JURISDICTION REPORT: US
Contingency fees viewed through a patent attorney’s lens
By Paul J Sutton of Sutton Magidoff Barkume
Articles and presentations dealing with patent contingency fee arrangements often understandably focus upon the challenges and travails faced by inventors and small businesses. This article examines contingencies viewed through the lens of patent attorneys who may be requested to forego hourly fee arrangements in favour of some form of contingency fee arrangement.
Lack of resources
A good start would be an acknowledgment that inventors and small businesses seeking to protect their ideas and inventions via patents often face daunting challenges. They often will not have the financial resources necessary or desirable to protect their intellectual property interests. This can by true for the owners of US patents that have already been granted by the US Patent and Trademark Office (USPTO).
Such challenges include the significant legal fees and costs associated with: (a) the evaluation of inventions by a patent attorney; (b) obtaining a meaningful patentability opinion that will indicate the chances of success in being granted a patent; (c) the filing of one or more patent applications covering such inventions; (d) the successful prosecution of those applications before the USPTO; (e) the issuance and maintenance costs of resulting patent rights; (f) the evaluation of potential patent infringement(s); (g) the enforcement of patent rights against potential patent infringers in the US court system; (h) filing for patent protection in foreign countries, and (i) defending against possible patent infringement claims of others.
Hourly rates for experienced patent attorneys usually amount to many hundreds of dollars. The median legal fees for handling a simple patent infringement lawsuit through trial may approach $5 million. Few individuals and small business entities such as startups can afford these rates. They simply lack the resources required to retain patent counsel to accomplish the foregoing tasks.
In a perfect world, which it is not, such individuals and/or entities will sometimes reach out to patent attorneys with a request that they handle such matters on a contingency fee basis, as opposed to an hourly fee basis. Very few will respond favourably, leaving frustrated inventors and patent owners. They will feel that the patent legal system is biased against them in favour of the wealthy or established organisations.
While there are many stories told which describe the frustrations of patent owners without these necessary resources, there are far fewer stories told which view patent fee contingencies through the lens of those patent attorneys who reject or agree to such arrangements.
During the more than five decades of US patent practice enjoyed by the author, he has on relatively few occasions agreed to represent clients on a mutually agreed contingency fee basis. There have been far more instances where a contingency fee arrangement has been turned down. A purpose of this article is to share with the reader some of the considerations associated with the author’s rejection and acceptance of such contingencies. These considerations and facts are viewed here through the lens of the patent practitioner.
“Given the conflicting advantage that a lawyer has in negotiating fee arrangements with a client, the magnitude of the contingency percentage should not exceed a customary range.”
Paul J Sutton
A fair deal
As is often the case, money considerations will most often come into play. An inventor will most often seek to monetise his or her invention. Except where there is a pro bono programme that has been established at law firms and individual practitioners, it is very rare that an attorney will simply devote considerable time to IP matters purely on a charitable basis. Where appropriate, a patent attorney may be willing to exchange services for a percentage of monies realised through the patent attorney’s effort.
What is meant by “appropriate?” By way of examples, the client should be the party requesting a contingency arrangement, not the attorney. The parties involved in discussions and negotiations involving a contingency fee arrangement should include an independent counsel who has no relationship with the prospective contingency attorney. The ultimate agreed-upon arrangement must be set forth in a written agreement, with provisions made for handling disagreements between attorney and client.
Given the conflicting advantage that a lawyer has in negotiating fee arrangements with a client, the magnitude of the contingency percentage should not exceed a customary range. For example, an attorney will usually receive 30% or one-third of monies actually recovered by the client from settlement or ultimate court victory. There may also be circumstances that will justify an attorney’s receiving more or far less than that figure.
The truth is, it will be quite difficult to find a patent attorney who’s willing to entertain a contingency fee arrangement. The reason is simple: an extraordinary amount of attorney time and resources are necessary to take a patent infringement claim to court and prosecute the lawsuit through trial—and sometimes through appeal. Millions of dollars of litigation attorney time may be required through trial. There may be no settlement. The patent in suit may be declared invalid or unenforceable. A jury may render a verdict of no infringement. Damages awarded to the patent owner may be but a fraction of those hoped for. A dispute between attorney and client may arise from differing expectations.
To justify this kind of investment, a contingency litigation attorney will need to be part risk-taker who is a gambler at heart. The upside potential in the form of damages from settlement or court victory will have to be extraordinary in order to forgo enjoying readily available hourly rate-based income.
Inventors and small businesses should not be shy about consulting a seasoned patent attorney for advice in this regard.
Paul J Sutton is a founding partner of IP boutique law firm Sutton Magidoff Barkume and is adjunct professor at NYU’s Tandon School of Engineering. He can be contacted at: paul@smb.law
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