In-House Counsel

Consider one more contributor to the mystery why total legal spending as a percentage of revenue (TLS/Rev.) declines as companies grow larger. TLS/Rev is widely recognized as the preeminent metric in terms of reliability and importance (See my posts of Dec. 5, 2007: stability of the ratio over a decade.) and reasons for its shrinkage as revenue grows appeared in my article in Legal Times, Jan. 28, 2008. R&D spend may be another reason.

All things being equal, it seems reasonable to hypothesize that a company with more R&D spending generates higher legal costs than a company with less R&D spending. Patent lawyers and staff, patent application fees, foreign patent associates, patent infringement costs, and licensing work would all rise as R&D generates proprietary and patentable ideas (not to mention trademark work). Whether those increased IP-related costs rise faster than corporate revenue is an empirical question.