Turning the Law Department Into a Profit Center

Lee Drucker | November 7, 2018

This is a guest post by Brad Blickstein, a principal of the Blickstein Group, which provides insight and analysis on the corporate legal and legal ops functions. He also is publisher of the Annual Law Department Operations Survey, which for 10 years has provided data and analysis on the Legal Ops function.

Perhaps the biggest trend in corporate law departments over the past few years has been the rise of the legal ops function. Ten years ago there were only a handful of law department operations professionals (LDOs), typically only in large sophisticated organizations. Today, about a third of the Fortune 500 law departments have at least one professional in such a role. All these professionals have one thing in common: their job is to bring business discipline to the legal function.

According to the 10th Anniversary Law Department Operations Survey Report, all of the LDO’s top five key performance indicators are cost related. They are evaluated on their law department’s financial performance. At the same time, their #1 challenge is to drive/implement change and #3 is to identify opportunities for business improvement and cost savings. To achieve all these objectives, many LDOs are pushing their law departments to pursue actions in order to recover losses from vendors, customers and competitors.

Such programs, often simply known under the umbrella of “turning the law department into a profit center,” were first popularized in the mid-2000s when DuPont went public with its efforts. DuPont Legal recovered more than $100 million in its program’s first year, and $116 million the following year.

There are a number of key considerations that go into building such a program (all of which would be considered elements of “business discipline”). Law departments historically try to minimize litigation, so pursuing actions is a culture shift within the department. These claims also affect the company’s business units, so the leaders of those functions must be made comfortable. There are often some real reputational, legal, political and business risks to consider.

Financial risk has been largely mitigated, however, by litigation finance companies such as Lake Whillans, who provide capital to fund litigation in exchange for a portion of a proceeds. Should a matter prove unsuccessful, there is no impact on the company’s bottom line. And perhaps even more importantly, funding a case through a litigation finance firm allows for full-throated pursuit of the claim, all the way to trial if necessary, with no temptation to settle if the adversary is drawing out the case or if the company feels the pressure to stop funding it.

Once the general counsel and the LDO have a good understanding of the risks and how to mitigate them, the next step is identifying claims to pursue. Claims can take many forms; some of the more frequently funded causes of action are listed below:

  • Trade secret claims – A core function of the business, trade secret claims often have an international component that makes them difficult and expensive to pursue.
  • Contract claims – One factor to consider is the size and type of the adversary’s organization. Some of DuPont’s early claims were against electric utilities, which minimized its reputational risk and appearance as a bully.
  • Insurance claims – Coverage disputes are common, but insurance companies have deep pockets. Litigation financing allows for an even playing field. Actions against insurance companies have the added benefit of low reputational risk.
  • Business tort claims – Improper interference with business operations can be time-consuming and expensive to prove, but doing so improves the bottom line in multiple ways—not only due to the financial recovery, but also by stopping the harmful activity.
  • Antitrust – Not only is ensuring fair competition critical to the company’s operations, but antitrust awards in U.S. federal court often carry treble damages, which can make these claims especially lucrative.

Once cases are identified, the next steps include overcoming risk factors and effectively  leveraging litigation finance.

 

 

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The best way for companies and their counsel to determine if litigation finance is an attractive option is to discuss it with us.