Flat Fee IP

Non-Lawyer Investment Will Happen: Follow-up

David Bohrer — Wed, 18 Aug 2010 14:19:42 -0800

Some recent posts highlight why it is inevitable that the ethical rule barring non-lawyers from investing in and managing US law firms will be lifted. See our 6/11 post.

Bruce MacEwen, in Adam Smith, Esq., characterizes as “managerial malpractice” the failure by lawyers to analyze data on such things as client spending patterns, and warns (“En garde,” he says) that "competitors will undoubtedly" be trying to exploit the ability to deliver legal services from a distributed platform (“cloud computing”).

Jordan Furlong, in Law21, says that law firms are in the “cross-hairs of numerous entities outside of the legal profession” who intend to kill law firms and take some or all of their market by exploiting, among other things, the “virtually zero” effort to develop real competitive intelligence on what it costs to deliver specific services, how much rivals charge and why, what knowledge people and systems collectively possess, and how to apply that knowledge in a systematic way.

The common thread running through these and many posts like them is that law firms’ survival, let alone competitive success, hinge on investing in and effectively employing new management techniques, processes and tactics.

This costs money, lots more money than law firms currently have available to invest, particularly in a market with shrinking gross revenues. Even assuming firms have money available to invest, the high likelihood is that they do not have the institutional incentive to direct the money to longer-term investments and away from the current payments to rainmakers or other senior lawyers who want their share of the pie now (and certainly don’t want the firm to make greater risk investments that might reduce the value of their current ownership interest in the firm).

Even assuming the firm has money and is farsighted enough to want to make long-term and uncertain investments for the good of the enterprise, the new legal services paradigm requires non-legal management expertise, services and systems that are beyond the ken of the great majority of the lawyers who currently manage their firms. As explained by the CFO of a major law firm surveyed by Jim Hassett (LegalBiz Development):

A large number of lawyers do not know how to manage. [In the past], the more hours that got charged, the more money [they] made, and so they’ve never really had to manage [costs].

The solution is outside capital, which not only would provide the money required to fund innovations to the legal delivery model, but also would force firms to bring in the global, nimble, multi-faceted and risk-taking managers without whom it would be impossible to achieve the desired innovations.

The impediment is US ethical rules that bar non-lawyers from owning, investing in or managing a law firm. However, as demonstrated by the above posts, the forces compelling the lifting of the bar grow ever stronger and the calls for this change are increasing. Anthony Davis, in A New Approach to Law Firm Regulation, calls for replacement of the state-based professional regulatory system with a national, uniform set of regulations that “provid[es] the seamless, efficient and cost-effective service for which clients of every size and level of sophistication are crying out,” by allowing, among other things, lawyers to access outside capital and non-lawyer management expertise.

The groundswell of support for non-lawyer investment and other regulatory changes hopefully will be reflected in the report of the ABA’s Ethics 20/20 Commission, which was appointed in 2009 and given the mandate of investigating ways to enable US practitioners to compete with legal providers in other countries while continuing to protect the public and core values of the profession. The report is expected sometime in 2011.

In the meantime, we and others continue to press for change.

Smart Buyers Ask if Subs are "For Real"

David Bohrer — Fri, 30 Jul 2010 05:30:00 -0800

I’ve had the pleasure of speaking with Andrew Moore and Sam Sweet about using their company NCC Group as a neutral “escrow” site for producing highly confidential source code in IP litigations. Andrew and Sam made a good case for using NCC's services, which we'll get to after the jump. First a more general insight:

The discussion highlighted how important it is for legal departments buying the services of “value pricing” litigation firms to ask a lot of questions about the firm's "subs" – referring to the bevy of independent subcontractors or "subs" that the lead trial firm, acting as a general contractor, engages on behalf of the client. (Note-"value pricing" refers generally to restructuring the attorney-client relationship in a way that reduces costs, provides greater cost predictability, and cuts out the fat in the delivery of legal services. The use of non-hourly based fees is viewed by many, yours truly included, as a necessary component of the restructuring effort. Check out the ACC's blog for more and better background on this new business model.)

The subs which potentially could be used on a litigation encompass a large number of different types of service providers: lawyers, e.g., basic research, document review, specific technical expertise or other relevant patent expertise; non-lawyers, e.g., technical experts, e-discovery vendors, jury consultants, graphic artists, special document production vendors; and/or the vendors involved in legal process outsourcing (LPOs), a very hot topic of late. Some of the subs don't cost very much, while a significant number of other subs can cost tens of thousands of dollars or more.

The value pricing firm, due to its non-hourly fee structure, is far more incented to outsource both legal and non-legal services to outside vendors than is the firm billing by the hour. The former’s price is fixed and therefore it increases profit by lowering the cost of production. This is a good thing. This places the burden of finding the most efficient and effective means of delivering a legal service on the persons best positioned to do so – lead trial counsel. There is a lot of fat in the current delivery system and therefore a lot of room for the more enlightened firms to lower their price while still making a fair profit. (Check out Pat Lamb's new book, "Value Fee Arrangements: Value Fees and the Changing Legal Market for his excellent presentation on these points.)

In other words, as a result of the changed behaviors incented by the new fee structures, the buyer of legal services is going to see both a wider variety and a larger number of outside service providers on their matters. Whether the buyer is going to get a good result, and whether the buyer’s law firm is operating from a sustainable platform (no buyer wants to be saddled with a law firm that is losing money providing services to that buyer), therefore depends much more on whether the lead trial firm is bringing the right subs to the matter.

The smart buyer should therefore ask up front:

What are the significant services that will be outsourced to subs?
Who are the subs that trial firm proposes to engage on buyer’s behalf?
Does the trial firm's price include the cost of the sub or is the cost passed through as a disbursement?
If passed through to the client, what is the estimated cost of the sub?
Is the sub "for real"?

How well or poorly the prospective new model firm answers these questions should play a significant role in the determination whether they get the work.

Which brings us back to Andrew, Sam and the NCC Group. How would I answer the above smart buyer’s questions as they relate to NCC’s services?

Certainly we are talking about a significant service. The ability to produce the client source code in compliance with court discovery rules while at the same time protecting confidentiality is of the highest importance to a client, and the cost of producing the service whether outsourced or not run in the tens of thousands of dollars.

Should we be outsourcing the service to a sub such as NCC? Absolutely. Trial lawyers simply don't have the software and computer science skills necessary to effectively anticipate and protect against the disclosure of client source code. Even assuming that the trial firm could figure out what needed to be done, the cost of creating and implementing the necessary protocol - including the very real likelihood of reinventing the wheel - is unduly high. Full disclosure - in my BigFirm hourly days, we often kept this work in-house notwithstanding the expense. The hourly fee structure rewarded us for keeping the work even if we could not do it as efficiently and effectively as an outside provider.

Does my firm propose to include the cost of NCC in the price my firm is giving the client for the firm's services? Most likely no. Creating an escrow agent to maintain and produce confidential source code is not part of typical firm overhead but rather is unique to certain IP litigations. There are subjective elements regarding the level of security provided, which, depending upon client preferences, can make a big difference in the cost. There also are a number of unknowns regarding potential downstream costs (e.g., what if the source code is more difficult to load than expected, what if there are client modifications and the escrow account needs to be supplemented, what if certain experts require that the code be produced in more expensive formats, and so on?) not unlike e-discovery generally. My firm strives as much as possible to give the client an "all in" price (see our costs policy), but most likely we would pass through the cost of NCC's services as a disbursement to be paid by the client.

Can we nonetheless give the client some reasonable estimates of this specific disbursement? Yes, thanks to NCC's straightforward escrow agreement and menu of prices, most of which are flat fee per project as opposed to hourly. In addition, my impression is that Andrew or Sam, without the meter running, would work with us to identify and present key assumptions and an estimated budget based on these assumptions.

But is NCC for real? What confidence does the client have that NCC is capable of protecting against the unintended disclosure or misappropriation of the client's source code?

The gold standard is whether a trial firm can recommend the sub based on having previously worked with them on a similar matter. Of course, I don't have any prior work experience with NCC on which to make such a recommendation. Nonetheless, there is compelling evidence that NCC would be a quality sub. Andrew and Steve were able to provide favorable testimonials from other patent trial lawyers and testifying experts. They also could demonstrate that the creation of secure escrow for source code was their core business. Theirs is a publicly traded, international company that has been in business a long time and obviously has the resources to stand behind even the highest exposure (to them) projects.

The point is that smart buyers of value pricing firms need to aggressively investigate the firms' proposed subs. The better a value pricing firm can demonstrate that its proposed subs are "for real," the more compelling is the case for giving them the work.

Don't Include Trial in the Price?

David Bohrer — Wed, 07 Jul 2010 21:30:00 -0800

Pat Lamb, in his very good book on value pricing Alternative Fee Arrangements: Value Fees and the Changing Legal Market, says that the fees and costs of a trial should never be built into the fixed fee proposed to a client. "Never"? Really?

Really, says Pat. Paraphrasing what he says in his book, virtually all cases settle, so including the cost of trial in the fixed fee is perceived by the client as overpayment, or could dissuade a client from accepting a settlement because they believe they have "already paid" for the trial. Plus including expensive trial costs and fees might create sticker shock that scares away the client. Pat also makes the compelling point that it is not until you are close to trial that lawyer and client appreciate the real costs and risks of trial, such that the determination of the price for taking the case to trial is best left until then. In other words, carve out trial from the price for your legal services, thereby allowing you to give the client a much lower price than you could if trial was included, and proceed under a fee structure that incents early settlement/resolution of the litigation (the earlier the resolution, the greater the profit made by the lawyer).

I've migrated from a first impression rejection of Pat's recommendation to grudging acceptance of his logic. Check out my thinking process after the jump.

I'm a trial lawyer. It's absurd to suggest that I price my services without building into the price the costs incurred for providing the expertise that is at the very core of the legal services that I provide. Pat would describe this as "muscle memory" - I've spent 25 years viewing every new litigation project as one which "may" require a trial to resolve. Indeed, as a partner in BigFirm IP, I worked under an hourly regime that rewarded me for taking the case through trial. On reflection, that trial is both so rare and so expensive suggests that I may need to retrain these muscles.

Still, my litigation background is large patent litigations with multiple factual and legal issues that require significant development through discovery, claim construction, dispositive motions, trial and even post-trial motions. However, according to the seminal empirical research done by Prof. Moore on the trial of patent cases, Judges, Juries and Patent Cases - An Empirical Peek Inside the Black Box, the number patent cases that went to trial during the 17 year period 1983 through 1999 was 6.9%, ranging from an annual low of 3.3% to a high of 11.3% - a larger number than what is posited for business litigation generally, but still quite low overall. So maybe I can't get away with arguing that "well, that may be true for others, but not for me." As Pat might respond, yeah, and everyone in prison claims to be innocent.

Perhaps a better argument for building the cost of trial into the price is that in my experience pricing larger IP litigations, the client wants to know at the outset how much it will cost to take the matter through trial. But how is this different from any other commercial litigation client? And why can't we, as alternative fee lawyers, provide a well-reasoned estimate of what something might cost and at the same time defer building the estimate into a current price, particularly where the estimated cost of trial, and the strategic considerations whether to incur the costs of trial, are much better defined at or much closer in time to the trial itself.

We at CLP also have a number of clients whose early and eager adoption of a non-hourly fee structure manifests their inability to stomach the high costs of an hourly regime. For these folks, there is no life after the pretrial phase of litigation. If we can't develop a favorable resolution in this phase, game over. These folks can't afford to pay for a trial - even under a lower cost alternative fee - no matter how good their case is on the merits. Pat's recommended carve-out of trial costs, and the related focus on obtaining a favorable settlement/resolution prior to any trial, certainly resonates with this crowd.

Excluding trial costs from the price therefore is starting to make sense to me. Stay tuned as we try and work the concept into CLP's pending and new quotes.

Non-Lawyer Investment Will Happen

David Bohrer — Fri, 11 Jun 2010 17:10:00 -0800

Earlier this week, I was asked whether I had considered approaching venture capital firms to take a stake in my business [Confluence Law Partners (CLP)] large enough to cover our "burn rate" for a year or two. Apparently, what makes CLP an attractive investment is that we are, in VC-speak, "post-revenue," i.e., in addition to having a business model that conceptually makes a lot of sense, we have an actual business that is generating revenues, and we could significantly increase profit by using outside investment to increase the scale of our delivery system.

The key assumption made by the person asking the question (who is a non-lawyer investment fund manager) was that non-lawyers like themselves could invest in, own or manage a law firm. Of course, this is prohibited under US regulations known as professional ethics.

However, not only is non-lawyer investment allowed elsewhere in the world, as explained after the jump, this change is coming to the US.

Australia permits unrestricted incorporation for companies that provide legal services. In May, 2007, the Australian law firm of Slater & Gordon completed an initial public offering and became the first law firm to be listed on the Australian Stock Exchange.

Similarly, in the so-called "Tesco law" (the phrase comes from a supermarket chain of the same name and refers to the potential for commoditized legal services offered by entities such as banks and supermarkets) the UK has changed its rules to permit non-lawyer investment beginning in October, 2011.

The smart money says the US can't be far behind. "The ability of 'magic circle' law firms in London and their second tier competitors to structure arrangements and ventures with non-lawyers will give those firms individually, and the English legal profession collectively, a hitherto unimaginable competitive advantage," according Hinshaw attorney Anthony Davis in his December 2008 presentation to the Leading Legal Innovation conference sponsored by USC. "American lawyers and American based law firms must change the regulations or "be increasingly marginalized in the international marketplace."

This said, non-lawyer investment in the UK may be delayed. Just last week it was reported in the TimesOnline that the Tesco law may be headed for the "long grass." I'm neither a golfer nor an expert on the British slang, but I'm pretty sure the reporter is saying that England's new coalition government is looking for ways to block implementation of the law.

In addition, opposition forces make the very compelling case that non-lawyer investment conflicts with core ethical values of having lawyers exercise independent and unconflicted professional judgment and confidentiality. Drinker Biddle partner Larry Fox, an articulate and passionate leader of the oppostion, recently testified before the ABA Ethics 20/20 Commission:

LAWRENCE J. FOX: I'm here to tell you that I think it would be a sad day if the American Bar Association endorsed different forms of business organization that compromised the professional independence.

PROFESSOR CAROLE SILVER: But you're assuming that compromises.

LAWRENCE J. FOX: No, I'm not assuming that it compromises, because I'm in fact saying that we have an obligation to report to lawyers, not to nonlawyers who are not steeped in our values, not educated in our law schools, not subject to our discipline.

See 2/5/2010 Tr. at 148.

Mr. Fox has some compelling anecdotal evidence, courtesy of Arthur Anderson and Enron:

I always thought that the best argument against any change to [ABA Model Rule 5.4 prohibiting non-lawyer investment] was Arthur Anderson and Enron. We didn't have to go very far or wait very long to get the proof of what happens when you end up mixing up various functions within an enterprise and ending up eroding the core function. And in that situation the core function was auditing. In our situation the core function is the delivery of legal services. . . And in [non-lawyer owned or managed business structures] what we're stuck with is lawyers reporting, in effect reporting to nonlawyers who have no obligation to our rules of professional conduct and no dedication to those propositions.

See 2/5/2010 Tr. at 140-141.

Furthermore, the ABA is not yet ready to make any changes. Michael Traynor, the co-chair of the Commission, said "[W]e've not taken any positions on anything" and that "[W]e've just started." Id. at 149.

These arguments notwithstanding, economic forces ultimately will carry the day. Legal markets have so-far failed to innovate in ways that significantly reduce the cost of providing legal services or that produce global, nimble, multi-faceted and risk-taking lawyers capable of meeting the needs of a global, increasingly web-based, economy. For example, according to Susan Hackett, GC, Association of Corporate Counsel, there needs to be far better collection and mining of data across cases, clients and markets, far better training of lawyers to make business judgments, value-based (non-hourly) billing and the unbundling of traditional legal services and the outsourcing of services more effectively handled by other lawyers or non-lawyers. See The Slow Motion Riot-The Change Agenda for Legal Departments and Law Firms.

This innovation takes longer than the traditional annual cycle of the status quo AmLaw firm. Likewise, this innovation requires capital and business expertise that these firms simply don't have. You want innovation? You want me to create a sustainable and profitable firm based on change agenda principles? Then I will need the non-lawyer investors and managers necessary to make it happen. So will just about everyone else. The removal of the current regulatory shackles is inevitable under the circumstances.

For those who worry what a large unregulated legal market will look like, Legal OnRamp's Paul Lippe has it right - it already exists in the form of the modern legal department. The legal department aligns rewards with the performance of the business, substitutes non-lawyer service providers where they can more effectively and efficiently provide the required services, invests the time necessary to understand its client's business goals, and aggressively leverages technology in the delivery of legal services. Perhaps most significantly, the modern legal department perceives little or no benefit from the current system of regulation.

Under the circumstances, those in favor of changing regulations prohibiting non-lawyer investment have the better argument and voices of those supporting the argument will increasingly grow louder and garner greater support.

Litigation Price: Flat Fee Used as a Stalking Horse.

Michael Kallus — Mon, 29 Mar 2010 15:38:58 -0800

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.

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:

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.
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.
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.
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.
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.

Lack of Numbers Holds Up AFAs

David Bohrer — Mon, 08 Mar 2010 04:00:00 -0800

JED

[walking away] Numbers, Mrs. Landingham.

MRS. LANDINGHAM

Excuse me?

JED

If you want to convince me of something, show me numbers!

THE WEST WING "TWO CATHEDRALS" (2d season finale, 2001)

While clients agree with the criticism of hourly billing, the reality is they still have significant reservations about using an alternative fee agreement (AFA). Like fictional President Jed Barlit in The West Wing, clients aren’t going to tip and truly adopt AFAs until their lawyers can “show me numbers.”

Unfortunately, AFA firms don't yet have the numbers. The great bulk of pricing data currently available is based on inefficient hourly billing, and, consequently, is of limited value. Furthermore, the tools necessary for outside counsel to collect, analyze and present meaningful cost and profit data on AFA cases across clients and markets still need to be developed.

Numbers from Inefficient Hourly Models Not Good Enough

Like other AFA litigation firms, CLP believes that it is fully capable of setting a fair price for even larger IP litigations. As we and others tell our clients, this is far easier than most of the issues successfully resolved by our clients in the regular course of business. “We are not building an oil platform on the North Sea.”

However, AFA firms’ confidence in their price-setting capabilities, while well-intentioned, is based primarily, if not exclusively, on historical pricing data from inefficient hourly models. They are therefore relying on data of limited value.

(True enough, seasoned IP trial lawyers have a wealth of anecdotal pricing experience to fall back on, and while this impresses our colleagues, it falls short of delivering “the numbers” we need to convince our clients to use AFAs.)

Billable hour firms seeking to shift to an alternative fee structure “[o]bviously [] can’t rely on their billable information to date," according to CT TyMetrix President John Weber, “[i]t is that information that is at the root of their client’s dissatisfaction. Rather, they need benchmark information about what the same or similar cases cost when handled in the manner to which they aspire.”

Likewise, where historical data on hourly billing is used to price flat fee work, the tendency is to guess the number of hours a piece of litigation or other work will take, multiply by the hourly rates of people who will be doing the work, build in some desirable profit, and, you have a fixed fee. However, as noted by Valorem attorney Pat Lamb, under this calculation methodology, “none of the efficiency benefits [of a flat fee structure] are shared with the client.” Or to put it in the client’s voice, “I might end up paying even more!”

Accordingly, CLP limits its use of historical hourly billing data to providing a benchmark against which to contrast lower flat fee litigation prices. As we explain to our clients, the efficiencies realized under a flat fee model allow us to significantly reduce our price over hourly billing. For example, in a February 1, 2010 presentation to a software company looking to switch its patent litigation from hourly counsel to CLP, we came right out and said “take 20% off your current counsel’s estimate of fees and costs, . . . CLP will start there in developing price for pre-trial and trial strategy.”

(No decision yet on this one, but the February 16, 2010 post by blogger Jay Shepherd that “you can save 20% (or even 30%) by going with a firm that uses open pricing” provided additional support for our position.)

Nonetheless, the clients whom we seek to bring to AFAs continue to worry that they “may end up paying more,” “can’t be sure they are saving money with a fixed fee,” or that getting billed for “services rendered” leaves them open “to be taken for a ride.” That this is the current state of affairs compelled the recent observation in Adam Smith, Esq. regarding the current relationship between clients and lawyers generally: “clients don’t trust us with their money and we don’t trust them to reward us fairly.”

Numbers That AFA Counsel Should Have

So the transformation to alternative fee pricing depends upon not just “numbers,” but the right “numbers.” Per CT TyMetrix’s John Weber , the key to removing the barriers holding back the AFA conversation is “benchmark financial data about the costs and outcomes of similar [AFA] cases.”

To put an even finer point on John's great observation, what CLP and its AFA colleagues really need is:

data that demonstrate that AFAs lower the cost of delivery (allowing us to deliver the same high quality outside counsel legal service for lower price).
data that allows us to better measure and generate a profit at a lower price, and to more intelligently share with the client the risk of a bad result – to have skin in the game.
data that will allow clients and outside counsel to mutually and accurately assess a legal problem in affirmative terms, i.e., the value of mitigating the risk posed by a litigation or the value to the client of preserving a specific business model.
data that will enhance the ability of client and outside counsel to mutually agree on "how much this will cost."

There Are Ways to Get These Numbers . . .

The apparent solution: outside lawyers should use the ebilling and management tools offered by companies such as Serengeti Tracker, TyMetrix 360, and DataCert. These ebilling systems are hosted by the vendor through an encrypted Internet connection, meaning there is no hardware or software that must be installed or maintained by the client law department or their law firms. Not only is billing processed on-line, but these systems also track law firm budgets and law department financial forecasts. Ebilling systems can automatically present comparisons of spending versus budget for the project phase, fiscal year or project duration. With one system tracking both spending and results across cases, “law departments can move beyond hourly fee structures to create performance-based alternative fees,” according to in-house counsel Chris Marlin (Lennar) and Stuart Roth (Olin).

. . . But They Are Not Available to Outside AFA Counsel

Sign us up, right? AFA firms like CLP should be using these systems to track and measure financial performance data across its AFA cases. Better yet, while there are some companies currently using ebilling systems to generate data across the cases handled by its law firms, outside law firms could use ebilling systems to generate even broader data - information across the clients/industries to whom we provide legal services.

True enough, there are a number of client law departments, who, along with their outside counsel, already use ebilling systems. However, many of the early adopter clients of CLP’s flat fee pricing models have been smaller to mid-size technology companies with little or no in-house resources and, luckily for them, relatively few litigations of significant size. This type of client tends not to be using ebilling systems and consequently their legal service providers like CLP aren’t either. Again, time to change that.

So I called my Legal OnRamp colleague and CT TyMetrix President, John Weber. I was his dream customer, or so I thought, because I had convinced myself that my start-up AFA litigation firm cannot live without his product.

To my dismay, John pointed out that the ebilling products that I was interested in were sold exclusively into client law departments, and currently are not offered to outside law firms. John patiently explained how the market evolved away from outside law firms because they were not interested in picking up the expense of the systems and their clients justifiably were concerned that they’d get socked with yet another hidden cost. Meanwhile client law departments, particularly those with higher volume of legal matters, were highly incented to acquire systems that allowed them to effectively manage legal spend in much the same way they managed the rest of their business.

This needs to change. AFA firms are going to need more and better pricing data reflecting the experience across similar AFA cases in order to truly tip clients in favor of alternative pricing structures. According to John, help is on the way in the form of a solutions for outside lawyers currently under development. In our opinion, they can't come soon enough.

Fee Sharing With Foreign Lawyers

David Bohrer — Mon, 15 Feb 2010 05:00:00 -0800

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.

(New York has similarly blessed lawyers in Great Britain, Opinion 542 (1982) and Sweden, Opinion 658 (1994).)

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.

Postscript:

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?

Should a Flat Fee Include Post Trial Work?

Michael Kallus — Tue, 26 Jan 2010 23:47:21 -0800

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.”

(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.

Willingness to Flat Fee is a Litmus Test

David Bohrer — Thu, 14 Jan 2010 13:00:00 -0800

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?

We've approached the matter from the perspective that developing a fixed price for litigation involves much more than simply multiplying the number of estimated hours by an hourly rate or rates, as discussed by Pat Lamb. Instead, the starting point is and always must be the client’s desired return on its investment in IP litigation and working backwards from there to develop an alternative fee proposal.

Our client wants to recover, net of legal fees and costs, an amount equal to a revenue stream generated by a typical license for its technology (of which there were several examples). Due to cash flow issues, the client also is asking us to take a lower flat fee up front with a larger contingency on the potential recovery.

We believe the calculation of a flat fee should be transparent to the client. As stated in an article from Corporate Counsel, while firms increasingly profess their willingness to work under an AFA, in order to impress the client "[Lawyers] have to explain exactly how they came up with their flat fee, and how they'll make money, something many can't do."

Accordingly, we've prepared and shared with the client:

our case plan and strategy
our estimate of the likely recovery at a hearing on the merits, discounted by the likelihood (or not) of overcoming the anticipated defenses
our estimates of the legal costs the client was likely to incur in addition to legal fees
alternate proposed flat fee and contingency fee structures
projections under both fee models of the net recovery by the client

After all this, the deal may crater. Based on our assessment that there may be significant defenses to the claims the client wants to bring, we are unwilling to risk the great majority of our fee compensation on the contingencies proposed by the client. Furthermore, even assuming success on the merits, we project a lower monetary recovery than previously estimated by the client. After adjusting for our proposed fees and the estimated costs, the client's estimated net recovery falls short of what is desired.

All this non-billable effort and the engagement may be DOA. Disaster, right? Wrong.

Whatever the client decides to do, it already has received free-of-charge an early, realistic assessment of the case. Maybe we won't get to represent the client on this matter, but we're betting that we've begun a relationship that will generate work in the future.

Cutting Discovery Costs With Remote Foreign Custodian Interviews

Michael Kallus — Mon, 04 Jan 2010 01:33:48 -0800

As discussed in E-Discovery: Taiwan Collection on a Shoestring, CLP recently faced the challenges of cutting the discovery costs of a Taiwan based wireless communications device manufacturer with a popular new technology under dispute with a competitor.

For cost sensitive clients, containing discovery costs obviously requires reducing the overall volume of documents that will be collected, uploaded, processed and produced. If one looks at the Electronic Discovery Reference Model, ("EDRM”), the industry standard for approaching discovery,you will quickly realize that the most effective way to cut total costs along the discovery pipeline is to decrease the input during collection.

With our client, we knew our end goal was to decrease the number of irrelevant documents we collected. The most cost effective way of limiting the collection, we decided, was to work with the person most knowledgeable about the documents on the custodian’s workstation--- the custodians themselves--- to make a targeted collection instead of a full replica of the hard drive.

The challenge, then, was how to effectively work with Taiwanese custodians when travel costs to Taiwan could be 3k an attorney.

The solution was to prepare interview checklists defining the case issues and then circling around to the topic on which we expected the custodian to have relevant documents. We then would go over, folder by folder, the files in the custodian’s workstation with the custodian. With 9k miles of water between us, we used simple, cheap, internet based solutions to bridge the communication gap.

VOIP: Not surprisingly, our tech savvy clients were old hands with VOIP (Voice Over the Internet Protocol) exchanges. CLP prefers Skype, and we have discovered that most high tech-companies do too. Skype gives great voice clarity, with no cost for computer to computer exchanges. We could simply exchange our Skype addresses, and coordinate times to meet. We could even hold conferences where it was more effective to speak with several people at once.
Video: Skype also has video capability. The ability to see and hear someone simultaneously is invaluable, especially with a language barrier. In this way, meeting times are cut shorter and there is less confusion, not to mention a sense of who your future witnesses are.
Remote access to computers: Yugma offers a free application to allow an attorney to take control of a client's desktop. There are other providers out there also, but CLP uses Yugma because it has a Skype application that is easy to use. The paid service allows both persons to "drive", which means that you can both look at and navigate the same screen, walking folder by folder through an employees desktop and database asking questions about relevancy.

In this way, CLP estimated we would be able to cut the number of GBs of information collected, processed and uploaded, by perhaps half. It was not a solution without risks however. In a contentious motions practice, it often makes good sense to have every bit of information from a custodian’s workstation to defend the inevitable motion to compel (and CLP did make a full replica of the CEO’s own workstation for exactly that reason). Still the lesson was that upfront due diligence to understand the case and case strategy coupled with in depth interviews, in-person or on line, can make a narrowed collection a cost effective strategy even with foreign clients when coupled with digital applications.

Trust your client's instincts

David Bohrer — Wed, 23 Dec 2009 15:46:27 -0800

Adam Smith Esq. recently discussed a major obstacle to setting a fixed price for litigation: trust.

Sadly, for too many of us, clients don't trust us with their money and we don't trust them to reward us fairly.

The view from here in the trenches of flat fee IP litigation is that the trust issue is really about determining what a case is worth to a client.

The client is never going to agree to a flat fee unless it is convinced the amount invested in legal services (the flat fee) will generate an appropriate return on the investment. The ROI determination, in turn, is based on the determination of what it is worth to the client to enforce its IP or defend claims brought by others seeking to enforce their IP. This brings us to the trust issue, and our first insight:

In our experience, the flat fee lawyer has no choice other than to

place significant trust in the client's determination of what the case is worth. There simply is no amount of reasonable due diligence that can be done at the front end that will answer the question, particularly where the dispute involves complex technical issues arising out of patent or trade secret infringement.

For example, CLP recently worked with a client to evaluate the ROI on enforcing certain patent licenses. The analysis focused on the increased royalty income our litigations would generate as compared to the client's R&D investment. This was exactly the right discussion for CLP to have with its client.

However, the discussion depended upon basic assumptions supplied by the client as to who the targets would be, additional income thrown off by pursuing these targets, and the comparison of the projected income to R&D. We, CLP, could not verify these assumption without committing undue amounts of time and resources (even assuming the client was willing to wait around and see if we could get comfortable with the assumptions - which they would not want to do). Instead, we had to trust the client's analysis.

Our second insight on the trust issue, is that the flat fee lawyer should trust the client's instinct on what a matter is worth. Why?

Clients know their business: not only does the client know far better than anyone, including its lawyers, what is novel and valuable about their products and services, the markets and channels of distribution, and the business forecasts and projections, but the client also has a much better grasp of the intangible factors that are key to a successful litigation result, e.g., the personalities of the principals on the other side, the parties' respective final resources and stomach for scorched earth litigation, and whether, at the end of the day, they can support their case with "good" witnesses and documents. This is particularly true at the outset of the litigation when the effort is being made to arrive at a mutually acceptable fixed fee.

Clients have skin in the game: this is not an intellectual exercise for the client, but a business decision requiring the reallocation of scarce resources from other business ends. For smaller to mid-size technology companies, the client may be staking most if not all of a business line on the decision. Big or small, the client is highly incented to get the evaluation right.

E-Discovery: Taiwan Collection on a Shoestring

Michael Kallus — Wed, 16 Dec 2009 04:00:48 -0800

The lower costs and cost certainty attributable to flat fee IP litigation has, unexpectedly but not unsurprisingly, appealed not only to traditional consumers of IP litigation, but created a market of small, often foreign, high tech companies who never before could afford top quality IP legal services.

With that said, according to Dean Gonsowski of EWeek.com,

Pre-trial discovery expenses alone now represent 50 percent of litigation costs in an average case [and i]n situations where discovery is actively used, it could represent as much as 90 percent of litigation costs, approaching and perhaps exceeding $1 million on a single case.

So what we - at CLP - quickly discovered was that it was not enough to keep attorney fees in check, we needed to re-think the way law firms conduct discovery to cut the total costs drastically for clients.

Recently CLP represented a Taiwan based wireless broadband communications device company. The company had only 4 full time employees, but a promising technology that made it the target of an IP suit from a competitor. One of our early challenges, therefore, was to collect documents from work stations and peripheral devices of employees in Taiwan under a budget that would allow the cash poor company to defend itself and eventually realize its forecasted profitability. Early estimates from vendors were around 9-12k.

We eventually figured out how to do it for 3k.

How?

Flesh and blood is expensive: Putting bodies on the ground in Taipei, Taiwan is expensive. To fly from the US, a forensic collector costs about $3k in travel expenses alone (plane ticket, hotel, travel time). Put an attorney on the plane next to him (remember, we bill flat fees so hours in transit do not help our bottom line), and you add another ticket, hotel and take a valuable team asset out of the loop for several days.

The only way CLP was going to meet our client’s financial limitations was to avoid sending teams from overseas. The solution was not immediately clear. We polled several top e-discovery vendors, and not one of them could locate a collection vendor in Taipei. There were collectors in China, and Japan, but they were no cheaper that working with a US forensic specialist.

Work with someone creative: Sometimes all you need to know is where you need to be, and you can leave it to the experts to help you get there. In this case, we were introduced to David Townsend of eFor Computer forensics. He introduced an approach that helped tame the costs.

When the old-fashioned way fails, leverage technology: eFor recommended that we Fed Ex hard drives to the client, with a software tool called Titan collector (a top notch tool from MicroForensics) already installed [**authors note- correction from previous incorrect attribution**]. Those drives, when connected to a workstation, froze it, and allowed remote control from the US. It also automatically made unmodified forensically defensible copies of directories which we specified. When done, the hard drives were shipped back to the US, saving the client thousands

Titan Collector software licenses and drives were certainly not free, but they are thousands cheaper than sending a team and proved just as effective. In the end, we were capable of making MD5 hash verified copies of hard drives, and no one needed to board a plane.

Setting a fixed price: focus on the short term

David Bohrer — Thu, 10 Dec 2009 13:36:52 -0800

John Maynard Keynes' quote "in the long run we are all dead" rejected the notion that inflation would control itself absent government intervention in the short term. It has equal application to flat fee pricing of litigation, where, for many clients, all that matters is what the lawyer is doing (and charging) “today,” because there is no “tomorrow.”

We do not dispute that "the fixed fee can be split into segments," (as stated most recently in Adam Smith, Esq.) but clearly some segments (the first!) are far more important than others.

Many early adopters of Confluence Law Partners, CLP’s flat fee IP litigation model are smaller sized technology companies that can’t afford the high cost of hiring hourly billing IP litigators. These clients care little about the price of the entire litigation, not because their matters are expected to conclude any earlier or are easier to resolve than a typical IP litigation, but due to the limited amount of money available to spend on lawyers.

The client mindset is that it is OK to bail on the litigation, and that their lawyers should be ready at any time to help them implement this action - even if they've previously failed to share this strategy with counsel.

So what is the best approach to setting a fixed price?

Sure, discuss all possible phases of the litigation, but focus on creating a strategy for resolving the case as soon as possible, i.e., before the money runs out.

Define phase one of the litigation as the time it will take to implement the strategy for expeditiously resolving the litigation. Most likely, you are talking 8-12 months at a minimum.

Don’t lowball the proposed pricing on phase one with the expectation that you will “make it up” in subsequent phases of the litigation; assume instead that the representation will not extend beyond phase one.

Sure, you want to try and reach agreement on fees and costs that post-date phase one, but if the matter is not resolved in phase one, don’t be surprised if the client’s then existing financial situation dictates that you go back to the drawing board to develop an alternative fee model for going forward.

Understand the client often has no desire to focus on life after phase one; further understand that outside counsel cannot wait too long to broach the subject.