There May Be Trouble In River City Final Episode: Understanding

My guess is you are wrong –that statement shocked both me and my GC, but I began to think. What did a compliance program presume I was managing, and how did I know it was the cause of the problem? Suddenly, it occurred to me that it implied that we were producing and selling a lot of defective products, that was the bulk of the litigation caseload. “There is nothing wrong with our products,” my thought involuntarily verbalized itself. “I hope not,” said Superstar, “but that is where your analysis should start. Compliance programs only work where there is actual liability. These cases fall into what we call the Perry Mason Classic model. The other models are the Perry Mason Look Alike, where there are allegations of liability, but we believe none exists, and Government Policy Cases is the last model. The critical point is what you are able to control in the last two cases.”

My GC and I looked at each other, hoping each hoping the other had the answer. Suddenly my GC said: “Variable Transaction Costs.” “Exactly” said Superstar. “Now let’s get these cases modeled and if necessary I would like you to present me with a plan to control those costs.”

As we walked down the hall and were well beyond audible distance from Superstar’s office, I said to my GC: “How did you know-you did even sound like a lawyer with that answer.” “ACC blog” she said. “This blog, E=MC2 for In House Counsel. It had a formula that described how one could calculate settlement values, and what it demonstrated was that if transaction costs, which are the variable costs of defending a case, are high particularly in comparison to the litigation risk, those costs start determining your litigation strategy. It never occurred to me before but you could think you are saving money by settling a case and reducing your legal expenses, but its your high transaction costs that are driving the settlements and creating an incentive for illegitimate litigation. Without significant controls on defense costs, our management of litigation could be severely crippled. We need to have a structure that makes it economical to try these cases and that alone may result in fewer cases”


My GC stopped and looked directly at me. “Two things-- we are going to talk to those professors at Superstar’s business school about doing some in-house training for the law department and I will being accepting Professor Prestige’s invitation to speak at my law school and let them know what is going on in the fly over zone.”

- Larry Sailbra
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Shopping Smart- Is It In Vogue for In-house Counsel

Yesterday, I was at my yacht club. Did say yacht club? That title may suggest more prestige and status than actually exists by being associated with this club. Since I retired I finally consented to serving as one of the trustees. We do not meet in blazers emblazoned with the club’s logo, although I did see someone wearing one once. As a trustee you get to do really important things, like today I have to get up on the roof of our covered patio and patch a leak in the rubber roof membrane.

So what does this have to do with in-house counsel? Wait and I will tell you.

Many of the club’s members are small business owners who have done well, but are not outrageously wealthy. There is one college president, a financial advisor, a doctor, some school teachers and a few of us who worked for large companies. We do not have a restaurant in the facility and put on most of our own social events, except the end of the season commodore’s ball. One of our newest innovative forms of entertainment occurs on every Friday night during the season and the first Friday night of the month off season. Everyone brings a side and dessert to share and their own entrée, and we have dinner together.

Recently, our conversations had shifted. Some members pointed out that they were not getting a new car as often as they had in the past. Other discussed the fact that they were finding friends and acquaintances less concerned about appearance and were taking pride in being frugal. The Club had always been a place that focused on boating. If you wanted to be seen near your boat rather than on it there was another club that provided an environment for that at considerably higher cost.

When I returned home yesterday after one of these discussions, I was perusing the CNBC web site and found a blog entitled: “Cheap is Sexy.” Its author stated that the idea of shopping smart, thrifty and within your means was now becoming admirable. This was the first time she said that she can recall an economic downturn created a “high end validated shift-to-thrift.”

OK, now the in-house connection. At about the same time this was occurring I received a summer update to former ACC directors from Fred Krebs. Among the things he mentioned was an ACC initiative called “The ACC Value Challenge. “ The objective is to “reconnect value with the cost of outside legal services.” I, for one, am looking forward to seeing whether this effort has substance or whether it is simply another renamed ruse in a long line of ruses that Robert Banks, the first Chairman ACC described as in-counsels’ effort to look like they are managing outside legal fees rather than actually managing them. I did note that there was no mention of doing something like getting up and patching the patio roof yourself, but it could be one part of the process.

It will be interesting to keep our eyes on what develops. If it is half as successful as the Friday night dinner at my yacht club, it will be a real achievement.

-Larry Salibra
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Trouble In River City Episode 6: Trouble With A Captial “ T” That Rhymes With “P”

My GC called Super Lawyer and we discussed this notion of economically modeling litigation. He had not heard of such a thing, but called a friend who had gotten his MBA from one of those schools that was very close to an ocean, and therefore, a considerable amount of credibility. He confirmed that no such concept existed. With renewed confidence, we prepared a single sheet for Superstar that summarized the logic for recommending a compliance program as a solution to the growing inventory of litigation. It did not address economic modeling at all.

My GC arranged for my next meeting with Superstar and accompanied me. We entered the room. Superstar was cordial and invited us to sit down. My CG initiated the conversation, explaining that I had come to her with the issue of modeling. We thoroughly explored it together and with other significant figures in the both the legal and business community, and there was a consensus that the approach we described in this sheet was the best solution. She selected best solution approach because she did not want to come right out and say no such thing as economically modeling cases existed. She handed the document to Superstar.

Superstar leaned back and began reviewing document. He began to drift into deep thought and for a long time remained silent, in mesmerized state he stared above the paper and out the window to our left. Suddenly, he recovered from this thought and said: “Do you recall that song from the Music Man, where the Professor persuades the town of their need for a band by suggesting it is a solution to problems they did not perceive, such as the negative influence of pool on the town’s youth?” “Yes, ‘Trouble’ was the name of the song, ‘Trouble in River City’, but what on earth does that have with a legal compliance program,” said my GC.

“Nothing, directly, it just came to mind when I thought about the effort it might require to convince the legal profession they have a problem, Trouble with a Capital ‘T’ that rhymes ‘P’ that stands for ‘Process’.” Superstar continued, “In my MBA program we were given an analytical framework to evaluate the social and economic structure of legal issues. Law schools teach lawyers a process which they instinctively implement without a critical eye for the implications of that process in its social and economic context. In one case study we examined how this type of reflex response gave economic and legal reality to an alleged disease that had no scientific basis in fact. It was only the restructuring of the defense posture of the entire industry by few insightful industry lawyers that made success possible. When I asked you to economically model cases, I wanted you to step back and examine what were the manageable elements of the case. Your analysis presumes a certain manageable element and my guess is that it is wrong.’

-Larry Salibra
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Trouble in River City Episode 5: Confidence Restored

Click here for the previous episode of Trouble . . .

When I walked into my GC’s office, she saw the signs of concern inscribed across my expression. “Superstar ?”, she asked without hesitation. “Yes”, I said. “He wants me to economically model our litigation,” the words came spilling out without any apparent exercise of volition on my part. “I have never heard of economically modeling litigation; I went to one of the best law schools in the country and I have never heard of it. I have a lot of CLE, I have simply never heard of it. I heard of ADR, mediation, arbitration, third party neutrals, and I got A’s in civil procedure and federal jurisdiction—I have simply never heard of economically modeling cases”.

“Don’t worry,” she said, “I haven’t either”. “But I have heard that since Superstar has come back from the MBA program at this local University, he has appeared to have acquired a number of new notions about the law and lawyers—it is a passing fad. These unusual ideas have not made their way into any of the well known, established schools. Moreover, I am sure that there is a simple explanation that we can get from Professor Prestige, at my law school. He wrote the authoritative case book on civil procedure. I have remained in touch and we can call him and get an explanation; I will help you prepare your response to Superstar.”

Professor Prestige had a national reputation. He was often a talking face on TV and sought out by the media to opine on noteworthy litigation. His case book, The Essentials of Civil Procedure, had become the standard text around the country and was in its fourth addition.

My CG placed a conference call. “Nonsense,” said Professor Prestige, “Economically modeling cases—never heard of such a thing.” The imperial tone of his response gave one a sense of confidence. As the conversation was ending, Professor Prestige, was complementing my GC on her career: “Well Ms. Ruddock (he was known for addressing everyone in this formal manner; it distanced him from his students) you have had quite a successful career. If you are near the Law School be sure to stop by; we would love to have you talk to the students.”

As the conversation was ending, I said automatically, “Professor how many cases have you actually tried?” The question was like sending an electric shock. ‘Tried!” said the Professor with the most imperial tone of the entire conversation. “I study the law and I am up to date with every reported appellate case on civil procedure,” he said in manner the suggested that further conversation on this topic was not welcome.

-Larry Salibra
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A different type of gift

I attended a graduation tonight. I was not a graduate, but I received a gift.

The graduates were five adults who were graduating from "Read To Succeed", the adult literacy program run by the YMCA in which I am a volunteer tutor. This is not an English as a second language course. This is for English speakers (with some dual language speakers) who have never learned to read. Some made it through public schools. Some dropped out. What they have in common is a desire and commitment to better themselves. Some want better jobs. Some just want to read to their children or grandchildren.

Most of them work full time and go to school four nights a week for two hours per night. Some have two jobs. One woman works nights and comes straight from work to class. Many yawn through their lessons, but most make it through the two-year program.

Each gave a graduation speech that they wrote. The common thread was how the inability to read had completely eroded their self-confidence.

I was most touched by Lisa, a mother of about forty- five. Lisa said that she had grown up as one of nine children in a French-Canadian home. Her parents spoke neither French nor English well and only one of her siblings graduated from high school. She said she was ridiculed in school for her poor vocabulary and hid her inability to read by avoiding people. At parent-teacher conferences, she told the teachers that she would not be able to help her kids with homework because she had a learning disability. She was constantly ashamed. She now reads two newspapers a day and may start her GED. Luis, Seth, Iman and Iris each had a similar story to tell.

The gift that I got was helping each of these people take a big step up in life. Each day that I helped someone learn that "an e at the end of a word is silent and the vowel before it is long", I was one rule closer to helping that person become literate; to take the fireman's exam or to read "Cloudy With a Chance of Meatballs" to their kids.

I know that this sounds like a United Way public service announcement. Well maybe it is. My point is that this volunteer work, teaching one-on-one and seeing adults go from reading the alphabet to reading one syllable words to reading three and four syllable words is one of the most rewarding things I've done. It helps them and it makes me feel good.

As a group, adult illiterates are invisible. I'm sure that there is some group in your city that's like "Read To Succeed". Find a little bit of time to teach one evening a week. Best thing you've ever done.

-Mike Schnipper
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Today's IP Committee Legal Quick Hit Continued

In Quanta Computer, Inc. v. LG Electronics, Inc., the Supreme Court recently addressed the 150 year old doctrine of patent exhaustion. The doctrine limits “the patent rights that survive the initial authorized sale of a patented item[,]” arguably forcing patent holders to collect royalties from one level of distribution, rather than from every subsequent level of buyer and sellers. The case has implications for downstream licensing, as a defense to patent infringement, perhaps altering the focus of claim drafting, and emphasizing contractual remedies in patent licensing.

The Supreme Court reversed the Federal Circuit’s ruling, holding that LGE’s authorized sale of microprocessors and chipsets to Intel exhausted both their system and method patent rights. The Court considered the arguments in three stages.

First, the Court addressed the notion that method patents could not be exhausted, holding that “[n]othing in [the] Court’s approach to patent exhaustion supports LGE’s argument that method patents cannot be exhausted.”

Second, the Court “consider[ed] the extent to which a product must embody a patent in order to trigger exhaustion.” Relying on Univis, the Court found that all of LGE’s patents were exhausted. In Univis, the lens blanks had no utility until they were made into lenses. Similarly, the microprocessors at issue only functioned when incorporated into buses and memory to form a computer system. The Court concluded that both the lens blanks and microprocessors “constitute a material part of the patented invention and all but completely practice the patent.” The key determination for the Court here was that Quanta was not required to make any creative or inventive decision when adding the Intel parts to its computer system, holding that “Quanta had no alternative but to follow Intel’s specifications in incorporating the Intel Products into its computers . . . .”

Finally, the Court addressed whether the sale of the patents to Quanta exhausted LGE’s patent rights. Noting that only an authorized sale will trigger exhaustion, the Court held that “[n]othing in the License Agreement restricts Intel’s right to sell its microprocessors and chipsets to purchasers who intend to combine them with non-Intel parts.” LGE gave Intel the authority to sell regardless of whether Quanta promised to abide by the restrictions put on third parties in a side agreement. The Court did leave open the possibility that LGE could recover other damages, stating that it expresses “no opinion on whether contract damages might be available even though exhaustion operates to eliminate patent damages.”

-Ken Godlewski
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***DISCLAIMER*** Treasury Department Circular 230 Disclosure: To ensure compliance with requirements imposed by the Treasury Department, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein...

Political Confusion

I am at sea about the upcoming election.

John Kennedy was my only childhood hero (aside from perhaps The Cisco Kid or Hopalong Cassidy).

I am a liberal democrat who came of age in the sixties. At Columbia, many of the SDS members were classmates and, even though I did not occupy a building in 1968, my sympathies were more with than against those who did.

My first two jobs after law school were representing the labor movement.

If someone said that we could provide health care to all Americans if I paid $1,000 more in taxes, I would gladly do so.

I was raised by parents who lived through the Depression and who did not have credit cards. Following their example, I saved, paid off my credit cards every month, made reasonable investments, never bought a house that I could not afford to carry and generally acted as a financially responsible citizen.

Here's the dilemma.

I cannot vote for John McCain for lots of reasons that I'm not going to detail.

With some trepidation (similar to that with which I supported Jimmy Carter) I want to vote for Obama. However, I have reached that stage of life at which my retirement funds have to last for perhaps thirty or more years (my parents are 94 and 95 and pretty darned healthy). Obama's position on raising the capital gains tax seems to be that it would be "fair" to do so, his example being "the top 50 hedge fund managers made $29 billion last year--$29 billion for 50 individuals". I'm no hedge fund manager, and doubling the tax puts a substantial crimp in my plans.

I have always voted for the person who, I felt, was best for the country.

When, if ever, is it appropriate (if that's the right word) to vote my self-interest? Do I abstain when I go into the booth this year?

I guess I have five months to figure it out.

-Michael Schnipper
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Trouble in River City: Episode 4

I felt relatively confident that I could handle any question Superstar could put to me and my recommendation for a response to our escalating litigation claims was clear. We needed a comprehensive compliance program. It seemed clear from Super Lawyer’s presentation that our focus on ADR had dramatically reduced our costs.

When I walked into Superstar’s office, he had been working feverishly with some papers. He looked up as I walked in and motioned to me to sit on the sofa in the far left corner of the office. I did so and spread the charts and graphs on the coffee table.

He walked over and quietly surveyed the collection of papers I had spread out. “I see you have been working on the problem—bottom line first,” he said. “What do you recommend?” The quick question caught me off guard—I had fully prepared to take him through the same analysis that Superstar had done and demonstrate how effective we had been in keeping our costs under control through our use of ADR to set the stage for the conclusion.

“A compliance program,” I uttered, involuntarily. “Compliance on what,” he asked. “Well product liability for sure,” I said. “What about the other cases?” I had not really thought about them? “How do you know it will work?” That question really caught me off guard. “Well,” I said “ we are already keeping our litigation costs under control through ADR, more aggressive litigation would simply increase those costs, compliance is the only other alternative and we can do it for a lot less than trying cases.”

He looked up at me, stared me straight in the eye and said “You did not sort these cases by economic modeling so you really do not know what factors you can control.” I was shocked, not because I had not done it, but because I have never heard of it. Superstar did not let me answer—he said: “I suggest you allocate these cases among a set of economic models that permits us to evaluate what we can control—then let’s talk.”

I left the room and headed straight to my GC’s office.

-Larry Salibra
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Trouble in River City Episode 3: Super Lawyer’s Opinion

I called Super Lawyer to explain my problem. He said he would get together with the head of his litigation department and review the cases they had for that division. We had to center all the litigation at Super Lawyer’s firm because we believed that we could save money since the firms lawyers would not have to relearn the nature of our business, the technology of our product line and there would be economies of scale with similar litigation.

When I arrived a few days later at the ACE firm, Super Lawyer and his colleagues had collected and charted out litigation. It fell into three categories, product liability claims in our widget product line, a couple of employment claims and a substantial tax claim disputing the constitutionality of a certain tax that was hurting our ability to import raw materials in order to be competitive with non-domestic supplier.

The firm had graphed the claims over a 5 year period. Only the product liability claims of which there was a great number showed a study increase. They also graphed the division’s quarterly expense of the litigation and it became immediately clear why Superstar had focused on this area. Costs had been going up steadily and when taken as a whole over time, it was clear why it was something he was interested in.

I asked Super Lawyer whether he thought could control this escalation of claims? He suggested that we undertake a comprehensive program to review both our quality control procedures and our product labeling. He also suggested
a series of presentations by his firm to operations personal that would increase their sensitivity to product liability exposure.

What about more aggressive litigation posture? We considered that he said as he produced another graph. We have taken the position that ADR and cost reduction was a key policy objective. We have graphed amount we would have spent if we had litigated to a resolution and the amount we settled for. In almost every case we paid less in settlement than it would have cost to litigate. This does not seem to be an economic option.

I left the meeting with the recommendations in hand to present to Superstar.

-Larry Salibra
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Opinions of In-house Counsel

In our discussion regarding opinions of in-house counsel, we noted that the inside counsel who signs a closing opinion has personal responsibility for satisfying the duty of care owed to the recipient. The manner in which this risk is managed by corporate counsel will depend upon the right of the corporate counsel/opinion giver to be indemnified and the availability of insurance. Each company’s situation will be different. In addition to directors and officers liability insurance, some companies procure malpractice insurance for their corporate lawyers. It would be interesting to know whether it is common practice for companies to obtain Employed Lawyers Professional Liability Policies and, if so, whether adequate attention is being paid to the integration of the policy with the directors and officers liability insurance. Any comments regarding your experience with Employed Lawyers Professional Liability Policies would be of benefit to the group.

Check out the agenda and minutes from the ACC Small Law Department Committee Calls

-John R. Miller
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As Father's Day Approaches

Excuse me for taking a short break from writing the last episodes of “THERE MAY BE TROUBLE IN RIVER CITY”, but I was watching CNBC this morning, a channel to which I had become somewhat addicted after my retirement. This morning the commentators were in a tizzy about Lehman Brothers 2.8 Billion loss and their need to raise 6.0 billion in capital. How could the Chief Financial Officer not know said one commentator? Lehman had said all was fine not too long ago.

Before I begin, let me make my bias clear. I was against the Bear Stearns bailout notwithstanding the claims by the sophisticated that it was necessary to prevent financial collapse. I have a similar position on attempts by the government, of all forms, to deal with the housing crisis. We got there without government help; we will just have to get out of it without government help.

So how did we get here and what does my father and grandfather (on my mother’s side, my Dad’s father died before I was born) have to do with this? Neither was well educated. My father completed high school and my grandfather who emigrated from Italy did not make it that far. They certainly would not been able to carry on a conversation with graduates of Harvard or Wharton Business Schools. But to paraphrase the wizard in the Wizard of OZ, what did they have that the graduates of these schools did not have-“common sense.”

What they were not able to do, or perhaps unwilling to do was to engage in semantic calisthenics to disguise the obvious. Let me share with you how I think they would have redefined the standard terms used to describe the present and continuing financial crisis.

“EXOTIC FINANCIAL INSTRUMENT": My father and grandfather would describe this as lending money at an unusually high interest rate to a borrower who had no hope of servicing the debt or repaying the principle.

“COMPLEX AND NOVEL FINANCIAL INSTRUMENT": My father and grandfather would describe this as a lot of people lending a lot of money at an usually high interest rate to a lot of borrowers who had no hope of servicing the debt or repaying the principle.

“CREATIVE ACCOUNTING": My father and grandfather would describe this as ignoring the fact that you had lent a lot of money at an usually high interest rate to a lot of borrowers who had no hope servicing the debt or paying back the principle.

“WALL STREET BONUS": My father and grandfather would understand this to mean getting paid an amount of money they could not imagine any human being needing or productively using in their lifetime for selling a lot of “Complex and Novel Financial Instruments” to people who because of the education you would expect to know better.

The sad thing about this is that there were no doubt many in our profession who participated in this activity and should have known better as well.

-Larry Salibra
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There May Be Trouble in River City- episode 2

EPISODE: 2 SUPERSTAR’S FIRST ASSIGNMENT

As my GC warned the day came when Superstar called and asked that I come to see him in his office. Since my meeting with my GC the official announcement of Superstar’s appointment of division president took place, and for the next couple of weeks a flurry of additional announcements took place describing new assignments in the Superstar’s division as he replaced or rearranged the management structure to his liking. This was not unusual; of course, management changes typically took place when new leadership was installed in a division. However, there was a different tone to these changes.

In the past one could somewhat predict the changes in personnel—it was sort of musical chairs, people changed chairs but the people were the same. This was different. Positions were filled by people no one had heard of before. Serious change was in the air.

When I arrived at Superstar’s office, he invited me in and was very cordial, but it was clear I was under review. He explained that it was his intention to re-examine every aspect of the division’s operation, including the way its legal issues were managed. His review of the legal area suggested that major expenses were being incurred in the litigation area. He said it was his intention to understand why that was occurring and then determine the appropriate response. He wanted me to undertake that effort.

As I walked out, two obvious options occurred to me, a more strident defense posture as a deterrent or a compliance program to improve the employees understanding of their legal obligations. But I was not sure, so I decided to consult Super Lawyer at our outside law firm, the ACE firm in downtown River City. We had long ago established a partnership (see partnership debate in prior blogs) in the manner in which we related—they could help I thought.

There May Be Trouble in River City

Your GC has just called you into her office to tell you that there may be difficult times ahead for the law department. Superstar has just been appointed to run your division and he is the head on favorite to become President and CEO. Superstar was an engineer by training and his aggressive management style that resulted in the complete turn around of a plant that had been scheduled to be shut down had caught the attention of senior management and the Board.

They are grooming him for the top spot and had sent him off to get his MBA at some college that was in the fly-over-zone (that is the vast area between the coasts where perhaps only one or two academic institutions are taken seriously). Typically, this would not be considered a problem; however, this particular graduate school had apparently developed a new approach to teaching law in their curriculum—they not only taught doctrine, they apparently give their students an analytical paradigm that provided them with the ability to effectively manage legal issues and their lawyers. They could understand the economic implications of different choices in designing and implementing contracts and they expected their lawyers to integrate business alternatives in their contractual design (yes, they called it design not drafting).

The GC said she also understood that they also were challenging the validity of traditional case analysis as an effective way to predict legal outcomes, and appeared to understand the economic implications of legal procedure. The GC conceded that although she was a graduate of Super U Law School, she did not recall being exposed to much of this. She said that she had heard that Superstar was concerned about the extent of litigation in his division and one of his priorities was to contact you to address this problem. She wanted you to know and said she would do all she could to help you, but simply did not know what to expect.

You walked out of her office waiting for the call from Superstar.

-Larry Salibra
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A Good Point About The Relationship Between Litigation Experience and Transactional Law

If you have not read David Mowry’s piece in the June “Change is Good” I commend it to you. David describes his change from outside litigation lawyer to inside transactional lawyer. He makes a good point about how much his litigation experience has contributed to his new role as a transactional lawyer because he approaches it with a “seer’s perspective.”

Don’t get me wrong transactional lawyers are nice people, I even did acquisitions and divestures, but I try not to publicize it too much. The problem is that transactional lawyers sometimes tend to become mesmerized by their language skills. They describe a concept, or sometimes just string together a rather impressive collection of words with out any real sense as to how those words will be implemented in a litigation context.

I have had the opportunity to try contract cases involving large commercial agreements that were drafted by law firms of substantial reputation. They were even bound. Notwithstanding the imposing appearance of these documents one is amazed at the level of ambiguity that can exist that I am sure was not apparent to its drafters, but might be to someone like David who is accustomed to looking at these agreements in their least flattering light.

David’s perspective might well distinguish between three alternative ways of addressing an issue because his knowledge on civil procedure can reveal one to have the most cost effective manner of developing facts and getting them into evidence to support a claim than the other two alternatives.

Great point David—good luck in your new career. By the way I was close friends with former Xerox, General Counsel and ACC founder, Bob Banks, who had lawyers who worked for him that argued Xerox cases before the US Supreme Court—there is history there at Xerox that may get you back in court for your employer some day!

Rule of Law or Rule of Men?

We in the US promote the notion that our society is based on the Rule of Law, not the Rule of Men. However, each day judicial decisions come down that suggest that we may only be fooling ourselves.

One of the most adamant proponents of the notion that law is an immutable doctrine whose meaning is set at the time the legal doctrine is established is Justice Scalia. Scalia’s originialist doctrine asserts that the US Constitution is not a living document which adapts to the times; its meaning was frozen at the time it was written. Scalia’s thesis is that if you permit flexibility, then there are no restraints on what judges can do.

The Scalia thesis makes sense and I believe he applies it equally to the interpretation of statutes. He is not enthusiastic about looking at legislative history, knowing full well that unsuccessful legislators who lose in the legislative process try to pack the history with statements that sympathetic judges can latch upon to rewrite the statute.

Perhaps the most obvious excuse that judges use to impose their own views is the notion that a statute can be interpreted beyond the bounds of its language “because that statute is a remedial statute.” When judges used that rationalization on me I challenged them to give me one example of a statute that was not remedial.

Unfortunately, even Scalia has stumbled off the wagon when political expediency required. In a case I argued before the Supreme Court a number of years ago, the foreign national companies and associated amicus countries had trapped the Supreme Court into facing the issue of the constitutionality of worldwide combined apportionment (a state tax that included non-domestically derived income in the apportionment the tax base) in the context of whether a foreign parent had standing because its income was being taxed. Since foreign parents had no state remedy, the Tax Injunction Act did not bar a federal court remedy. Three circuits, one en banc, had held with no dissents that the Tax Injunction Act did not bar a foreign parent action.

The political reality of those days was “states rights” of the Reagan Era. A disingenuous Supreme Court held that resolving the standing issue was “too hard”, but they did not have to face the issue since they dismissed the case 9-0 holding the Tax Injunction Act barred the federal action. The Tax Injunction Act clearly did not apply to this situation as the Circuit Courts had uniformly held because Congress never conceived of such a tax situation when the Act was passed. However, even Scalia will breathe life into a document if the political forces are in the right direction.

Why should you be concerned? Your clients require a predictable legal system, and the economic incentives of your outside counsel are inconsistent with predictability. Perhaps one of the most outrageous challenges to the Rule of Law is the persistence of the notion of non-precedential opinions. The idea that similarly situated parties can be treated differently is so antithetical to notion the rule of law it is surprising to me that in-house bar has largely been silent. At Congressional hearings on the topic a few years ago, I was the only in-house representative at a hearing largely unattended except for the judiciary and a couple academics.

Except for the late Judge Richard Arnold, the federal judiciary seems to accept the notion that they do not have to treat similarly situated parties the same. The Supreme Court has been silent on the issue because they are consumed with promulgating legal doctrines regardless if anybody pays much practical attention to them.

Take Erie v. Tompkins, the lower courts have long ago reversed The Supreme Court in practice. Numerous Circuits, outstanding among them the Ninth Circuit, of course, refuse to certify issues to the State Supreme Court for determination even though there was strident disagreement in the Circuit as to what the state law is—the majority preferring to impose their own views and paying lip service to Erie by claiming it was state law.

Then there is the chilling observation of Federal District Court Judge Polster, who said that after he was appointed to the Court and began reviewing the recent rulings of the Sixth Circuit, it became clear to him one could not determine what the law was until you knew who was on the panel making the decision—Rule of Law or Rule of Man?

-Larry Salibra
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Ruminations about Retirement

When I first thought about retiring, it seemed that a new industry had sprung up overnight. Every newspaper, magazine, television new program and web site wanted to give me advice or sell me something. Borders seemed to have a full wall devoted to books about retirement. AARP began sending me greetings. Aside from the tower of child-rearing books that teetered on my night table twenty-odd years before, never had so much been written with me in mind.

I read some stuff, mostly articles in the Wall Street Journal that my wife starred as “must read” and a really good book called “The Number” (which is NOT about figuring out your number), but some things became clear to me without aid of experts, some of it much too late. If you figured this all out already, forgive me for wasting your time. If any of this helps you, it’ll make me feel good.

First of all, it’s not about “how much do I need to retire”. Its more like “how much can I put away for retirement to make sure that I can afford the double wide and the moist cat food without living like an ascetic for the next X years”. You can’t do more than you can do, so advice like “you’ll need 80% of your pre-retirement salary” is not helpful. Why is 80% the correct number? If you are making a hefty salary in your last year of work (let’s pick $300,000) how in the world are you going to accumulate enough to pay you $240,000 a year from age 60 or 62 through 90 (since we will all live to be 90)?

Start early. Yeah, if you’re 30 and reading this, keep reading. Some practical thoughts in no specific order (I don’t give advice and I don’t fix up my single friends):

1. Find a financial advisor, preferably one who charges for his services and not one who makes his money by selling you things like whole life insurance or annuities. Ask the senior executives in your office for a referral. If you need to plan for college and retirement, it’s good to get some help as early in your career as you can.

2. Find out how much your pension will really pay you (if your company has a pension plan). The company internet site or the HR person may not have the full scoop. My pension, fairly typical, was calculated by multiplying my average salary during the ten years prior to retirement by 1.6% and then again by my years of service. So, on its face, if I worked for 25 years for the company, for each $100,000 of final average earnings, I would have $40,000 in pension. Right? Nope. From that sum we deduct: (i) 4% for each year that I collect my pension prior to age 62 (yours may be 65), (ii) a portion of my projected social security calculated pursuant to a formula (yes they take a credit for social security), and (iii) a further reduction if I want my spouse to continue to get 50% of my pension after I shuffle off (the standard way of planning)

3. When you retire, your life does not become cheaper. If you retire on Friday, what expenses have you shed by Monday? Dry cleaning? Hah! Commuting expenses? Probably. What big expenses do you lose? Let me tell you. Nothing. What expenses do you pick up? How about COBRA and long term care insurance. I can assure you that those costs more than offset the dry cleaning and commuting savings (and yeah, I’ll even throw in the cost of eating lunch out). How about “I’ve always wanted to spend a month in that little village in Tuscany, but I could never do it when I was working”?

4. Directly related to the paragraph above is the reality that if you have done everything you should do by the time you retire (your kids are out of college and your mortgage is paid) the final few years prior to retirement will give you more disposable income than you’ve ever had. You can travel, buy lots of stuff and basically do whatever you want. Then you run some numbers and realize that when you retire you may just have to give up that daily double latte from Starbucks.

5. “I can always get a job consulting” is much easier said than done (even though I have just started doing some consulting). You should not assume that someone will pay you a whole bunch of money to work 10 hours a week imparting thirty years of your knowledge to groups.

6. Notwithstanding the book that the guy just wrote about how working at Starbucks turned his life around, the bottom line is that $10 per hour for 20 hours per week (even with the medical benefits and free pound of coffee) doesn’t really cover the new roof.

I didn’t mean to scare you. I’m doing fine. I’m a volunteer teacher in an adult literacy program, sit on two boards of not-for-profits and spend time in the gym and cycling. My consulting work is nice, but not regular, and I’d rally rather volunteer than be on someone ‘s work schedule for $10 per hour.

The point is that you may live thirty plus years after retiring, most of them active. No one is going to take care of you. Your parents money may all be spent on caring for them in their last few years, so don’t bet on that inheritance. Powerball tickets are not a substitute for planning.

-Michael Schnipper
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High Performance with High Integrity

A corporate president for whom I once worked called me into his office when I was promoted to General Counsel and told me that he expected me not only to be the chief legal officer, but to be the conscience of the organization; to not only come to him when I thought a potential action was illegal, but when I thought an action was wrong. Ben Heineman makes precisely this point about in-house counsel in a new book to be published next month.
Ben Heineman, for those of you who don’t know him, was the General Counsel and later the Senior Vice President for Law and Public Policy at General Electric during the Jack Welch days. Ben, who I had the pleasure of retaining on behalf of my client when he was in private practice, retired from GE with his sterling reputation as one of the finest lawyers (in house or private practitioner) in the country intact. That in itself seems to be too much of a rarity these days, but to leave a corporation with a reputation as one of the most ethical practitioners in country, particularly when working for a CEO well known as one of the most aggressive in the country, is a feat indeed.
Ben’s book will be of keen interest to any in-house counsel. The title of Ben’s new book, High Performance with High Integrity, suggests that CEO’s and other high corporate officials would also do well to read this volume. The book, which will be published by Harvard Business Press, grew out of an April 2007 article that Ben wrote for the Harvard Business Review. According to a review of the book to be published in the June ACC Docket, Ben’s “main precept is that proper corporate governance is fundamentally the job of the CEO and senior managers, not the Board of Directors.” That strikes me, as one who practiced in-house for many years, as a reasonable belief. We know from our experience that even the most diligent Board of Directors can only hope to delve in-depth into a small number of the issues that corporate officers deal with on a daily basis.
And Heineman believes that pay should not only be linked to performance but to demonstrated integrity, as well. It will be interesting to see if Heineman suggests how corporations monitor and document integrity if it is be tied to pay. That strikes me as perhaps a difficult task.

-Steve Bokat
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Other Characteristics a Mediator Must Have to Increase the likelihood of a Successful Settlement

The only one I can think of is the ability to creatively solve problems and the willingness to look outside of the legal process for a solution. Tragically, law schools,(and the big name law schools are probably the biggest offenders) have restricted curriculums that limit rather than expand the breath of their students abilities to solve clients’ problems. Law students enter their institutions with a broad understanding of the complexities of the forces that order society and often leave with obsessive undeserved respect for the mechanics of a legal process, which is costly and at times dramatically out of touch with reality. See: A MUTED FURY: Populists, Progressives, Labor Unions Confront the Courts, 1890-1937, William G. Ross, Princeton University Press, 1994.

Law schools claim they teach their students to think like lawyers. Your mediator should understand how lawyers think, but also have broader and richer interests. You should find someone who can appreciate the nuances of economics, production marketing, R&D and social relationships that make up the complex institution we call a business enterprise. I have settled cases, admittedly outside of the mediation context,(that is why mediation was not necessary) that involved unanticipated joint ventures, renewed and unexpected sales, shared fruits of R&D and other creative solutions to a lawsuit, where the legal remedy would have been limited to a judgment for an amount certain.

If your prospective mediator is only capable of a appreciating a solution which involves “reaching the right number” you should keep on looking if your objective a successful settlement.

Should The Mediator Have A Special Demeanor?

Your chance of getting a successful settlement with a mediator whose primary life experience was a law clerk or a judge in my view is very low. There are a lot of judges out there in the ADR world, perhaps because ADR started primarily in the arbitration context. However, mediation seems to be the dominant form of ADR now and rebuilding a business relationship is not an effort where a judgmental demeanor, particularly a legal one, is helpful.

The mediator has to be supportive of both sides and uncritical even while coaxing the parties to take a critical look at their positions. When dealing with the parties the mediator has to encourage the party to view the merits of his response to his opponent’s position by asking the party help the mediator formulate a persuasive position in reply not by expressing his opinion.

The mediator should not a have propensity to be directly critical of the lawyer’s legal position, particularly in front of his client. That is not easy for judges since that is their style. That is where the trial experience helps, since the mediator can reach back to relate his own unsuccessful effort in similar situation while agreeing that position has merit. The evaluative process is not judgmental, right or wrong, but a sharing of experiences among colleagues.

The mediator has to be perceived as someone trying to reach an accord that supports the interests of both parties. If he appears judgmental in tone or demeanor as well as explicit conduct, you might get a settlement, but it is not likely to be a successful settlement.

-Larry Salibra
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Contract Management Systems & The In-house Counsel

Today Jason Mark Anderman, of Becton, Dickinson and Company, and I presented a "legal quickie" for ACC's Law Department Management Committee on the topic of "Contract Management Systems." This is becoming a hot topic for law departments, as more forward-thinking general counsel are realizing that their departments can make a significant contribution to corporate performance (as well as Sarbanes-Oxley compliance) by implementing better systems and processes to manage their contracts, contract processes, and contract-related information.

Jason described the steps that his company has taken to streamline their contracting processes, including flexible and comprehensive templates for procurement contracts and better processes and systems to manage the contract lifecyle and contractual information.

But as impressive as Becton, Dickinson's results have been, the kinds of processes Jason described can only take you so far. Any company with a significant volume of contracts or contract activity should be looking at a contract lifecycle management system (CLM -- also known as an enterprise contract management system) to help manage and automate the entire contract lifecycle. A CLM system can be defined as:

An integrated system that applies business rules to manage contracts of the enterprise on a worldwide basis, from request, through contract creation, negotiation, approvals, distribution, and filing in a central, searchable repository, and that allows people and systems within the organization to access, analyze, and act on contract-related information to improve efficiency, consistency, reporting, and control.

Companies that have implemented CLM systems have reported significant improvements in these and other measures. Many companies have been able to decrease the involvement of their legal departments in routine contracts by using CLM systems to implement controlled self-service contract creation processes. There are many examples of revenue improvement through better management of contract renewals and escalation clauses that in some cases are enough to pay for the costs of the systems.

Finally, tangible benefits to corporate law departments include better control and visibility of contracts and contract-related risks, the ability to share contract-related knowledge across the enterprise, and the ability to allow highly paid legal resources to focus their efforts on higher-value activities rather than administrative tasks. Many of these systems also allow legal departments to measure and report on performance and performance improvements, something many general counsel struggle with.

We didn't get a chance to discuss the latest trend in contract management, which is CLM systems that combine a technology platform with a team of offshore or onshore resources to help manage the often labor-intensive process of inputting information into the system (especially legacy contract information), configuring the system, and mangaging and maintaining it, but more information on that is available here.

For more information on contract lifecycle management systems and a list of vendors, click here.


The International Association for Contract and Commercial Management (IACCM) is also a great source of information regarding contracting and contract management systems.

-David Munn
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Can A Business Man Get A Successful Settlement?

A business man certainly has the business credentials; however, once the dispute has become heavily entangled in the litigation process, the mediator has to manage the legal expectations of the advocates as well as the business issues, and without real trial experience the business man and, even an in-house attorney without this experience, are at a serious handicap.

The lawyers for the parties in a lawsuit are not typically engaged to think about a business solution to the case—their focus is on prevailing in the dispute. They are important players in the litigation and exercise a great deal of influence and control over their clients. Once the business relationship breaks down, the businessman turns to lawyers in part because they are convinced they no longer have the ability to control events. That results in a large psychological dependence on the lawyer and the mediator must have the lawyer invested in the process and have her trust, particularly if mediator thinks it is time for the lawyers to step back and let the business men have another chance at reconciliation.

A mediator with real litigation experience will be able to establish an empathy with the lawyers for the parties that is hard to duplicate with out that shared experience of battle.

-Lary Salibra
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What Do You Look For In A Mediator If I Want A Successful Settlement?

Experience as an in-house attorney would be a good mediator trait. For a mediator to get a successful settlement his focus must be on reestablishing the business relationship. This requires a number of key characteristics that in-house counsel is most likely to possess.

First, the mediator has to understand the nature of business relationships; living among them daily certainly helps. You must have the skill and desire to learn about the nature of the business in which the dispute arises. The parties can teach you about the business and most likely will have to since it may not be one in which the mediator has direct experience, but the mediator must have the knowledge base and skill to ask the questions that drives the education.

Second, the mediator must have the facility for and enjoy solving business problems. If mediator does not want to listen to how these businesses are built and operate and can only focus on the legal issues and a legal solution, you may get a settlement, but it almost certainly will not be successful. Businessmen understand that winning a lawsuit against your best customer may not be the best long term solution to the dispute.

-Larry Salibra
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How Do You Know If You Have A Successful Settlement?

Perhaps the best indication of the whether the settlement was successful is whether there is a distinct change in the demeanor of the parties. Litigation by its very nature creates animosity among the parties. The lawyers may go out for a drink together after court because they are adversaries at a professional, not personal level.

The parties in a lawsuit are in a very different state. For them the lawsuit is personal. Parties will come in with substantial animosity. Often it is overt; sometimes it is disguised with a thin veneer of cordiality, but it almost always there. Successful commercial mediations convert that animosity into trust and respect.

I knew my mediation was successful when, after mediation was over, the parties relationship had changed. During the private session of the mediation the veneers came down and the defendant described in the plaintiff in terms that left no doubt about the existence animosity. The plaintiff was equally expressive about his view of the defendant as untrustworthy.

At the end the mediation, the plaintiff had accepted as part of the settlement a promise that was legally unenforceable to insure further compensation by providing accommodating business arrangements. The defendant, who had just stipulated to a substantial judgment and had earlier described the plaintiff in the most unflattering terms, invited the plaintiff and his attorney to lunch. The trust, respect and accommodation of the business relationship had been reestablished—the settlement was successful.

-Larry Salibra
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Online Advertising

On April 3, 2008, the Court of Appeals for the Second Circuit heard oral
argument in the case Rescuecom Corp. v. Google, Inc., 456 F. Supp. 2d 393
(N.D.N.Y. 2006), where the district court, following an increasing number of
New York decisions, held that search engines do not use trademarks "in
commerce" under the Lanham Act (i.e., the federal trademark statute) when
they sell keyword advertisements. A decision can be expected soon.

In finding that search engines and advertisers do not engage in "use in
commerce" by simply "using" (and charging money for) unseen computer programs
and algorithms to key advertisements to internet searches for a competitor's
goods or services, what the original Rescuecom decision and the other recent
New York cases all have in common is a reliance on the definition of how one
ACQUIRES rights in a trademark in the first place, a statutory provision that
indeed requires that the mark be "used or displayed" on the goods or
services. However, because the internet advertisers and search engines are
not trying to establish or acquire rights in their competitors' trademarks,
it is curious that none of the new York decisions has addressed the separate
statutory provision for proving infringement of a trademark. Those parts of
the Lanham Act (Sections 32(1) and 43(a)) simply require that a name, mark,
word or other false designation of origin be used "in connection with" the
accused product or service in a manner that causes confusion - not that it be
displayed on the product or service.

Other courts throughout the country (whether or not they have found keyword
ads confusing) have not hesitated to find use in commerce. However, they too
have not analyzed which part of the statute should be looked at to determine
why or if an accused infringement is a use in commerce.

Does it matter how the Rescuecom case is decided? If internet users
generally are confused by keyword ads and don't make mistaken purchasing
decisions because of them, perhaps it does not matter. Most of the cases
either finding or suggesting that keyword ads can cause confusion have
relied simply on a theory called "initial interest confusion" which, as
applied on the internet has not focused at all on whether there are any lost
sales or mistaken purchasing decisions (as is typically the rule in trademark
cases). Instead, the initial interest confusion theory seems simply to ask
whether the keyword ads attract the attention of internet users, irrespective
whether that affects what they buy or don't buy. These cases give no clue
whether keyword ads confuse PURCHASERS (or prospective purchasers) or are
simply interesting to internet users or present them with choices (just as
such users can choose among brand name shampoos and store brands all stocked
together when they go to the market in the real world, or just as they can
find all the local car dealers listed together in the Yellow Pages)

One way it may matter that courts use the right statutory provision in
deciding keyword cases is that even if most or all keyword ads are not
confusing, we can not know for sure now what other unseen ways trademarks can
or will be used to mislead consumers on the Internet. Perhaps we should be
careful therefore before making blanket rules that there can be no
infringement of trademarks on the internet so long as the marks are not
visibly displayed on an actual product or service. Many mischievous or
possibly deceptive "spamdexing" techniques are already in use. The ingenuity
of software engineers to design new secret (or even sinister) uses of
trademarks should not be underestimated. In the meantime, a closer analysis
of whether keyword ads really are confusing in any way that matters might
make it unnecessary to develop such broad per se rules at all.

-Jonathan Moskin
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The Difference between a Successful Settlement and Just a Settlement in Commercial Mediations

At the prompting of some colleagues, I am beginning a practice as a mediator. Last week I completed my first commercial mediation, and recognized an important distinction between settlements. It explained the frustration I had had as a party in commercial mediations that were both unsuccessful and destructive. In those mediations the mediators were attempting to get settlements not successful settlements.

There are two types of settlements in mediations: settlements and successful settlements. Successful settlements have at their center the mediator’s successful recreation of the trust and respect of the business relationship. The settlement naturally flows from that relationship.

Settlements that are not successful result from a mediator’s focus on the formal resolution of the legal dispute. The parties participation is grudging, and usually grounded in intimidation from risk, rather than having been brought into the process and having an investment in achieving a successful conclusion to the controversy.
Just a few initial thoughts on the subject . . .

-Larry Salibra
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When I Knew It Was Time To Retire

I had been in the television business since 1979. They were still using film and the new minicams that used tape were so heavy in the back that the cameramen had to pull down in front to keep them on their shoulders. I had tried an arbitration concerning the first minicam news remote. Think about that! Until the late seventies, there were no on-site news reports since all they had were heavy studio cameras. Technology took off and I found myself in the 21st century dealing with new professional and personal media, in my case, the Treo.

One day, I was in the gym and noticed a line of dripping wet, naked men, just emerged from the shower, standing in front of their lockers checking their Treos. They had, of course, just checked them three minutes ago, right before going into the shower. What could have happened in three minutes! I knew it was time to go. Turning in my Treo was better than the day I got out of basic training.

-Michael Schnipper
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MDK is Quite Right . . .However Tha Does Not Diminish the Value of the Formula

Thanks for your comments MDK, and you are quite right, the formula for in-house counsel does not have potential for the same rigor as E=MC2 in the real world.

It was not my intention to have in-house counsel taking out their slide-rulers (whoops, dated myself there) and make precise calculations. However, there are ways of estimating outcomes such as statistically sampling jury verdicts or using test juries to get a handle on the range of potential outcomes.

But even if you cannot measure DO precisely, the formula does tell you something very important about the consequences of high TCv values, they are more than just a high cost; they are a strategic disadvantage in the lawsuit suit. Unless you have some reasonable basis to believe that DO and TCv are dependent variables, that is that increasing your litigation costs will has a corresponding reduction in DO value, your opponent is going to ask a lot more from you to settle than if your TCv was lower.

In a later post, I will discuss some studies and work that suggest that TCv values and DO values do not negatively correlate (or correlate at all), that is that as TCv goes up DO goes down. (For those who do not get the math jargon, your higher legal expenses mean you are going to get a better result). And for those of you who are not sure if you are getting better outcomes for the higher cost, you can be sure that those costs are degrading your position in the resolution of the litigation.

A number of years ago I had the pleasure of addressing the presidents of the State Chambers of Commerce at their annual meeting that was being held that year at Pebble Beach. The impetus of being asked to speak was the victory we had in case I tried, PIRG v MEI, a case that had gained substantial visibility in environmental circles and whose later claim to fame was that the environmental community had adopted it as an example of Sam Alito’s, econ-unfriendliness, and therefore unsuitability for the Supreme Court.

My speech focused on other Clean Water Act cases that were being described in promotional literature for law firms by house counsel as great litigation results because the settlement saved them from large legal expenses. Although one could not, as MDK accurately stated, precisely measure outcomes a comparison of the DO of our case and the case that settled, it was clear that the DO value of the case that settled was far lower than ours—so why did they settle and we did not. Our TCv value was essentially zero because we tried our case in-house and their TCv value was very large, larger than their DO. Having TCv value that are large relative to your DO or larger than your DO value is a real problem because transaction costs rather than the merits of a legal position start to determine outcomes

What I told the presidents is that this was a huge problem for business because I learned in the MEI case that the environmental community was carefully controlling the cases they litigated to conclusion—they could select which case they chose to settle and which they did not and PRIG was working with the Sierra Club and other groups to insure that legal doctrine was being developed in the cases they selected.

Good fact cases for business were being settled because the TCv values of the company were forcing them to settle them rather than litigate to create better legal doctrine. I did not advocate in-house litigation as the solution; I suggested that the Chambers needed to devise a mechanism to identify cases that could create better law for the business community and devise a mechanism that accounted to the problem of high TCv values to insure these cases were litigated to conclusion.

In a future post I will describe how we did just that in the context distinct industry problem, once we recognized that high TCv costs could give legal reality to a scientifically fictitious disease if an industry wide response was not adopted.

- Larry Salibra
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E=MC2 For In-House Counsel

Many disciplines often have a formula that describes a profound relationship in the discipline. These formulas are often very simple, but that does not detract from the fact that they describe a relationship that is so profound it finds many applications in the discipline that might otherwise be missed or incapable of explanation. In quantum mechanics it is Einstein’s statement of relativity that energy is equal to mass times the speed of light squared. In DC electricity it is I= E/R, current in amperes is equal to electro motive force in volts divided by resistance in ohms.

You may be surprised to learn that there is an equally profound formula available to in-house counsel that expresses such a simple, fundamental principle that once explained it seems trite. However, looks are deceiving. The value of the principle can not, in my opinion, be under estimated. The formula’s value is not in that expresses a relationship that many did not perceive as in Einstein’s statement of relativity, but it forces one to think about relationships and thus take a more critical structured look at one’s decision making than might otherwise have been the case.

The uses of the formula, and the underlying logic, or perhaps illogic it reveals in one’s decision making or policy implementation can be quite dramatic, and at times embarrassing. I must warn those who have no taste for discovering flaws in your analysis or hidden motives in one’s decision process-- STOP READING NOW. Knowledge of the formula can create discomfort for many—and for those who viewed the in-house career as more comfortable and less demanding than practice as out side counsel, this formula has the potential of changing that perception.

I do not know who first devised this formula—it was not me. My acquisition of knowledge of it is in my dim past, and I associate it with Professor Marc Galanter, whose creative, economic analysis of the profession is something I will address in future blogs. I think I may have added to the formula ever so slightly, by adding the subscript “v” to the TC value.

Ok, you have been patient; here it is SV=DO + TCv

What does it mean—SV is the settlement value of a case. DO is the value of the outcome of litigation discounted to present value for risk and TCv are variable transaction cost—that is a euphemism for legal fees. Variable means their variation can be substantially manipulated by the behavior of the opposing party.

Now, start thinking about how you can use this formula and share some of your ideas.

- Larry Salibra
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What About the Lose – Lose Part?

Steve is correct we are old friends, and spent most of our time prior to this exchange talking about sailing. Steve is also someone who can make the best counterpoint case, so the exchange should be quite interesting to you readers.

Steve’s position has two major flaws. The first is he offers no explanation why all the problems identified in the ACC piece can not be adequately addressed simply by being an effective provider of legal services. Do you need to be in a partnership to have the firm provide a competent litigator? I never was in a partnership with outside counsel and I never had a law firm provide a litigator that did not meet my expectations. They couldn’t. I had more litigation experience than most of their litigators; I would know in the first few minutes of conversation whether there was a problem. Relying on a faulty recommendation is an example of not making an independent assessment of the competence of the person you are hiring—not a result of not being in a partnership. Steve has not demonstrated why any of the problems identified by the ACC participants could not be adequately addressed by insuring that person making the purchasing decision has the skill and judgment to ascertain the quality and cost effectiveness of the service provider. If the service provider does a good job at a low cost they get hired again—what does a partnership add.

Second, the classic notion of a partnership requires not only sharing the profits, but also sharing the losses, and that is where the partnership model totally breaks down. Most in-house counsel would not embrace the notion that when the outside counsel goes they go as well. In fact none of the ACC participants who described this notion of a partnership even hinted at such a close connection. House counsel’s reward system and objectives are inherently inconsistent with the outside legal service provider. Their compensation should go up when the outside firm’s goes down either because they are providing more cost effective services in-house or they have become more effective in eliminating the need for costly outside services. When we eliminated what was becoming an epidemic of claims under the “scaffolding law” provision of the New York labor law by trying cases to verdict, and winning a sufficient number to make contingency litigation uneconomic, my compensation was not threatened, in fact my compensation went up and would continue higher to extent that our plant operations were less costly. If an outside, firm had done the same thing they would have to replace that stream of lucrative income with the same or larger source, and such replacement is not a realistic expectation. Trying to construct a win-win in this case is simply not possible.

So why do house counsel keep insisting on having their relationship with outside counsel described as a partnership?(It is ironic that the notion of a partnership with one’s outside law firm is in favor, when the idea that the traditional relationship in a partnership among members of law firms seems to be coming into question. Sidley and Austin was sued on behalf of partners at the firm, who claimed they were employees and their partnership was a de facto corporation. See: Equal Employment Opportunity Commission vs. Sidley Austin Brown & Wood, 2002 US App. LEXIS 22152, 90 Fair Employment Practice Cases 145 (BNA) October 24, 2002) That is a topic of another blog.

-Larry Salibra
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A Response to Establishing Partnerships . . .

I want to take serious issue with Larry Salibra’s premise that corporate law departments cannot establish effective partnerships with law firms. Larry’s (we are old friends and on a first name basis) views were expressed in response to an ACC Docket article, “Memo to Law Firms” in the April 2008 issue (p. 99) Is such a relationship easy to establish?? No. Can it be productive and mutually beneficial when done correctly? Yes.

It is trite but true that any partnership with an outside firm must be a “win-win” for both the corporate law department and the law firm. There must be a good working relationship which includes mutual respect between the principals in both organizations. The law firm “wins” by being guaranteed a level of work over an extended period that it would not otherwise have. The corporation benefits by paying lower fees, having someone at the firm who knows and understands the particular problems the company faces, and often having a firm that is more responsive than it would otherwise be. Often more important in an on-going relationship is that the firm lawyer knows and becomes well known to, and respected by, the corporate executives.

A firm that is a true partner of a corporation will also display a level of sensitivity to the corporation’s economic ups and downs. I knew partners at private law firms with whom I had relationships that stretched for more than a decade. In a pinch, I could call them and tell them I needed a help with a problem, and had no budget to pay them. And more often than not, they would provide the assistance I needed. I was, of course, sensitive to the fact that there needed to be a payback. When I was choosing between two firms for a paying project, the past assistance would be in the back of my mind.

Larry has promised to expand his views on partnering with private law firms. I will be looking over his shoulder.

-Steve Bokat
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Establishing a Partnership with Your Outside Law Firms- Do You Really Want Your Employer to Hear You Say That?

Recently, members of ACC and Fred Krebs attended the 15th Annual Marketing Partner Forum held by Hildebrandt. I have actually had some contact with that organization having published two articles in their journal, Strategies. These are the folks whose job it is to get you to spend your client’s money on their clients. The articles I wrote for them suggested ways that they might actually provide you with meaningful data so you could make informed choices based on factors that I believe that your clients expected, or at should be expecting—establishing a partnership with the service provider was not one of them.

The article “Memo to Law Firms: Make It A True Partnership”, ACC Docket (April 2008) has questionable validity in the relationship between inside and outside counsel. In future blogs I will examine a number of parameters around this issue which has dominated much of ACC activities since it’s founding—in fact was a large if not pivotal contributor to its founding.

Consider the following: Your Company is in the process of constructing a number of pivotal new manufacturing facilities. The CEO determines that the new facilities are so critical to the company’s success that someone must be hired on staff to oversee the construction. Two candidates immerge as potential choices, both are competent, admirable people and will fit into the corporate culture, but each brings a clear difference in their skills and management technique The first has direct experience in the construction process having had to make real decisions concerning the scheduling of subcontractors and insuring the quality of materials. He proposes to the CEO that he will manage the project by maintaining direct and comprehensive oversight of the contractors, exercising his independent judgment over each critical element of the construction and cost and he expects that the CEO will hold him solely and directly accountable for the success or failure of the projects.

The second candidate does not have the either practical experience or background in construction, but has a degree in business management from a prestigious business school and “construction management experience”. The candidate explains that the management technique he will use will result from his development of a partnership with the contractors, open channels of communication and formal budgeting.
When the CEO questions this candidate concerning how he views his position of accountability in this relationship he answers….

The role between inside and outside counsel has a long and tortured history. In future blogs I will review historical publications (which I have been using to develop an objective model to evaluate in-house counsel’s effectiveness in controlling legal expenses) and my numerous participations in forums sponsored by ACC and other organizations, to explore the complex agendas in the relationship between inside and outside counsel.

-Larry Salibra

Thinking Out Loud

In this first blog, I should introduce myself. I joined ACCA when it was a desk, a phone and Nancy Nord (the first executive director). She called me to tell me that the phone had now been installed, and Bob Banks had told her once it was working to call me and “start doing stuff.”

I have had an unusual career up to my retirement a couple of years ago, since I not only did all the things in-house counsel typically do; I also had a remarkably robust litigation career having tried jury cases across the country, argued before many appellate tribunals, including the United States Supreme Court, and well as a number of international tribunals. A number of my cases had garnered substantial media attention. Alcan’s challenge to the use of Worldwide Combined Apportionment had international attention. PIRG v MEI was used by a number of groups to impugn Sam Alito’s environmental credentials to be a Justice of the Supreme. Those who want to learn a little more see: “If you want things done right… Alcan Senior Counsel Keeps Litigation In House,” Inside Litigation , February 1999 , Vol. 13, no 2, pp 9-11 or “He’ll litigate you to death ”, National Law Journal, Monday , October 22, 2001

Over my career I developed a number of opinions and perspectives about the profession, and no doubt that is why Fred Krebs asked me to undertake the task of blogging. He will tell you to take what I have to say with a “grain of salt” and he is correct. What is important is that you think about what I have to say. What I hope to do is share with you what ACCA (Sorry, I am not against internationalizing the organization, in fact, I just has my Italian citizenship recognized; I just find ACC does not sound right), did for me. When we started on our efforts of advocacy on behalf of in-house counsel and in some cases on behalf of the profession generally, it forced me to step back and think about what I did everyday. This resulted in my beginning to challenge things that appeared to be unequivocally true by many.

In our profession things become accepted and fashionable. I am convinced that lawyers treat as fact anything that has been repeated three times. That is how it became fashionable to claim that alternative dispute resolution lowered legal costs, or that the Civil Justice Reform Act was going to solve all major litigation management issues or that value billing (I am not sure that really means) was going to solve the problem of escalating legal fees.

I have as you will come to realize a different take on a lot of these issues. I don’t think outside legal expenses are out of control if one wants to buy just cost effective legal services. The problem is that many in-house counsels are buying something else. The present legal system in the United States is in state of substantial disarray, insensitive to its primary role of serving the public, in many respects unaccountable, and far too controlled by special interests, the judiciary being one of them.

Our profession has a serious detrimental effect on its members; practitioners are ill-equipped by out-dated legal educational system unable to effectively train lawyers capable of efficiently delivering meaningful services to client and has compensated by substituting form for substance.

I will be addressing many of these views in the forthcoming posts—the first will be this notion of partnering with outside firms—is it real.

-Larry Salibra

The New Era of Blogging

ACC is excited to bring two new bloggers into the mix. Stay tuned for their thoughts and opinions about all things in-house.

ACC Board Chairman, Richard T. White, on Bloomberg

Tune in to at your desk or a nearby television to watch ACC Chair Richard T. White live on Bloomberg TV. White will be on Bloomberg’s In Focus television program this Thursday, August 2, at 1:30 PM to discuss legal issues that effect in-house counsel.

In Focus is Bloomberg’s business program that provides viewers with exclusive interviews and in-depth coverage of the top stories of the day. The show also provides viewers with inside tips on the market, arts and sports.

Launch the Bloomberg Video Player to hear Richard White.

Bonuses paid out for good verdicts?

Law.com is reporting how some big firms are looking to alternative fees deals to retain the business of their corporate clients. Read Zusha Elinson's article Are Big Firms Warming Up to Alternative Fee Deals?

The shift in necessity

Check out Mike Dillon's blog entry regarding the role of in-house counsel and the future of big law firms. Instead of rushing off to the mega firm every time you encounter an issue you're not familiar with, try a different approach. His point: lean on fellow corporate counsel for advice and use the ACC resources readily available to you at ACC Online. These two simple solutions can save you time and money.

Billboard Draws Negative Attention

It's bad enough that the divorce rate in this country is over 50%, now we're joking about it? Check out this article which discusses the billboard that proclaimed, "Life's short. Get a Divorce," hung by a law firm in Chicago. The billboard drew many complaints and was ripped down. Stay tuned for the pending legal action against the city workers who did so.

Associate Salary Increases Still an Issue

I was glad to see this article on law.com today. The author, Zusha Elinson of The Recorder, mentions our very own Susan Hackett and her concerns about these salary increases and their lack of consideration for the corporate client.

The First Seminole GC

Great article by Sue Reisinger at law.com titled How the Seminoles' GC Helped Land $965 Million Hard Rock Deal.
Seminole GC, Jim Shore, was the first Seminole to ever graduate from law school. Take a minute to read a little about him and the great negotiating he did to win his tribe the Hard Rock corporation.

Fire a paintball gun, keep your job

Who knew that there's no public policy reason against rehiring a Garden State Parkway toll-taker who fired a paintball gun at a vehicle in a fit of road rage. Read the New Jersey Law Journal's article for all of the details on the NJ's Supreme Court's decision that was upheld by an appellate court. Personally, I feel we should all leave our paintball guns at home.

Hot Legal Blogs and the Like

Take a look at Kelly Talcott's article about the freshest legal news on the blogosphere. She pulls together some good places you need visit on the web to keep up with your legal news. Of course, we love Law.com for great legal updates and news as well.

New eDiscovery Software on the Block

Exterro has come to the table with it's flagship product Fusion, which combines BPM with collaboration capabilities and centralized management in an intergrated environment.

Read Law.com's piece Exterro Gets E-Discovery Down to Business

Update: GCs Operating Without Licenses

As promised, I tried to track down the "survey" mentioned by Corporate Counsel in their recent story about GCs operating in states where they are not licensed. The story said "...past surveys by ACC of its membership suggest that [the number of in-house counsel in this situation] could be in the hundreds or even thousands."

As it turns out, there is no such survey (ha!). In a conversation with the reporter an ACC staff member [identity protected] said that we have seen anecdotal evidence that at least some of our members are in this situation, and suggested that it could be "hundreds or thousands," but "we just don't know."

Certainly, it's more exciting the way Corporate Counsel wrote it, but is it accurate? I'll let you be the judge. Here's a link to the story again.

In the News: GCs Operating Without Licenses

According to Corporate Counsel magazine, they've found 8 GCs from Fortune 250 companies who are not licensed in the states in which they are practicing...and they name names. They also spoke to some of the folks on the list, including ArvinMeritor's Vernon Baker who said "you got me" (as a joke, apparently). The story also references an unnamed ACC survey that "suggests" that the number of unlicensed attorneys could be in the "hundreds or thousands." Read the full story here.

In the meantime, I'm going to try to track down the mystery survey.

New York Moves on MJP Rules

The New York State Bar Association House of Delegates proposed important amendments to the rules of professional conduct in New York, and specifically proposed a new Rule 5.5, which was formerly the state's Unauthorized Practice of Law rule, but would be amended to include new multijurisdictional practice (MJP) reforms. New York's proposed Rule 5.5 would permit a lawyer who is not admitted in New York the ability to provide legal services “on a temporary basis” if their services “arise out of or are reasonably related to the lawyer’s practice” in a lawyer’s home jurisdiction. See the full article on this development.

In completely unrelated, but welcome news to all you Zamboni drivers out there, a Superior Court judge has ruled that:

a) Zamboni machines are not motor vehicles
b) therefore, an inebriated Zamboni driver cannot be convicted of drunk driving

See the full story on (where else?!) law.com.

China International Economic and Trade Arbitration Commission comes to ACC

Today ACC hosted a meeting with the China International Economic and Trade Arbitration Commission .
The parties met to explore the formation of a beneficial relationship; extending CIETAC's valuable information and resources to ACC members. Check out CIETAC's Arbitration Rules.
Pace University also has a great database of arbitration proceedings by country.

Is technology fueling firms to move to a flat-rate fee?

David Ambrose, of Ambrose Law Group (Portland, OR), tells The National Law Journal that since his firm has switched from the billable hour to a flat-rate fee, they have seen a 90% increase in profits. 90%! Hard to believe? His theory behind the increase: "Technology is fueling the drive for flat fees . . . something that [used to] take two house, we can now do in 10 minutes."
Would your company benefit from working with a firm who charges a flat-rate?

Read the article

Coke Punks it's In-house Attorneys

Have you seen the ads? Coca-Cola has released several commercials where two actors, posing as Coke brand managers, inquire as to whether they can sue Coke Zero for 'taste infringement.' Check out this article with links to the commercials.

Who's Paying for Associate Pay Hikes?

Susan Hackett, ACC General Counsel, wonders why in-house aren't staging a revolt against associate pay hikes. "I've heard disgusted buzzing about this among corporate counsel at private luncheon meetings. But that's all. There's been no hint of the revolution that I was sure would erupt. In-house counsel of the world: What are you waiting for? Who's managing your company's legal spending: you, or the firms?"

See Susan's complete column on law.com. Let us know what you think.

ACC's 25th Year

2007 marks ACC's 25th Anniversary and we are looking forward to reminiscing about all of the great strides ACC has made through the years. From the growth of the membership (to over 20,000 members!) to the services we provide, ACC is proud to be The In-house Bar Association.

Check out what we're all about!

Susan Hackett on NPR

ACC's General Counsel, Susan Hackett, was interviewed on NPR sharing her insight on the new eDiscovery rules. New rules take effect that help companies decide how many e-mails and other digital items they have to keep in case someone sues them and demands the documents be brought to court. Even small companies can generate millions of digital documents in a very short time, and systems for managing them can be expensive.

Click here to listen

ACC Fellow to be Honored for Katrina Work

Reilly Morse, the ACC/Equal Justice Works Disaster Relief Fellow, will be recognized by the Lawyer's Committee for Civil Rights Under Law with the Edwin D. Wolf Award, for performing pro bono, or no-fee work, in public interest law.

Read More about Mr. Morse and other attorneys recognized by the Committee

If you would like to support ACC's Disaster Relief Fellowship, please contact Susan Hackett at hackett@acc.com, or Eve Runyon at runyon@acc.com. Every $75,000 ACC raises will place another Fellow on the ground where pro bono services are desperately needed. If you would like to make a contribution toward this fellowship fund, contact LeAnna Hart Gipson at Equal Justice Works at lgipson@equaljusticeworks.org.

Silicon Valley Companies Looking for a Few Good GCs

Jessie Seyfer, of The Recorder, writes about the worlds biggest tech companies and their scramble to fill leadership positions within their legal departments. Click here to read more.

Does it Matter How They Spend Their Money?

In a story covered by law.com, a New Jersey judge has ordered Merck & Co. to release records documenting how much it spent on a trial involving its Vioxx painkiller. Outside counsel for Merck disagreed with the judge's decision and stated that what defense lawyers spend has no relation to plaintiffs lawyers' expenses. But since the order was made as part of the discovery process, Merck couldn't appeal.

Merck has reserved $970 million for legal costs and spent $285 million of that last year. So, how much was spent on litigating whether Vioxx caused the victims heart attacks or the consumer fraud issue?

Read this article on law.com

ACC's Annual Meeting

The ACC Annual Meeting is less than a week away. The office is a buzz with activity, as we prepare to journey across the country to meet our members. This will be my second Annual Meeting, and I must say, I'm more than excited. It's always such a pleasure to get out of the office and meet the membership. It gives me a chance to find out what it is you're looking for from ACC Online. My ears are always open--what do you want to see more of on our site? How do you like our recent website redesign? How can we make your visit to acc.com more productive? Looking forward to seeing some old faces and meeting some new ones! See you in San Diego.

Nichole Opkins, Esq.

In the News: Tough Times for In-house Lawyers?

That's what the Wall Street Journal's Ashby Jones is reporting today on page A12. The story says that "at least seven general counsels...have left their jobs in the wake of a backdating investigation." You should be able to access this story on the WSJ's law page. (Registration may be required.)

Now, will someone remind the WSJ that counsel needs no "s" when plural? Thanks.

2006 ABA Survey: Lawyers More Mobile but Stuck on Basics

Lawyers are always on the go. Whether it's off to a contract negotiation or running to the courtroom we are always moving. And the technology that gives us the leverage to keep on top of what's going on back in the office, no matter where we are, is priceless. But are attorneys using it to the fullest extent possible?Read Laura Ikens article on attorneys and their technology woes at law.com in her article 2006 ABA Survey: Lawyers More Mobile but Stuck on Basics

In the News: Heineman on Public Policy

GE's Ben Heineman, one of the in-house counsel community's most noted members, discusses why transnational corporations need to be proactive in their public policy efforts. He explains GE's approach and identifies the roles of both in-house and outside counsel.

You can see his insights on--you guessed it!--law.com today.

In the News: Pro Bono

The always reliable law.com has a very nice story about corporate legal departments' pro bono efforts, which focus specifically on programs pioneered by ACC: Corporate Pro Bono and Streetlaw. Find out what companies like Merck are doing and get inspired.

What In-house Lawyers Wish Law Firms Knew

Take a look at Bob Gans, Legal Times article, 13 Simple Steps: What In-house Lawyers Wish Law Firms Knew. He covers the high points, for sure. What else do you wish your outside counsel understood about you and your business?