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Number of In-House Lawyers Growing as Cost of Outside Counsel Goes Up

In the past two years, budgets for in-house legal departments have increased by more than 20 percent, which excludes the costs of litigation, according to the Association of Corporate Counsel.

The budget increases were seen in departments of all sizes, with smaller departments of six attorneys or less showing an average budget increase of more than 30 percent.

“This increase reflects the business need of in-house counsel to respond to the demands of corporate compliance and greater regulations,” said ACC President Frederick J. Krebs. “The census results show that our members are becoming more innovative in managing these issues through their departments and outside counsel partners.”

Jon Hellings, executive director of the association’s local chapter, said San Diego may be seeing an even larger increase in spending.

“This trend definitely applies to San Diego, perhaps even more so because of the high-tech environment we function in here,” he said.

He noted the area has numerous biotechnology and wireless technology companies that often have costly intellectual property issues.

Another cost indicator is in-house counsel’s reliance on outside firms for support in key legal areas, such as employment and human resources, intellectual property and litigation.

Employment, human resources and intellectual property legal issues are often outside general in-house counsel’s level of expertise, he said, leaving in-house legal departments dependent on outside firms.

Generally, hourly fees for outside counsel are more costly than salaries for in-house counsel doing the same work.

Many startup companies now realize the value of having in-house counsel, he said.

“A lot of the smaller companies used to send everything out and didn’t have in-house counsel,” he said. “I think they are seeing the cost savings that can be obtained from having in-house counsel now and not using outside counsel exclusively.”

And while you can’t avoid using outside counsel, Hellings said the trend is to do as much in-house as possible.

Elizabeth Daniels, vice president of the San Diego chapter of ACC and chief legal counsel for SIMNSA Health Plan, agreed that businesses are realizing the cost benefits of in-house counsel versus outsourcing.

“Businesses are increasingly budget conscious,” she said. “That combined with the trend that more and more attorneys are looking for family-friendly arrangements makes in-house complementary.”

San Diego-based SIMNSA is a health care provider for U.S. employees who prefer to receive their health care coverage in Mexico. Daniels is SIMNSA’s sole in-house counsel member.

Hellings attributes a portion of increased budgets to the expansion of in-house legal departments. The San Diego chapter of ACC has 555 members. Membership has grown by more than 200 in the past two and a half years.

Hellings said companies, including San Diego-based Qualcomm Inc., do much of their legal work in-house. The Fortune 500 company has a sizable in-house legal counsel department, which includes recently hired former U.S. attorney Carol Lam and a strong intellectual property litigation team.

Dan Album, a spokesman for Qualcomm, was unable to answer questions regarding the size of the legal department, budgets for the legal department and growth seen in the department during the past few years. Album said the department was “wound up with other work.”

Doug Kline, a spokesman for Sempra Energy, said its in-house legal department has expanded as the company has grown.

“Since 1998, when Sempra Energy was formed, our earnings have grown nearly five-fold, our market capitalization has more than doubled and we’ve become a global enterprise,” he said.

The San Diego-based energy company reported nearly $12 billion in revenues in 2006.

Sempra employs 85 lawyers in its legal department, numerous paralegals and law clerks. In addition, Sempra, like most other in-house counsel teams, relies on outside firms for support in areas outside of its expertise.

Kline confirmed that the department has accrued additional expenses in the past two years as it continued to evaluate and implement new technologies, especially in the area of document management and research. Sempra did not disclose budget numbers.

The national association reported that the most notable budget increases exist within online resources expenses, with departments experiencing an average budget increase of 30 percent.

Kline anticipates continued growth in the legal department for the Fortune 500 company.

“Our legal function will have to keep pace with the growth of our company and changing regulatory requirements, especially in areas such as greenhouse gas reduction,” he said.

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