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)?
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.”
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.