocation method for functions. People can call up anytime and ask for whatever they want from us without any repercussions on their end. We are responsible for our budget and if we go over it is the law department that gets the heat, not the businesses. By having internal costs allocated out, there’s a mechanism for accountability, and metrics for what legal services cost whether by inside or outside counsel. Often without these sorts of metrics it is very hard to justify hiring inside counsel.

MS: What role can outside counsel play in helping you better navigate the economy and the new political environment?

JS: A lot of companies are looking to consolidate their outside lawyers. One of the requirements, or at least what corporations would hope, is to freeze rates for 2009 and 2010. In other words, companies would say, “We’re willing to continue using your services, but you’re not going to raise us 10% a year; or instead, we’ll agree on a fixed cost for each task.” That’s one way that firms can help. In fact, firms that offer this arrangement on their own would stand a much better chance of being retained and would continue to see an increase in business than those that raise their rates.

MS: During the consolidation, some firms are going to be dropped. Is there anything else that comes to mind?

JS: Because companies are more diligent and are requiring more rigor in their budgetary processes, response time in terms of providing monthly reports of expenses and ensuring that their bills are reasonable with very few surprises, I am sure would be greatly appreciated. Law firm accounting departments are notorious for providing bills late; it takes a long time to get numbers from them. This may happen because lawyers don’t turn in their bills. All the same, we have numbers to report on a monthly basis, and if I can’t get good numbers, it’s hard for me to review my budgets with my businesses. So the pace of these accounting practices will have to increase. In addition, sticking to budgets is going to be more critical than in the past. It’s hard to track every single piece of work that gets sent out, but firms need to be more cognizant of checking their bills before they’re sent to clients. Clients do not like surprises as business folks do not like surprise forecasts. Those firms that write off something they know to be a little high will be looked at more favorably by corporations. Corporations want to see that firms are watching their money as well.

MS: What changes have you made in how you select and hire firms? Is there anything specific that you are changing about your approach at this time?

JS: Not particularly with US firms this year; however, with our overseas’ firms there will be changes. One of the things I’m looking to do in 2009 is consolidate all our international work in a particular country with one or two firms, if possible, to try to obtain better rates and achieve more efficiency; so that I pay less for the same amount of service. This is particularly true with IP firms. We could have six patent agents handling our cases in Japan where we should have only one or two. One of the biggest costs overseas is translation cost. It’s difficult to negotiate on fees—many foreign countries’ fees are set by statute—but reducing translation costs is one area where we can significantly reduce our outside counsel costs abroad. There’s quite a bit more rigor in the process of selecting in which countries my businesses want to file patents than previously. That’s another important process I’m going to have to implement next year. For example, we don’t need to have three patents covering the same product in China; one is probably sufficient. That will save us $50,000. We’re working on this with each business because each has a specific filing strategy in terms of which countries they file in.

MS: Are there any other insights or comments you might have for other in-house counsel that you could share?

JS: As inside counsel, it’s important to do whatever you can to try to ensure that the businesses and technology organizations are doing the right thing. You want to make sure that the businesses aren’t taking any shortcuts, but at the same time you have to preserve cash. Doing what you can in-house is likely seen by management as being critical during these trying times. It’s hard to say because the in-house folks feel the same crunch—right now many are wondering if they will have a job or not—but at the same time, they have to make sure they keep the best interest of the corporation at the forefront of everything they do. They have to be bold enough to go above their clients’ heads if need be to make sure that the corporation’s interest is protected. Inside counsel needs to do whatever they can do to control costs on the outside as well. It’s the outside costs and fees that make up the large part of the IP expense in a corporation. Either inside counsel has to become more efficient or costs don’t go down because work goes out.

MS: Any other comment or insight you’d like to share with other attorneys?

JS: Sometimes it’s up to the attorneys to make sure that all of this happens rather than relying on the clients to come to you. Attorneys who are more proactive than reactive are likely to do better within their companies and are likely to be seen as better attorneys than others. Clients and businesses do not like surprises. If you can head that off at the start, you’re better off. Letting them into the tent, taking the mystery out of IP costs, really goes a long way. A lot of legal departments don’t provide their businesses with specific details with respect to their budgets and show them where their money is going. That’s a big mistake. Explaining and showing them how the money is being spent is very much appreciated by the businesses. Also, in doing this you minimize the potential for the businesses to simply slash your budget by 20%, but without any direction as to what should be cut. In-house counsel must proactively orchestrate this, or businesses will look at IP costs and say, “Cut it 20%.” Then the IP counsel says, “How do I do that? What am I not going to do?” Rather, having the businesses sit down and understand where IP costs are going gives them choices as to what they can do to reduce their costs.

MS: Thank you very much, Jaimes, for your interesting and valuable thoughts. All the best in 2009.

JS: Thank you. I very much appreciate it.

JAIMES SHER

Jaimes Sher has served as Chief Intellectual Property Counsel and Assistant General Counsel—Intellectual Property at Chemtura since May 2007. He provides oversight, guidance and direction on all Chemtura’s Intellectual Property matters arising within the company’s diverse global businesses. Prior to joining Chemtura, Mr. Sher was responsible for Intellectual Property and other legal services at Cabot Corporation and held the post of Counsel of Law Technology at ExxonMobil Chemical Company in Houston, Texas. Mr. Sher earned his LL.M. in Intellectual Property from The John Marshall Law School, his J.D from St. Mary’s University School of Law and his B.A. in Biological Sciences and Chemistry from The University of Texas, Austin.