In my experience, I have seen companies suffer loss or become embroiled in disputes because they followed improper advice from their external counsel. Some companies rely on advice from external counsel in nearly all aspects of management such as employment, tax and contracts, and of course IP prosecution, litigation, and transactions.

However, no one can be sure that the advice of any expert is always right, especially if he or she lacks a reference point from which to assess their advice. Mistakes can always occur. There are unfortunately plenty of cases in which clients suffer loss due to improper advice from professional counsel. Most often counsels are diligent, but they can’t always prevent mistakes, especially in situation that have a lot of uncertainty. Hence, there are professional liability insurance for lawyers, accountants and other professional people. They protect themselves and their firms from financial risk by these insurances, although they cannot insure their reputations. So how do companies that rely on professional counsel protect themselves from risks of loss or disputes caused by the advice they take from the counsels?

First, the company should always have ample awareness of the risks inherent in the situation for which they have sought advice. The advice from external counsel should be challenged and assessed to see if it makes strategic sense. If your expert cannot explain to you the details of an action, its risks, and the expected outcome in a way you can clearly understand, or if you in any way just feel uncomfortable, that should raise a red flag for you to look closer and perhaps seek a second opinion.
Second, the company should, where viable for the business, have their own people (in-house counsel) qualified with relevant professional knowledge and experience, challenge and assess the advice from external counsel. (Caveat here, taking into account that the very purpose of hiring an outside expert may be to challenge the conventional thinking of in-house practitioners.)
Third, the company should be prudent to choose qualified counsel. No doubt a highly qualified and experienced counsel may give more reliable advice.

In all, being sufficiently prudent and challenging is essential for the company to prevent risks caused by advice from external counsels.

(This is number 26 in our list of IP mistakes and how to avoid them.)

 (Image credit: return the sun)