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

In a typical example, CLP was invited to submit a pitch for a litigation involving a foreign multinational electronics company. Our competition was hourly firms, some larger, some known for discounted hours, all of whom provided attorney bios along with hourly rates and rough estimates of the costs of litigation. CLP’s veteran team measured up to any team proposed by the other IP litigation suitors, but instead of the hourly rates and a vague estimate of fees through trial, CLP presented a hard price, by month, of all attorney fees through trial, success-based incentives, and a detailed estimate of costs. Furthermore, the flat fee tracked a monthly case plan, describing, for example, how many experts, depositions, and motions would be used.

Not surprisingly, CLP’s flat fee bid was significantly lower than that of the hourly competitors. By putting partner level talent at every aspect of the case, flat fee litigation firms are more efficient and cut the deadweight of hourly billing practices. See Jay Shepherd’s post In-house help: how to save 20% on your outside-counsel.

But what transpired was that the in-house counsel played on the current willingness of hourly firms to discount prices in order to get the business. The prospect used CLP’s bid to leverage hourly price concessions and capped fees from the other firms. With our bid and case plan before them, the other firms lowered their estimates to match our price, thereby allowing the prospects’ corporate counsel to remain on the perceived safe path of selecting a traditional hourly billing firm and avoiding the seemingly novel leap into a flat fee structure for IP litigation

This story did not end well for the prospective client- the hourly firm chosen by the prospect exceeded its estimate and the case was staffed by unmotivated midlevel associates and junior partners while star litigators were placed on matters with high profit margins. Of course, these revelations came long after the prospect chose the traditional hourly firm over CLP. So the question remains:

How can a flat fee litigation firm win these projects without becoming a stalking horse?

CLP, like other AFA firms, provides a price up front. It’s what we do- the set price plus success incentives drives counsel to achieve the desired result in the most cost effective fashion possible. Consequently, there is no way to completely remove the risk that an AFA firm will not be used as a stalking horse.

Nonetheless, this risk is greatly reduced by first convincing the prospective client that “these guys are great lawyers!” before we give the price. Here’s what we do at CLP to accomplish that, in roughly this order:

1. Answer the question “What is the ROI?” free of charge: What matters to the client is whether and to what extent legal services are going to mitigate risk, protect a current business strategy, or generate wealth. In other words, what is the return on their investment (ROI) in legal services. Free-of-charge, we thoroughly investigate the technology-at-issue, industry, prospect company, and, if the case is already filed, we make observations on opposing counsel, the presiding judge, the case schedule, the asserted claims and the other defendants. We use all this research, combined with a database of prior cases, as the basis of our development of the strategy laid out in the case plan.
2. Deliver case plan implementing client goals: Each prospective client, before CLP ever negotiates a fee agreement, is presented with and walked through a detailed case plan, broken out by phase and month, explaining what activities are likely to occur during each period. We identify timelines for settlement or pre-trial victories. We invite feedback on the strategy for victory. 
3. Introduce CLP litigation team and vendors customized to case plan: Because CLP is not constrained by firm walls, forced to scavenge through employee attorneys for those with relevant skill sets and free time, CLP has the abiity to tap into a national network of expertise and select talent perfectly suited to the case. Our teams distinguish CLP anytime we present a team to a prospect. Most hourly firms build a team with a lead litigator, who gets involved as trial nears, a senior associate/junior partner who runs the case, a midlevel with technology experience, and a bevy of junior associates who will do most of the heavy lifting. CLP, on the other hand, puts partner level attorneys at each position. A recent pitch, for example, teamed a 25 year former equity partner litigator with dozens of trial victories, with a 14 year former equity partner EE with multiple trial victories and 11 years in the relevant industry, and a former equity partner EE with 20 years experience prosecuting patents. Finally, CLP brings their recommended e-discovery vendors on board and to the table to help present a discovery strategy and cost estimate.
4. Teach the benefits of an AFA model: We believe our prospective clients need a strong appreciation that lower costs are the by-product of practicing law in a superior way; that flat fee litigation just offers better value: more up front due diligence, better case strategy, more experienced lawyers at every aspect of the case, incentivized attorneys performing as effectively and efficiently as possible, more and earlier opportunities for settlement, lower disbursement costs from E-discovery vendors, etc. To convey this, we often provide prospects with a brochure that captures how clients use us, the benefits of AFA compared to hourly, and case studies illustrating how we would protect or monetize their IP. We also keep a detailed FAQ on our website that captures the AFA advantage and answers the typical questions that a company new to flat fee litigation tends to have.
5. In-person meeting to discuss price and approach: Hopefully, by this time in the process, the client loves us on paper, so we next seek to make sure they love us in person. We therefore strongly encourage clients to allow us to make an in-person presentation on our proposed strategy and fee structure as well as estimated costs broken out consistently with the case plan. The in-person meeting affords the benefit of allowing us to immediately resolve questions the client may have regarding the proposed fee. In addition, a disbursement worksheet proves an invaluable tool allowing the client to anticipate costs and participate in an educated conversation with us about modifying the strategy to meet their budget (when you know in the beginning what you need to do to win, you realize that many litigation activities are luxuries, but not necessary). If our price is not an accurate reflection of the value of our services to the prospect, the pitch is not going anywhere and we need to go back to the drawing board.

The dynamic driving this approach is that prospective clients who are not familiar with AFA models may fall into the trap of associating lower price with lesser service. If the client thinks the AFA firm is merely a discount provider, the AFA is merely a price metric and is not given serious consideration for the new matter. Conversely, if the client is sold on the strategy and team, and appreciates how the AFA model delivers superior value (efficiency, effectiveness, satisfaction), at a lower price, then the AFA becomes a serious contender for the business.

Thus, as you can see, CLP’s answer to avoiding the stalking horse conundrum has focused on communicating value before we propose a flat fee price that might be leveraged by prospective clients to drive down the prices of competing law firms. The information above takes significant nonbillable time to assemble, but the extra work expresses our value proposition in a way that we hope engages the prospect and educates them about a superior product. In this way, we hope to communicate that our flat fee firm offers advantages in terms of the quality of our service in addition to the lower price that is the natural consequence of our flat fee approach. If the client understands the full scope of our value-add, then we are not going to be used as a stalking horse.

We hope.

A flat fee should NOT cover post trial work:

Flat fees work because the aspects of a major litigation are predictable within certain parameters. There will be complaints/answers, discovery, x number of depositions, expert reports and replies, Markman hearing, motions for summary judgment etc. Because these can be reasonably anticipated by any experienced trial litigator, there is a manageable amount of risk being borne by an alternative fee firm in giving a single price for work through trial. Post-trial legal services, on the other hand, are far less predictable:

•  If the case is not successful, there is little incentive to commit up front to a fixed price for handling the difficult task of preparing post-trial motions that could cause the trial court to reverse the adverse judgment.
• Similarly, you cannot predict the issues that will be the center of post-trial motions, and either side may request a review. Contesting a verdict might mean several rounds of briefing (reaching the same complexity and detail of a motion for summary judgment), hearings and other work. Often there is a voluminous trial record which must be synthesized and argued in the motions. All this could swell the scope of work for a flat fee firm significantly.
• Appeal is similarly unpredictable and time consuming and may further result in remand and additional trial work; again, greatly increasing the scope of work and resources necessary.
• Enforcement of the damage award might not be possible in the United States and may require a collection abroad. Proceeding in a foreign country will greatly increase transaction costs, require translations, and perhaps require local counsel and an understanding of a foreign jurisdiction legal rules and procedures.

A flat fee SHOULD cover post trial work:
 

Despite the above, there are many reasons why a flat fee firm would want to include post trial work in its fee:

• Client relations: Simply put, few law firms would want their clients going elsewhere for legal advice on a matter they were handling.
• Expertise: no one knows the issues involved in a post trial motion or appeal better than trial counsel.
• Clients who are hiring a flat fee firm to help generate wealth by monetizing its IP, are pricing our cost and fees v. return on investment. To complete their analysis, these companies need to know all the costs and fees that will be incurred before money is brought in.
• When there is a contingency portion to the fee agreement:
• Assuming a successful result at trial, or a loss at trial for which there is a compelling appeal, a contingency lawyer is highly incented to help the client collect on the judgment.
• Contingency payments are usually calculated as a percentage of recovery AFTER disbursements have been paid. A savvy client will argue that the cost and fees of any other firm providing legal services on post-trial matters should come out of the recovery before the contingency is calculated. Under the circumstances, the contingency lawyer may be better off handling these matters and thereby protecting against the reduction of the recovery.
• Negotiating flat fees for enforcement work separately after trial reduces the flat fee attorney’s leverage where the client knows the firm needs to collect to receive its contingency.

Obviously, deciding whether to include post trial work is a matter of deciding what risks a firm feels comfortable taking on, and what the reward is for doing so. As described above, that calculus changes significantly depending on whether there is a contingency portion to the alternative fee arrangement and which post-trial services that agreement considers.

CLP ultimately decided the best approach is to follow the CA Bar recommendation in their sample non-hourly fee agreement where contingency fees are part of the arrangement:

“SCOPE OF SERVICES. . . . . If a court action is filed, Attorney will represent Client through trial and post-trial motions. This Agreement does not cover representation on appeal or in execution proceedings after judgment. Separate arrangements must be agreed to for those services. Services in any matter not described above will require a separate written agreement.”

(Emphasis added.)

That is to say, where there is a contingency portion to the fee agreement, the risk of post-trial work getting out of hand is acceptable so long as it is limited to post-trial motions. Appellate work, new trials, and enforcement proceedings, however, are sufficiently uncertain at the time of initiating the litigation, that CLP is not yet prepared to take the risk of committing to a fee up front, and we have decided for now it is in both ours and the client’s best interest to separately negotiate those fees after trial.