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U.S. firms now outsourcing legal services

Eight years ago, San Diego intellectual property attorney Scott Harris was approached with a unique idea.

A client requested that the writing of his patent application be outsourced to India in an effort to save money.

A novelty in 1999, the outsourcing of legal work is becoming commonplace in today's competitive market. And the trend is only expected to grow.

Approximately 50,000 U.S. legal jobs are expected to move overseas by 2015, according to Boston-based Forrester Research Inc.

"The creative measures of outsourcing are a direct result of the continuing rise/cost of legal services," said Larry Watanabe, a San Diego attorney with legal recruiting firm Watanabe Nason, LLC.

According to Watanabe, associate billing rates range from $250-$425 per hour, the same rates partners were charging 10 years ago. Current partner rates now cost anywhere from $450-$750 per hour in California.

The same work can be performed in India for $40 an hour or even $15 an hour in some cases, according to Harris.

"It's significantly less cost," said Harris, a principal in the San Diego office of Fish & Richardson P.C. "The other advantage is that it's simply hard to find spare capacity in the patent world in the U.S. Sometimes you can't find the people to do the work you want to get done."

The outsourcing is being sent not only to India but Ireland, China, Singapore and even Russia, Harris said.

The authors of patent applications are not required to have legal background or training.

Since they perform work of patent engineers, they only need the necessary technological knowledge.

"Many parts of a patent application are technically oriented rather than legally oriented," Harris said. "(The patent) needs to teach a person of ordinary reason and skill how to make and use the invention. Someone who doesn't know the law can write up a disclosure that teaches someone how to use the invention."

Unfortunately, sometimes the validity of a patent application can hang on the use of one word or a phrase that limits the scope of the invention.

"The key question is whether clients will have confidence with the international outsource services," Watanabe said. "Even at reduced costs, some clients may not feel comfortable with such services."

Harris said most offshore offices insist on having a U.S. attorney look at the application before it's filed.

They also employ one person in the office with a basic knowledge of patent law to guide the others.

Companies with in-house legal departments in India include Wilmington, Del.-based DuPont Co. (NYSE: DD), San Jose-based Cisco Systems Inc. (Nasdaq: CSCO), and New York-based Morgan Stanley (NYSE: MS), according to ValueNotes Database Pvt.

The Indian legal services industry will more than quadruple to $640 million by 2010 from $146 million in 2006, Maharashtra, India-based ValueNotes said.

General Electric Co. (NYSE: GE) sends about $3 million a year in routine legal work to its Indian affiliate, said Janine Dascenzo, the Fairfield, Conn.-based company's managing counsel for legal operations.

"India has very talented lawyers," she said. "But it's a misconception that you can just send work there and it gets done. You need proper supervision and security."

Not every law firm has accepted the trend.

"Some firms are spreading fear, uncertainty and doubt," said David Perla, co-chief executive of Pangea3 LLC, an offshore legal services company based in New York and Mumbai. "They see any competition as bad and they'll raise any issues as to why you shouldn't go offshore."

Fish & Richardson's Harris said the law can be an obstacle to outsourcing patent work to another country. In the U.S. it's illegal to export certain kinds of technology without an export license.

"Most people don't even realize this, but export means telling a foreign national about the technology and even means showing technology to a foreign national in the U.S.," he said.

There are also logistical obstacles and perception issues.

"A lot of people are doing offshoring now, but very few companies admit their offshoring their patent work," Harris said. "Why? Because sometimes value is all about perception."

The trend toward outsourcing legal services puts more pressure on American lawyers, according to University of San Diego law professor David Law, as basic tasks are shipped overseas.

"More than ever law students can not take for granted that having a law degree will get them a job," he said. "You have to compete on a value-added basis.

"A lot of stuff that is simple and repetitive can and will be sent overseas. That means lawyers here need to be creative problem solvers. You can't expect to make a living providing simple answers to simple questions."

Bloomberg News contributed to this report.

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