Flat Fee IP : Flat Fee Intellectual Property Lawyers & Attorneys : Confluence Law Partners : Set Cost Litigation & Controlling Client Costs

The term stalking horse originally derived from the practice of hunters using a horse or other animal to cover their approach to fowl. In business, a stalking horse can be used to describe the practice of a company attracting multiple bids for acquisition by beginning negotiations with a potential purchaser with the intent to flesh out competing, hopefully superior, offers. Companies wishing to acquire a company also use a stalking horse third party to identify the risks in such a takeover while sheltering their reputation. Not surprisingly, “[t]he loser in the exercise appears to be the stalking horse. “
 

What we are finding, somewhat frustratingly, is that CLP’s practice of providing, up front, a firm price and developed litigation strategy, is sometimes used by potential clients as a stalking horse to extract better deals from hourly firms.

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Recently, a Japanese electronics manufacturer asked CLP to propose the fees and costs for a comprehensive patent license enforcement campaign aimed at improving revenue collection. CLP proposed an alternative fee arrangement that included both flat fee installments and a contingency on any recovery obtained (the “Alternative Fee Arrangement” or “flat fee agreement”). The proposed flat fee agreement covered legal services through, but not extending beyond, trial. During the negotiation of the agreement, the client raised an interesting question:

Should CLP’s "flat fee" include post-trial motions, appeals, new trials, and/or the enforcement of the judgment?

Initially, we felt that there were too many reasons that an alternative fee firm would want to avoid agreeing to a flat fee that covered post trial legal services at the outset of the litigation.

On reflection, however, the question of what activities should be included under the flat fee umbrella was not an easy one. For many reasons, a flat fee firm may want to negotiate up front for its fixed or contingency fees to cover post-trial work.

CLP ultimately decided to include some (post-trial motions), but not all (appeals, new trials, enforcing the judgment), post-trial work under its AFA, despite the risks. Why (or why not)?

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The negotiation of an alternative fee, even if unsuccessful, provides the client with valuable feedback on their case.  As discussed by Cisco litigation manager Neal Rubin on Legal OnRamp:

[C]ounsel’s willingness (or unwillingness) to share the risks and rewards of litigation can help the client assess the strengths and weaknesses of its case. . . . [A] firm’s willingness to accept risk provides a useful litmus test that can help instruct the client whether it has realistically assessed the strength of the case. The straight billable hour model provides no such feedback.

We find ourselves applying this litmus test to a potential IP enforcement matter.  The results suggest the client may not have the strong case it thought it did, and that the engagement will crater.  So how did we get to this point, and what good can come from the possibility that we may lose the engagement?

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