A Japanese IP firm has expressed interest in sharing fees with CLP on US-based IP litigation, prompting us to ask ourselves whether this is ethically permissible.
We already knew that here in California or elsewhere around the country the rules of professional conduct permit fee sharing between US based lawyers who are not members of the same law firm. (Keeping in mind that local requirements can vary as discussed in the postscript below.)
The ABA’s 2009 paper, “Joint Responsibility: Sharing Legal Fees Between Lawyers Not in the Same Firm,” confirms the wide-spread acceptance of fee sharing and provides some good examples of the different state rules.
Fee sharing is part of CLP’s DNA because it allows us to scale with expert patent and IP transaction lawyers without bearing the incredibly high overhead of keeping all this great talent under one roof. We’ve had to become fluent on the applicable ethical rules. Prospective clients are less willing to hire CLP unless they are comfortable, in their words, “with how this [fee sharing] works.”
For example, a recent CLP pitch deck included the following slide explaining how the client enters into one engagement agreement signed by each of the fee sharing attorneys, as well as how the agreement discloses the fee arrangement and otherwise obtains the client’s informed consent in compliance with applicable ethical rules.
So CLP gets fee sharing. We use it successfully with other stateside lawyers and firms. Yet could we take it overseas? We were highly incented to do so based on the big-time benefits of fee sharing for all concerned: the client; the referring Japanese firm; and CLP.
- The client, a Japanese technology company, would get cost-effective and expert patent trial counsel from CLP, and also would receive continuing advice, counsel and guidance from its trusted Japanese counsel (which, as any US lawyer who has litigated on behalf of an Asian client will tell you, is crucial to enjoying timely and effective communication between US lawyer and their Japanese clients).
- The Japanese firm would retain a valued client relationship and would capture fee revenue that it otherwise would lose to other firms.
- CLP would enlarge its pipeline of core IP patent litigation.
We therefore were delighted to learn that yes, we could share fees with our Japanese colleagues.
With respect to our investigation, the key question was whether our Japanese lawyer colleagues were “non-lawyers” with whom fee sharing is not allowed under Rule 1-310 of the California Rules of Professional Conduct (“Cal RPC”), or whether they are “lawyers” with whom fee sharing is allowed under Cal RPC 2-200(A).
California, like virtually every other jurisdiction that has examined the issue, allows its attorneys to divide fees with attorneys or law firms in other states assuming the out-of-state counsel’s ethical obligations are comparable to those of California lawyers. See Sims v. Charness, 103 Cal. Rptr. 619 (Cal. Ct. App. 2001); California Opinion 1986-88; see also ABA/BNA Lawyer’s Manual on Prof. Conduct 41:712 (2007).
Although we found no authority in California for extending the same conclusion to foreign lawyers, this has occurred in New York. The New York State Bar Opinion 806 (2007) states that a New York law could share fees with an Italian law firm in handling legal matters in New York referred by the foreign firm. The test, which was satisfied by the Italian firm, was whether “the foreign firm’s lawyers have professional education, training and ethical standards comparable to those of American lawyers and the firm.”
Better yet, the New York State Bar, in its Opinion 646 (1993) stated that Japanese lawyers pass muster:
A New York lawyer can form a partnership with Japanese Bengoshi, since the educational requirements for admission to practice law appear to be no less rigorous in Japan than in the United States and moreover, the standards of professional conduct and discipline in Japan appear to be sufficiently similar in relevant respects.
CLP therefore has been able to pursue the opportunity with the Japanese firm. Even bigger picture: there is major blue sky regarding the mutually beneficial expansion of fee sharing between AFA firms and their like-minded foreign counterparts.
As mentioned above, fee sharing requirements vary across jurisdictions, e.g., some jurisdictions ban payment of referral fees (California does not), while others require lawyers to assume either joint financial or legal responsibility, or both, as if the fee sharing lawyers are part of the same partnership (again, California rules are not so stringent).
What if your foreign partner in fee sharing is owned in any part by non-lawyers? Might the ability to fee share under Cal RPC 2-200 provide a back door to partnering with non-lawyers otherwise prohibited by Cal RPC 1-310?