THE KOSLOW REPORT

Vol. 1; No. 6, September 2011

BUILDING AND MAINTAINING AN INTERNATIONAL
IN-HOUSE LEGAL PRACTICE

PART 1 OF 2

By:  LAWRENCE E. KOSLOW

In this the first of two Reports, we will consider the two most important macro issues associated with building an international in-house legal practice. These are:

1. How the company perceives its role in the international marketplace?
    
2. What are the means by which the company sells its products and services and how it obtains its revenues?

First, how does the company perceive its role in approaching the international marketplace and how should the in-house international legal function be developed or adjusted to reflect and meet the needs of that approach?  

Almost all companies entering the global marketplace begin as "international companies." An international company is one in which its foreign operations are often appendages for producing and/or selling products that were designed and engineered in the home market. Central direction comes from the corporate headquarters and the top echelons of the company are dominated by the nationals of the home country. Often, the company pursues a strategy designed to bring the bulk of the profits to the corporate headquarters and/or to stockholders in the home country.

One company, where I served as inside counsel, is considered to be an international company. It sells industrial products. Its legal function was dominated by patent lawyers, one of whom was General Counsel, and it tended to seek nearly all its international legal advice from a single large domestic law firm located in the same metropolitan area as its corporate headquarters. This law firm was part of an independent international consortium of law firms. (Such as Terra Lex which are discussed in Part 2 of this Report). Finally, and perhaps most importantly, the company tended to sell its products to end users through intermediaries, in this case independent domestic and international dealer/distributors.

In such a case, the key international counsel is/are normally located in the corporate headquarters or at the location of the corporate division that does the most international business. Attorneys selected could be from the home country and could be domestic lawyers who wish to shift to international matters as a dimension of their overall practice. Product knowledge is important and/or essential, and the development of their international skills, and language capabilities, should be structured, if possible, to specifically reflect the overall corporate strategy. Most likely, the most senior international lawyer would have a split reporting relationship with the General Counsel and the Head of International Operations.

A global company is one in which top management makes decisions with little regards to national borders. These decisions are made to maximize global revenues, incomes and profits. Global companies are not adverse to moving people from country to country and to promote foreign nationals to top positions. The idea is to create a stateless corporation, one that is more or less independent on any state regulations.

The second company, where I also served as in-house counsel, could be considered a global company, in part, because it was a direct global competitor to IBM on high end informatics products and services. Given the complexity of its products, its highest profit margin ("cash cow") was the provision of long-term up-date and maintenance services. The Company tended to establish wholly owned subsidiaries with sales forces that made direct leases and sales to end users. Since many of its customers were in the oil industry, its subsidiaries tended to be located near the clients operations that were often located away from urban areas. This company had nearly 80 inside lawyers of which 10 were patent lawyers and four were international specialists working out of the corporate headquarters (with particular regional expertise) and another 6-8 foreign based counsel who were operating out of the overseas subsidiaries and, were not always nationals of the countries in which they were located. The company did not rely on one of the big international law firms (or consortium of local firms) but with one firm in each country large installed bases were to be found.

In this case, the company should consider creating a distinct international law group with oversight for all larger foreign or multi-national projects. This group should be linked to or have as one of its functions an immigration component. It ought be headed by an Associate General Counsel with a dual reporting relationship to the General Counsel and other key direct reports of the CEO or a person designated by the CEO.

All lawyers within this group should either be trained or have developed a sense of international politics and economics. The company might also consider employing individuals of all nationalities who have developed careers in international private law and who have excellent interpersonal and language skills. The employment process should also consider whether the candidate has the desire and capabilities for overseas assignments.

Additionally, any companies that have acquired and/or developed a substantial international intellectual property portfolio that may be at risk should have an international patent attorney(s) in the corporate headquarters that devotes his or her practice to building and protecting the company's intellectual property. This function also includes appraising top corporate management of potential and real issues, and managing the international intellectual property function.

Second, how your company sells its products (and services) and obtains its revenues impacts its choices on how it designs its international legal function and how it appoints its international counsel. 

Companies that regularly produce and sell high value finished or near finished products directly abroad through their own operations (often a required way of doing business if you sell to and service government agencies) are likely to need a high level international counsel or international legal team in the corporate headquarters who have a strong knowledge of corporate products and policies to support foreign in-house and/or outside local counsel(s). While undertaking international projects, these corporate international counsel(s) must be knowledgeable of the particular legal issues of the country and/or of the region and be trained to develop a solid understanding of the capabilities of the products and services of the company.

On the other hand, companies who sell through intermediaries (for example, distributors and agents) outside the home country will often work successfully through a headquarters based mid-level counsel with international training and experience who has developed a set of relationships with outside counsel in the countries where agents and/or distributors have been appointed. Such headquarters based counsel should have responsibility for an entire region or regions if they have developed an understanding for marketing and sales law in the region. One of their major responsibilities should be to develop and maintain a good network of outside counsel.

Next month, The Report will consider some of the nuts-and-bolts issues associated with the in-house international legal department - such as acquiring paralegals and other staff, technical support, choice of outside counsel, and how to physically structure and maintain the international legal function.

©Koslow & Associates, 2011