How to Hire the Right Law Firm and Manage Legal Fees

Contrary to common perception, for privately held software and SAAS companies, one law firm for the company may not be the right fit; at least from the view of a software licensing attorney that has also worked in-house at two software companies.  While there is no ‘right’ answer here, below are some thoughts and perspectives that may help.

What Typically Happens

Most company founders know a few attorneys through their social circles, and generally find a law firm or lawyer who seems to know something about IP or software–or instead just use a lawyer to form their business entity.  This is a good place to start. However, as the company grows the need to find the right lawyer becomes much more important, maybe even critical to the future success of the business. If you think about it, the legal function is the most outsourced function at any small business. That is really true. So, what I am saying is some additional thinking may be required here.

A Better Way

A better way to handle this is to hire several specialized small or solo firms, which have the benefit of not only providing better legal advice (because of their specialization) but at a lower overall cost too (because of their size). This takes some effort on the front end, but on the back end there are many benefits and a real cost savings. This applies to employment matters (there are lots of small employment boutique law firms on the web now) and intellectual property matters.

There is one exception though: if the software or SAAS company is looking to raise any type of venture capital or seek outside investors, I really think a corporate lawyer at a large or medium sized law firm is better suited to represent the company. These issues are really complex, and you want to work with someone who deals with these issues day in and day out. While there may be some really good small law firms that handle corporate work of this type, I think they are really hard to find. However, in the age of Google search engine marketing maybe that is getting easier.

As to litigation, I definitely think finding a small firm is better. The rates for partners at large law firms have increased dramatically in the last decade ($500 to $700 an hour is not unusual). Those firms are in essence saying to the legal buyer of their services that they only want to represent large companies with large budgets (there are exceptions, but I am generalizing here).  Some of the smaller litigation firms are even spin-offs of large law firms, so you may get a top law firm lawyer at a much more affordable rate. Smaller firms will also be better attuned to the needs of a smaller company, and the cost/budget issues that smaller companies are usually dealing with.  If you have not found this to be true, then keep looking because I bet you will.  Also when thinking about rates, I have talked to many CEOs that would not make the call to a $600 an hour attorney for advice on a potential dispute, but would probably make the call if the attorney were $200 something an hour (I suggest that not making a call to a good, reasonably priced, lawyer for advice could be a missed opportunity to maybe avoid a dispute). Hourly rates are even more important when you are already in litigation, so let me explain why.

When you are already in litigation, often the total legal fees incurred . . . and expected to be incurred in preparation for and actually going trial . . . will have a significant impact on the settlement value of the case (oh yea, 90 something % of all cases settle before trial); in other words, the lower your overall legal fees the better you will probably fare in any settlement negotiations (in fact, if the other side has a large law firm representing them, then that may induce productive settlement discussions early on). What I am trying to say is that you may not need the best litigator you can find, but instead you may need a good one with reasonable hourly rate and is very attuned to the result you want to achieve. If you don’t believe me, maybe believe Sun Tzu of The Art of War (“… if the campaign is protracted, the resources of the State will not be equal to the strain…”). The tactic is to starve the opponent of resources to ensure a win (in your case $= resources). I know you may feel more confident by hiring the toughest litigator this side of the Mississippi, but get over that. When your confidence subsides, and the large legal monthly bills come in, you will probably look at the case differently. I have seen–too often–that a company that is on the right side of the case can’t afford to fight all the way to trial. So what happens then is they settle the case for less than they should or even worse they pay the other party to make it go away. Trust me, this happens way too often!  So the only real remedy is to hire an attorney that is attuned to the result you want, and make sure you have the budget to go to trial . . . if you don’t the other side will probably sniff this out and then your case is doomed.

So long story short, I don’t generally recommend that growing software and SAAS companies simply hire one large or medium sized law firm. I think instead hiring a few specialists working at smaller or solo firms should provide you with better legal advice and at better rates. The good news is, with SEO and Google searches you can now find these law firms on the web (don’t forget to do your research/do your due diligence/get references). So get going and hire good lawyers that you can afford!

Legal Disclaimer:  This is for informational and educational purposes only, and does not constitute legal advice. Contact your attorney for legal advice, which should be provided after review of the facts and applicable law.