eLawForum: Transforming Legal Services - Part II

Thursday, July 1, 2004 - 01:00

Clayton M. Christensen and Scott D. Anthony
eLawForum

Part I appears in the June 2004 issue and Part III appears in the August 2004 issue of The Metropolitan Corporate Counsel.

To assess the eLawForum model's impact, we studied 50 competitions over the last four years involving the top 100 U.S. law firms. A consistent pattern emerged. There were always large spreads in the fixed fee proposals of the competing law firms, and the results obtained were dramatically below the corporation's budgets. This held true whether the eLawForum competitions were for single matters or aggregations or involved the most complex litigation or routine matters, and existed regardless of the practice area of law (e.g. commercial litigation, products liability, employment/labor/ERISA, class actions, asbestos, M&A, real estate, intellectual property).

The following five case studies illustrate the power of the eLawForum model.

Case Study 1: Single Matter

A representative single matter eLawForum competition involved defense counsel for major patent infringement litigation. There was a $500 million exposure - a "bet the division" case. More than two-dozen law firms were invited to compete. Seven Am Law 100 firms provided fixed fee proposals. The eLawForum prospectus required the competing law firms to breakdown their fixed fee into five stages: preliminary injunction, discovery, pre-trial, trial and post-trial. This was important because the outcome was likely to be determined in the earlier stages and the corporation was only obligated to pay through the stage where the case was resolved. As illustrated in Figure 1, the highest overall bid was $6.8 million and the lowest was $1.8 million - a $5 million spread. There was as much variation in the proposed fees for the different stages as there was overall. In order to win, the corporation's first choice agreed to reduce its fixed fee to $1.8 million, almost a 75 percent savings compared to the highest bid.

Case Study 2: Commercial Litigation Aggregation Deal
A representative eLawForum aggregation deal involved selection of commercial litigation national counsel for a Fortune 50 corporation. eLawForum aggregated all of the corporation's new commercial litigation for a two-year period. Thirty law firms were invited to compete. As illustrated in Figure 2, the highest fixed fee proposed was $40 million and the lowest was $4 million - a $36 million spread. The corporation retained one of its incumbent counsel for a $7.5 million fixed fee.

Case Study 3: Class Action Aggregation Deal
Another representative eLawForum aggregation deal involved selection of class action national counsel for a Fortune 500 corporation. eLawForum aggregated 17 class actions in multiple jurisdictions across the United States. Forty law firms were invited to compete. As illustrated in Figure 3, the highest fixed fee proposed was $56 million and the lowest was $16.3 million - a $40 million spread. The corporation saved 50 percent of its $33 million budgeted legal service cost.

Case Study 4: Total Cost Management
The next two representative stage four aggregation (total cost management) projects demonstrate the benefits of the eLawForum approach. The first involved eLawForum packaging a Fortune 500 corporation's labor, employment and ERISA litigation. The assignment envisioned that the majority of the 450 cases in these practice areas would be future claims rather than existing ones. The eLawForum prospectus stipulated that the fixed fee would be paid in 20 equal quarterly installments. Forty-four firms, including 31 incumbents, were invited. As illustrated in Figure 4, the highest proposed fixed fee was $56.3 million, while the best proposal was $10.5 million; the spread was $45.8 million.

Clayton M. Christensen is a Professor at Harvard Business School and Scott D. Anthony is a Partner of Innosight, LLC. Republished in part from Innosight, LLC's monograph, eLaw Forum-Transforming Legal Services. Copyright 2004 Innosight, LLC. Innosight case studies are intended for discussion. They are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Certain facts in the case have been disguised or stylized.

Please email John Henry at jhenry@elawforum.com with questions about this article.