Offshore Legal Outsourcing: The Ethical Implications September 9th 2008

by Mark Ross.

Senior VP of Global Sales and Marketing

LawScribe, Inc.

mross@law-scribe.com

(818) 442-4615

LawScribe Company OverviewLawScribe is one of the world’s leading Legal Process Outsourcing companies

• Recognized as “Industry Leader” by TIME Magazine• Highest ranked LPO in IAOP Global 100 Best Outsourcing

Providers, 2008 • Ranked number one LPO globally in Support, Transcription &

Legal Document Management by the Black Book of Outsourcing, 2008. Ranked in top four LPOs globally by the Black Book of Outsourcing, 2007 and 2008

• First LPO to achieve State Bar Ethics Certification for Legal Outsourcing Ethics seminar

• Management includes experienced attorneys from Am Law 50 firms and Fortune 100 companies

Speaker Profile – Mark Ross

• LawScribe's VP of Sales and Marketing. A U.K. solicitor and former partner at Underwoods. Chambers Guide 2007 refers to Underwoods as “a flagship firm….has pioneered offshoring of legal work.” 

• Chair of the IAOP Legal Outsourcing Chapter and authority on legal outsourcing. Spoken at conferences by prestigious organizations including, U.C. Berkeley School of Law, Financial Times, Association of Legal Administrators and IAOP. 

• Developed first State Bar MCLE course, by an LPO, dealing with ethical issues of offshore legal outsourcing.

• His articles, “Accreditation and Self-Regulation for the Legal Outsourcing Industry” and “LPO, 2007 and Beyond,” published as white papers by the American Bar association, LPO network, and IAOP.

• His blog, http://blog.law-scribe.com/ has become a valuable resource of information for those interested in the legal outsourcing industry.

Legal Outsourcing is Nothing New

• Outsourcing is delegation

• Lawyers have outsourced for generations

• Difference today is in offshore legal outsourcing

• Ethical obligations differ depending on whether outsourcing “substantive legal support services” or “administrative support”

MCLE Ethics Course Development• State Bar of California Approved 1 hour MCLE Ethics Credit• Attorneys Risk Averse – Legal Outsourcing corporate client

driven – law firms/lawyers naturally reluctant– Unauthorized Practice of Law– Duty to Supervise– Conflicts of Interest– Duty of Competence– Client Confidences and Secrets– How to Bill

• Training our in-house attorneys and engineers• Legal Outsourcing in the News – TIME Magazine, Wall Street

Journal and Ethical Opinions and Issues

Legal Outsourcing Ethics in the News

Timeline of Events

• Bar Association Opinions (June 2006 – September 2007)

• NMH vs. Bush and Acumen (June – August 2008)• USPTO Notice – Scope of Foreign Filing Licenses (July

16, 2008)• ABA Formal Opinion 08-451 – Lawyer’s Obligations

When Outsourcing Legal and Nonlegal Support Services (August 5, 2008)

ABA Formal Opinion 08-451 – Lawyer’s Obligations When Outsourcing Legal and Nonlegal Support Services

• May outsource provided U.S. lawyer remains responsible for rendering competent legal services

• Ensure conduct of lawyers or non-lawyers to whom tasks are outsourced is compatible with U.S. lawyer’s professional obligations

• Retain direct supervisory authority• Appropriate disclosures to clients• Fees charged must be reasonable• Avoid unauthorized practice of law

Bar Association Opinions on Legal Outsourcing

• Los Angeles County Bar Association Opinion No. 518 (June 19, 2006)

• The Association of the Bar of the City of New York Formal Opinion 2006-3 (August 2006)

• San Diego County Bar Association Ethics Opinion 2007-1 (January 2007)

• Florida Bar Association (September 2007)

Note: Guidelines not legislative authority – contact me afterthe webinar for the links to the opinions

Supervision by Counsel & Responsibility for Work Delegated

• Malpractice Insurance

– read the policy

– consult with carrier• Don’t rubber stamp, take ownership• California attorney retains ultimate responsibility for

outsourced work and is subject to the California State Bar Act and Rules of Professional Conduct relating to violation of professional responsibilities

• See www.calbar.org

Avoiding UPL (B & P sections 6125-6133)

• Section 6125: “No person shall practice law in California unless the person is an active member of the State Bar.”

• CRPC 1-300(A) “A member shall not aid any person or entity in the unauthorized practice of law.”– Client cannot directly contract with offshore outsource provider– Review the communications between and among outsource

provider, attorney, and client – Supervision and control by attorney for tasks that constitute or

may be deemed to constitute practice of law– Ensure that outsourcing company assists California attorney in

practicing law, NOT the other way round.

Duty to act competently (CRPC 3-110)

1. Selection and evaluation of the outsource provider– Due diligence: Investigate background info about offshore company– Be aware of qualifications of individuals who will perform the work– Obtain references of company/individuals assigned to perform the work– Always interview the company in advance– Request sample of work product that is comparable to your project– Communicate with non-lawyer during assignment to ensure that the non-

lawyer understands the assignment– Review ethical standards with individuals who will perform the work and

incorporate the standards into the terms of the contract with the company2. Knowledge of legal and factual issues sufficient to competently

supervise3. Supervision of outsource provider’s work4. ABA Opinion – “written confidentiality agreements”

Duty of Communication Owed to Client (CRPC 3-500)

1. Client’s reasonable expectations2. Will confidences and secrets be disclosed?3. Significant Developments

• Use by a California lawyer of services of “non-lawyers” may be deemed a “significant development”

• “Significant Development” - Based on the facts of each case?• “Significant Development” – a function of client’s expectations

4. Non-lawyers often provide only basic “legal support services” BUT communication still owed to client if:

• Non-lawyers to play a significant role e.g. several hired for a document review

• Client confidences and secrets are to be shared• Client’s expectations are that only law firm personnel to handle matter• Billing to be anything other than at cost

Informed Consent – ABA Opinion

Model Rules of Professional Conduct

Client-Lawyer RelationshipRule 1.6 Confidentiality Of Information

• (a) A lawyer shall not reveal information relating to the representation of a client unless the client gives informed consent, the disclosure is impliedly authorized in order to carry out the representation or the disclosure is permitted by paragraph (b).

• Comment [5] re sharing confidential info within a firm does not extend to outsourcing entity

Conflicts of Interest (CRPC 3-300, 3-310)

• Ask outsourcing company about conflict checking procedures

• How does outsourcing company track work performed for other clients?

• Does the law firm need to screen foreign “non-lawyer” directly re previous engagements?

• Will provider turn down work?

Confidentiality and Client Confidences (CRPC 3-100, B & P section 6068 (e))

• Is client’s consent necessary? • Contract with outsourcing company to deal with client

confidentiality• Non-disclosure agreements – signed between outsourcing

company and law firm– and if required with law firm’s client

• Check whether outsourcing company’s employees subject to NDAs and confidentiality agreements prior to employment

Fee Agreements and Billing

• Agreements between the lawyer/law firm and the outsource provider (CRPC 1-320)

• Billing the client for outsource provider’s services (B & P section 6146, et seq. CRPC 4-200)

• Can the cost of outsourcing be included in the attorney’s legal fees?

• Direct cost, plus a reasonable allocation of overhead, or• A reasonable mark-up?• How should outsourced work be categorized on bills?

• Contingency – Outsourced provider’s fee cannot be based on percentage of contingency fee award

• ABA Opinion – In absence of prior agreement – cost plus reasonable allocation of associated overhead

Newman McIntosh & Hennessey vs. Bush• Case is withdrawn – difficult to believe given press exposure!• Fourth Amendment - The right of the people to be secure in their

persons, houses, papers, and effects, against unreasonable searches and seizures

• Proposed Federal Rule of Evidence 503: Privilege extends to appropriate communications between and among the client, the lawyer, and a "representative of the lawyer"

• 18. U.S.C. § 2517 (4) - Authorization for disclosure and use of intercepted wire, oral, or electronic communicationsNo otherwise privileged wire, oral, or electronic communication intercepted in accordance with, or in violation of, the provisions of this chapter shall lose its privileged character.

USPTO Notice July 23 2008: Scope of Foreign Filing Licenses

Press Headlines: USPTO Ends Patent Outsourcing to IndiaThe facts!• Notice does not change existing law• Foreign Filing License allows export of subject matter abroad for

purposes of filing foreign applications• Foreign Filing License does not allow export of subject matter

abroad for preparation of patent applications to be filed in U.S.• Exporting subject matter abroad for preparation of patent

applications to be filed in U.S. may require export license• Contact the Bureau of Industry and Security (BIS) for the

appropriate clearances• BIS has promulgated Export Administration Regulations (EAR) for

exports of subject matter abroad

USPTO Notice: Practical Guidelines

• Where technology is “subject to the EAR” then: Depending on the nature of the technology, its destination, the end-user, and the end-use, such technology might require a license from BIS prior to export (Alexander Lopes Director, Deemed Exports and Electronics Division at the Office of National Security and Technology Transfer Control Division – January 11, 2006)

• Pursuant to EAR, technology is the “specific information necessary for development, production or use of a product.” 15 CFR 772.1

• Tailor disclosures accordingly• Request classification from BIS

Export Control Decision Tree – Supplement No. 1. to Part 732• Are your items and activities subject to the EAR?• Is the technology publically available?• If subject to the EAR and not publically available then

classification of item on the Commerce Control List is necessary

• Classify yourself or with assistance of BIS – BIS has a duty to provide a classification to you

• Determine if a License Exception is available• If no License Exception is available you must obtain a

license

Export Control Decision Tree