David Perla
Sanjay Kamlani
The exit of co–CEOs David Perla and Sanjay Kamlani from Pangea3 LLC in November also marked their exit from the legal process outsourcing industry that they personified for nearly a decade. Perla and Kamlani left as they had agreed when they sold Pangea3 to Thomson Reuters Corporation two years ago for what the Business Standard of India estimated was as much as $40 million. But both men insist that their leaving doesn't imply that the market for LPOs has peaked, or that they got out at the top.
"I think we're still in the early stages," Perla says. "To use a baseball analogy, this is maybe the bottom of the third inning."
Perla and Kamlani encouraged U.S. law firms to shift their commodity law tasks to India-based LPOs. They also helped guide their own the industry from a focus on cheap labor to a greater reliance on technology. Many observers have predicted that LPOs will eventually transform the profession ["Inside the Revolution," The American Lawyer , October 2010].
The LPO industry started by handling document review and other basic litigation tasks, but has expanded to offer other services. Regulatory overhauls (such as the Dodd–Frank Act in the United States) have put a greater emphasis on compliance, Perla says, and Pangea3 now offers a review process that helps companies find the gaps between their existing policies and the new regulations. At the same time, the accumulation of intellectual property assets by both corporations and nonpracticing entities (a.k.a. "patent trolls") has made patent management a priority, and Pangea3 now offers to help companies audit their patent portfolio.
Kamlani notes that a greater emphasis on technology is changing how these services are performed. Case in point: Pangea3 has already integrated predictive coding—the use of computer algorithms to aid in document review and discovery—for a few of its clients. Describing how his company has changed, Kamlani says, "What started out as purely a labor play is now a technology-enhanced lawyer play."
It's also a lucrative play. Chicago-based legal consultancy Fronterion LLC estimates that the industry will have 2012 revenues of around $350 million. Indian research company ValueNotes Database Private Ltd., using a broader definition of LPO services, estimates that the industry could have revenue of $1.1 billion by 2014.
Still, Fronterion managing principal Michael Bell questions whether growth in new areas such as technology services are driving business to the extent claimed by Perla and Kamlani. While he agrees that LPOs have had a significant impact on how some legal services are delivered, he believes that most revenue is still generated by the industry's bread and butter: litigation work. "Some of these new areas are making up an increasing portion of the LPO service offerings, but 80–85 percent, from a dollar standpoint, is still litigation document review," he says.
Deepti Krishnan, an analyst at ValueNotes, says that outsourcing will produce huge changes in the culture and business processes at law firms, but only after a significant pushback. "LPO providers will need to invest in an onshore team to assuage the concerns of lawyers," she says, pointing to clients' desires to keep at least some of the outsourced work close to home. That means LPOs will have to continue to launch operations in the United States and Europe, as Pangea3 did when it opened a location outside of Dallas in 2011.
Pangea3 and its competitors must also contend with law firms that launch their own internal LPO shops. But while that's a threat, Fronterion's Bell says that the bigger worry is from companies such as Axiom Law, which handles advanced-level lawyer staffing for corporations, and Huron Consulting Group, which advises law firms on operations issues. But now both companies are adding traditional LPO work to their range of offerings. "The biggest head-to-head competition [for LPOs] is not with law firms, but probably with the third-party vendors who have replicated the best practices of the LPOs," Bell says.
New Pangea3 head Greg McPolin, who previously served as vice president and managing director, pushes back against this analysis. He says that only a handful of law firms have started in-house LPO shops, as the majority choose to work with companies like Pangea3 first. Still, he recognizes the challenges facing LPOs, saying, "There's still work to be done."
