Legal Outsourcing: Benefits, Costs and Risks - A Case Study

Sacha Baron Cohen's Lawsuit and Legal Outsourcing

Sacha Baron Cohen, the irreverent British comedian whose fictional characters have included Borat, Ali G, and Bruno, is no stranger to lawsuits, including several from members of the public who claimed they were duped into appearing in his 2006 film, Borat: Cultural Learnings of America for Make Benefit Glorious Nation of Kazakhstan. In 2009, Cohen was sued yet again, this time by a woman who claimed Cohen defamed her during a sketch in the Da Ali G Show, in which Cohen plays the linguistically challenged rap star Ali G. Like most other suits against Cohen, this one was dismissed. In rendering his opinion, Los Angeles Superior Court Judge Terry Friedman stated, “No reasonable person could consider the statements made by Ali G on the program to be factual. It is obvious that the Ali G character is absurd, and all his statements are gibberish and intended as comedy.

An interesting aspect of this case was that the majority of the preparatory work was done not by lawyers in Los Angeles but by a six-member team of lawyers and legal assistants in Mysore, India. A veteran media lawyer noted that without legal outsourcing to somewhere such as India, mounting a defense against this kind of lawsuit would not have made economic sense. The defendants would have simply paid the plaintiff to go away to avoid paying U.S. legal fees, even though the case had no merit. But with a team of excellent Indian attorneys trained in U.S. law doing a major chunk of the legal work, it was less expensive to fight and win the suit than it was to settle out of court.

Legal outsourcing to places such as India and the Philippines is growing. Although the amounts involved are still small estimates suggest that of the $180 billion Americans spend on legal services each year only about $1 billion is outsourced the growth rate is high at 20 to 30 percent annually. The driving force has been spiraling legal fees in the United States. Between 1998 and 2009, hourly rates at big American law firms shot up more than 65 percent, according to industry sources. Faced with escalating costs, law firms and corporate law departments are exploring outsourcing. Some legal tasks cannot be done cheaply. If the fate of your company hangs on the verdict, you will probably want a brilliant lawyer to argue your case. However, plenty of legal tasks are routine. These include reviewing documents, drafting contracts, and the like. 

American law firms typically use fresh law graduates to do such grunt work, billing them out at steep rates to generate lots of profit for the firm. The 2008–2009 recession promoted clients to rebel against this practice. Increasingly, clients are pushing their law firms to drive down legal costs through outsourcing. While hourly rates for U.S. lawyers doing grunt work can run from $100 to as high as $500, lawyers in India will do the work for between $20 and $60 an hour, resulting in significant cost savings.

One major beneficiary of this trend has been an outsourcing company known as Pangea3. Founded in 2004 by David Perla, the former general counsel of Monster.com, Pangea3 has headquarters in New York and Mumbai, India, and a staff of more than 450. India is favored because local universities produce a steady stream of lawyers trained in common law, which is the legal tradition India inherited from the British. The same tradition underlies American law. Also, educated Indians speak good English, and the 10- to 12-hour time difference between India and the United States means that work can be done overnight in India, increasing responsiveness to clients.

1 What are the benefits to a law firm of outsourcing of legal services to a foreign country? What are the potential costs and risks?

2 On balance, do you think that this kind of outsourcing is a good thing or a bad thing? Why?

3 Why were the services in this case outsourced to India, as opposed to another country such as China?

4 What does this case tell you about the kinds of factors that are important when a firm is considering whether to outsource a value creation activity, and where to outsource it to?