When excellent lawyers leave big firms to become entrepreneurial contingent fee trial lawyers, they inevitably run into the “CYA effect.” This is the unfortunate tendency of many fearful General Counsel and corporate executives to hide behind a large, well-known firm in the event a case goes bad. Such was the experience of Elizabeth Starrs and her partners described in “Starting a Litigation Boutique.”
How ridiculous! It is frequently only the best lawyers who have the courage to strike out on their own. This may leave the bureaucrats and timid folk to handle these risky and important corporate cases. The big firms tend to hire high-grade law graduates at high dollar prices. To justify their salaries, they charge high hourly fees for the tutoring of neophytes. A corporate client looks at the bill and sees many lawyers, of unknown experience and abilities, charging outrageous fees for too many hours and unnecessary work– all because the corporate employees who hired the large firm want to cover their derrieres.
Starrs found that this corporate tendency led her firm toward representing privately owned and cost conscious companies and individuals. We have had the same experience, and it has been most gratifying. We listen. We solve problems. We have incentive to be cost efficient. Our ability to be profitable requires us to find the most efficient path to the goal line.
Since “turning from the dark side,” we and lawyers like us now represent David instead of Goliath. This occurs in virtually all forms of business cases, including patent litigation, breach of contract cases and complicated arbitrations. Of course, the “CYA” folks could repent! They could easily find the best, most efficient, trial lawyers, not just the largest firms and motivated hourly billers. Will they? I doubt it.
The best business people often leave large, cumbersome companies to go on their own. This is the era of the entrepreneur, in business and in law. General Counsel and corporate executives should have courage in seeking out the best lawyers for their case. After all, they were hired to do a job, not hide in the corner.
Patent infringement suit filings have remained relatively steady for the past eight years, according to Stanford Law School’s Intellectual Property Clearinghouse. New patent suits range between 2,300 and 2,800 filings per year. But Marshall, Texas is the venue of choice for a disproportionally high number of those filings. Since January 1, 2008, for example, there have been 295 patent suits filed in the United States District Court for the Eastern District of Texas. And sixty percent of the district’s patent suits are traditionally filed in the district’s Marshall Division.
There are several reasons why plaintiffs’ lawyers prefer Marshall. The sitting judges and their magistrates are considered fair and experienced. Jurors in the division have also demonstrated a deep respect for individual property rights. And there is a perception, although no longer substantiated, that cases reach trial quickly through Marshall’s “rocket docket.”
But another reason why plaintiffs prefer Marshall is the district’s “Rules of Practice for Patent Cases.” Those rules require prompt disclosure of discoverable information and prevent gamesmanship in the discovery process. More importantly, the rules are strictly enforced by the judges and magistrates. Plaintiffs’ lawyers know that they will be able to get the information necessary to support their case; and get it quickly or have an available remedy.
The crush of patent cases filed in Marshall over several years has caused its “rocket docket” to slow. And plaintiffs may search for other venues. One possibility is the United States District Court for the Southern District of Texas (located primarily in Houston, Texas). The venue may become attractive because, effective January 1, 2008, the district adopted its own “Rules of Practice for Patent Cases” that mirror those used in Marshall. Adoption of those rules, however, has not yet lead to a dramatic increase in patent suit filings. Only thirty-two patent cases have been filed in the district during 2008 (compared to twenty-eight last year). Time will tell whether the new rules attract suit filings. Because new suits filed under those rules are just now becoming ripe for the adjudication of discovery disputes, we will soon learn whether judges and magistrates in the Southern District of Texas apply the rules as strictly as the jurists in Marshall. If so, plaintiffs’ lawyers may find Houston a more attractive venue for their patent cases.
I'm not a member of the Association of Corporate Counsel because I'm not an in-house counsel. I am an advocate for affordable litigation, however, and I was delighted to learn from my friend Steve Matthews about the ACC and its "Value Challenge." The challenge states:
“ACC believes that many traditional law firm business models and many of the approaches to lawyer training and cost management are not aligned with what corporate clients want and need: value-driven, high-quality legal services that deliver solutions for a reasonable cost and develop lawyers as counselors (not just content-providers), advocates (not just process-doers) and professional partners.”
I totally agree.
My firm advocates a litigation staffing model that answers the Value Challenge head on. In our website, we propose a solution that helps a company reduce the cost of litigation by bringing as much work in-house as possible. We call it “in-sourcing.” Forbes Magazine recently ran an advertorial about it.
The idea is that even in complicated cases, what the client really needs is the right trial lawyer in the courtroom. Much of the work that causes litigation to be so expensive, such as discovery, document review and production, and motion practice, can be handled in-house, by the client's own employees.
In traditional hourly billing, everything is done by outside counsel and their staffs at very expensive rates. Starting salaries for baby lawyers are now as high as $180,000. Why should a corporate client pay hundreds of dollars per hour for the “education” of such lawyers at tasks that can be done better and cheaper by corporate employees? The incentive should be efficiency, not opportunities for more hours and higher billings. Outside counsel often charge millions of dollars to handle a single case. Is that really necessary? Certainly you need the right trial lawyer in the courtroom and to supervise your in-house staff on the case. But you don’t need all the extra baggage that usually comes with the services of a top-tier trial lawyer.
Unfortunately, we are not yet past the days of scorched-earth discovery and litigation tactics. Some litigants, encouraged by their hourly-compensated lawyers, refuse to play by society’s rules and get caught. A litigant and its outside counsel were recently sanctioned $4.3 million for “abuse of advocacy” in a patent case. Earlier this year that same litigant and a different firm were assessed $10 million for “misbehavior” in disregarding claims construction. The Value Challenge sets a higher standard.
So let's look at the Challenge again. What do corporate clients want and need?
“Value-driven, high-quality legal services that deliver solutions for a reasonable cost and develop lawyers as counselors (not just content-providers), advocates (not just process-doers) and professional partners.”
That’s what “Legal In-sourcing” does. Just hire what you need. Do everything you can in-house. Get a high-quality, top tier trial lawyer. Let him or her lead your in-house team one case at a time. Use his partners and staff only as necessary. Nurture talent and develop experience in-house. Use in-house staff to locate and produce documents, review documents produced by your opponent and make coding entries into trial software programs. Conduct legal research in-house. Write initial drafts of the motions, responses and briefs in-house. Take the routine depositions in-house. Use the trial lawyer and his staff only as necessary. We know that most cases get resolved before trial. Most of the labor-intensive work that is done before trial can be done in-house.
The lead trial lawyer must, of course, remain involved at all times, but as a supervisor, not as a provider of the labor pool. This makes him and his firm true “professional partners” with the in-house staff on a case by case basis.
What does all this get the corporate litigant? Value-driven, high-quality legal services that deliver solutions for a reasonable cost, and develop in-house lawyers as counselors, advocates and professional partners.
At our firm, we call it “Legal In-sourcing.” It answers the “Value Challenge” perfectly!
How many litigants are willing, even if able, to pay high hourly rates so that big firms can pay “breath-taking” starting salaries to baby lawyers? According to the American Bar Association Journal, first-year law associates are being paid starting salaries as high as $180,000 per year. “As Economy Stalls, So Do Salaries … But Not Associate Hours,” ABAJournal.com, September 29, 2008. And as those lawyers mature, their rates go up, not down. Guess who pays for that! Clients do.
Perhaps that is why the average cost of a patent infringement lawsuit in Texas was $2,637,179 in 2005. “Report of the Economic Survey,” American Intellectual Property Law Association 2005, at p. I-109. The little guy can’t afford to play in that league. Indeed, even some larger corporate litigants are saying “enough” to continually escalating costs of litigation.
As a former chairman of the Court Costs and Delay committee of the State Bar of Texas, I have been concerned about controlling the high cost of litigation for more than two decades. That is why our firm handles patent and other complicated commercial litigation on contingency fee. The little guy has access to the legal system. The big guy keeps its costs down. The law firm, not the client, bears the cost of paying the lawyer salaries. In the event of a “breath-taking” result, the client and lawyer share in the recovery. Law firms may choose to pay breath-taking salaries if they wish, but it should not be at their clients’ expense.
In “Judge Weighs Jury Consideration of Future Damages in Patent Suits,” (Texas Lawyer, August 11, 2008, p. 5), Lynne Marek writes that U.S. District Judge Ron Clark, who sits in the Eastern District of Texas, has stated that juries may take up the question of “future damages” for ongoing violations of a patent. That is a really good idea!
A plaintiff in a patent case always wants to recover damages for past infringement. As to the future, however, he might want something different. If he wants to prevent future infringement, he might want an injunction. That has historically been his only remedy. The problem is that if the defendant fails to do the right thing, the plaintiff must go back to court, perhaps many times, to continually enforce his rights. That is a waste of everyone’s time and money. Moreover, recent court decisions have made it more difficult to get an injunction than before.
Allowing the jury to find future damages should not prove too difficult or speculative. We have done it for years in personal injury and other cases. There is no conceptual reason why we cannot do it in patent cases as well.
Judge Clark’s order leaves flexibility as to how to best award future damages from case to case. According to EDTexweblog.com, Judge Clark noted: “In formulating their jury instructions, the parties should consider whether the jury should be instructed regarding a future reasonable royalty rate, lost profits, price per unit, or some other appropriate measure of future damages. Of course, the instructions and question(s) will depend on the evidence submitted, and the theories of recovery pending at that time."
If injunctions against future infringement are to be difficult to get, without future damages there will be no relief available to the aggrieved inventor for continued infringement in the future. He will have to return to court to sue again, at a later date, for what happened in the past. What a waste of judicial resources! Judge Clark’s idea will give us a practical way to resolve the infringement once and for all in one trial. What can be wrong with that?
Most people have some idea about how a contingent fee works in a plaintiff’s case. Say you are injured in a car wreck. You find a personal injury lawyer. He advances the case expenses and gets paid a percentage of the money received in a settlement. "No fee if no recovery." This same idea works in complex business lawsuits. If a small business or entrepreneur lacks the money to pay lawyers by the hour, there are firms, like ours, that will take even expensive, complicated, business cases on a contingent fee. This helps level the playing field and gives the little guy access to justice.
But what happens when the little guy gets sued and has to defend himself? What happens when Goliath sues David?
Well, there are some options.
- David might assign part of his company, invention or assets to an institutional investor who will pay for the defense.
- David might assign part of his company, invention or assets to a law firm that will undertake the defense.
- David might have a counterclaim that a contingent fee lawyer would assert, and include defense of Goliath’s claim as part of the representation.
- David might find a lawyer willing to defer payment of an hourly fee until David is able to pay.
- David might use a "reverse contingent fee."
Sometimes David can defend against an attack by Goliath by using a combination of these techniques. In one case, I was asked by a small medical device manufacturer to defend it in a "bet the company" patent infringement and unfair competition case. The plaintiff, Goliath, was a huge company, well-funded, and was represented by two large and very able law firms. Goliath wanted to stomp out David like a bug! We looked to see if David had an antitrust counterclaim, but that didn’t work out. David was able to pay some of the trial expenses (such as jury consultants and trial graphics) but we worked "by the hour" hoping that if David could survive, we would somehow get paid.
The case was tried to a verdict. David won. Goliath’s stock lost half its market cap ($1.5 billion) overnight! We were patient about getting paid. David merged into a large European medical device company, and we were finally paid for our work. It was a win-win, and we were very proud to have helped save the day!
As Barry explains,
By way of example, if the law firm and client agree that a patent infringement case exposes the client to potential liability of $10 million, the RCF would equal a percentage -- 40 percent, say -- of the difference between $10 million and any lower amount that the client pays in settlement or as a result of a judgment. If we zero out the plaintiff, our fee totals $4 million -- .4 x ($10 million - $0) = $4 million.