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[TataBox]

I have noticed most firms do not take cases like this on contingency because of the cost and risk.  What do those firms that do, analyze that make it worth their while?   It is not as simple as being a big or small firm because the firms that do patent contingency come in all sizes.  I would imagine you would have to be very certain about the damages portion. 

How do you figure a reasonable royalty or lost profits before even filing the complaint?  Or do you have to?

Regards,

[ababab]

I have a little bit of experience with this, from both sides of the negotiations.

Factors are:

1) Big potential damages.

2) The more defendants, the better.

3) The more patents, the better.

4) Usually, some level of client willingness & ability to pay at least out-of-pocket costs, and preferably some form of discounted legal fees as well.

Each of these factors is seen as a cushion against risk.  The risks cannot really be quantified, but it can in theory be loosely managed.

Precise damages calculations (royalty rates, etc.) don't seem to matter as much as you might expect.

Also, some of the bigger, traditional firms who are just starting to get into contingency patent litigation will often have a firm-wide policy that caps the number of cases or hours they can devote to contingency cases.  If Client A just ate up their contingency budget, Client B may be out of luck, even if it has a case that looks pretty good.

[JimIvey]

I've been a witness to the process as well.

For general litigation, the attorney estimated litigation costs and estimated recovery if victorious (and firm's percentage).  If the firm's take was 4 times the cost, they would take the case.

This is based on the notion that no case is less than 25%, or more than 75%, likely to win.  Estimated compensation of 4 times the cost of litigating makes the case a good bet (at least for that attorney and his firm).

For IP litigation, the calculus was much more complex as larger awards incentivizes the accused to appeal and delay for decades.  The contingency litigation was merely a component of a comprehensive enforcement strategy aimed at licensing and/or sale of the IP involved.  Much of the potential award for winning litigation was ignored if it got to be much more than the cost to litigate and defend and appeal and prolong and delay.

The pitch was to be something along the lines of "Look, we're going to make you spend $5million one way or another.  You can pay us directly over the next 5 years or pay your attorneys in the next 1-2 years.  You choose."  Of course, that was with a solid litigation case, full infringement analysis completed, etc.  Estimated damages were in the 8-9 figures, but I was told that less than 1% of court damage awards are ever paid without some settlement -- even if after appeal.  What if you could spend even a million a year to delay paying $100 million for 20 years? 

It's a very complex game.  Once the numbers get big enough, the merits go out the window and it's all about business -- mitigating losses and keeping stock prices high.

Regards.

[patent_map]

Sadly, the analysis is often poor. In one suit, we determined within 90 minutes of service that the plaintiff likley didn't own the asserted patent, but the contingent fee firm didn't know it and after we brought it to their attention, didn't care. It cost my company over a half million dollars to get that one tossed.
I believe an overriding factor in the analysis that contingent fee firms perform is the disparity of the discovery burden and the perceived depth of the defendant's pockets: a wealthy corporate defendant, alleged infringement covering many products going back six years versus a small NPE plaintiff that can satisfy discovery with a banker's box of documents. Take discovery that costs the defendant $1M-$3M and lots of lost productivity and a plaintiff that scours for any credible (not real, just credible) sign of spoiliation (throw in judges who hate deciding discovery abuse issues) and viola, a contingent fee firm has a case. (Patent validity?? Infringement?? Ownership?? Mere side issues.) I've had plaintiff's attorneys refuse to discuss a case's merits but say to me, "this case will cost you $5M to litigate, why don't you just give that money to us?"

[TataBox]

Do firms normally give referral fees for this arrangement?  I have been told that referral fees in patent contingency cases are very rare.  Is this true in your experience?

[ababab]

Do firms normally give referral fees for this arrangement?  I have been told that referral fees in patent contingency cases are very rare.  Is this true in your experience?

Sometimes.  Might be paid on the back end, or partly up front and partly contingent.  Depends on how strong the contingency firm's interest in the case is, and whether two or more contingency firms are competing to handle the case.

It may help to stay involved as a consultant or case managing attorney in the litigation even if you do not have the resources to run the litigation's day-to-day activities yourself.

[JimIvey]

Do firms normally give referral fees for this arrangement?  I have been told that referral fees in patent contingency cases are very rare.  Is this true in your experience?

In California, it's illegal to give or receive anything of value in exchange for a referral, unless through a registered referral service.  So, firms shouldn't give referral fees, at least not in California.

Regards.

[TataBox]

I do not think that is true.  I checked with the California Bar and as long as you comply with, can't find my stickie, 2-200 and 3-300 you are fine.  In fact, the person(s) who answer the hotline said it is common.  What rule leads you to that conclusion?


Regards,

[JimIvey]

I don't have my rule book with me; it's in my other office.  What do you know?  It popped right up online: Rule 2-200. Financial Arrangements Among Lawyers:

(B) Except as permitted in paragraph (A) of this rule or rule 2-300, a member shall not compensate, give, or promise anything of value to any lawyer for the purpose of recommending or securing employment of the member or the member's law firm by a client, or as a reward for having made a recommendation resulting in employment of the member or the member's law firm by a client. A member's offering of or giving a gift or gratuity to any lawyer who has made a recommendation resulting in the employment of the member or the member's law firm shall not of itself violate this rule, provided that the gift or gratuity was not offered in consideration of any promise, agreement, or understanding that such a gift or gratuity would be forthcoming or that referrals would be made or encouraged in the future.

My research ended with a call to the state bar ethics hotline.  At that time (might have changed, but I doubt it), it really wasn't illegal but was discipline-able.  And, the hotline guy noted that the only way the bar would know about it is if a client filed a complaint.  And, he noted that such arrangements aren't the type to catch the ire of a client.

Incidentally, the issue came up after about the 3rd or 4th time a California attorney asked how much I pay for referrals.  Personally, I refer clients according to their needs, not according to how much I can pocket, and I think that's the way it ought to be.  And, I think that's the spirit of the Rules of Professional Conduct in California.

Regards.

[TataBox]

B) Except as permitted in paragraph (A) of this rule or rule 2-300.  Thus, compliance with 2-200(a) renders the arrangment ok.

I personally would not equate "how much I can pocket" with a referral fee.  I believe there is a balance here not the one-sided greed you seem imply by your statement.  Client interests come first, but I think that goes without saying.  And law firms are a business.  No one is selling to the highest bidder irrespective of client interests, and I generally do not think that is done.

[JimIvey]

I see fee splitting as distinct from paying for a referral. 

It's one thing to say "I need your help on this project and I'll pay you 35% of all fees collected for your work."  It's an entirely different thing to say "I'll pay you $500 for every client lead you send my way." 

At any rate, I don't do that.

Regards.

[manglam]

Do firms normally give referral fees for this arrangement?  I have been told that referral fees in patent contingency cases are very rare.  Is this true in your experience?