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Today, legal departments are looking for creative ways to cut costs, as well as generate revenues. How can you transform a legal department from a cost center to a revenue source? According to John F. Brown in a special law.com article, you should sue.  To be specific, legal department should aggressively pursue "recovery initiatives," that is lawsuits aimed to right a business tort or an intellectual property infringement matter.

Do Recovery Initiatives Work?  In the case of Dupont's pursuit of a supplier pricing antitrust issue, the plaintiff lawsuit brought in an outstanding $500M in its first three years. (See "Plaintiff Thinking Can Grow You Bottom Line" by Thomas L. Sager, VP and AGC of DuPont Legal).

Should You Go Out There And Initiate Plaintiff Lawsuits?  Well, not so fast.  As Brown points out, other Fortune 500 companies have not been so lucky in their recovery efforts.  In an attempt to recover damages in a patent infringement matter, a Fortune 500 Chemical Company ultimately netted a zero recovery, spending well into the seven figures on hourly rate based-fees.

Brown warns companies about those pesky hourly fees that can easily spin out of control, and eat away at any recovery damages.  Should companies looking to cut cost hand over lawsuits to their hour-hungry outside counsels?  Probably not.  At least not until they have had a change to negotiate an appropriate fee structure to handle the litigation.  Brown discusses an "ideal model solution" that goes back to the heart of the hourly fee debate that has raged for years, but has never come to a full resolution.

That solution includes full transparency by law firms regarding risks and costs of the litigation, and aligning the interests of the client and counsel.  Easier said than done when the law firm's interest is in billing more hours, earning a larger fee, and stretching out the lawsuit for as long as possible, while the company's interest in is a time efficient and inexpensive resolution that will allow for damage recovery.

Obviously, some companies like DuPont have had success with their recovery initiatives.  I suspect that other companies with successful recoveries were also able to negotiate fee arrangements that helped in their success.  However, they are more likely to be the exception to the rule.

Brown suggests combining elements of hourly and contingency fee structures, including a "capped hourly basis" arrangement.  The proposition is sound and also work on certain types of transactional matters, allowing legal departments to save even more on outside legal fees. However, while law firms have paid a great deal of lip service about flexible fee arrangements, in truth few have been willing to go along with these types of propositions.  Will these tough economic times force law firms to actively reconsider their hourly fee structure?  Right now, all the signs seem to point to a "no" - most law firms have favored cutting costs by shedding lawyers and staff, and while revenues have generally been flat, they are still sizable. 

Before companies can seriously consider aggressive "recovery initiatives" as a source of revenue, law firms will first need to adjust their hourly fee structure.  If history is a predictor of future action, than it's not likely to happen any time soon.