Microsoft is leading the way dealing with their external legal advisors through the concept of the ‘virtual law firm’. As worldwide corporate vice president for IP and licensing and deputy general counsel, Gutiérez shares the story behind the initiative and his plans for its future

There is nothing particularMicrosoft is leading the way dealing with their external legal advisors through the concept of the ‘virtual law firm’. As worldwide corporate vice president for IP and licensing and deputy general counsel, Gutiérez shares the story behind the initiative and his plans for its future ly new or novel about the concept of the virtual law firm. They have been around, in one form or another, for almost two decades, with many being able to trace their origins to the dot.com boom.

More recently, virtual law firms have been a home to lawyers disillusioned with the stresses and strains of so-called ‘big law’ across the globe. Even so, Microsoft’s approach to the concept of the virtual law firm is inherently different to the others in the marketplace. To this day the company remains among only a handful to have launched such an initiative, as an alternative to working with international law firms.
The virtual firm involves more than just the simple outsourcing of legal work. It is a law firm in the truest sense, providing members with tools to assist their own practice and business development. Microsoft’s virtual law firm was initiated after a rigorous analysis of the company’s use of outside legal counsel emphasised the need for change. “Internally we found that there was a duplication of work – a redundancy in terms of external legal teams we were using,” Gutiérez says. “We would use local Asian counsel for a particular matter but at the same time be paying a big US firm for doing the same work. “What we did was look at mechanisms to eliminate the international firm and coordinate how we work with international law firms… this is where the virtual law firm came in.”

Wave of creation

But just what is the virtual law firm? Quite simply, it is a carefully assembled collection of lawyers from across the globe who can provide the company’s legal team with real-time, cost-effective advice. “The virtual firm is a network of solo practitioners or small legal firms that we have organised in such a way that they are able to provide services of the same – or even higher – quality than that which we were receiving from large law firms, but at roughly two thirds of the cost,” Gutiérez says.
“Some of the lawyers are people with whom we are familiar and some are not… they are legal professionals that we may have not otherwise been given the opportunity to work with had it not been for the virtual firm.”

He offers the legal work associated with the filing of patents as an example of the scheme’s cost-effectiveness. “When using the services of a large law firm the cost for filing patents in the US would be around $US10,000 but through the virtual firm we can get the same service for a little under $US7,000.”

With numbers like these and the fact that Microsoft can file anywhere from 2000 to 2500 patents a year in the US alone, its not difficult to see why the virtual firm is handling an increasingly high percentage of this work. “About 60% of work related to the filing of patents is handled by the virtual law firm,” Gutiérez says. “Since the concept was created five years ago, we have gone from 100% reliance on big law firms and domestic law firms, to this mix of 60:40 [60% virtual firm and 40% international and domestic law firms].Over the next five years we are hoping to have the same mix when it comes to patent prosecution and some other areas as well.”

Diverse selection process

It should come as no surprise to learn that it is extremely difficult to land a role with the company’s virtual law firm. Competition is so fierce and the selection criteria so rigorous that Gutiérez tells ALB Microsoft “turns down close to 50% of people who apply to participate.” This is in addition to the stringent quality control measures carried out on a regular basis throughout the year. “We do a quality review very regularly where we measure the output of the people in the virtual firm,” he says. “In some circumstances we have had to let go of members because they were not delivering at a level that we and our clients expected.”

“I am convinced that economic innovation is going to allow us to come out of the economic crisis much stronger than we went in” Horacio Gutiérez

Yet being selected to the virtual law firm isn’t all about receiving a share of the legal work outsourced by the company. Microsoft provides its legal services vendors with access to a wide array of additional services which can help firms to grow their own businesses. “We have people working in-house here at Microsoft that provide the kind of services and collaboration and networking opportunities that the management of a law firm would provide to its own lawyers,” he says. “We have an annual meeting where members of the virtual firm come to Microsoft to talk about the objectives for the next year; we look at quality metrics, legal developments and case law; and we use this as a means to broadcast to all of the virtual law firm members the developments that they should keep their eye on and we think are necessary. We are providing that sense of community and direction to the members of the virtual law firm,” he says. “This is the key to our ability to achieve the high levels of quality and output that we are achieving out of the virtual law firm.”

Outside counsel

Notwithstanding this initiative, there are still occasions when Gutiérez will engage the services of either international law firms or the leading domestic law firms across the region. Reasons include cost-effectiveness, flexibility on billing, quality of service, industry knowledge and depth of talent as the major criteria guiding his decision-making process. Somewhat unpredictably, Gutiérez also adds diversity to list. “We have been looking at the diversity in the law firms providing services to us closely over the last 12 months, looking at the people employed at these firms in terms of gender and ethnicity and have set benchmarks which they must try to meet,” he explains. If a firm being used has met such a threshold then they are entitled to a “bonus pool of compensation in which they can seek rate increases of up to 2% year on year that we would offer to law firms.” This scheme, however, doesn’t only apply to outside vendors.

Gutiérez and his colleagues in the legal department’s senior leadership team risk having their own bonus pool withheld if the department meet its own benchmarks, in terms of the diversity of the external law firms that are utilised.

IP in Asia

Is the region still weak on intellectual property law? Gutiérez believes while such sentiments may have been true in the past, IP regimes in Asia-Pacific are now among the most sophisticated in the world. “There are very exciting signs coming out of the Asia-Pacific region,” he says. “Real inroads have been made in terms of combating piracy and an overall evolution in how people perceive IP.”
Gutiérez cites Greater China as the obvious example. “In China you see figures such as the number of patents being filed before CIPO, or the number of patent litigations being commenced there, and you can tell that we are witnessing an inflexion point,” he says. “A country like China perceives itself as making the transition from being an importer and consumer of innovation and turning into an exporter of these, therefore revisiting its attitudes to IP.”

Gutiérez says the litigiousness of local companies has increased to such a level that in the last year the number of patent litigation cases filed in China exceeded that of the US – which is clear evidence of the vibrancy of the local IP market.

Yet notwithstanding China’s improved attitudes towards intellectual property, he still believes there is some way to go, and the global financial crisis may have a negative impact on this process. Gutiérez  says the challenge confronting regulators, businesses and lawyers across the region, is realising that as much as good IP protection is a long-term play; harnessed properly it can also serve as means by which the region can emerge stronger from the downturn. “There is a risk at a time of global downturn for companies and governments to lose sight of things that are important for the long-term, as they might not be perceived as urgent in the context of all other challenges that they are facing.,” he explains. “IP protection is one of these things that is not only important for the long-term but likely to be one of the key elements that will help economies out of the situation they are facing right now.”

Gutiérez believes smart thinking is critical. “I am convinced that innovation is going to allow us to come out of the economic crisis much stronger than we went in. The key, in my opinion, is when governments and policymakers think about this topic, they need to recognise the need to create a system of incentives for innovators in their countries, to invest and to put capital at risk to develop new technologies and products. This is a time when you want to encourage people to be creative and to invest in creating new opportunities.”