June 8, 2020
Contingent Fee and Other Alternative Fee Arrangements for Patent Litigation
To help contain patent litigation costs, consider contingent fee arrangements or other tools that tie outcomes to costs.
While the high cost of patent litigation in the U.S grabs the majority of the headlines, less understood by some non-U.S. patent lawyers are the various tools that can be used by their clients to contain litigation costs or tie litigation costs to results. By using one of these models, or a combination of two or more, clients can enforce the valuable patent rights they have obtained in the United States while limiting their exposure to burdensome litigation costs.
To this end, below is a brief overview of several cost-contained, results-based litigation tools that law firms in the U.S. may offer:
Contingent Fee Arrangements:
In a contingent fee arrangement, the client does not pay any legal fees for the representation. Instead, the law firm only gets paid from damages obtained in a verdict or settlement. Typically, the law firm will receive between 33-50% of the recovered damages, depending on several factors. This is strictly a results-based system.
A hybrid of the contingent fee arrangement and the traditional bill-by-the-hour approach, blended arrangements involve keeping track of attorney fees in an hourly fashion and placing a percentage of those fees into a trust account. If the firm obtains a winning result, the firm collects the fees (usually along with a bonus). If there is a losing result, the fees in trust go back to the client. This model, therefore, has appropriate incentives and offers an alternative fee structure that distributes risk and reward in an effort to enhance financial success of both the client and the law firm.
A DuPont-style fee arrangement is similar to a blended arrangement, in which the firm and the client share the risk, although a DuPont arrangement can also reward firms for working efficiently or providing excellent service. The law firm would consider a percentage discount on hourly fees that would later be offset, for example, if a preliminary injunction motion is defeated or if the case settles favorably; if the client is pleased with the service and communications of the firm; if the firm follows processes that save money in other areas; other factors; or any combination thereof.
Flat Fee Arrangements:
Litigation is undertaken in specific stages, from a pre-litigation investigation and various phases of discovery, to trial and appeal. In a flat fee arrangement, each of these phases can be capped at a particular budget to provide definite cost containment.
Capped Fee Arrangements:
Under a capped fee, the law firm and the client agree to a set budget or flat fee arrangement as well as an additional cap that is usually about 15% of the total budget. The cap provides additional wiggle room and incentive in the event that unexpected developments occur.
Modified Contingency Arrangements:
A law firm might consider a modified contingency arrangement in which, for example, its fees are capped at a certain percentage of its proposed budget, but, if the patent is upheld, it would receive a portion of income from product sales that occur before the patent expires.
In summary, the best option for your client will depend on its litigation goals. While six specific models are discussed above, the flexibility they offer can mean the difference between a competitor being allowed to continue to infringe on the subject patent and the client being able to stop that infringement.