Law Departments Cut Costs by Sending Patent Work Abroad

Cheap foreign labor has long been a frightening specter for some American industries. But these days, garment makers and steelworkers are not the only ones competing with lower-paid counterparts abroad. Spurred by the slow economy, many in-house legal departments are cutting costs by relying less on U.S. outside counsel and more on lawyers in India, New Zealand, South Korea, and other countries where professional salaries are lower.

Some corporations and law firms already send copying, accounting, and other back-office functions to offshore providers. But bar association rules, among other things, make sending actual legal work overseas far more complicated.

Nonetheless, law departments have found ways to use foreign employees 'sometimes local attorneys, sometimes nonlawyers ' to handle such matters as patent prosecution, legal research, and contract drafting. While no one expects the American legal profession to be shipped wholesale to the Far East, the result could be less business for U.S. patent and litigation shops, and perhaps even large general practice firms. In fact, Forrester Research Inc., a Cambridge, MA-based market research firm, predicts that by 2015, more than 489,000 U.S. lawyer jobs, nearly 8% of the field, will shift abroad.

“There are lots of opportunities to use [foreign] lawyers in place of outside counsel or other lawyers at a lower cost structure,” said Suzanne Hawkins, senior counsel at the General Electric Co. For two GE businesses ' GE Plastics and GE Consumer Finance – savings from those lower rates are adding up. GE began adding lawyers and paralegals to its office in Gurgaon, India, in late 2001; it now has eight lawyers and nine paralegals there and has saved more than $2 million in legal fees that would have otherwise been spent on outside counsel, Hawkins said.

Working at much lower rates than U.S. lawyers, GE's Indian attorneys draft such documents as outsourcing agreements and confidentiality contracts. Like many companies, GE has senior in-house counsel in the United States interview, hire, and supervise its overseas lawyers. That should alleviate concerns about unauthorized practice of law, said legal ethicist Geoffrey Hazard Jr., a professor at the University of Pennsylvania Law School. “If they're acting under the supervision of U.S. lawyers, I wouldn't think it would make much difference where they are,” he said.

It is not just large conglomerates like GE that use foreign lawyers. The Andrew Corp., an Orland Park, IL, manufacturer of telecom infrastructure equipment, cuts back on its use of American outside counsel by sending some of its patent application work to Baldwin Shelston Waters, a law firm in Wellington, New Zealand. James Petelle, Andrew's secretary and vice president of law, said that outsourcing to Baldwin Shelston works particularly well because New Zealand's patent rules are similar to those in the United States. “We wouldn't be afraid to send anything to these guys,” Petelle said. (A licensed U.S. lawyer or registered patent agent are not needed merely to write a patent application, although only registered agents can deal with the U.S. Patent and Trademark Office.)

At the Chicago-based outsourcing firm Mindcrest Inc. ' which has a subsidiary in India that handles legal work – Vice President and General Counsel George Hefferan III said inquiries from U.S. corporations about outsourcing legal work “have easily tripled in the last year,” although he declined to disclose specifics. Hefferan emphasizes that Mindcrest's full-time Indian staffers do not practice law. But much of the work that they handle, such as drafting research memos and surveying the laws of various jurisdictions, are duties that American lawyers may otherwise have performed.

Quality Concerns

Despite the proliferation of cheaper offshore alternatives, many Americans remain skeptical about the quality of work done by foreign lawyers. Citing such concerns as language barriers, time zone differences, and the fact that foreign workers are often neither trained in U.S. law nor bound to the same ethical obligations as American lawyers, many attorneys in the United States express confidence that U.S. lawyers are irreplaceable. Patent lawyer Gregory Maier, a partner at Alexandria, VA's Oblon, Spivak, McClelland, Maier & Neustadt, contends that patent prosecution “is something like brain surgery. You really don't want to necessarily have the low bidder. You want it to be done right.”

Another patent lawyer, Carl Oppedahl of Dillon, CO's Oppedahl & Larson, said that foreign workers may be equipped to prosecute patents for basic inventions, but for more complex creations, clients will want to see their patent lawyers in the flesh to “write on the chalkboard together and stroke their chins and say, 'What if we do it this way and what if we do it that way?'” For that sort of advice, Oppedahl said companies will want to stick with lawyers in the United States.

Even so, many expect the amount of U.S. legal work shipped offshore to continue to grow. While acknowledging that the trend is nascent, consultant Bradford Hildebrandt said, “I actually think there's a great future in this whole outsourcing thing.” In fact, Hildebrandt says his firm is now considering entering the outsourcing business.

All this could be bad news for U.S. firms specializing in low-margin patent prosecution or contract work. But Hefferan contends that law departments are not the only ones that could benefit from outsourcing: Law firms also stand to profit from the inexpensive offshore legal work. Firms that want to focus on complex matters could use offshore lawyers to help “get away from doing the quote-unquote commodity legal work,” he said.

Hefferan notes that foreign outsourcing could benefit large, multi-office law firms. Much of the work being done by junior associates, he said, could be handled by offshore workers for a fraction of the price. Use of offshore providers, the thinking goes, would allow firms to continue to handle matters profitably and give clients the discounts they demand. Hildebrandt said he knows of major firms that are considering outsourcing some of their work, although he declined to identify them.

Howrey Simon Arnold & White, which has a large intellectual property practice, does not outsource any of its legal work, but managing partner Robert Ruyak said he would not rule it out. “I think that the quality or technical capability [of foreign lawyers] may rival or be even better than in the U.S.,” Ruyak said. “The reason we haven't at this point is that there are some things we don't know. If you go to a foreign country, there may be technology transfer issues, legal issues, that hamper your ability to do things.”

So while it is hard to imagine junior associates losing their jobs to low-wage workers in Calcutta, it is clear that American law firms will need to think about how to keep pace with ' or even take advantage of ' a pool of foreign legal professionals. And for American lawyers who jokingly refer to their firms as sweatshops, the irony in such a notion may soon fade.

 ' Catherine Aman and Susan Hansen contributed to this article.

This article originally appeared in the New York Law Journal, an American Lawyer Media Publication.

Cheap foreign labor has long been a frightening specter for some American industries. But these days, garment makers and steelworkers are not the only ones competing with lower-paid counterparts abroad. Spurred by the slow economy, many in-house legal departments are cutting costs by relying less on U.S. outside counsel and more on lawyers in India, New Zealand, South Korea, and other countries where professional salaries are lower.

Some corporations and law firms already send copying, accounting, and other back-office functions to offshore providers. But bar association rules, among other things, make sending actual legal work overseas far more complicated.

Nonetheless, law departments have found ways to use foreign employees 'sometimes local attorneys, sometimes nonlawyers ' to handle such matters as patent prosecution, legal research, and contract drafting. While no one expects the American legal profession to be shipped wholesale to the Far East, the result could be less business for U.S. patent and litigation shops, and perhaps even large general practice firms. In fact, Forrester Research Inc., a Cambridge, MA-based market research firm, predicts that by 2015, more than 489,000 U.S. lawyer jobs, nearly 8% of the field, will shift abroad.

“There are lots of opportunities to use [foreign] lawyers in place of outside counsel or other lawyers at a lower cost structure,” said Suzanne Hawkins, senior counsel at the General Electric Co. For two GE businesses ' GE Plastics and GE Consumer Finance – savings from those lower rates are adding up. GE began adding lawyers and paralegals to its office in Gurgaon, India, in late 2001; it now has eight lawyers and nine paralegals there and has saved more than $2 million in legal fees that would have otherwise been spent on outside counsel, Hawkins said.

Working at much lower rates than U.S. lawyers, GE's Indian attorneys draft such documents as outsourcing agreements and confidentiality contracts. Like many companies, GE has senior in-house counsel in the United States interview, hire, and supervise its overseas lawyers. That should alleviate concerns about unauthorized practice of law, said legal ethicist Geoffrey Hazard Jr., a professor at the University of Pennsylvania Law School. “If they're acting under the supervision of U.S. lawyers, I wouldn't think it would make much difference where they are,” he said.

It is not just large conglomerates like GE that use foreign lawyers. The Andrew Corp., an Orland Park, IL, manufacturer of telecom infrastructure equipment, cuts back on its use of American outside counsel by sending some of its patent application work to Baldwin Shelston Waters, a law firm in Wellington, New Zealand. James Petelle, Andrew's secretary and vice president of law, said that outsourcing to Baldwin Shelston works particularly well because New Zealand's patent rules are similar to those in the United States. “We wouldn't be afraid to send anything to these guys,” Petelle said. (A licensed U.S. lawyer or registered patent agent are not needed merely to write a patent application, although only registered agents can deal with the U.S. Patent and Trademark Office.)

At the Chicago-based outsourcing firm Mindcrest Inc. ' which has a subsidiary in India that handles legal work – Vice President and General Counsel George Hefferan III said inquiries from U.S. corporations about outsourcing legal work “have easily tripled in the last year,” although he declined to disclose specifics. Hefferan emphasizes that Mindcrest's full-time Indian staffers do not practice law. But much of the work that they handle, such as drafting research memos and surveying the laws of various jurisdictions, are duties that American lawyers may otherwise have performed.

Quality Concerns

Despite the proliferation of cheaper offshore alternatives, many Americans remain skeptical about the quality of work done by foreign lawyers. Citing such concerns as language barriers, time zone differences, and the fact that foreign workers are often neither trained in U.S. law nor bound to the same ethical obligations as American lawyers, many attorneys in the United States express confidence that U.S. lawyers are irreplaceable. Patent lawyer Gregory Maier, a partner at Alexandria, VA's Oblon, Spivak, McClelland, Maier & Neustadt, contends that patent prosecution “is something like brain surgery. You really don't want to necessarily have the low bidder. You want it to be done right.”

Another patent lawyer, Carl Oppedahl of Dillon, CO's Oppedahl & Larson, said that foreign workers may be equipped to prosecute patents for basic inventions, but for more complex creations, clients will want to see their patent lawyers in the flesh to “write on the chalkboard together and stroke their chins and say, 'What if we do it this way and what if we do it that way?'” For that sort of advice, Oppedahl said companies will want to stick with lawyers in the United States.

Even so, many expect the amount of U.S. legal work shipped offshore to continue to grow. While acknowledging that the trend is nascent, consultant Bradford Hildebrandt said, “I actually think there's a great future in this whole outsourcing thing.” In fact, Hildebrandt says his firm is now considering entering the outsourcing business.

All this could be bad news for U.S. firms specializing in low-margin patent prosecution or contract work. But Hefferan contends that law departments are not the only ones that could benefit from outsourcing: Law firms also stand to profit from the inexpensive offshore legal work. Firms that want to focus on complex matters could use offshore lawyers to help “get away from doing the quote-unquote commodity legal work,” he said.

Hefferan notes that foreign outsourcing could benefit large, multi-office law firms. Much of the work being done by junior associates, he said, could be handled by offshore workers for a fraction of the price. Use of offshore providers, the thinking goes, would allow firms to continue to handle matters profitably and give clients the discounts they demand. Hildebrandt said he knows of major firms that are considering outsourcing some of their work, although he declined to identify them.

Howrey Simon Arnold & White, which has a large intellectual property practice, does not outsource any of its legal work, but managing partner Robert Ruyak said he would not rule it out. “I think that the quality or technical capability [of foreign lawyers] may rival or be even better than in the U.S.,” Ruyak said. “The reason we haven't at this point is that there are some things we don't know. If you go to a foreign country, there may be technology transfer issues, legal issues, that hamper your ability to do things.”

So while it is hard to imagine junior associates losing their jobs to low-wage workers in Calcutta, it is clear that American law firms will need to think about how to keep pace with ' or even take advantage of ' a pool of foreign legal professionals. And for American lawyers who jokingly refer to their firms as sweatshops, the irony in such a notion may soon fade.

 ' Catherine Aman and Susan Hansen contributed to this article.

This article originally appeared in the New York Law Journal, an American Lawyer Media Publication.