Daily Journal – Jun 28, 2006
By Anne Marie Ruff
Daily Journal Staff Writer
MUMBAI, India – Sanjay Kamlani is co-chief executive officer of Pangea3, a legal outsourcing firm where 55 Indian lawyers work elbow to elbow in spaces smaller than what most law firms reserve for their water cooler.
But he thinks he is onto something big: legal process outsourcing.
“Every week, at least one person from a Fortune 500 company is visiting our office,” Kamlani said. “They’re calling us; we’re not calling them.”
Pangea3 is among a growing number of Indian firms that offer a range of legal services, from transcription and document coding to patent drafting and motion writing.
“Outsourcing is becoming the new gold rush,” said Abhay Dhir, president of Atlas Legal Research, a legal process outsourcing firm with offices in Dallas and Bangalore. “Every [Indian] lawyer who has a cousin in the U.S. thinks they can start outsourcing.”
For India, legal outsourcing is viewed as a rich source of new jobs. One study estimates India could have 79,000 jobs in the industry by 2015. For the American legal community, outsourcing is viewed as a mixture of threat and opportunity.
Corporate general counsel have been using legal process outsourcing services for several years in an effort to cut costs. Big law firms also are starting to use such Indian services, but many remain reluctant to confirm that they are sending work offshore.
Intellevate is an American firm with 160 lawyers in India that provides so-called low-end services like transcription, document coding and docketing. Intellevate Chief Executive Officer Leon Steinberg said a number of intellectual property law firms are clients. But he declined to identify them.
“It is still a taboo topic,” said Raj Mahale, co-chair of the international business practice group at Murtha Cullina in Stamford, Conn. “Lawyers don’t understand the LPO space. Many lawyers fear that they are going to be losing jobs.”
Alok Aggarwal is president of Evalueserve, a market research and legal process outsourcing provider. Aggarwal acknowledged that the legal processing market is growing fast but from a very small base.
“The problem with all the offshoring businesses is that people hype it too much,” he said.
According to Evalueserve’s own research, only 1,400 people provide legal and paralegal services in India. Aggarwal predicts that, by mid-2010, 6,000 to 6,500 people will work in the industry, which will generate $250 million to 300 million a year.
“This is a pittance compared to the U.S., where there are 700,000 lawyers and 300,000 paralegals,” he said.
Despite Aggarwal’s sober assessment of the industry, Kamlani in Mumbai is bullish on the future of his company, Pangea3.
The firm has grown to 55 lawyers since it opened in October 2004 with 12. Despite Mumbai’s expensive real estate market, it is relocating to bigger offices in anticipation of hiring another 30 lawyers by August.
Steinberg said Pangea3 “does a great job of recruiting people.”
“We have a few of their employees now working for us,” he said.
Dhir believes that whole legal process outsourcing firms may start shuffling around, just as individual Indian lawyers within the industry are doing.
“There’s going to be a rise in the number of companies in the industry in the next three to four years, and in four to five, there will be a shakedown,” he said, as smaller companies merge or are bought out by larger companies.
Dhir predicted that, “in 10 years, it will be a much more stabilized industry.”
Today, 35 firms offer legal process outsourcing services. They have evolved along four different models. The first is essentially an in-house offshore legal department of a multinational company like General Electric, Cisco or American Express.
The second model is a so-called captive firm, such as Atlas Legal Research and Intellevate, which started as offshore legal service providers working exclusively for a U.S. law firm.
The third model is a third-party niche service provider, such as Pangea3 and Mindcrest. They work for a range of clients and usually have only a marketing office in the U.S.
Those using the fourth model are more generalized business process outsourcing providers such as Office Tiger and Evalueserve, which also offer legal services.
Legal process outsourcing firms offer a range of services, from low-end services such as transcription, document coding and docketing to high-end services such as prior art searches, patent drafting and due diligence.
Much of what is called legal processing services is actually paralegal services and, in the U.S., would be done by paralegals. But in India, the work is done by trained lawyers.
Kamlani said, “Almost nobody is doing real legal work. We are. There are only a handful of us.”
He described a motion, which Pangea3 drafted for a litigator in New Jersey, that was filed directly with the court and that won the litigator his case. But such services are rare.
Most outsourced high-end legal work comprises prior art searches, patent shopping and patent drafting.
Several legal process outsourcing CEOs acknowledge that getting an Indian lawyer up to speed on the nuances of U.S. patent law and writing in American-style English requires a lot of training.
“To think that you can train a [practicing] Indian lawyer to write U.S. patents in a couple of years is foolhardy,” Steinberg said. “I know because I tried it.”
Dhir and Kamlani have tapped into the pool of recent law-school graduates because they believe training young lawyers is faster than retraining established lawyers.
When Intellevate was approached by a corporation that had a backlog of 1,000 patents that needed to be proofread, the firm was able to provide the bulk low-end services needed. But Intellevate subcontracts high-end patent drafting work out to Evalueserve, which Steinberg describes as “head and shoulders above the competition.”
Not all legal services are appropriate for outsourcing.
“I had a client who took contract work to India,” said attorney Mahale. “I said, ‘Good, because I know you will be back when your contract-related litigation goes up.’ Intellectual property-related issues continue to be done well in India. Contracts, I’m not 100 percent sold on.”
The legal process outsourcing industry is based on the cost differential between American and Indian lawyers. The average Indian lawyer earns less than $2,000 a year. Lawyers from the top 10 Indian law schools earn $6,000 to $7,000 a year. Legal process providers pay at the higher end of the scale and therefore attract a lot of interest from lawyers and law students.
Kamlani said he and his partner, David Perla, interviewed a thousand lawyers when they started their company. They hired 12.
The cost differential means outsourcing can be attractive for general counsel, especially if they have a fixed budget for patent filing, but it poses an ethical question for big firms and may be one of the reasons law firms are not forthcoming about when they use outsourcing providers.
Mahale described a situation in which a client may hire a big firm to file a number of patents and the firm then sends some of the research work to an outsourcing provider. The firm charges $350 an hour, and the offshore provider charges $75 an hour. Does the firm charge the client for the outsourcing services as an expense, or does the firm simply charge its higher rate and pocket the difference?
“There are no rules yet on this,” Mahale said. “I think in the next few years the American Bar Association will develop some requirements for disclosure of outsourced work.”
Whether the hype or the more sober predictions of the legal process outsourcing industry growth are correct, what is certain is that the industry is growing.
“A lot of people think that, by ignoring us, outsourcing will go away,” Dhir said. “But we won’t. And there are ways that big firms can benefit.
“We are not competing with them. It is just a question of big firms feeling comfortable incorporating us into their business model.”