Companies are increasingly forcing their outside counsel to offer an alternative fee for legal work. Pfizer is the latest example. The pharmaceutical giant recently formed the Pfizer Legal Alliance, a group of nineteen law firms who will provide legal services for the entire year for a flat fee.
Pfizer’s general counsel, Amy Schulman, leads the company’s efforts to reduce legal costs while preserving quality. Schulman’s goal is to have 75 percent of Pfizer’s legal work done by law firms in the Alliance.
Sure, companies like Cisco and du Pont have used alternative fees and flat fees for many years. But Pfizer is taking it a step further. Pfizer’s program covers a broader range of legal services than other companies’ arrangements.
Competition For Alternative Fees?
Pfizer can impose alternative fees to this extent because the company has so much legal work. Law firms are vigorously competing for a piece of Pfizer’s work because they can secure guaranteed revenues. Competition puts downward pressure on prices. Because of competition, some law firms will accept alternative fees for their work, with the understanding that they are effectively billing below their prevailing hourly rate.
These firms may be able to make up for it by charging hourly to companies who do not have the bargaining power to compel alternative fees.
Perhaps these firms are strategically smarter than their competitors as to pricing. Maybe they understand that they cannot keep raising rates without providing added value.
Alternatively, firms who accept alternative fees may be more financially desperate or may provide lower value services.
Looking at it from the other direction, an intellectual property boutique in San Francisco attracts clients by offering a monthly subscription fee. The firm’s clients are mostly venture-backed companies, not corporate giants like Pfizer.
Conclusion
On the one hand, one of the world’s largest pharmaceutical companies moves toward alternative fees and brings along large law firms. At the same time, a small law firm gains small clients by offering a flat fee for services. That alternative fees are both imposed by companies, and offered by law firms, suggests that we will be seeing more of this business strategy in the legal industry. Look for changes in industry structure and competition to follow.
Douglas Y. Park
Twitter: @DougYPark