Law Without Borders

Benefits of Legal Outsourcing: Labor Cost Savings Are Not the Whole Story

Legal outsourcing expert and industry veteran, Ron Friedmann, from LPO leader Integreon, makes an interesting point in his company's blog:  When it comes to the benefits of legal process outsourcing, cost savings are not the whole story. Says Friedmann: "Many lawyers think labor cost savings drives legal outsourcing. We disagree. The real value lies in providers’ deep experience solving lawyers’ problems." In particular, Friedmann points to the "deep pool of legal management, operations, and process improvement experience" that LPOs can provide for their clients:

For example, Integreon management includes former practicing lawyers who pioneered outsourcing, lawyers who managed document review for law firms or for corporations, senior law firm managers such as COOs and CIOs, and process improvement consultants.  Hands-on law firm and law department operational experience extends deep into our middle management team.  Our competitors could make similar statements.

Drawing a contrast to the business process outsourcing (BPO) industry, which has suffered a "brain drain" of consulting experts who pioneered the industry but have been leaving the field, Friedmann points to the continuing expertise at LPO companies such as Integreon:

This collective wealth of experience gives a provider deep insight into law firm and law department operations and ideas about how to improve practice and support. My Integreon colleagues and I all feel the same sense of “there has to be a better way to do this.” We all sought out a place where we could work closely with lawyers to help them improve what they do and reduce costs.... [T]hat’s us, without the problem of exiting experts.

Friedmann concludes that while labor arbitrage obviously remains an important aspect of LPO, a factor that may be just as significant, if not more so, is that legal process outsourcing companies "improve how lawyers work and how law firms operate":

Of course access to teams of associates in low cost locations is an important benefit for our clients.  The real value, however, is our ability to improve how lawyers work and how law firms operate through process improvement and technology.  Fortunately, as a still-growing industry with a plentiful supply of experienced legal managers interested in outsourcing, we do not face a brain drain.

In our "Admittedly Biased, But Probably Accurate, 'Law Without Borders' Guide to the Top Ten Offshore Legal Outsourcing Companies," we said the following about Integreon:

World-famous for its back-office support services for some of the most prominent law firms and companies on earth, Integreon is a leader in not only legal process outsourcing, but also BPO (business process outsourcing) and KPO (knowledge process outsourcing). To quote from its own impressive website, "more clients trust Integreon than any other knowledge services firm, including 9 of the top 10 global investment banks, 32 of the AmLaw 50, eight of the top 10 pharmaceutical firms, 11 of the top 50 global brands, and 6 of the top 10 high technology firms." Other significant assets of Integreon include visionary bloggers and LPO experts Ron Friedmann and Mark Ross.

India's New Data Privacy Rules: Will They Help or Hurt Legal Outsourcing?

As The Washington Post has just reported, "[d]ata privacy rules enacted last month in India are now alarming some U.S. companies, which worry that they may be too restrictive":

The rules in India’s Information Technology Act govern the collection and use of personal information including banking and medical details. But business leaders in India and the United States worry that they add a cumbersome layer of disclosures such as obtaining written consent from each customer before collecting and using personal data.

But not everyone is worried. The reporter quotes at least one LPO company CEO in favor of the general spirit of the new law, and India's Deputy Minister for Information Technology, Sachin Pilot, defended the new provisions as follows:

[Pilot] dismissed the fears and said that the law addresses a long-pending demand of the IT industry for a legal framework for data protection. More than 2.8 million Indians work in the IT industry, and 9 million people are employed indirectly. “We are aligning ourselves with the global best practices. This law should end all the fears that any global company has about data being unprotected in India,” Pilot said. “Why would we bring a law that will kill our sunrise industry?” A 2010 report by the Data Security Council of India and the consultancy KPMG found that about 60 percent of banking customers who responded to a survey said that information security is a significant concern.

How will this new framework affect legal process outsourcing (LPO)? One effect may be to help put to rest one of the old "bug-a-boos" so often raised by naysayers, namely, the story that India, relative to the West, has no legal protection for data security. Now, as The Washington Post reports, India has data protection laws that arguably are tougher than those in the U.S. and Europe.

But will the "written consent" requirements put off legal outsourcing clients and cause them to go elsewhere besides India? Probably not. Most LPO service level agreements are already in the form of written contracts that either already are in compliance, or can be amended if necessary. Moreover, one of the keys to understanding the impact of the "written consent" requirement is the fact that it covers only "personal" information, which is not the kind of data that most offshore legal outsourcing companies generally receive:

The new measures were designed to ensure that all personal information that a company collects is secure. It obliges those who handle sensitive personal information — like passwords, bank account and credit card numbers, medical records, biometric data — to implement an elaborate technical, managerial, physical and operational information security practice and set up a dispute resolution process.

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“On the face of it, the privacy laws may impose restrictions on Indian outsourcing providers to carry out any process or service for domestic or international clients that require receipt or dissemination of any information that can be termed ‘personal,’ ” said Manoj Malhotra, president of the Business Process Industry Association of India. 

What exactly is "personal" data under the new rules? According to Rule 3 of the IT Rules, 2011, sensitive personal data or information has been defined as “information collected, received, stored, transmitted or processed by body corporate or intermediary or any person, consisting of:

(a) password;

(b) financial information such as Bank account or credit card or debit card or other payment instrument details ;

(c) physical, physiological and mental health condition;

(d) sexual orientation;

(e) medical records and history;

(f) Biometric information;

(g) any detail relating to the above clauses as provided to body corporate for providing service; and

(h) any of the information received under above clauses by body corporate for processing, stored or processed under lawful contract or otherwise...."

LPOs are not call centers, and legal outsourcing lawyers and other LPO employees hardly ever obtain the above kind of information over the phone from clients or customers of clients. Call centers may worry about the new rules because their employees, by contrast, frequently receive personal data from client customers over the phone. But those customers usually have binding agreements with the banks, hospitals, credit card companies or other clients that use the call centers, and the clients usually have written agreements with the call centers. The required consents can be in the agreements.

Other aspects of the new rules not applicable to LPO companies include what appear to be some onerous restrictions and obligations imposed on Internet providers:

Google has protested some sections of the rules, which make Internet intermediaries responsible for any objectionable content, which is defined as “harassing,” “grossly harmful” or “ethnically objectionable.”

Google and other critics seem to have a good point here, but not one that relates to legal process outsourcing.

However, back to the issue of data security in relation to LPOs, ultimately the best protection lies in rigorous employee screening and motivation. The new legal rules, and more importantly, the kinds of onerous procedures that some companies use to police their employees, will do little if anything to help. In the name of “data security” and “confidentiality,” employees at some outsourcing companies are treated more like prison inmates than professionals. They are frisked as they enter and leave, CCTV cameras and keystroke monitoring software are trained on their every move, internet-usage is banned, and permission must be obtained to go to the toilet. But unless a company performs full body cavity searches, how can frisking or similar intrusions stop someone from walking in and out with a pen drive or a small camera? Ultimately, the best defense for data security and confidentiality is a cautiously chosen, meticulously screened, and highly motivated team of employees who are not treated as lawbreakers, and who see their career future with their company. Employees of that kind, whether in the West or in India, are the least likely to be involved in data theft or confidentiality breaches.

How Can Lawyers Make Money "When Clients Are in the Driver's Seat"?

This is the topic for an upcoming ALI ABA seminar (by the American Law Institute / American Bar Association). The choice of topic speaks volumes. As the brochure for the seminar says, a "seismic shift to a buyer's market for legal services has transformed the business of law firm revenue generation." The seminar faculty includes partners from BigLaw firms, and the organizers quote Dan DiPietro, head of Citi Private Bank Law Firm Group, regarding the following "three harsh realities: (1) demand for legal services, especially for full-price U.S. law firms, is trending downward, (2) law firm billing rates are trending downward, and (3) cost-reduction strategies (by which PPP levels were sustained in 2009-2010) are exhausted and not repeatable."

The organizers argue that "[s]ustaining PPP [profits per partner] levels must, ultimately, come at the expense of other firms." However, no mention is made of LPO in the brochure. This is despite the fact that offshore legal outsourcing is one way for law firms to distinguish themselves and attract new clients. Perhaps legal outsourcing is one of the strategies to be revealed at the seminar!

As we noted in a blog post earlier this year ("12 Ways Off-Shore Legal Outsourcing Could Shake Up the Law World in the New Decade"), "if law firms can't adapt to a client-centric world and start living up to the values and practices of the companies they represent, they will be toast." On the positive side, "[i]n the new decade, smart law firms will continue to form new models, adapt to change, embrace legal off-shoring, and learn how to make all of this serve not only the interests of their clients, but their own."

Meanwhile, stark facts from the real world tend to inject themselves into the debate. LawWeek magazine recently reported that UK construction giant, Balfour Beatty, "is set to review its roster of UK legal advisers, [and] planning to ramp up its use of legal process outsourcing (LPO)." The company uses 24 law firms worldwide. One of them said this: "The motivation for the review is to cut costs, and law firms need to respond by developing innovative outsourcing initiatives. LPO is on its way in, and there is nothing we can do about it, but being able to supervise our own outsourcing is the lesser of two evils."

BigLaw partners can and should discuss various strategies to increase revenues. But "when clients are in the driver's seat," it is the clients who will have the loudest voice. If law firms want to keep clients and attract new ones, they cannot afford to ignore offshore legal outsourcing.

Indian LPO Expands Hollywood Role, as Client Joins its Parent Law Firm; Helps Open L.A. Office

In a novel twist, introducing yet another facet of globalization in legal services, a Hollywood entertainment lawyer and client of an Indian legal process outsourcing company has joined the LPO's parent law firm and is helping that firm expand its practice. This is another example of how offshore legal outsourcing has helped a Western law firm grow, rather than decrease the firm's headcount or revenues.

India-based SDD Global Solutions is already known for the legal work it does for major Hollywood film and television studios and other entertainment clients, thanks to its involvement in high-profile projects like "Borat" and "Bruno," and the much-publicized Los Angeles court victories the LPO helped win. SDD Global already has received 14 screen credits in films and television series. Most of the company's work involved sophisticated legal research and the drafting of legal memoranda and court papers. The high-value nature of the work may be one reason the company has been ranked the #1 outsourcing company in India, the UK, and the US, ahead of 2,700 other providers, according to the most recent survey of 6,547 clients by the Black Book of Outsourcing.

But behind the accolades and headlines, SDD Global has been developing a strong capability and track record in yet another arena: the drafting of a full range of contracts for film, television, and other media and corporate clients.

Now, SDD Global's offshore legal process outsourcing work in these sectors is getting a major boost, as one of its clients, veteran Hollywood entertainment lawyer Jeff Holmes, has joined SDD Global's parent law firm, SmithDehn LLP, allowing the firm to open an office in Los Angeles for the first time. The addition of Holmes complements the work SmithDehn and SDD Global have done for an already growing Hollywood clientele, which has included many of the largest players in the entertainment business.

Abhinav Chandan, head of SDD Global's Commercial Transactions Department and a key member of its contract-drafting team in the film and television industries, speaks about this development as follows: "Adding our client Jeff Holmes to our parent law firm in Los Angeles helps us get and perform more work for Hollywood. We look forward to working closely with Jeff as he helps further expand our already growing transactional capabilities."

Indeed, parallel with this latest move, significant television and film production companies already have reached out to SmithDehn LLP to obtain low-cost, high-quality, contract-drafting work relating to deals with U.S. broadcasters and distributors, using the offshore legal outsourcing services of SDD Global. Says Chandan: "This adds to our confidence that Jeff's involvement will increase the variety of media and entertainment related work we do."

Credentials of Holmes Are Impressive

Holmes brings to the table considerable experience in every aspect of legal work for television and film production companies and projects. As Executive Vice President of MGM Worldwide Television, Vice President for Business Affairs at Twentieth Century Fox, and COO and Executive Vice President of Skouras Pictures, and in the course of his later private practice, Holmes has become an expert in the field.

At MGM, where the Chairman of the Board publicly described Jeff as the company’s “superstar," Holmes reported directly to the President and was responsible for all legal aspects of the company's television division.  In particular, Holmes negotiated and oversaw the administration of TV output and volume licensing agreements (including such deals as the renewal of the MGM/Showtime pay-TV output agreement in the United States — one of the largest deals in MGM’s history).  Holmes also helped establish and supervise the administration of MGM's interests in basic and pay TV channels in Latin America (CineCanal, Telecine, and MGM Networks Latin America), Portugal (Telecine Portugal), Japan (Star Channel), Australia (Optus), Israel (TelAd), India (Zee), and Turkey (Digiturk).  Holmes also negotiated co-production and acquisition agreements for films and TV series, supervised and resolved the day-to-day issues of MGM's TV and advertising sales offices in New York, Chicago, Atlanta, Miami, Toronto, London, Sydney, and Hong Kong, and handled issues involving MGM’s Technical Services, Rights Clearance, and Contract Administration departments.

At Twentieth Century Fox, Holmes created and implemented a program to acquire distribution rights to independent feature films, negotiated and drafted TV output agreements throughout the world, negotiated and drafted co-production and format agreements, administered acquisition of third party libraries (involving a wide variety of contract, collection, and agency issues), and supervised in-house counsel.

At Skouras Pictures, the distributor of acclaimed films such as “My Life As A Dog,” "The Comfort of Strangers," and "Blood Simple," Holmes reported directly to the CEO, and managed all aspects of production, acquisition, distribution, financial planning, business affairs, and legal functions.  Holmes also was a member of the Board of Directors, participated in taking the company public, and negotiated and implemented a wide variety of agreements, including pay, pay-per-view, syndication, and basic television agreements, international sub-distribution licenses, an acquisition and distribution agreement with Paramount Pictures (under which about 30 first-run films were acquired and distributed), a series of joint venture acquisition and distribution agreements, financing agreements, and an asset purchase agreement for the sale of the company's film library.  Holmes also oversaw motion picture production (including the negotiation of interparty agreements, talent negotiations, and budget review), and prepared and implemented significant overhead reductions, while liaising with outside counsel, auditors, producers, sub-distributors, and lenders.

SDD Global's Wide Range of Transactional Services

As discussed above, SDD Global has been developing its contract-drafting and other business transactional capabilities for years, especially in the areas of film, television, and other media.  As production budgets have shrunk due to cost-cutting pressures, offshore legal outsourcing with SDD Global has become a welcome means of reducing legal expenses. In some situations, the role of SDD Global has made the difference in allowing otherwise too expensive independent film and television projects to go ahead.  Below is a list of the types of legal services that SDD Global provides (sometimes with Western lawyers at its parent law firm stepping in where legal advice is necessary):

• research/reports on US compliance issues
• litigation and/or litigation support
• out-of-court resolution of claims
• AccuMark title searches/reports
• title opinions
• other legal opinions/clearances
• trademark and copyright registrations
• production agreements
• commissioning agreements
• talent agreements
• writers' agreements
• director's agreements
• actors' agreements
• music producer's agreements
• cinematographer's agreements
• casting agreements
• location agreements
• appearance consent agreements
• deal memos in advance of agreements
• insurance agreements
• soundtrack agreements
• all types of licensing agreements
• music/composition agreements
• stills/clips agreements
• online channel streaming agreements
• same for other 3rd party platforms
• sales/acquisition agreements
• chain of title searches/reports
• distribution agreements
• financing agreements/PPMs
• agreements for live shows/performances
• first look agreements
• option agreements
• U.S. work permits/visas
• crew deal memos/agreements
• presenter's agreements
• shareholder agreements
• completion bond agreements
• E&O and other insurance applications
• lab access letters
• bank mandates

Many people in the Western legal world associate offshore legal outsourcing exclusively with lower-level, lower-value work such as document coding, contract review, and the like. The expansion of SDD Global into new areas of high-end work, even beyond the sophisticated legal research and the drafting of court papers by which the company first made its mark, is yet another reason for the legal industry to take notice of how "LPO" can move, and already is moving, up the value chain.