Date: April 12, 2013 Topic: The Shrinking ... - Georgetown Law

incentives. Yet, a strong legal expertise within the firm is required in order to identify such
opportunities and fully capture their benefits (Bagley, 2008). As Marchant et al. (1999)
explain, legal expertise largely relies on tacit knowledge of the context and past experience
with the specifics of the situation. Hence, frequent interaction between the corporate legal
department and, say, the corporate accounting department (for international tax planning) or
the strategic planning department (for foreign direct investment or M&A) is likely to create
important benefits for international firms through the identification and realization of
unexplored opportunities. Hence, the potential to exploit opportunities from the cospecialization
of legal with other resources, arising from multi-jurisdictional international
presence, is likely to favor more ‘make’ in the plural sourcing of legal services. Thus:
H1: The more internationalized a firm is, the greater its reliance on the internal
sourcing of legal services.
R&D intensive firms
Besides international firms, we also expect R&D intensive firms to rely more on their
internal legal departments. Firms investing in new technology must choose an appropriate
strategy to appropriate gains by protecting their intellectual property, for example by
choosing between secrecy and patenting. Exactly what to patent and how to patent is a knowhow
that arises from the co-specialization of legal and technical knowledge. Internal patent
lawyers tend to be highly knowledgeable about the company’s unique technologies (Somaya
et al., 2007). They can interact with the firm’s R&D department to discuss patentable ideas
from an early stage and thus help to increase the share of the value appropriated from
innovation. For example, Reitzig et al. (2009) have found that intermediate levels of crossfunctional
involvement between the legal and R&D department increase the speed of patent
grants. In addition, in-house legal expertise has been found to increase patenting output as
firms are able to identify patentable inventions more effectively (Somaya et al., 2007).
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