One potential upside of the economic crisis is that traditional business models are now being exposed as needing significant redesign or even elimination. Leverage or billable time company law firm model is just one of the increasingly criticized models of business, and appears to be at risk of being tossed into the trash of the past.
In particular the ones who profit greatly from the billable hours model, like the Cravath firm’s numerous $800 per hour lawyers, have come to realize the absurdity of charging clients for their time instead of the value they receive. This alone should be a sign that change is in air.
Despite the increasing discussion about the need to create alternative customer service models I am concerned most IP lawyers will resist the need to change or respond with only minor adjustments to their existing ways of offering legal assistance on behalf of their clients.
As someone who has extensive expertise in dealing with IP lawyers I believe that unfortunately, the insular nature of many IP lawyers will mean that IP firms will probably fall behind in the development of client services. So I believe that a lot of prestigious and extremely successful IP lawyers will eventually in near future end their existence.
I have come to this conclusion as an outcome of several memorable experiences. In one of them many years ago, I approached the managing partner of an eminent IP law firm to suggest ways of ways to cut down the number of hours of legal work that were devoted to client issues.
At the time, the company was beginning to see significant criticism from clients over the expense of the routine legal services. I suggested an idea to the partner in charge that could reduce the price of non-substantive e.g. administrative client IP issues by assigning these duties to paralegals with lower billing. The response of the managing partner to this idea was: “If paralegals did the task, what would associates in the 1st and 2nd years do?”
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Naturally, the primary basis of the management partner’s answer was that to keep the wheels of the firm’s billable hours/leverage model running smoothly, he must keep associates in the early stages of billing per hour. The current model of his law firm required it continue to hire associates in order to boost leverage for partners and to ensure that they effectively bill clients on an hourly basis as well as a significant percentage of every associate’s time billed directly being paid into the partners’ pockets. The only thing left out of this model was the question of whether clients’ interests were being satisfied by the business model that was most beneficial to the partnership of the law firm.
It is evident that this law firm was not properly run, which could be used as a justification to the partner’s selfish perception of the client’s IP legal service. However my experience as a corporate purchaser for IP legal services showed the billable hour/leverage partnership business model was a system which often put the client–which was me at the time–after the firm’s interests.
Being an in-house lawyer, who was spending around $100K per year on legal services from a number of highly regarded IP businesses, I often noticed that whenever I called outside counsel for help, the first thought that came into the lawyer’s head was “So glad she called me, but I’m wondering how much work this phone call will result in?” In the majority of cases I was able to sense I was able to tell that the external IP lawyers saw my legal issues as problems to be solved in a time-based basis, and not as problems that could impact the profit of the business which I worked for. The distinction is subtle but crucial: the context for the first is that of a lawyer as a service provider while the latter one is lawyer as business partner.
Based on the backdrop of these experiences I was not shocked to hear what I did in a discussion about my thoughts on the model of billable hours/leverage with a friend of mine from one of the most prestigious IP special legal firms across the US. The partner I spoke to echoed my thoughts about the need to innovate regarding IP clients’ services.
She also stated that the majority of her firm’s partners are unaware the issue in the way they offer IP legal assistance to clients. According to her, the majority of her senior members have lived with the model of billable hours/leverage and therefore think there is no need to alter their practices. My friend’s partner is aware that her law firm is in a state of decline and could soon suffer from something similar to an unexpected cardiac attack.
Unfortunately, she’s not part of the firm’s management, and as there is no higher management level acknowledgement that change is required and is not a good need for her to express her concerns to the members who can effect change (and likely not politically sensible to do so).
The inability of these very well-paid IP lawyers to appreciate the changing winds of their clients’ acceptability of their bill practices – the foundation of their firm’s business model–reflects the reaction of a long-standing group of interests to changes that did not match their current business model.
Furthermore the inability of a lot of IP legal firms comprehend the changing climate leads me to conclude that a lot of these well-known law firms could soon suffer their fate like buggy whip makers should they not be innovative how they offer the legal assistance to clients.
In this way, buggy whip makers met their end because they believed they were in the buggy whip industry but were actually involved in transportation. As buggy whips became outdated and so did these once prospering producers.
Interestingly, manufacturers of buggy whips had the capacity to change and prosper in the modern world of automobiles. They already had good business relations with buggy makers that later were the first car firms. They employed skilled craftsmen who could have devoted their attention to the production of leather seats or other elements that are part of automobiles. The buggy whip makers had only accept that they had to follow the wave of technological innovation taking place at the moment and reinvent themselves as suppliers to car manufacturers instead of buggy manufacturers.
Similar to buggy whip makers I am of the opinion that many lawyers are so ensconced in the business of law firms that they’ve completely forgot that they are in fact legal service providers. In their role as the ones responsible for the ongoing vitality of the company lawyers from law firms often are primarily fee-generating, as the fees are generated by charging clients hourly to provide legal assistance.
The care and nourishment for the firm as well as its partners through the continuous creation of billable hours is more important than the legal requirements of their clients. In a similar way to buggy whip manufacturers, IP lawyers working in law firms are able to adapt to avoid obsolescence. In fact, they have the required expertise to practice their art in a different way than the traditional model of law firms. In addition, similar to buggy whip producers lawyers also have established relationships with their customers i.e. clients, giving them an advantage over those who want to join the IP legal services market using novel, but not well-known customer service models.
Based on the well-known image of obsolescence that was presented by buggy whip manufacturers over hundred years ago, think it is likely that IP lawyers who understand that they need to be innovative in the manner they provide IP legal assistance to their clients are likely to be successful when their clients realize that the time to change is now. However lawyers who think they’re working in an IP practice of law firms are going to always fall behind as technological advances in customer service hit the market that make the business model of law firms obsolete.
IP lawyers shouldn’t expect that they’ll be in a position to anticipate the time when their clients will request changes. Like the customers of buggy whip producers lawyers’ clients won’t provide an IP attorney with a that they are required to refer their business to lawyers who can provide their clients with more innovative and more customer-focused services.
In fact, once clients are presented with viable alternatives they’ll naturally shift to the model that is most suitable for the needs of their business. This will mean that the day comes when these highly successful IP lawyers are likely to awake to discover that they’re losing their clients in a masse to lawyers who have succeeded in creating and introduced a revolutionary client-service approach to clients around the world. As most lawyers will inform you, once a customer is gone, they’re likely to be gone for ever.
Clients will not only fail to inform their lawyers that they plan to quit the law firm they work for before they make the decision, but they will also not inform their lawyers how they can better serve them. Why would they? They’re not involved in offering legal services.
Therefore, mutually beneficial client innovation in service must come through and as a result of lawyer actions. But because of their inherent conservative nature I am of the opinion the majority of IP lawyers might not recognize the importance of innovation until it’s too late to save their clients.
Many might argue that complaints regarding the billable hour model have been rife throughout the years, yet nothing major has changed until now, which suggests that the majority of clients are mostly bluster and inaction. While it’s certainly the case that clients did not exert any actual pressure on lawyers to changes in the past, the current situation is significantly different in comparison to before. Innovation is exploding across society, and several previously solid business models, including the recording industry and newspapers are currently at the brink of extinction because of.
The signs are that suggest that law IP firms that depend on the model of billable hours/leverage appear likely to be subject to significant pressure from critics and customers within the next few years. People who rely on this model to earn their livelihood would be better off to seek out innovative solutions to tackle the changing landscape.
It is a matter of fact that those who believe that the billable hour/leverage firm model can elude the disruptive business trends of our time are simply “whistling across to the tombstone.” Law firms that specialize in IP, along with other kinds of law firms, need to innovate today and be able to innovate massively or else they’ll be like the buggy whipmakers.