The day General Electric, American Express and Texas Instruments started outsourcing their back office work to India in the early 1990s, the world knew that it was just a matter of time before more core and complex work would start flowing out of the West. It happened. What started as a trickle of mundane administrative work, has now turned into an avalanche of ever existential matters on which the very survival of a corporation depends – legal issues. Although relatively new, and less spoken about because of confidentiality issues, Legal Process Outsourcing (LPO) is now a multi-billion dollar industry and growing at a rate that would put to shame even its more glamorous peers

Sisir Kumar Pradhan| @TheDollarBiz

Have you watched the biographical movie Erin Brockovich, in which Julia Roberts plays the title lead, and for which she got an Oscar? Of course, you must have. For those who haven’t, the movie is a dramatisation of Erin Brockovich – a beauty queen with ‘no brains’ or ‘legal expertise,’ working for a small law firm and successfully fighting the mighty Pacific Gas & Electric Company (PG&E), which led to the then highest ever settlement in a direct-action lawsuit in US history. The movie is about how PG&E knowingly contaminated the ground water in the South Californian town of Hinkley by using hexavalent chromium and discharging the wastewater to unlined ponds, which is believed to have been the cause for several cases of cancer in the area. And while doing odd jobs for a small law firm, Erin Brockovich finds herself passionately investigating the case, motivating the locals to take on the company and collecting evidence – the main one being an internal PG&E letter, which acknowledged that it was indeed contaminating ground water in Hinkley. That was the 1960s. In today’s day and age, when virtually every communication, contract and financial transaction is happening over the Internet, isn’t it possible to replicate what Brockovich did then, sitting in a cozy office half way across the world?

One step at a time

Although the idea of being able to win the confidence of clients and managing to convince them to outsource legal work half way across the world was something that was laughed at in the initial years, an army of well trained, English-speaking lawyers have helped India’s Legal Process Outsourcing (LPO) firms do exactly that. As a result, not only have Indian LPOs managed to draw the attention of large corporate and law firms in the West but the cost differential has also ensured that their hands are, today, almost full. The success of India’s IT, ITeS and BPO sectors also helped Indian LPOs in the initial years as mega corporations in the West had already understood the concept of outsourcing and developed a certain amount of confidence and comfort. Similarly, maturing of the outsourcing industry over a period of time – and its  gradual handling of more complex work like data analytics – has cemented the idea that a lot more can be done while sitting out of remote locations. This led to the Knowledge Process Outsourcing (KPO) industry coming into being and once it became a hit and made a name for itself, LPO was the logical next step.

An exclusive club

The reason why there aren’t a lot of players in this sector (except in patent support services) is because any new entrant will require a thorough understanding of the legal and regulatory system prevalent in the West, patience to analyse heaps of documents, ability to innovate and develop newer methodology and processes to find facts that could give a definitive edge to the front-end counsel and also deliver them on time. In the initial years, what worked for the LPO industry was nothing but cost arbitrage. It was more of process-driven para-legal work, in which Western law firms and corporations wanted to save time so that they could focus on strategic legal matters. That it also helped saved money, was an added advantage.

The time difference between India and US also helped American lawyers to assign a task to an India-based LPO in the evening and find it done by the time he/she arrived at work the next morning! Agrees Khaitan & Co. Director (Business Strategy) Ashutosh Gupta when he tells The Dollar Business, “During the formative years, lawyers and law firms in US started using the services of Indian LPOs because of (a) inherent cost arbitrage, given the significantly lower manpower cost in India; and (b) favourable time difference, leading to much better operational efficiencies. By the time an Indian LPO responded to a request sent by a US lawyer at the end of his/her work-day and sent the report back, it would be morning over there. So, by the time the lawyer arrived at work the following morning, he/she would find the completed research on his/her desk.”

In the initial years, most LPOs got their orders through personal acquaintances and past connections

Probing more

The most common model that is followed at law firms abroad is that lawyers use the services of first year associates and para-legal professionals to scan through expensive databases like Westlaw and find precedence. For example, this would typically involve something like finding out if one law is applicable to California, is it also applicable to New York? If yes, to what extent?

Initially, these were the kind of jobs that were given to Indian LPOs. For example, an American law firm would send a request to an Indian LPO asking precedence research on environmental clearances for a residential housing project in a particular region. The LPO would then scan through all case documents and regulatory findings related to environmental clearances in a particular jurisdiction and submit a report to the law firm. The fact that it was possible to outsource this kind of research work without letting out a single thing about a client or case, also helped matters. For, despite the success of the IT industry, the security of sensitive data and information was still a concern and not many lawyers were yet comfortable to divulge confidential legal matters to LPOs. But over a period of time, as confidence developed, Indian LPOs started finding themselves getting involved in more complex projects, which required fact finding based on data mining and analysis.

Coming of age

A big transformation in the way LPOs were perceived came when legal departments of large corporate houses started outsourcing work related to contract management to them. A task like drafting of a contract is time consuming and has very little to do with the strategic goals of a company. This is where LPOs came in handy. For, all that was need to do a proper job of this was understanding necessary guidelines and pointers provided by the clients and of course, LPOs were more than equipped for this. Basic level of contract management includes reviewing guidelines, outlining employment contracts, reviewing housing leases and other such mundane stuff. Outsourcing them gives a corporation the freedom to use its in-house lawyers to focus on core legal and regulatory issues. “At the end of the day, it doesn’t matter whether the work is done at home or in India. Corporations choose us because of our strong capabilities. Not a single project is delivered to a client unless it meets our process control guidelines, which have been carefully laid down by our Six Sigma team. Moreover, for the client, the end result matters the most and we have consistently been able to earn the respect of the best law firms and that’s the reason why we get a lot of repeat work from them,” Ram Vasudevan, CEO, QuisLex tells The Dollar Business. 

The pinnacle

On top of the ladder of services that LPOs provide is litigation support services. It involves research and analysis to help the front-end lawyer present the case better. The process, typically, starts with E-Discovery, which is one of the most used electronic data review system among LPOs. It enables them to scan through thousands of pages of documents for relevance, privilege, confidentiality, and identify priority documents. E-Discovery is, generally, followed by document review, which might involve areas like product liability, commercial disputes, bankruptcy, class actions and patent litigation. Top LPOs like them provide enhanced issue coding, deposition summaries, preparation of witness binders and assist with redaction and privilege log creation. Typically, litigation support services include early assessment of a particular case, collection of related data, data analysis, data management through indexing and managing content, data mining and extracting resourceful data and preparing the fact-finding report for the front-end counsel. These findings are the most resourceful information for a counsel to plan court-room strategy and Indian LPOs have now graduated to this more critical and lucrative aspect of legal services outsourcing.

Another form of legal services outsourcing is what companies like Kroll, a multinational due diligence, risk and security advisory company, with a workforce of just 25-30 people in India, do. The company has been able to manage operations with such a small workforce because it has sub-contracted work to several small law firms and its in-house team primarily consists of project managers, who supervise these law firms.

Advantage India

Like most other outsourcing models, LPOs too deliver projects via three modes – onshore, near shore and offshore – depending on the client’s requirement and comfort level. Research and drafting related to a project that doesn’t require physical presence is usually done through the offshore model, an area where Indian LPOs thrive. Industry insiders agree that a large pool of English-speaking and well-trained law graduates has helped the LPO sector grow in India. Although other countries like Philippines, Sri Lanka and even South Africa are slowly entering the market, India continues to have the best LPO-friendly environment. “Though we have onshore, near shore and offshore project execution capabilities, 75% of our business comes via the offshore model,” Bob Gogel, CEO of Integreon, one of the top litigation support and electronic data discovery (EDD) company, tells The Dollar Business. What also help Indian LPO firms is that many of them keep innovating to add value. Vasudevan of QuisLex says his company keeps investing in and developing technology driven processes to deliver the highest value to its clients.

Litigation support services, typically, involve collection, mining, analysis and management of relevant data that could make or break a case

All major LPOs – be it Integreon and Mindcrest or Pangea3 and QuisLex – have a strong presence in India. Most of them also have very well developed infrastructure to execute tasks such as data mining, contract drafting, review and management, compliance assistance, litigation support, IP and patent support, and legal publishing support, among others. Intellectual property or patent support includes patent drafting and review, IP portfolio management and docketing.

As is the case with any new industry that is successful, the success of Indian LPOs has seen competition cropping up from several locations. And to ward off competition, particularly in Asia, Indian LPOs are increasingly offering more innovative and technology-driven services. Probably, this is the reason why despite entering the fray years ago, no other country has managed to replicate anything even remotely close to what Indian LPOs have achieved. This can be validated by the fact that some of the top LPOs of the world – Crestmedia, Quislex and Pangea3 – operate only or mostly out of India.

Scramble for more

Rising growth and profitability means that the LPO industry is currently going through a lot of consolidation, with most large LPOs constantly on the lookout to acquire the smaller ones. “The primary reason why bigger LPOs will continue to look for acquisitions is it gives them more bargaining power with the client,” says Gupta. What is also interesting is that being a business where comprehensive growth and revenue numbers are not available, valuations for any merger or acquisition is very subjective.

Consolidation in the LPO industry started as early as 2007, when Atlanta-headquartered Software Paradigms International (SPI), a global IT outsourcing and BPO solution provider, acquired multiple business units of India-based COMAT Technologies. SPI, after the acquisition, announced that the talent and experience of COMAT professionals will allow it to provide deeper expertise and capability in the Medical Transcription and Legal Services space. In 2008, Integreon acquired Datum Legal and following the acquisition, launched fixed price per document e-Discovery and accelerated document review solution. Integreon also announced that the acquisition will help it build on its 2006 acquisition of Bowne & Co’s Digital Litigation Support business and give it unparalleled litigation support capabilities.

One of the main question marks over the LPO industry is security of information, since a client providing them with information isn’t considered privilege communication

Similarly, in October 2008, CPA Global, a top intellectual-property management specialist and a leading provider of legal support services, announced that it had acquired German patent research firm SVPG GmbH. Frankfurt-based SVPG, formerly part of Hoechst AG, had a rich history in patent research dating back to more than 20 years and specialised in pharmaceutical, chemical, life sciences, biotech, and engineering sectors.

However, one of the biggest consolidations in the LPO industry happened two years later when UnitedLex acquired LawScribe, a leading LPO based in Los Angeles. Following the acquisition, UnitedLex, a LPO providing legal and business solutions in the fields of litigation, electronic data discovery, document review, contract review and management, intellectual property and immigration, said, “The acquisition reinforces our commitment to efficient and advanced delivery of legal solutions and it will ensure our clients maximise operational gains from our offerings.” Founded in 2004, LawScribe was a legal services provider in eDiscovery and document review, intellectual property, corporate transactions, legal research and support, with offices in Los Angeles, New York, and Gurgaon. A week after UnitedLex’s acquisition, the industry became a talking point, when Thomson Reuters acquired Pangea3, a LPO serving corporate legal departments and law firms worldwide, in a multi-million dollar deal.

At the time of acquisition, Thomson Reuters announced that the move was to develop world-class information, software and workflow solutions for legal professionals around the world. Pangea3 boasts of a clientele that include AmLaw 250 firms (America’s top 250 law firms ranked using a combination of factors) and some of the world’s largest financial services, pharmaceutical, healthcare, food and beverage, technology and consumer goods companies.

In recent years, European private equity firm, Cinven (in March 2012), announced the completion of its acquisition of CPA Global, a leading global provider of intellectual property (IP) management services and software.After the acquisition, Cinven said the global patent renewal market has shown considerable growth as corporations are increasing R&D spend, with higher volumes of patent applications and demand for renewals. Similarly, in January 2014, CPA Global announced the acquisition of leading Nordic IP services provider Patrafee AB, along with related businesses and IP services products, for an undisclosed amount. 

Growing sway

Today, law firms have become a lot better in disclosing how they will staff cases, including the use of LPOs. Moreover, many large corporations are now using LPOs themselves to work directly with their in-house counsels, or have entered contractual relationships with LPOs to assist their outside counsels. So, although, at time, there are disagreements between in-house counsels and outside counsels regarding staffing, it rarely is regarding outsourcing. This, since most clients that have used the services of an LPO, have realised the immense benefits that come with it. So, in the face of a persistent client who is demanding outsourcing of tasks, which is increasingly becoming the case, law firms often have little leverage. “If a law firm wants to continue working on a project and receive future projects from a client, they have no choice but to yield to the demands”, feels Michael Downey, Attorney at Armstrong Teasdale LLP.

Although the LPO industry was, initially, all about saving cost and time, it is now all about the high quality of research and analysis that help an end-counsel in the court room

The thin line

Outsourcing of legal services poses several ethical challenges related to confidentiality, disclosure and billing for the outsourced work.

However, all such issues around LPOs seems to have been settled over a period of time. With changing economic conditions, law firms as well as companies, seem to have fully realised that taking the help of LPOs is only logical and prudent and leads to more efficiency. However, Huzefa Tavawalla of Nishith Desai Associates has a few words of caution for the LPO industry and thinks it might not be very prudent for a client to take their services. “There is something called privileged communication between a lawyer and a client. By law, the attorney is bound to keep it confidential. This is called client and attorney privilege communication. Even in case of any dispute, if a court asks an attorney to reveal information shared by the client, the attorney has the right to decline the request citing that it is a client-attorney communication. But that privilege communication doesn’t apply to LPOs. So, if there is some sensitive data/information that a LPO has, and a court asks the LPO to reveal it, the LPO cannot take the advantage of privilege communication as it is not a law firm,” says Tavawalla.

Most Indian LPO firms operate out of Hyderabad, Mumbai, Pune or the NCR and only have clients in US, UK and, lately, in Europe

He also feels that “LPOs are service providers. They are not law firms or in the profession of practicing law. So, they are not bound by the Advocates Act. LPOs are like the research team of a lawyer. The moment LPOs start providing direct legal advice, there may be serious issues.” However, empirical evidence continues to reflect the kind of success LPOs have achieved. “Not every law graduate becomes a successful litigation lawyer. This sector gives a chance to many law graduates to have a corporate job. India offering great cost arbitrage, a never-ending supply of people with good knowledge of English and being located in an attractive time zone, means the industry is here to stay,” adds Tavawalla.

Here to stay

Today, LPOs are not about saving money but about getting a competitive edge and hence, they have become integral parts of law firms and corporations. In the 21st century economic order, business strategies are not just made in boardrooms but also in court rooms. And behind every appeal and every disposition, behind every adjournment and every recess, and behind every dismissal and every evidence, there is a battery of legal minds, many of them sitting in a remote location in Hyderabad, Mumbai or Noida. And if one is still doubtful about the future of LPOs, one need not look beyond what Microsoft’s Senior Attorney Lucy Bassli has to say about their association with one of the biggest LPO firms: “Integreon’s focus on quality and continuous improvement has helped us reduce costs and improve our responsiveness to the businesses we support. More importantly, it has allowed us to restructure our internal team to focus on other departmental priorities and further develop their careers at Microsoft.” For those still not convinced, do some number-searching and speak to Erin Brockovich. Or better still, PG&E.  

 

High cost of legal education in United States will ensure the growth of LPOs in India

American law firms play a variety of roles when it comes to outsourcing – both ‘nearshore’ and ‘offshore.’ Some firms maintain their own facilities and personnel in low-cost locations, both for back office and client service activities. Others maintain relationships, sometimes very regular relationships, with legal service providers that are owned and operated by third parties. There’s another variety, which has only periodic, transient relationships – some firms allow lawyers handling a matter to decide who they will outsource it to, and fix the terms on a matter-by-matter or project-by-project basis. Finally, there are also instances when clients have altogether removed law firms from the equation and gone straight to LPOs.

Also read: “Many Indian law firms, Which had entered the LPO industry, have gone away” - Ganesh Natarajan, CEO, Mindcrest India “Our analytics help lawyers do a better job” - Ram Vasudevan ,CEO , QuisLex Inc. “India should ensure what happened to the voice industry, doesn’t happen to LPOs” - Robert (Bob) Gogel, CEO of Integreon